Charities Housing Development Corporation of Santa Clara County and Affiliates

Transcription

1 Charities Housing Development Corporation of Santa Clara County and Affiliates Consolidated Financial Statements and Single Audit Reports and Schedules December 31, 2016 and 2015

2 TABLE OF CONTENTS Page No. Independent Auditor's Report 1-2 Consolidated Statements of Financial Position 3-4 Consolidated Statements of Activities 5 Consolidated Statements of Functional Expenses 6-7 Consolidated Statements of Changes in Net Assets 8 Consolidated Statements of Cash Flows 9-10 Notes to Consolidated Financial Statements Supplementary Information Consolidating Statements of Financial Position Consolidating Statement of Activities and Changes in Net Assets Consolidating Statements of Financial Position - Developer and Management Affiliates 44 Consolidating Statements of Activities and Changes in Net Assets - Developer and Management Affiliates 45 Consolidating Statements of Financial Position - 100% Owned Properties 46 Consolidating Statements of Activities and Changes in Net Assets - 100% Owned Properties 47 Consolidating Statements of Financial Position - Tax Credit Partnerships 48 Consolidating Statements of Activities and Changes in Net Assets - Tax Credit Partnerships 49 Sunnyvale Senior Homes, LLC - Net Cash Flow Calculations 50 Single Audit Reports and Schedules Independent Auditor's Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 52-53

3 TABLE OF CONTENTS Independent Auditor's Report on Compliance for Each Major Program and on Internal Control Over Compliance Required by the Uniform Guidance Schedule of Expenditures of Federal Awards 56 Notes to Schedule of Expenditures of Federal Awards Schedule of Findings and Questioned Costs 59-60

4 INDEPENDENT AUDITOR'S REPORT To the Board of Directors Charities Housing Development Corporation of Santa Clara County and Affiliates San Jose, California We have audited the accompanying consolidated financial statements of Charities Housing Development Corporation of Santa Clara County and Affiliates (a California nonprofit public benefit corporation) (the ''Organization''), which comprise the consolidated statements of financial position as of December 31, 2016 and 2015, and the related consolidated statements of activities, functional expenses, changes in net assets and cash flows for the years then ended, and the related notes to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (the "U.S."); this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the U.S. and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the U.S. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 1

5 Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Charities Housing Development Corporation of Santa Clara County and Affiliates as of December 31, 2016 and 2015, and the changes in their net assets and their cash flows for the years then ended in accordance with accounting principles generally accepted in the U.S. Other Matter Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The supplementary information on pages is presented for purposes of additional analysis and is not a required part of the consolidated financial statements. Additionally, the accompanying schedule of expenditures of federal awards, as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards is presented for purposes of additional analysis and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audits of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the U.S. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated May 12, 2017, on our consideration of the Organization's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. 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 or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Organization's internal control over financial reporting and compliance. May 12, 2017 Armanino LLP San Jose, California 2

6 Consolidated Statements of Financial Position December 31, 2016 and 2015 ASSETS Current assets Cash - CH & mgmt. affiliates $ 11,707,363 $ 9,622,136 Cash - Partnerships/HUD entity 2,324,009 2,116,841 Cash - construction 1,838, ,430 Tenant rents receivable 104,955 84,308 Management fee - affiliates 122, ,751 Accounts receivable - affiliates 6,362 5,288 Grants receivable 1,442,049 91,574 Partnership contributions receivable 19,600,146 6,689,733 Other receivables 140,790 94,582 Prepaid expenses 185, ,510 Total current assets and deposits 37,472,614 19,804,153 Property, furnishings and fixtures, net 234,873, ,238,086 Other assets Due from affiliates 140, ,617 Investments in partnerships 883, ,227 Prepaid land lease, net of amortization 4,374,148 4,450,000 Projects in development 10,023,625 27,054,015 Contributions receivable, net of current portion 350, ,000 Notes receivable - affiliates - 400,000 Deferred costs 303, ,964 Deposits 4,018 4,018 Cash - tenant security deposits 925, ,775 Cash held for replacement reserves 4,293,328 3,588,715 Cash held for operating reserves 3,508,999 2,605,860 Cash held for other reserves 1,096,638 2,541,759 Total other assets 25,903,364 43,228,950 Total assets $ 298,249,639 $ 266,271,189 The accompanying notes are an integral part of these consolidated financial statements. 3

7 Consolidated Statements of Financial Position December 31, 2016 and 2015 LIABILITIES AND NET ASSETS Current liabilities Accounts payable - affiliates $ 107,212 $ 110,582 Accounts payable 388, ,468 Accounts payable - construction 1,354,683 1,945,969 Accrued expenses 243, ,603 Rent received in advance 53,110 13,074 Partnership distribution payable 43,702 4,558 Construction retention liability - 840,383 Current portion of mortgages payable 1,016,836 5,289,616 Current portion of accrued interest 521, ,463 Total current liabilities 3,728,908 9,090,716 Long-term liabilities Mortgages payable, net 177,180, ,768,862 Accrued interest 16,892,762 14,266,847 Tenant security deposits 896, ,088 Obligations under interest rate swap 232, ,394 Notes payable to affiliates 16,197 - Total long-term liabilities 195,218, ,241,191 Total liabilities 198,947, ,331,907 Net assets Unrestricted Non-controlling interest 76,736,944 62,990,759 Controlling interest 20,821,311 20,520,049 Total unrestricted net assets 97,558,255 83,510,808 Temporarily restricted 1,744, ,474 Total net assets 99,302,273 83,939,282 Total liabilities and net assets $ 298,249,639 $ 266,271,189 The accompanying notes are an integral part of these consolidated financial statements. 4

8 Consolidated Statements of Activities For the Years Ended December 31, 2016 and Revenues, gains and other support Rental income, net $ 12,411,124 $ 10,788,577 Management fees 26, ,748 Unrestricted grants and contributions 870,041 3,064,558 Contributions in-kind 75,567 75,567 Consulting and services 71,000 26,469 Interest income 58, ,220 Miscellaneous income 8,975 25,462 Income (loss) on partnership interest (96,108) (75,687) Loss on sale of asset (7,617) (5,186) Other revenue 12,627 - Net assets released from restriction 100,680 26,647 Total revenues, gains and other support 13,531,081 14,152,375 Functional expenses Program services Rental operations 18,026,058 15,329,161 Property management 968, ,301 Total program services 18,994,850 16,243,462 Support services Management and general 339, ,037 Total support services 339, ,037 Total functional expenses 19,334,247 16,543,499 Change in net assets from operations (5,803,166) (2,391,124) Unrealized gain on interest rate swap 167, ,730 Change in unrestricted net assets (5,635,980) (2,281,394) Temporarily restricted net assets Grant income 1,416, ,404 Net assets released from restrictions (100,680) (26,647) Change in temporarily restricted net assets 1,315, ,757 Change in net assets $ (4,320,436) $ (1,958,637) The accompanying notes are an integral part of these consolidated financial statements. 5

