Riverview Apartments Preservation LP (A Colorado Limited Partnership) HUD Project No. FHA

Transcription

1 Financial Statements and Supplementary Information December 31, 2010

2 December 31, 2010 TABLE OF CONTENTS Independent Auditor s Report 1 Financial Statements: Balance Sheet 2 Statement of Operations 3 Statement of Changes in Partners Capital 4 Statement of Cash Flows 5 Page(s) Notes to the Financial Statements 6 13 Supplementary Information: Balance Sheet HUD Basis 14 Statement of Profit and Loss HUD Basis 15 Statement of Changes in Partners Capital HUD Basis 16 Statement of Cash Flows HUD Basis 17 Computation of Surplus Cash, Distributions, and Residual Receipts 18 Schedule of Changes in Fixed Asset Accounts 19 Combined Report Applicable to Internal Control over Financial Reporting Based on an Audit of Financial Statements and Internal Controls over Compliance for HUD-Assisted Programs Independent Auditor s Report on Compliance with Specific Requirements Applicable to Major HUD Programs 22 Independent Auditor s Report on Compliance with Specific Requirements Applicable to Fair Housing and Non-Discrimination 23 Schedule of Findings and Questioned Costs 24 Auditor s Comments on Audit Resolution Matters Relating to HUD Programs 25 Certification of Officers 26 Managing Agent s Certification 27 i

3 M & A McMahan and Associates, l.l.c. Certified Public Accountants and Consultants Web Site: Chapel Square, Bldg C Main Office: (970) Chapel Place, Suite 300 Facsimile: (970) P.O. Box 5850, Avon, CO mcmahan@mcmahancpa.com To the Partners Riverview Apartments Preservation LP Eagle County, Colorado INDEPENDENT AUDITOR'S REPORT We have audited the accompanying statement of financial position of Riverview Apartments Preservation LP ()(the Partnership ), a Colorado limited partnership, as of December 31, 2010, and the related statements of operations, changes in partners capital, and cash flows for the year then ended. These financial statements are the responsibility of the Partnership s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinions. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Riverview Apartments Preservation LP as of December 31, 2010, the results of its operations, changes in partners capital, and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated March 18, 2011 on our consideration of the Partnership s internal control over financial reporting. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on internal control over financial reporting. In accordance with Government Auditing Standards, we have also issued an opinion dated March 18, 2011 on the Partnership s compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters that could have a direct and material effect on a major HUDassisted program. Those reports are an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Our audit was conducted for the purpose of forming an opinion on the Partnership s basic financial statements taken as a whole. The accompanying supplemental information on pages is presented for the purpose of additional analysis and is not a required part of the basic financial statements of the Partnership. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. McMahan and Associates, L.L.C. March 18, 2011 Member: American Institute of Certified Public Accountants D. Jerry McMahan, C.P.A. Daniel R. Cudahy, C.P.A. Paul J. Backes, C.P.A. Michael N. Jenkins, C.A., C.P.A. Avon Aspen Frisco (970) (970) (970)

4 Balance Sheet December 31, 2010 ASSETS Cash and cash equivalents - Unrestricted $ 246,164 Cash and cash equivalents - Restricted 340,604 Accounts receivable, net - tenants 20,441 Deposits and prepaid expenses 63,690 Fixed assets, net of accumulated depreciation 13,069,522 Deferred costs, net of accumulated amortization 174,563 Total Assets $ 13,914,984 LIABILITIES AND PARTNERS' CAPITAL Liabilities: Accounts payable and accrued expenses $ 228,910 Accrued interest payable 70,888 Construction contracts payable 582,182 Due to Eagle County 63,208 Due to Eagle County Housing and Development Authority 64,051 Tenant security deposits 17,813 Line of credit - Eagle County Housing and Development Authority 421,221 Long-term debt 12,226,705 Total Liabilities 13,674,978 PARTNERS' CAPITAL 240,006 Total Liabilities and Partners' Capital $ 13,914,984 The accompanying notes are an integral part of these financial statements. 2

5 Statement of Operations From the Inception of Operations, August 1, 2010, to December 31, 2010 REVENUES Tenant rents $ 96,819 Tenant assistance payments 304,989 Total Revenues 401,808 OPERATING EXPENSES Repairs and maintenance 4,681 Utilities 17,862 General and administration 39,880 Management fees 13,256 Temporary tenant relocation expenses 479,835 Total Operating Expenses 555,514 INCOME (LOSS) from OPERATIONS (153,706) OTHER INCOME (EXPENSES) Amortization (4,476) Interest expense (22,092) Net Other Income (Expenses) (26,568) NET INCOME (LOSS) $ (180,274) The accompanying notes are an integral part of these financial statements. 3

6 Statement of Changes in Partners' Capital From the Inception of Operations, August 1, 2010, to December 31, 2010 Special Administrative Investor General Limited Limited Limited Partner Partner Partner Partner Total Balance - Beginning $ - $ - $ - $ - $ - Net contributions/(distributions) , ,280 Net income (loss) for the year (9) (9) (18) (180,238) (180,274) Balance - Ending $ 91 $ 91 $ 82 $ 239,742 $ 240,006 The accompanying notes are an integral part of these financial statements. 4

7 Statement of Cash Flows From the Inception of Operations, August 1, 2010, to December 31, 2010 Cash Flows From Operating Activities: Cash received for rent $ 381,367 Net change in tenant security deposits 17,813 Interest paid (90,075) Cash paid for goods and services (429,371) Net Cash Provided (Used) By Operating Activities (120,266) Cash Flows From Financing Activities: Cash drawn on line of credit 421,221 Cash received from long-term debt proceeds 4,221,292 Cash received as capital contributions 420,280 Debt issuance costs paid (179,039) Net Cash Provided (Used) By Financing Activities 4,883,754 Cash Flows From Investing Activities: Cash paid to purchase capital assets (4,176,720) Net Cash Provided (Used) By Investing Activities (4,176,720) Net Increase (Decrease) in Cash and Cash Equivalents 586,768 Cash and Cash Equivalents - Beginning - Cash and Cash Equivalents - Ending $ 586,768 Cash and Cash Equivalents - Ending is comprised of: Cash and cash equivalents - Unrestricted $ 246,164 Cash and cash equivalents - Restricted 340,604 Total $ 586,768 Reconciliation of Income (Loss) from Operations to Net Cash Provided (Used) by Operating Activities: Income (loss) from operations $ (153,706) Adjustments to reconcile: Interest expense (22,092) Interest capitalized to construction in progress (138,871) (Increase) decrease in accounts receivable, net (20,441) (Increase) decrease in prepaid expenses (63,690) Increase (decrease) in accounts payable and accrued liabilities 126,518 Increase (decrease) in accrued interest payable 70,888 Increase (decrease) in due to Eagle County and related entities 63,315 Increase (decrease) in tenant security deposits, net 17,813 Total Adjustments 33,440 Net Cash Provided (Used) By Operating Activities $ (120,266) Noncash Financing and Investing Activities: Acquisition of capital assets subject to debt $ 8,005,413 The accompanying notes are an integral part of these financial statements 5

8 Notes to the Financial Statements December 31, Organization Riverview Apartments Preservation LP (the "Partnership") is a Colorado limited partnership, formed pursuant to a limited partnership agreement adopted February 2, 2009, and subsequently amended and restated (the Partnership Agreement ). The Partnership began operations on August 1, The Partnership s purpose is to renovate, own, and operate a 72-unit apartment project known as Riverview Apartments (the "Project") located in unincorporated Eagle County, Colorado. The Project is rented to low-income tenants who are subsidized by the U.S. Department of Housing and Urban Development ( HUD ) through a Section 8 Housing Assistance Payments contract ( HAP Contract ) with the Partnership. The Project is operated in a manner necessary to qualify for Federal low-income housing tax credits ( Tax Credits ), as provided under section 42 of the Internal Revenue Code. The General Partner of the Partnership is Riverview Apartments Preservation LLC; a Colorado limited liability corporation (the "General Partner") whose sole member, Eagle County Housing and Development Authority ( ECHDA ), is a component unit of Eagle County, Colorado. The Partnership Agreement also provides for the following limited partners: ECHDA is Special Limited Partner; Alliant Tax Credit 58, LLC, a Florida limited liability company, is Administrative Limited Partner; and Alliant Tax Credit Fund 58, LTD., a Florida limited partnership, is the Investor Limited Partner. In accordance with the Partnership Agreement, profits and losses from operations, and Tax Credits are allocated 0.005% to the General Partner, 0.005% to the Special Limited Partner, 0.01% to the Administrative Limited Partner, and 99.98% to the Investor Limited Partner. Pursuant to the Partnership Agreement, the Investor Limited Partner is required to provide capital contributions totaling $3,840,695, subject to potential adjustments based, among other occurrences, on the amount of Tax Credits ultimately allocated to the Project. At December 31, 2010, capital contributions totaling $3,420,715 had not been made by the Investor Limited Partner pending satisfaction of certain conditions outlined in the Partnership Agreement. 2. Summary of Significant Accounting Policies A. Basis of Accounting The Partnership utilizes the accrual basis of accounting, whereby revenues are recognized when earned and expenses are recognized when incurred. B. Cash Equivalents For the purposes of the Statement of Cash Flows, the Partnership defines cash equivalents as all cash, money market, and savings accounts, plus all investments with original maturities of three months or less. C. Restricted Assets Certain of the Partnership s assets are classified as restricted assets because their use is restricted to specific purposes by legally binding commitments. At December 31, 2010, the Partnership held restricted cash balances related to security deposits and funding established by the HUD Commitment for Insurance of Advances. D. Tenant Security Deposits Tenant security deposits are placed into an interest-bearing account and are generally held until termination of the underlying tenant lease, at which time some or all deposits may be returned to the lessee. 6