9 Consolidated Statement of Functional Expenses For the Year Ended December 31, 2016 Rental Operations Program Services Project Development Property Management Total Program Services Support Services Management and General Total Wages, employee benefits and payroll taxes $ 1,653,603 $ 505,270 $ 815,135 $ 2,974,008 $ 213,748 $ 3,187,756 Repairs and maintenance 1,642, ,642,752-1,642,752 Utilities 1,362,547 4,312 8,149 1,375,008 1,824 1,376,832 Insurance 426,216 4,931 9, ,465 20, ,658 Office expenses 206,069 40,035 75, ,755 16, ,691 Tenant related expenses 254, , ,003 Contributions and sponsorships ,400 66,400 Taxes 174, , ,160 Miscellaneous expenses 201,913 5,504 10, ,818 2, ,147 Audit/accounting expense 232,207 16,792 31, ,729 15, ,427 Professional fees 160,550 5,363 18, ,321 2, ,590 Bond administration cost 83, ,099-83,099 Replacement-furnishings 85, ,282-85,282 Management fees 43, ,608-43,608 Interest expense 4,812, ,812,501-4,812,501 Financial expense 202, , ,998 Depreciation and amortization 6,204,990 18,234-6,223,224-6,223,224 Rent up expense 279, , ,560 Projects written off - 26,460-26,460-26,460 Capitalized project cost - (626,901) - (626,901) - (626,901) $ 18,026,058 $ - $ 968,792 $ 18,994,850 $ 339,397 $ 19,334,247 Percentage of total 93.2 % - % 5.0 % 98.2 % 1.8 % % The accompanying notes are an integral part of these consolidated financial statements. 6

10 Consolidated Statement of Functional Expenses For the Year Ended December 31, 2015 Rental Operations Program Services Project Development Property Management Total Program Services Support Services Management and General Total Wages, employee benefits and payroll taxes $ 1,387,659 $ 484,794 $ 724,054 $ 2,596,507 $ - $ 2,798,628 Repairs and maintenance ,314,732 Utilities ,858 1,102,435 Insurance 412, , ,330 Office expenses 183, , ,507 Tenant related expense 292, , ,656 Taxes ,122 Miscellaneous expenses 218,610 13, , ,965 Audit/accounting expense 174,931 15,458 24, , ,982 Professional fees 92,190 13, , ,150 Bond administration costs ,264 Replacement furnishings ,541 Grant expense - - 4,320 4,320-40,706 Management fees ,054 Interest expense 4,005, ,005,383-4,005,383 Financial expense ,830 Projects written off - 273, , ,494 Depreciation and amortization ,665,672 Capitalized project cost - (867,952) - (867,952) - (867,952) $ 6,767,783 $ (66,715) $ 753,172 $ 7,454,240 $ 1,858 $ 16,543,499 Percentage of total 40.9 % (0.4)% 4.6 % 45.1 % - % 45.1 % The accompanying notes are an integral part of these consolidated financial statements. 7

11 Consolidated Statements of Changes in Net Assets For the Years Ended December 31, 2016 and 2015 Unrestricted Net Assets Temporarily Restricted Net Assets Total Controlling Interest Non- Controlling Interest Total Balance, December 31, 2014 $ 15,761,030 $ 105,717 $ 15,866,747 $ 38,216,081 $ 54,082,828 Contributions ,937,083 31,937,083 Distributions (4,558) (4,558) Excess of carrying value over purchase price of assets acquired 1,010,197-1,010,197 (1,010,197) - Change in net assets 3,810, ,404 4,160,128 (6,118,765) (1,958,637) Releases from restriction 26,647 (26,647) Allocation of Limited Partner loss to General Partners (88,549) - (88,549) 88,549 - Current year syndication costs (117,434) (117,434) Balance, December 31, ,520, ,474 20,948,523 62,990,759 83,939,282 Contributions ,874,490 19,874,490 Distributions (43,801) (43,801) Change in net assets 331,424 1,416,224 1,747,648 (5,967,404) (4,219,756) Releases from restriction - (100,680) (100,680) - (100,680) Allocation of Limited Partner loss to General Partners (30,162) - (30,162) 30,162 - Current year syndication costs (147,262) (147,262) Balance, December 31, 2016 $ 20,821,311 $ 1,744,018 $ 22,565,329 $ 76,736,944 $ 99,302,273 The accompanying notes are an integral part of these consolidated financial statements. 8

12 Consolidated Statements of Cash Flows For the Years Ended December 31, 2016 and Cash flows from operating activities Change in net assets $ (4,320,436) $ (1,958,637) Adjustments to reconcile change in net assets to net cash provided by operating activities Depreciation and amortization 6,410,556 5,665,672 Gain/loss on partnership interest 96,108 75,535 Change in value of cash flow hedging derivative instrument (166,925) (109,730) Accrued interest - construction loans 768, ,411 Changes in operating assets and liabilities Tenant accounts receivable (20,647) (35,986) Management fees receivable 52,948 (25,338) Grants and contributions receivable (1,350,475) (37,164) Other receivables (46,208) 192,107 Prepaid expenses (17,760) (35,429) Tenant security deposits - net (5,993) 1,558 Prepaid land lease 75,852 - Accounts payable - affiliates (3,370) (76,799) Accounts payable - trade 286,797 (38,187) Accrued expenses (108,919) (113,410) Rent received in advance 40,038 3,051 Accrued interest 1,946,468 2,377,976 Note payable to affiliate 16,197 - Distribution payable 39,144 (10,508) Net cash provided by operating activities 3,691,772 6,099,122 Cash flows from investing activities Acquisition of property, furnishings and fixtures (3,441,496) (25,401,465) Additions to reserves (162,631) (282,281) Syndication costs (149,591) (117,434) Advances to affiliates - 2,238 Deposits - 6,376 Capitalized loan fees (316,190) (114,367) Investment in partnership - (5,000) Net cash used in investing activities (4,069,908) (25,911,933) Cash flows from financing activities Capital contributions 6,964,078 24,897,350 Capital distributions (43,702) (4,558) Payments to notes and mortgages payable (3,166,334) (581,662) Net cash provided by financing activities 3,754,042 24,311,130 Net increase in cash and cash equivalents 3,375,906 4,498,319 Cash and cash equivalents, beginning of year 12,494,407 7,996,088 Cash and cash equivalents, end of year $ 15,870,313 $ 12,494,407 The accompanying notes are an integral part of these consolidated financial statements. 9