9 Notes to the Financial Statements December 31, 2010 (Continued) 2. Summary of Significant Accounting Policies (continued) E. Allowance for Uncollectible Accounts The Partnership uses the allowance method to recognize the potential uncollectibility of receivables, including amounts due from tenants. At December 31, 2010, the Partnership has recorded an allowance of $3,138 to provide for amounts which management determined may not be collectible. F. Fixed Assets Fixed assets are recorded at cost. Depreciation on the building structures and major improvements is computed using the straight-line method over an estimated useful life of 40 years. Depreciation on furniture and equipment is computed using the straight-line method over an estimated useful life of 7 years. Because the Project is currently undergoing a significant renovation and thus unavailable for use, no depreciation was recorded in the year ended December 31, G. Deferred Costs Deferred costs include fees associated with obtaining long-term financing for the Partnership. Such costs are amortized on a straight-line basis over the 40-year term of the HUD-insured Mortgage on the Project. H. Revenue Recognition Rental revenue attributable to residential leases is recorded when due from residents, generally upon the first day of each month. Rental payments received in advance are deferred until earned. Leases are for periods of up to one year, with rental payments due monthly. I. Income Taxes In accordance with federal and state income tax regulations, taxes are levied on the partners in their individual capacity. Consequently, no provision for federal or state income taxes is reflected in the accompanying financial statements. J. Subsequent Events Management has evaluated subsequent events through March 18, 2011; the date these financial statements were available to be issued. K. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. 7

10 Notes to the Financial Statements December 31, 2010 (Continued) 3. Restricted Cash The Partnership s restricted cash balance is comprised of the following at December 31, 2010: Tenant security deposits $ 18,495 Operating Deficit Reserve 144,109 Working Capital Escrow 178,000 Total - Restricted Cash $ 340,604 As a condition of securing HUD s commitment to insure certain mortgage indebtedness of the Partnership in connection with the acquisition of the Project (the Commitment ), the Partnership was required to establish a Working Capital Escrow from the mortgage proceeds, as well as an Operating Deficit Reserve sufficient enough meet three months of expenses of the Project. At December 31, 2010, both of these requirements had been met. The Commitment also requires the Partnership to establish a Reserve Fund for Replacements, with annual contributions in the amount of $35,600 commencing in June The Partnership Agreement calls for the Partnership to establish an Operating Deficit Reserve Account in the amount of $478,296; funded from the Investor Limited Partner s required capital contributions. The Partnership Agreement also calls for the Partnership to establish a Replacement Reserve Account, to be funded by monthly deposits of $494, following completion of the rehabilitation of the Project, together with an initial deposit of $690,000 to be funded from the Investor Limited Partner s required capital contributions. This account is to be used to make capital improvements and repairs to the Project. A Re-tenanting Reserve Account is also required to be established under the Partnership Agreement, in the amount of $275,000, to be funded from the Investor Limited Partner s required capital contributions. These funds are solely to be used in the event of termination or suspension of the HAP Contract with HUD. As of December 31, 2010, the Project was undergoing rehabilitation and all required Investor Limited Partner capital contributions had not been made. Consequently, the Partnership had not established the Operating Deficit Reserve Account, the Replacement Reserve Account, or the Retenanting Reserve Account required by the Partnership Agreement at December 31, Fixed Assets The Partnership s fixed assets were comprised of the following at December 31, 2010: Land $ 1,900,000 Construction in progress 11,169,522 At cost 13,069,522 Less: Accumulated depreciation - Fixed Assets, net $ 13,069,522 8

11 Notes to the Financial Statements December 31, 2010 (Continued) 5. Deferred Costs The following are the details of the Partnership s deferred costs balance at December 31, 2010: Deferred financing costs $ 179,039 Less: Accumulated amortization (4,476) Deferred costs, net $ 174, Construction Contract On August 10, 2010, the Partnership executed a construction contract with R.A. Nelson and Associates, Inc. ( RANA ) for the substantial renovation of the Project. The cost plus contract anticipated a gross maximum price for the renovation, including RANA s fee but excluding contingencies, of $5,263,845. Substantial completion of the renovation is expected in Pursuant to the contract, RANA has billed the Partnership as work progresses on the various components of the renovation. RANA s draws of $4,019,725 were incurred through December 31, 2010 under the contract, and have been capitalized as Construction in Progress. The total projected cost of the renovation work to be performed by RANA under the terms of the contract, including approved change orders and contingency usage, was $5,811,165 through December 31, Line of Credit ECHDA During the period ended December 31, 2010, ECHDA extended an unsecured, revolving line of credit to the Partnership of up to $1,000,000 to assist with cash flow related to mold remediation costs encountered as part of the Project renovation. The line of credit, which is non-interest bearing, has no fixed terms of repayment. At December 31, 2010, the Partnership had drawn a total of $421,221 from ECHDA under this arrangement. 8. Long-term Debt A. HUD-Insured Mortgage Note Payable In August 2010 and in connection with the acquisition of the Project, the Partnership entered into a mortgage note agreement (the HUD-insured Mortgage ) with Dougherty Mortgage, LLC ( Dougherty ) in the principal amount of $8,900,000. The HUD-insured Mortgage is insured by HUD under section 221(d)(4) of the Housing and Community Development Act of 1992, as amended, and is secured by a first deed of trust on the Project. Amounts are advanced on the HUD-insured Mortgage as the renovation of the Project proceeds. Interest accrues on the principal amount outstanding at 5.3% per annum, with monthly interest payments beginning September 2010 and continuing until May 2011 (when it is anticipated that the full loan commitment will have been drawn). Beginning June 2011, the HUD-insured Mortgage is to convert to a permanent loan, with blended monthly payments of $44,699 until maturity in May Unless otherwise directed by HUD, the HUD-insured Mortgage may not be prepaid prior to June 2013, and any prepayment from June 2013 through May 2021 will require the Partnership to pay Dougherty a prepayment penalty of between 8% and 1% of the prepayment amount. Through December 31, 2010, the Partnership had drawn $6,868,658 on the HUD-insured Mortgage, and incurred interest totaling $90,075 on construction draws; of which $78,786 was capitalized to Construction in Progress. 9

12 Notes to the Financial Statements December 31, 2010 (Continued) 8. Long-term Debt (continued) A. HUD-Insured Mortgage Note Payable (continued) Future minimum principal payments in each of the next five years (assuming all loan proceeds are drawn as anticipated) and for five year increments thereafter are as follows: B. Pre-Development Note ECHDA 2011 $ 38, , , , , , , , ,040, ,355, ,765, ,300, ,568 Total $ 8,900,000 In August 2010 and in connection with the acquisition of the Project, the Partnership executed a promissory note with ECHDA (the Pre-Development Note ) in the principal amount of $2,172,000. The Pre-Development Note, which matures August 1, 2065 and bears interest at 3.94% per annum, is secured by a second deed of trust on the Project. Annual payments may be made on the Pre-Development Note on or before June 1 of each year, beginning June 1, 2011, to the extent of the Project s Surplus Cash, as defined, for the immediately preceding year. At December 31, 2010, the principal balance outstanding on the Pre-Development Note was $2,172,000 and accrued interest was $35,872; of which $30,431 was capitalized to Construction in Progress. As defined, the Partnership had no Surplus Cash for C. Green Retrofit Loan ECHDA In August 2010, the Partnership executed a promissory note with ECHDA (the Green Retrofit Loan ) for up to $1,144,598 to fund certain improvements to the Project. The Green Retrofit Loan, which matures August 1, 2065 and bears interest at 3% per annum (simple interest), is secured by a third deed of trust on the Project. Annual payments may be made on the Green Retrofit Loan on or before June 1 of each year, beginning June 1, 2011, to the extent of the Project s Surplus Cash, as defined, for the immediately preceding year. At December 31, 2010, the principal balance outstanding on the Green Retrofit Loan was $746,315 and accrued interest was $2,786; of which $2,313 was capitalized to Construction in Progress. As defined, the Partnership had no Surplus Cash for