13 Consolidated Statements of Cash Flows For the Years Ended December 31, 2016 and 2015 Cash, end of year consists of the following Cash - CH & mngt. affiliates $ 11,707,363 $ 9,622,136 Cash - partnerships/hud entity 2,324,009 2,116,841 Cash - construction 1,838, ,430 Total cash, end of the year $ 15,870,313 $ 12,494,407 Supplemental disclosures of cash flow information Cash paid for interest $ 4,122,921 $ 2,204,459 Cash paid for taxes $ 40,100 $ 24,400 Additions to property, furnishings and fixtures using long-term debt $ 15,180,947 $ 9,731,836 Additions to projects in development using short-term debt $ 1,919,984 $ 2,752,712 Additions to projects in development using long-term debt $ 1,715,301 $ 8,372,225 The accompanying notes are an integral part of these consolidated financial statements. 10

14 Notes to Consolidated Financial Statements December 31, 2016 and NATURE OF OPERATIONS Charities Housing Development Corporation of Santa Clara County ("CH", the "Organization") was incorporated in the State of California on December 14, 1993 and is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code and Section 23701(d) of the California Revenue and Taxation Code. The mission of CH is to develop, preserve, and manage high quality affordable housing for low income individuals and their families. Through service enhanced property management and structured resident involvement, CH contributes to the highest standards of human dignity and participation in our community. CH has developed and operates 24 properties, totaling 1,153 units, throughout Santa Clara County. The properties are home to both individuals and families, a majority of which earn less than 50% of area median income ("AMI"). CH and management affiliates Charities Housing Development Corporation of Santa Clara County - A regional developer of quality, affordable, publicly assisted housing for low and moderate-income families. The Organization is the management agent and employer of all personnel working at properties owned by: Pensione Bird SRO, L.P. ("PEES") Kings Crossing, L.P. ("KICR") 2112 Montereey Road, L.P. ("MENO") San Tomas Gardens, L.P. ("STLP") Sunset Square, L.P. ("SUSQ") Sierra Vista I, L.P. ("SVLP") San Antonio Place, L.P. ("SAAN") Parkside Studios, L.P. ("PAST") Paseo Senter, L.P. ("PAS1") Cupertino Senior Homes, LLC ("CUSE") Paseo Senter II, L.P. ("PAS2") Sunnyvale Senior Homes, LLC ("SUSE") 90 Archer, L.P. ("ARST") Campbell Senior Homes, LLC ("CASE") Milpitas Senior Homes, LLC ("MISE") Los Gatos Senior Homes, LLC ("LOSE") Santa Clara Senior Homes, LLC ("SASE") HomeSafe Santa Clara, L.P. ("HSSC") Stoney Pine Charities Housing Corporation ("STPI") CH is also the developer for PEES, SUSQ, PAS1, ARST, SVLP, MENO, STPI, SAAN, PAS2, STLP, and HSSC. Management affiliates - Management affiliates consist of corporations and limited liability companies ( LLCs ) that serve as general partners for tax credit housing partnerships providing affordable housing. The corporations are California nonprofit public benefit corporations exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code and Section 23701(d) of the California Revenue and Taxation Code and share common board members with CH. The LLCs, of which CH is either the sole or controlling member, are California limited liability companies, operated exclusively to further the tax exempt charitable purposes of the sole member. 11

15 Notes to Consolidated Financial Statements December 31, 2016 and NATURE OF OPERATIONS (continued) CH and management affiliates (continued) The following entities are included in the Management Affiliates Hope Charities Housing ("Hope") Archer Charities,LLC ("Archer") Caritas Housing ("Caritas") Paseo Senter, LLC ("Paseo") Sunset Charities Housing Corporation ("Sunset") Charities Belovida, LLC ("Belovida") San Antonio Charities ("San Antonio") 2112 Monterey Road, LLC ("Monterey") Charities Kings Crossing, LLC ("Kings Crossing") Parkside Charities, LLC ("Parkside") San Tomas Gardens Charities, LLC ("San Tomas") Sierra Vista I Charities, LLC ("Sierra Vista") Renascent Place Charities, LLC ("Renascent Place") Westwood Ambassador, LLC ("WEAM") Stevens Creek Charities, LLC ("Stevens Creek") 100% owned properties The 100% Owned Properties consist of both directly owned properties and properties owned by way of single member LLC's as follows: 107 Los Gatos - On December 1, 1998, the Organization received a donation of building and land located in Los Gatos, California ("107 Los Gatos"). The building contains 7 units for low-income households and was occupied beginning June Los Gatos - On January 17, 2001, the Organization received a donation of a building and land located in Los Gatos, California ("220 Los Gatos"). The building contains 6 units for low-income households. Westwood Ambassador Apartments - On February 18, 1994, the Organization acquired a 42 unit apartment complex, Westwood Ambassador Apartments ("Westwood") in Santa Clara, California. Pursuant to agreements with the City of Santa Clara and the Housing Authority of Santa Clara County, 41 units are restricted to very-low to moderate income households while one rent-free unit is for the resident manager. Pensione Esperanza Apartments - On December 31, 2015, the Organization assumed 100% ownership of Pensione Bird SRO, L.P., owner of Pensione Esperanza Apartments, a 110 unit single room occupancy project in San Jose, California. Pursuant to agreements with the City of San Jose, 97 units are restricted to very-low income households, in addition, the Tax Credit Allocation Committee's regulatory agreement requires the project to have an average income affordability of 35% AMI. Pollard Road, Llewellyn Avenue and Fairlands Court - On September 15, 2015, the Organization acquired the land and building of three five-bedroom houses located in Campbell, California. Ownership is held through Campbell Senior Homes, LLC of which CH is the sole member. 12

16 Notes to Consolidated Financial Statements December 31, 2016 and NATURE OF OPERATIONS (continued) 100% owned properties (continued) Price Avenue - On August 22, 2014, the Organization acquired the land and building of one five-bedroom house located in Cupertino, California. Ownership is held through Cupertino Senior Homes, LLC of which CH is the sole member. Anne Way and Blossom Hill Road - On May 15, 2015, the Organization acquired the land and building of two five-bedroom houses located in Lost Gatos, California. Ownership is held through Los Gatos Senior Homes, LLC of which CH is the sole member. Vasona Street and North Park Victoria Street - On July 27, 2015, the Organization acquired the land and building of two five-bedroom houses located in Milpitas, California. Ownership is held through Milpitas Senior Homes, LLC of which CH is the sole member. Homestead Road - On July 7, 2015, the Organization acquired the land and building of one four-bedroom house located in Santa Clara, California. Ownership is held through Santa Clara Senior Homes, LLC of which CH is the sole member. Klee Court and Wolfe Road - On April 20, 2015, the Organization acquired the land and building of one five-bedroom house and one four-bedroom house located in Sunnyvale, California. Ownership is held through Sunnyvale Senior Homes, LLC of which CH is the sole member. Sierra Vista I/Charities Housing Corporation - Effective August 10, 2015 Sierra Vista I/Charities Housing Corporation merged with CH. San Tomas/Charities Housing Corporation - Effective August 10, 2015 San Tomas/Charities Housing Corporation merged with CH. HomeSafe Santa Clara, L.P. - On December 31, 2016, Merrit Community Capital Fund VI, L.P. transferred their interest to CH (see Note 16). Tax credit limited partnerships These are the limited partnerships in which CH and/or its affiliates hold general partner interests. The following entities are included in the tax credit partnerships: Sunset Square, L.P. Paseo Senter, L.P. San Antonio Place, L.P. Paseo Senter II, L.P. 90 Archer, L.P. Kings Crossing, L.P. Sierra Vista I, L.P. Parkside Studios, L.P. San Tomas Gardens, L.P. Renascent Place, L.P Monterey Road, L.P. Renascent Place South, L.P Monterey Road South, L.P. HomeSafe Santa Clara, L.P.* Stevens Creek, L.P. Pensione Bird SRO, L.P. ** 13