13 Notes to the Financial Statements December 31, 2010 (Continued) 8. Long-term Debt (continued) D. CDH Loan ECHDA In August 2010 and in connection with the acquisition of the Project, the Partnership executed a promissory note with ECHDA (the CDH Loan ) in the principal amount of $450,000. The CDH Loan, which matures August 1, 2065 and is non-interest bearing, is secured by a fourth deed of trust on the Project. Annual payments may be made on the CDH Loan on or before June 1 of each year, beginning June 1, 2011, to the extent of the Project s Surplus Cash, as defined, for the immediately preceding year. At December 31, 2010, the principal balance outstanding on the CDH Loan was $450,000. As defined, the Partnership had no Surplus Cash for E. Bridge Loan ECHDA In August 2010 and in connection with the acquisition of the Project, the Partnership executed a promissory note with ECHDA (the Bridge Loan ) in the principal amount of $1,951,496. The Bridge Loan, which matures August 1, 2065 and bears interest at 3.94% per annum, is secured by a fifth deed of trust on the Project. Annual payments may be made on the Bridge Loan on or before June 1 of each year, beginning June 1, 2011, to the extent of the Project s Surplus Cash, as defined, for the immediately preceding year. However, the terms of the Bridge Loan also require the Partnership to reduce the principal balance of the Bridge Loan to $538,407 by the earlier of March 31, 2012 or the date on which the Investor Limited Partner has funded its entire capital contribution under the Partnership Agreement. At December 31, 2010, the principal balance outstanding on the Bridge Loan was $1,951,496 and accrued interest was $32,230; of which $27,341 was capitalized to Construction in Progress. As defined, the Partnership had no Surplus Cash for Related Party Transactions A. Management Agreement Effective May 1, 2010, the Partnership entered into an agreement with ECHDA, whereby ECHDA is to provide management of the day-to-day operations of the Project, and to ensure operational compliance with all the terms and conditions of the HAP Contract and the HUD-insured Note. Under the terms of the agreement, which has a one-year term, ECHDA is to be reimbursed for all charges, including staffing, incurred on behalf of the Partnership in managing the Project. The agreement also provides for ECHDA to be paid a management fee equal to 3.45% of all residential and miscellaneous income generated by the Project. For the period ended December 31, 2010, the Partnership incurred management fees expense of $13,256 in accordance with the agreement. 11

14 Notes to the Financial Statements December 31, 2010 (Continued) 9. Related Party Transactions (continued) B. Development Services Agreement On August 1, 2010, the Partnership entered into a Development Services Agreement with ECHDA for the provision of services to oversee the development and construction of the Project. Under the Development Services Agreement, ECHDA is entitled to receive a development fee totaling $500,000 which is payable from available cash flow and upon the Partnership s receipt of the Investor Limited Partner s required capital contributions in accordance with the Partnership Agreement. During the period ended December 31, 2010, ECHDA earned a development fee of $50,000, which was capitalized to Construction in Progress. At December 31, 2010, development fees totaling $50,000 were payable to ECHDA by the Partnership under the terms of the Development Services Agreement. C. Other Services During the period ended December 31, 2010, Eagle County provided certain services to, and incurred expenses on behalf of, the Partnership, including administrative and maintenance personnel. For the period ended December 31, 2010, the following services were provided by Eagle County: Repairs and maintenance $ 2,432 General and administration 24,710 27,142 Construction in progress 37,719 Total $ 64,861 At December 31, 2010, a total of $63,208 was payable to Eagle County. 10. Low-Income Housing Tax Credits The Partnership expects to generate Tax Credits aggregating to $5,508,400, which generally will become available for use by the Partners, pro rata, over a ten-year credit period, expected to begin in In order to qualify for the Tax Credits, the Project must comply with various federal and state requirements which include, but are not limited to, renting to low-income tenants at rental rates which do not exceed specified percentages of area median gross income for the first 15 years of operation. The Partnership has also agreed to maintain and operate the Project as low-income housing for another 15 years after the above period ends. Because the Tax Credits are subject to ongoing compliance with certain requirements, there can be no assurance that the aggregate amount of Tax Credits will be realized and failure to meet all such requirements may result in generating a lesser amount of Tax Credits than expected. 12

15 Notes to the Financial Statements December 31, 2010 (Continued) 10. Low-Income Housing Tax Credits (continued) The Partnership anticipates generating the following federal Tax Credits: 2011 $ 495, , , , , , , , , , ,467 Total $ 5,508,400 At December 31, 2010, the Project had generated cumulative Tax Credits of $ HUD Contract Effective August 1, 2010, the Partnership was assigned a HAP Contract with HUD to subsidize tenant rents. Based on the resources and income of each tenant, HUD determines the HAP subsidy to be provided to the Partnership. The HAP Contract has a 20-year term, expiring November 1, During the period ended December 31, 2010, the Partnership earned HAP subsidies totaling $304, Concentrations The Partnership operates a single property located in unincorporated Eagle County, Colorado. Future operations could be affected by economic changes or other conditions in that geographical area or by changes in federal low-income rental subsidies or the demand for such housing. 13