17 Notes to Consolidated Financial Statements December 31, 2016 and NATURE OF OPERATIONS (continued) Tax credit limited partnerships (continued) * On December 31, 2016, the investor limited partner transferred its interest to CH. ** On December 31, 2015, the investor limited partner transferred its interest to CH HUD entity Stoney Pine Charities Housing Corporation is a single asset California nonprofit public benefit corporation exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code and Section 23701(d) of the California Revenue and Taxation Code and shares common board members with CH. Affiliated organizations - not consolidated Charities Belovida, LLC and CORE Belovida, LLC are co-general partners of Belovida Santa Clara, L.P.; and Caritas and LifeMoves are co-general partners of HS San Jose, L.P., and HomeSafe Santa Clara, L.P. As of December 31, 2016, HomeSafe Santa Clara, L.P. became a 99.9% owned property of CH and is consolidated into the audit for Catholic Charities of Santa Clara County ("Catholic Charities") has the authority to appoint the Directors of the Organization. The Executive Director and at least one board member of Catholic Charities shall be members of the Organization's Board of Directors and the Executive Director shall be President of CH's Board of Directors. If Catholic Charities ceases to exist, this authority passes to the Roman Catholic Bishop of San Jose. Catholic Charities provides contracted services for case management for the Organization. CH and management affiliates, with the exception of the LLCs, obtained their nonprofit status under the umbrella of the "United States Catholic Conference of Bishops". 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation of financial statements Organizations that: 1) have a majority of voting interest; 2) have economic interest; and 3) exercise economic control over a related company, are required to consolidate their financial statements. Hope, Caritas, Sunset, San Antonio, Paseo, Kings Crossing, Archer, Monterey, Belovida, Sierra Vista, San Tomas, Parkside, Renascent Place, Stevens Creek, Renascent Place South, San Tomas/Charities Housing Corp., Sierra Vista I/Charities Housing Corp., CUSE, CASE, SUSE, MISE, LOSE, SASE, WEAM, and STPI meet the above criteria and therefore are consolidated into CH's financial statements. All significant intercompany transactions have been eliminated. 14

18 Notes to Consolidated Financial Statements December 31, 2016 and SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Consolidation of financial statements (continued) The consolidated financial statements include the accounts of fifteen limited partnerships (see Note 1) in which CH exercises economic control and/or has the right to buy the properties after a certain number of years. These entities are included in the consolidation. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements. Partnership interests of Investor limited partners are shown as non-controlling interests in the consolidated financial statements. Method of accounting The Organization uses the accrual method of accounting which recognizes income in the period earned and expenses when incurred, consistent with accounting principles generally accepted in the United States of America. The value of the rent-free employee units at Westwood Apartments and the limited partnerships and are shown both as rental income and as an expense of operations. Basis of presentation The Organization follows standards of accounting and financial reporting for voluntary health and welfare organizations as prescribed by the American Institute of Certified Public Accountants, reporting its financial position and operating activities in three classes of net assets: unrestricted net assets and temporarily restricted net assets. Unrestricted net assets - Unrestricted net assets include those assets over which the Board of Directors has discretionary control in carrying out the operations of the Organization. Temporarily restricted net assets - Temporarily restricted net assets include those assets which are subject to donor restriction and for which the applicable restriction was not met as of the year end of the current reporting period. Permanently restricted net assets - Permanently restricted net assets include those assets which are subject to a non-expiring donor restriction, such as endowments. Change in accounting principle During 2016, the Partnership adopted the provisions of Accounting Standards Update , Simplifying the Presentation of Debt Issuance Costs (ASU ). Under this new accounting policy, the Partnership has retrospectively presented all debt issuance costs as a direct deduction from the carrying amount of the related obligation in the balance sheet. Amortization of the debt issuance costs is calculated using the straight-line method, which approximates the effective interest method and is included as a component of interest expense. The effects of the retrospective application of the accounting change on the year ended December 31, 2015 is to decrease total assets and long-term liabilities by $1,420,877 in the balance sheet and reclassify $63,013 of amortization to interest expense in the statement of operations. 15

19 Notes to Consolidated Financial Statements December 31, 2016 and SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Use of estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Accordingly, actual results could differ from those estimates. Recognition of developer fees Developer fees are recognized pursuant to terms outlined in the development services agreement. Absent any specific terms outlined in that agreement, they are recognized based on the schedule of payments outlined in the development services agreement. Developer fees earned between consolidated entities were eliminated in the consolidated financial statements. Recognition of donor contributions Contributions awarded are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence and/or nature of any donor restrictions. All other donor restricted contributions are reported as increases in temporarily or permanently restricted net assets depending on the nature of the restrictions. When a restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets. The Organization records contributions whose restrictions are met in the same year as unrestricted support. Functional expenses Directly identifiable expenses are charged to program and supporting services. Expenses related to more than one function are charged to programs and supporting services on the basis of salary expense. Management and general expenses include those expenses that are not directly identifiable with any other specific function but provide for the overall support and direction of the Organization. Cash and cash equivalents Cash consists of cash on hand and cash in demand deposit accounts. Not included in cash are funds restricted as to their use, regardless of their liquidity, such as security deposits, and operating and replacement reserves. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash. The Organization maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Organization has not experienced any losses in such accounts. Management believes it is not exposed to any significant risk on cash accounts. 16

20 Notes to Consolidated Financial Statements December 31, 2016 and SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Allowance for doubtful accounts The Organization uses the specific write-off method to provide for doubtful accounts since past experience and management's estimation indicates an allowance for such accounts is immaterial. Tenant security deposits Tenant security deposits are not available for operating purposes. The Organization maintains on deposit funds equal to the related liability and holds the funds in separate, interest-bearing accounts in the name of the Organization. Replacement, operating and other reserves The Organization is required to maintain replacement, operating, residual receipts, and impound reserves in accordance with partnership and regulatory agreements (see Note 9). Property, furnishings and fixtures Property, furnishings and fixtures are recorded at cost of acquisition or construction, or estimated fair value for donated items. Major improvements or additions over $5,000 that add value to the property are capitalized. Depreciation is computed based on the straight-line method over the estimated useful lives of assets, which ranges from 3 to 40 years. Donations are reported as unrestricted support unless the donor has restricted the donated asset to a specific purpose. Investments in partnerships The Organization uses the equity method to account for its ongoing investments, even when its percentage of ownership is less than 20%, when its role as general partner gives it a measure of control. Under the equity method, the investment is originally recorded at cost and is adjusted annually to recognize the Organization's share of earnings or losses. Investments in the consolidated entities have been eliminated in the consolidated financial statements. Projects in development Projects in development are stated at cost, which includes the cost of land, predevelopment, construction and other capitalized expenses including interest, real estate taxes and property insurance. 17