16 Balance Sheet - HUD Basis December 31, 2010 ASSETS Current assets: 1120 Cash - Operations $ 246, Miscellaneous prepaid expenses 63, Tenant/member accounts receivable 23, Allowance for doubtful accounts (3,138) 1130N Net tenant accounts receivable 20, T Total current assets 330,295 Deposits held in trust: 1191 Tenant/patient deposits held in trust 18,495 Restricted deposits and funded reserves: 1330 Other reserves 322, T Total deposits 322,109 Fixed assets: 1410 Land 1,900, Miscellaneous fixed assets 11,169, T Total fixed assets 13,069, Accumulated depreciation N Net fixed assets 13,069,522 Other assets: 1520 Deferred financing costs 174, Miscellaneous other assets T Total other assets 174, T Total assets $ 13,914,984 LIABILITIES Current liabilities: 2110 Accounts payable - Operations $ 356, Accounts payable - Construction/development 582, Accrued interest payable - Other loans and notes (Surplus Cash) 70, Notes payable - Short-term 421, Mortgage (or bonds) payable - First mortgage (bonds) - Short-term 38, T Total current liabilities 1,468,696 Other liabilities: 2191 Tenant/patient deposits held in trust 17,813 Long-term liabilities: 2320 Mortgage (or bonds) payable - First mortgage (bonds) 6,868, Other loans and notes payable - Long-term 5,319, T Total long-term liabilities 12,188, T Total liabilities 13,674,978 NET ASSETS Unrestricted net assets: 3130 Unrestricted net assets 240, Total net assets 240, T Total liabilities and equity/net assets $ 13,914,984 The accompanying notes are an integral part of these financial statements. 14

17 Statement of Profit and Loss - HUD Basis From the Inception of Operations, August 1, 2010, to December 31, 2010 REVENUE Rent revenue: 5120 Rent revenue - Gross potential $ 168, Tenant assistance payments 304, T Total rent revenue 473,813 Vacancies: 5220 Vacancies - Apartments (72,005) 5200T Total vacancies (72,005) 5152N Net rental revenue (rent revenue less vacancies) 401, T Total revenue 401,808 EXPENSES Administrative expenses: 6203 Conventions and meetings 2, Management consultants Advertising and marketing Office expenses 3, Management fee 13, Manager or superintendent salaries 23, Miscellaneous administrative expenses 9, T Total administrative expenses 53,784 Utilities expenses: 6450 Electricity 4, Water 5, Sewer 7, T Total utilities expenses 17,862 Operating and maintenance expenses: 6515 Supplies 3, Snow removal T Total operating and maintenance expenses 4,033 Financial expenses: 6820 Interest on first mortgage (or bonds) payable 11, T Total financial expenses 11, T Total cost of operations before depreciation 86, T Profit (loss) before depreciation 314, Amortization expense 4, N Operating profit (loss) 310,364 Corporate or mortgagor revenue and expenses: 7141 Interest on notes payable 10, Other expenses 479, T Net entity expenses 490, Change in unrestricted net assets from operations (180,274) 3250 Change in total net assets from operations $ (180,274) The accompanying notes are an integral part of these financial statements. 15

18 Statement of Changes in Partners' Capital - HUD Basis From the Inception of Operations, August 1, 2010, to December 31, 2010 PREVIOUS YEAR TOTAL NET ASSETS S Previous year unrestricted net assets $ - S Previous year total net assets - CHANGE IN TOTAL NET ASSETS from OPERATIONS 3247 Change in unrestricted net assets from operations (180,274) 3250 Change in total net assets from operations (180,274) OTHER CHANGES IN TOTAL NET ASSETS S Contributions 420,280 S Other changes in unrestricted net assets 420,280 S Other changes in total net assets 420, Unrestricted net assets 240, Total net assets $ 240,006 The accompanying notes are an integral part of these financial statements. 16