21 Notes to Consolidated Financial Statements December 31, 2016 and SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Accounting for impairment of long-lived assets The Organization reviews property furnishings and fixtures for impairment whenever events or changes in circumstances indicate that the carrying value of the property furnishings and fixtures may not be recoverable. Recoverability is measured by a comparison of the carrying amount of the asset to future net cash flows, undiscounted and without interest, expected to be generated by the asset. If assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. As of December 31, 2016 and 2015, there were no events or changes in circumstances indicating that the carrying amount of the property furnishings and fixtures may not be recoverable. Fair value measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest ranking to fair values determined using unadjusted quoted prices in active markets for identical assets (Level 1) and the lowest ranking to fair values determined using methodologies and models with unobservable inputs (Level 3). Observable inputs are those that market participants would use in pricing the asset based on market data obtained from sources independent of the Organization. Unobservable inputs reflect the Organization s assumption about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances (see Note 13). The fair value hierarchy is categorized into three levels based on the inputs as follows: Level 1 - Values are unadjusted quoted prices for identical assets and liabilities in active markets accessible at the measurement date. Level 2 - Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices from those willing to trade in markets that are not active, or other inputs that are observable or can be corroborated by market data for the term of the instrument. Such inputs include market interest rates and volatilities, spreads and yield curves. Level 3 - Certain inputs are unobservable (supported by little or no market activity) and significant to the fair value measurement. Unobservable inputs reflect the Organization s best estimate of what hypothetical market participants would use to determine a transaction price for the asset or liability at the reporting date. 18

22 Notes to Consolidated Financial Statements December 31, 2016 and SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Fair value measurements (continued) The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: The carrying amounts reported in the statement of financial position for the following items approximate fair value because of the short maturity value of these instruments: cash, restricted cash, current receivables and current liabilities. The carrying amount of interest rate swaps approximates fair value because it is based on quoted market prices. Considerable judgment is required to develop estimates of fair value, and the estimates presented are not necessarily indicative of the amounts that the Organization could realize in a current market. The use of different market assumptions and/or estimation methods could have a material effect on the estimated fair values. The estimates presented are based on pertinent information available to management as of December 31, 2016 and Current estimates of fair value may differ significantly from the amounts presented. Income tax status CH, Hope, Caritas, Sunset, San Antonio, San Tomas/Charities Housing Corp., Sierra Vista I/ Charities Housing Corp., and Stoney Pine are exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code and state income taxes under Section 23701(d) of the California Revenue Taxation Code. Accordingly, no provision for income taxes has been made in the accompanying statements. In addition, the Organization qualifies for the charitable contribution deduction under Section 170(b)(1)(A) of the Internal Revenue Code and has been classified as an organization that is not a private foundation under Section 509(a)(1) of the Internal Revenue Code. Property taxes The Organization has filed and received an exemption from certain property taxes in accordance with Section 214 of the California Code. Subsequent events Management of the Organization has evaluated events and transactions subsequent to December 31, 2016 for potential recognition or disclosure in the consolidated financial statements. The Organization had subsequent events that required recognition or disclosure in the consolidated financial statements for the year ended December 31, 2016, see Note 21. Subsequent events have been evaluated through the date the consolidated financial statements became available to be issued, May 12,

23 Notes to Consolidated Financial Statements December 31, 2016 and SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Uncertainty in income taxes Accounting principles generally accepted in the United States of America provide accounting and disclosure guidance about positions taken by an organization in its tax returns that might be uncertain. Management has considered its tax positions and believes that all of the positions taken by CH in its federal and state tax returns are more-likely-than-not to be sustained upon examination. CH files information returns in the U.S. federal jurisdiction and state of California. CH's federal returns for the tax years 2013 and beyond remain subject to examination by the Internal Revenue Service. CH's California returns for the tax years 2012 and beyond remain subject to examination by the Franchise Tax Board. 3. COMPARATIVE FINANCIAL STATEMENTS Certain reclassifications have been made to the financial statements for the year ended December 31, 2015 for comparative purposes to conform with the presentation in the current year financial statements. 4. PROPERTY, FURNISHINGS AND FIXTURES Property, furnishings and fixtures consist of the following at December 31, 2016: CH 100% Owned Rental Properties Tax Credit Partnerships HUD Entity Eliminating Entries 2016 Land $ - $ 7,906,984 $ 40,878,442 $ 1,592,425 $ - $ 50,377,851 Land improvements - 156,889 13,027, ,184,279 Buildings and building improvements - 8,779, ,303,671 3,429, ,512,440 Computer equipment , ,223 Office equipment 44,795 23, , ,092 Furniture and fixtures - - 3,338,679 44,531-3,383,210 Leasehold improvements 120, , , ,384,440 Eliminating (9,624,308) (9,624,308) 165,224 17,583, ,228,954 5,065,968 (9,624,308) 287,419,227 Accumulated depreciation (129,846) (2,906,411) (49,318,656) (1,344,412) 1,153,759 (52,545,566) $ 35,378 $ 14,676,978 $ 224,910,298 $ 3,721,556 $ (8,470,549) $ 234,873,661 20

24 Notes to Consolidated Financial Statements December 31, 2016 and PROPERTY, FURNISHINGS AND FIXTURES (continued) Property, furnishings and fixtures consist of the following at December 31, 2015: CH 100% Owned Rental Properties Tax Credit Partnerships HUD Entity Eliminating Entries 2015 Land $ - $ 7,906,984 $ 33,183,506 $ 1,592,425 $ - $ 42,682,915 Land improvements - 64,255 10,227, ,291,298 Buildings and building improvements - 8,520, ,010,315 3,429, ,959,467 Computer equipment , ,223 Office equipment 44,795 23, , ,024 Furniture and fixtures - - 3,092,016 44,531-3,136,547 Leasehold improvements 120, , ,182 Eliminating (8,862,244) (8,862,244) 165,224 17,185, ,350,712 5,065,968 (8,862,244) 247,905,412 Accumulated depreciation (111,612) (2,630,588) (41,640,672) (1,254,117) 969,663 (44,667,326) $ 53,612 $ 14,555,164 $ 192,710,040 $ 3,811,851 $ (7,892,581) $ 203,238,086 Depreciation expense for the years ended December 31, 2016 and 2015, totaled $6,134,773 and $5,480,928, respectively. 5. INVESTMENT IN PARTNERSHIPS Investment in partnerships consist of the following: HS San Jose, L.P. $ 883,552 $ 883,632 HomeSafe Santa Clara, L.P. - 91,726 Belovida Santa Clara, L.P. (153) (131) $ 883,399 $ 975,227 21