19 Statement of Cash Flows - HUD Basis From the Inception of Operations, August 1, 2010, to December 31, 2010 CASH FLOW FROM OPERATING ACTIVITIES: Receipts: S Rental receipts $ 381,367 S Total receipts 381,367 Disbursements: S Administrative (14,220) S Utilities (1,284) S Operating and maintenance (65,966) S Tenant security deposits (682) S Other operating expenses (347,900) S Interest on first mortgage (90,075) S Total disbursements (520,127) S Net cash provided by (used in) operating activities (138,760) CASH FLOW FROM INVESTING ACTIVITIES: S Net deposits to other reserves (322,109) S Net purchase of fixed assets (4,176,720) S Net cash provided by (used in) investing activities (4,498,829) CASH FLOW FROM FINANCING ACTIVITIES: S Principal payments - First mortgage (or bonds) (1) S Proceeds from mortgages, loans, or notes payable 4,642,513 S Contributions 420,280 S Other financing activities (179,039) S Net cash provided by (used in) financing activities 4,883,753 S Net increase (decrease) in cash and cash equivalents 246,164 S Beginning of period cash - S1200T End of period cash $ 246,164 RECONCILIATION OF NET PROFIT (LOSS) TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: 3250 Change in total net assets from operations $ (180,274) Adjustments to reconcile net profit (loss) to net cash provided by (used in) operating activities: 6610 Amortization expense 4,476 S Decrease (increase) in tenant (member) accounts receivable (20,441) S Decrease (increase) in prepaid expenses (63,690) S Decrease (increase) in cash restricted for tenant deposits (18,495) S Increase (decrease) in accounts payable 356,169 S Increase (decrease) in accrued interest payable 70,888 S Increase (decrease) in tenant security deposits held in trust 17,813 S Other adjustments to reconcile net profit (loss) to net cash provided by (used in) operating activities: Capitalized interest (138,871) Other adjustments 1 Accounts payable items re: construction in progress (166,336) S Net cash provided by (used in) operating activities $ (138,760) The accompanying notes are an integral part of these financial statements 17

20 Computation of Surplus Cash, Distributions, and Residual Receipts From the Inception of Operations, August 1, 2010, to December 31, 2010 COMPUTATION OF SURPLUS CASH: Cash: S Cash (Accounts 1110, 1120, 1191, 1192 ) $ 264,659 S Total cash 264,659 Current obligations: S Accrued mortgage (or bond) interest payable 70,888 S Accounts payable (due within 30 days ) 356, Tenant/patient deposits held in trust 17,813 S Total current obligations 444,869 S Surplus cash (deficiency) $ (180,210) The accompanying notes are an integral part of these financial statements. 18

21 Schedule of Changes in Fixed Asset Accounts - HUD Basis From the Inception of Operations, August 1, 2010, to December 31, 2010 Beginning Ending Balance Additions Deductions Balance 1410 Land $ - $ 1,900,000 $ - $ 1,900, Miscellaneous fixed assets - 11,169,522-11,169, T Total fixed assets - 13,069,522-13,069, Accumulated depreciation N Net fixed assets $ - $ 13,069,522 $ - $ 13,069,522 The accompanying notes are an integral part of these financial statements. 19

22 M & A McMahan and Associates, l.l.c. Certified Public Accountants and Consultants Web Site: Chapel Square, Bldg C Main Office: (970) Chapel Place, Suite 300 Facsimile: (970) P.O. Box 5850, Avon, CO mcmahan@mcmahancpa.com INDEPENDENT AUDITOR S REPORT ON INTERNAL CONTROL - COMBINED REPORT APPLICABLE TO INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS AND INTERNAL CONTROLS OVER COMPLIANCE FOR HUD-ASSISTED PROGRAMS To the Partners Riverview Apartments Preservation LP Eagle County, Colorado We have audited the financial statements of Riverview Apartments Preservation LP (HUD Project No. FHA ) (the Partnership ) as of and for the year ended December 31, 2010, and have issued our report thereon dated March 18, We have also audited the Partnership s compliance with requirements applicable to its major HUD-assisted program and have issued our report thereon dated March 18, We conducted our audits in accordance with auditing standards generally accepted in the United States of America, the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, and the Consolidated Audit Guide for Audits of HUD Programs (the Guide ), issued by the U.S. Department of Housing and Urban Development, Office of the Inspector General. Those standards and the Guide require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and about whether the Partnership complied with laws and regulations, noncompliance with which would be material to a major HUD-assisted program. Management of the Partnership is responsible for establishing and maintaining effective internal control over financial reporting and compliance. In planning and performing our audit of the financial statements, we considered the Partnership s internal control over financial reporting and compliance with the requirements that could have a direct and material effect on a major HUD-assisted program in order to determine our auditing procedures for the purpose of expressing our opinions on the financial statements and on compliance, but not for the purpose of expressing an opinion on the effectiveness of the Partnership s internal control. Accordingly, we do not express an opinion on the effectiveness of the Partnership s internal control over financial reporting and compliance. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, (1) misstatements of the entity s financial statements or (2) noncompliance with applicable requirements of a HUD-assisted program on a timely basis. A material weakness in internal control is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that (1) a material misstatement of the entity s financial statements or (2) material noncompliance with applicable requirements of a HUD-assisted program will not be prevented, or detected and corrected, on a timely basis. Our consideration of internal control over financial reporting and compliance was for the limited purpose described above and was not designed to identify all deficiencies in internal control over financial reporting and compliance that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting or compliance that we consider to be material weaknesses, as defined above. Member: American Institute of Certified Public Accountants D. Jerry McMahan, C.P.A. Daniel R. Cudahy, C.P.A. Paul J. Backes, C.P.A. Michael N. Jenkins, C.A., C.P.A. Avon Aspen Frisco (970) (970) (970)