25 Notes to Consolidated Financial Statements December 31, 2016 and PROJECTS IN DEVELOPMENT Charities Housing Development Corporation has the following projects in development: Monterey Road South, L.P. (San Jose) $ 4,955,730 $ 4,932,651 Stevens Creek, L.P. (San Jose) 3,926,672 - Renascent Place (San Jose) 860, ,345 Westwood (Santa Clara) 80,790 54,664 Renascent Place South, L.P.(San Jose)* Other projects in development - 2, Monterey Road, L.P. (San Jose) - 21,586,240 Page Street 140,000 - YWCA 25,728 - Hester St. 33,865 - $ 10,023,625 $ 27,054,015 * During the year ended December 31, 2016 the Organization wrote off the Renascent Place South project. 7. DEFERRED COSTS Deferred costs consist of the following: Tax credit fees $ 564,212 $ 460,997 Accumulated amortization (260,632) (248,033) The future annual amortization expense is as follows: Year Ending December 31, $ 303,580 $ 212, $ 47, , , , ,538 Thereafter 115,557 $ 303,580 22

26 Notes to Consolidated Financial Statements December 31, 2016 and DEFERRED COSTS (continued) Tax credit fees are amortized over the 10 to 15 year benefit period of the credits. Amortization expense for the years ended December 31, 2016 and 2015, totaled $88,451 and $121,731, respectively. 8. NOTES RECEIVABLE FROM AFFILIATES HomeSafe Santa Clara, L.P. has a note payable to CH in the amount of $400,000 as of December 31, 2016 and 2015, secured by the HomeSafe Santa Clara property at 0% interest. Principal is due January 2, All units are to be restricted to households which include a victim of domestic violence, and whose income is at or below 80% of AMI. This loan amount is eliminated in consolidation as of December 31, REPLACEMENT, OPERATING, AND OTHER RESERVES Cash held for replacement and operating reserves The limited partnerships, HUD entity and 100% owned properties are required to maintain replacement and/or operating reserves in accordance with their respective partnership and regulatory agreements. As of December 31, 2016 and 2015, the total funded replacement reserve and operating reserve balance was $7,802,327 and $6,194,575, respectively. Cash held for other reserves The HUD entities are required to deposit residual receipts within 60 days after year end in a separate, interest-bearing account. The funds can be used for the operating needs of the property with the prior written approval of HUD. As of December 31, 2016 and 2015, the total funded residual receipts balance was $5,734 and $201,415, respectively. Section 811 projects are required to remit to HUD, amounts held in the Project's residual receipt account in excess of $250 per unit upon termination of the Project's annual contract. Management remitted $195,710 in May 2016 and anticipates returning approximately $32,000 to HUD by June 30, San Tomas Gardens, L.P. had a balance of $986,200 in replacement reserves at the time of purchase, which has since been transferred to Citibank. This reserve was used for construction related expenses or funds used at permanent loan close. The balances for the reserve as of December 31, 2016 and 2015, was $- and $1,575,769, respectively. The Partnership is also required to maintain a restabilization reserve and a roof reserve. The restabilization reserve is be used in the event that the Project ceases to benefit from the full amount of HUD assistance as shown in financial projections. Withdrawals from the restabilization reserve require prior approval from Citibank and the Limited Partner. As of December 31, 2016, the balance of the restabilization reserve was $300,040. The roof reserve was funded in the amount of $100,000 to be used for roof-related development cost. As of December 31, 2016, the balance of the roof reserve was $100,

27 Notes to Consolidated Financial Statements December 31, 2016 and REPLACEMENT, OPERATING, AND OTHER RESERVES (continued) Cash held for other reserves (continued) Sierra Vista I, L.P. is required to maintain a restabilization reserve in accordance with the Partnership Agreement and the Citibank Amended and Restated Operating and Restabilization Reserve Agreement. The reserve was funded with an initial deposit of $302,316 at permanent loan conversion and should only be used in the event that the Project ceases to benefit from the full amount of HUD assistance as shown in financial projections. Expenditures from the reserve require approval from the Limited Partner and Citibank. As of December 31, 2016 and 2015, the balance of the reserve was $302,436 and $302,361, respectively. Parkside Studios, L.P. is required to establish a partnership fee reserve, in amount of $275,551, to fund annual payments of asset management fee and partnership management fee to the extent available cash flow is insufficient to fund such payments. Withdrawals from the partnership fee reserve account for any purpose other than to pay asset management fee and partnership management fee as permitted under this Partnership Agreement will require the prior written approval of the Limited Partner. The balance of the partnership fee reserve as of December 31, 2016 was $275,337. San Tomas Gardens, L.P., Sierra Vista I, L.P, King Crossings, L.P. maintain insurance/property impound accounts in accordance with their respective partnership and regulatory agreements. As of December 31, 2016 and 2015, the total balance for the impound accounts was $113,073 and $49,889, respectively. 10. NOTES AND MORTGAGES PAYABLE Notes and mortgages payable consisted of the following: Maturity Date Interest Rate Payment Terms CH City of San Jose (CDBG) Jan. 2, % (7) $ 400,000 $ 400,000 County of Santa Clara (Local) Aug. 25, % (4) 500, , % Owned Westwood Apartments City of Santa Clara (HOME) Feb. 18, % (2) 600, ,720 Berkadia Jan. 1, % (3) 827, , Los Gatos: Santa Clara County (CDBG) Jul. 1, % (3) Los Gatos: County of Santa Clara (Local) 1 Jun. 1, % (3) 1,087 3,643 County of Santa Clara (Local ) 2 Mar. 1, % (4) 147, ,843 Campbell Senior Homes, LLC: City of Campbell (Local) Jan. 15, % (4) 138, ,000 City of Campbell (CDBG) Various 0.00 % (4) 100, ,000 County of Santa Clara (CDBG) Various 3.00 % (4) 148, ,900 24

28 Notes to Consolidated Financial Statements December 31, 2016 and NOTES AND MORTGAGES PAYABLE (continued) Maturity date Interest rate Payment terms County of Santa Clara (Home) Various 3.00 % (4) 444, ,892 County of Santa Clara (Local) Various 3.00 % (4) 275, ,985 Housing Trust Silicon Valley Feb. 1, % (4) 50,000 50,000 Los Gatos Senior Homes, LLC: County of Santa Clara (CDBG) Various 3.00 % (4) 222, ,359 County of Santa Clara (HOME) Dec. 17, % (4) 90,493 90,493 County of Santa Clara (Local) Aug. 5, % (4) 169, ,067 Housing Trust Silicon Valley Various 0.00 % (4) 515, ,000 Town of Los Gatos (CDBG) May 15, % (4) 126, ,801 Town of Los Gatos (Local) May 15, % (4) 262, ,000 Milpitas Senior Homes, LLC: County of Santa Clara CDBG Dec. 11, % (4) 91,196 91,196 County of Santa Clara (Local) Various 3.00 % (4) 339, ,695 Housing Trust Silicon Valley Mar. 30, % (4) 200, ,000 City of Milpitas (Local) Mar. 27, % (4) 615, ,717 Santa Clara Senior Homes, LLC: City of Santa Clara (Local) Nov. 12, % (4) 115, ,762 Cupertino Senior Homes, LLC: Housing Trust Silicon Valley Jun % (4) 100, ,000 City of Cupertino (CDBG) Jun. 21, % (4) 166, ,785 City of Cupertino (CDBG) Sep. 25, % (4) 239, ,491 Sunnyvale Senior Homes, LLC: City of Mountain View (HOME) Jul. 3, % (4) 131, ,850 City of Sunnyvale (CBDG) Various 3.00 % (2) 663, ,018 City of Sunnyvale (HOME) Apr. 1, % (2) 393, ,757 Housing Trust Silicon Valley Nov. 13, % (4) 45,000 3,419 Tax credit partnerships: Sunset Square, L.P.: Berkadia Jun. 1, % (3) 3,599,032 3,746,859 City of San Jose (Local) 1 Jul. 1, % (2) 2,429,900 2,429,900 City of San Jose (Local) 2 Sep. 30, % (3) 257, ,615 City of San Jose (Local) 3 Sep. 30, % (2) 3,894,961 3,894,961 Housing Trust Silicon Valley Feb. 2, % (2) 500, ,000 County of Santa Clara (HOME) May 3, % (4) 118, ,367 Pensione Bird SRO, L.P.: City of San Jose (Local) Jun. 1, % (2) 3,223,004 3,223,004 County of Santa Clara (CDBG) Sep. 30, % (4) 61,798 61,798 County of Santa Clara (HOME) Sep. 30, % (4) 33,202 33,202 HomeSafe Santa Clara: City of Mountain View (Local) Nov. 1, % (4) 100,000 - City of Sunnyvale (CDBG) Dec. 11, % (4) 100,000 - County of Santa Clara (HOME) Dec. 13, % (4) 196,300 - County of Santa Clara (Local) Dec. 31, % (4) 150,000 - City of Santa Clara (HOME) Oct. 23, % (4) 588,463 - Department of Housing Community Development (HCD) Jun. 4, % (4) 483,816-25

29 Notes to Consolidated Financial Statements December 31, 2016 and NOTES AND MORTGAGES PAYABLE (continued) Maturity date Interest rate Payment terms San Antonio Place, L.P.: Wells Fargo Bank Tax-Exempt bond Dec. 1, % (3) - 94,619 Department of Housing and Community Development (HCD) Jan, 12, % (6) 4,900,000 4,900,000 City of Mountain View (Local) Sep. 20, % (4) 809, ,000 City of Mountain View (CDBG) Apr. 24, % (4) 2,467,451 2,467,451 City of Mountain View (HOME) Apr. 24, % (4) 2,188,814 2,188,814 County of Santa Clara Affordable Housing Funds (AHF) Jan. 12, % (2) 1,500,000 1,500,000 Housing Trust Silicon Valley Jan. 12, % (4) 500, ,000 Paseo Senter, L.P.: Department of Housing Community Development (HCD) Jun. 12, % (6) 10,500,000 10,500,000 US Bank Tax-Exempt Bond Jun. 1, % (3) 4,441,227 4,533,641 City of San Jose (Local) Dec. 19, % (2) 6,932,630 6,932,630 Housing Trust of Silicon Valley May 12, % (4) 500, ,000 AHP Dec. 1, % (7) 460, ,000 County of Santa Clara (HPF) Jun. 12, % (2) 250, ,000 County of Santa Clara (AHF) Jun. 12, % (2) 350, ,000 Paseo Senter II, L.P.: US Bank Tax-Exempt Bond Dec. 1, % (3) 3,426,141 3,501,309 Department of Housing and Community Development (HCD) Dec. 16, % (6) 9,000,000 9,000,000 City of San Jose (Local) Dec. 19, % (2) 5,939,550 5,939,550 Housing Trust of Silicon Valley Dec. 16, % (4) 500, ,000 AHP Apr. 1, % (7) 396, ,000 County of Santa Clara (AHF) Dec. 22, % (2) 300, ,000 County of Santa Clara (HPF) Dec. 23, % (2) 250, ,000 Kings Crossing, L.P.: City of San Jose (HOME) Oct. 2, % (2) 5,250,700 5,250,700 City of San Jose (Local) Oct. 2, % (2) 2,265,414 2,266,523 CalHFA Oct 1, % (2) 1,192,773 1,192,749 AHP Jun. 1, % (4) 460, ,000 City of San Jose Multifamily Housing Revenue Bond Various Various (8) 2,584,164 2,676,189 County of Santa Clara (HOME) Jun. 30, % (2) 350, ,994 Department of Housing and Community Development (HCD) Oct. 2, % (6) 9,971,950 9,971, Monterey Road, L.P.:* City of San Jose (Local) Apr. 15, % (9) 6,532,617 7,130,000 City of San Jose (HOME) Dec. 24, % (2) 7,915,000 5,975,544 Housing Trust Silicon Valley Mar. 30, % (1) 5,000,000 5,000,000 County of Santa Clara (AHF) Oct. 4, % (2) 500,000 - Bank of America Sep. 1, 2017 Various (4) 13,132, Monterey Road South, L.P.:* City of San Jose (Local) Dec. 15, % (4) 220, ,162 26