23 To the Partners Riverview Apartments Preservation LP Eagle County, Colorado This report is intended solely for the information and use of the Partners, management, and the U.S. Department of Housing and Urban Development, and is not intended to be and should not be used by anyone other than these specified parties. McMahan and Associates, L.L.C. March 18,

24 M & A McMahan and Associates, l.l.c. Certified Public Accountants and Consultants Web Site: Chapel Square, Bldg C Main Office: (970) Chapel Place, Suite 300 Facsimile: (970) P.O. Box 5850, Avon, CO mcmahan@mcmahancpa.com INDEPENDENT AUDITOR S REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO MAJOR HUD PROGRAMS To the Partners Riverview Apartments Preservation LP Eagle County, Colorado We have audited Riverview Apartments Preservation LP s () (the Partnership ) compliance with the specific program requirements governing federal financial reports, fair housing and non-discrimination, replacement reserves, distributions to owners, tenant application, eligibility and re-certification, management functions, unauthorized changes of ownership/ acquisition of liabilities, unauthorized loans of project funds, and unauthorized transfer of beneficial interest that are applicable to each of its major HUD-assisted programs for the year ended December 31, Compliance with those requirements is the responsibility of the Partnership s management. Our responsibility is to express an opinion on the Partnership s compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America, the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States, and the Consolidated Audit Guide for Audits of HUD Programs (the Guide ), issued by the U.S. Department of Housing and Urban Development, Office of the Inspector General. Those standards and the Guide require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the requirements referred to above that could have a direct and material effect on a major HUD-assisted program occurred. An audit includes examining, on a test basis, evidence about the Partnership s compliance with those requirements and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the Partnership s compliance with those requirements. The results of our audit procedures disclosed certain immaterial instances of noncompliance with the requirements referred to above, which we reported to the Partnership s management in a separate communication dated March 18, In our opinion, the Partnership complied, in all material respects, with the requirements referred to above that are applicable to each of its major HUD-assisted programs for the year ended December 31, This report is intended solely for the information and use of the Partners, management, and the U.S. Department of Housing and Urban Development, and is not intended to be and should not be used by anyone other than these specified parties. McMahan and Associates, L.L.C. March 18, 2011 Member: American Institute of Certified Public Accountants D. Jerry McMahan, C.P.A. Daniel R. Cudahy, C.P.A. Paul J. Backes, C.P.A. Michael N. Jenkins, C.A., C.P.A. Avon Aspen Frisco (970) (970) (970)

25 M & A McMahan and Associates, l.l.c. Certified Public Accountants and Consultants Web Site: Chapel Square, Bldg C Main Office: (970) Chapel Place, Suite 300 Facsimile: (970) P.O. Box 5850, Avon, CO mcmahan@mcmahancpa.com INDEPENDENT AUDITOR S REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO FAIR HOUSING AND NON-DISCRIMINATION To the Partners Riverview Apartments Preservation LP Eagle County, Colorado We have applied procedures to test Riverview Apartments Preservation LP s (HUD Project No. FHA ) (the Partnership ) compliance with Fair Housing and Non-Discrimination requirements applicable to its HUD-assisted program for the year ended December 31, Our procedures were limited to the applicable compliance requirement described in the Consolidated Audit Guide for Audits of HUD Programs (the Guide ), issued by the U.S. Department of Housing and Urban Development, Office of the Inspector General. Our procedures were substantially less in scope than an audit, the objective of which is the expression of an opinion on the Partnership s compliance with the Fair Housing and Non-Discrimination requirements. Accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance that are required to be reported herein under the Guide. This report is intended solely for the information and use of the Partners, management, and the U.S. Department of Housing and Urban Development, and is not intended to be and should not be used by anyone other than these specified parties. McMahan and Associates, L.L.C. March 18, 2011 Member: American Institute of Certified Public Accountants D. Jerry McMahan, C.P.A. Daniel R. Cudahy, C.P.A. Paul J. Backes, C.P.A. Michael N. Jenkins, C.A., C.P.A. Avon Aspen Frisco (970) (970) (970)

26 SCHEDULE OF FINDINGS AND QUESTIONED COSTS Year Ended December 31, 2010 There were no findings or questioned costs noted for the year ended December 31,

27 AUDITOR S COMMENTS ON AUDIT RESOLUTION MATTERS RELATING TO HUD PROGRAMS December 31, 2010 There were no findings or questioned costs noted for the year ended December 31,

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