30 Notes to Consolidated Financial Statements December 31, 2016 and NOTES AND MORTGAGES PAYABLE (continued) Maturity date Interest rate Payment terms City of San Jose (HOME) Dec. 24, % (2) 3,043,290 3,043,290 County of Santa Clara (CDBG) Dec. 1, % (4) 120, ,371 County of Santa Clara (HOME) Nov. 1, % (2) 123, ,668 City of San Jose (Local) Jun. 1, % (4) 500, Archer, L.P.: City of San Jose (HOME) Jul. 13, % (2) 1,800,000 1,800,000 City of San Jose (Local) Jul. 13, % (2) 3,103,907 3,103,907 County of Santa Clara (HOME) Oct. 26, % (2) 371, ,157 CalHFA Oct. 1, % (2) 590, ,262 Parkside Studios, L.P.: City of Sunnyvale (Local) Jun. 24, % (5) 4,100,000 4,100,000 County of Santa Clara (CDBG) Dec. 17, % (2) 400, ,000 County of Santa Clara (CDBG) Dec. 17, % (2) 232, ,493 County of Santa Clara (HOME) Dec. 17, % (5) 205, ,646 City of Sunnyvale (HOME) Jun. 24, % (5) 850, ,000 CalHFA Mar. 1, % (2) 1,154,000 1,154,000 San Tomas Gardens, L.P.: Citibank Oct. 1, 2045 Various (3) 14,547,118 19,136,689 Sierra Vista I, L.P.: Citibank Oct. 1, 2045 Various (3) 5,824,436 5,875,578 City of Mountain View (CDBG) Oct. 1, % (4) 368, ,983 Stevens Creek, L.P.: Housing Trust Silicon Valley ** 3.75 % (10) 2,919,985 - HUD Entity: Stoney Pine Charities Housing Corporation: U.S. Department of Housing and Urban Development (HUD) Section 811 Sep. 1, % (7) 2,275,900 2,275,900 City of Sunnyvale (Local) Sep. 1, % (4) 420, ,000 City of Sunnyvale (HOME) Sep. 1, % (4) 780, ,000 County of Santa Clara (CDBG) Sep. 1, % (4) 300, ,000 City of Mountain View (HOME) Dec. 30, % (7) 115, ,050 City of Santa Clara (HOME) Sep. 1, % (7) 100, ,000 County of Santa Clara (Local) Sep. 1, % (7) 100, ,000 City of Mountain View (CDBG) Dec. 30, % (7) 9,000 9,000 Western Financial Bank (AHP) Mar. 30, % (7) - 90,000 City of Sunnyvale (CDBG) Sep. 1, % (4) 525, , ,726, ,479,355 Less: amortization of debt issuance cost (1,529,336) (1,420,877) 178,196, ,058,478 Less: Current portion of notes payable (1,016,836) (5,289,616) $ 177,180,081 $ 157,768,862 27

31 Notes to Consolidated Financial Statements December 31, 2016 and NOTES AND MORTGAGES PAYABLE (continued) The future maturities of the notes payable are as follows: Year Ending December 31, 2017 $ 1,016, ,535, ,362, , ,362,642 Thereafter 173,542,499 $ 179,726,253 (1) Interest only payments at a rate of.25% per annum shall be due monthly during the construction period for 2112 Monterey Road, L.P.. All principal and all accrued interest only payments shall be due and payable the later of March 30, 2017 or permanent close. (2) Annual payment of Net Cash Flow/residual receipts, as determined by the promissory note/regulatory agreement are to be applied first to interest and then principal. All remaining accrued interest and principal are due on maturity date. (3) Principal and interest are payable monthly. Any remaining outstanding principal and accrued interest are due on maturity date. (4) Outstanding interest and/or principal is due on maturity date. (5) Annual payment of Net Cash Flow/residual receipts, as determined by the promissory note/regulatory agreement are to be applied first to interest and then principal. Annual payments of residual receipts are delayed until 2 year after initial occupancy. (6) Payments in the amount of 0.42% per annum on the unpaid principal balance shall be payable to the Department commencing on the last day of the Initial Operating Year and continuing annually thereafter. Additional payments of Surplus Cash are to be made per the terms of the Regulatory Agreement. Commencing on the 30th anniversary of last day of the Initial Operating Year, annual payments shall be made in an amount equal to the lesser of 1) the full amount of interest accruing for the year or 2) an amount determined by the Department to be necessary to cover the costs of monitoring the project in compliance with the requirements of the Program. (7) Principal and interest is due on maturity date, at which time the loan will convert to a grant if none of the default conditions described in the note have occurred. (8) City of San Jose Multifamily Housing Revenue Note is split into 2 tranches. Tranche A in the amount of $1,738,000 bearing 7.25% interest and amortize over a 30 year period, and Tranche B in the amount of $1,082,000 bearing 6.75% interest to amortize over a 14 and a half year period. Both tranches bear monthly payments of principal and interest. (9) Note due the earlier of 36 months after the recordation of the Deed of Trust, with the option to extend the term of the Note (4) times for a period of six (6) months for each extension, or the date of the recordation of the permanent loan from the City. 28

32 Notes to Consolidated Financial Statements December 31, 2016 and NOTES AND MORTGAGES PAYABLE (continued) (10) Principal due with the exception of $1,000,000 at City of Cupertino construction funding. Interest paid monthly until construction conversion date, then deferred thereafter. Principal and interest due 55 years following the construction conversion date. The Met was originally scheduled to be built in one phase, but was subsequently split into two phases; Met North and Met South. In March 2015, the land was split up into two parcels and the loans were allocated between the two parcels, based on the relative square footage. ** 55 years after const. conversion 3.75%. 11. ACCRUED INTEREST Accrued interest consists of the following: Tax credit Limited Partnerships $ 14,788,256 $ 12,220,502 HUD entity 1,218,563 1,139, % owned entities 1,401,977 1,339,717 17,408,796 14,699,311 Accrued interest, net of current portion (516,034) (432,464) 12. INTEREST EXPENSE $ 16,892,762 $ 14,266,847 The total interest expense for the years ended December 31, 2016 and 2015, was $4,812,501 and $4,005,383, respectively. Interest costs capitalized in the years ended December 31, 2016 and 2015, was $822,696 and $1,508,386, respectively. 13. OBLIGATION UNDER INTEREST RATE SWAP Sunset Square, L.P. that is consolidated in the Organization has a derivative instrument with a notional amount of $6,800,000 that is reported in the balance sheet as a liability measured at its fair value. The change in fair value of the hedging instrument is reported in the statement of activities. Sunset Square, L.P. entered into an interest rate swap agreement effective July 1, 2002 to hedge against interest rate exposure associated with its variable rate debt. The swap agreement involves payment by the Partnership to a counterparty at a fixed rate in return for receipts based upon a variable rate indexed to the average rate paid on City of San Jose variable rate demand Multifamily Housing Revenue Bonds, Series 2002E until October 1, The differential between the fixed rate of 4.712% and variable rate payments under this agreement is recognized as an adjustment to interest expense. 29

33 Notes to Consolidated Financial Statements December 31, 2016 and OBLIGATION UNDER INTEREST RATE SWAP (continued) The swap was issued at market terms so that it had no fair value at its inception. The carrying amount of the swap has been adjusted to its fair value at the end of the year, which because of changes in the variable rate resulted in reporting a liability for the fair value of the future net payments forecasted under the swap. The liability is classified as noncurrent since management does not intend to settle it during the next twelve months. The obligation under the interest rate swap is valued by a third party using inputs that are observable or that can be corroborated by observable market data and, therefore, are classified as Level 2 of the valuation hierarchy (see Note 2). The fair value of obligations under the interest rate swap as of December 31, 2016 and 2015, was $232,469 and $399,394, respectively. 14. BOARD DESIGNATED NET ASSETS (CONTROLLING INTEREST) CH has designated certain unrestricted net assets for the following purposes: Designated as general operating reserve $ 2,005,704 $ 1,467,643 Designated as development reserve 7,709,577 3,267,425 $ 9,715,281 $ 4,735,068 The general operating reserve was established in 2009 by setting aside 10% of revenue until a balance of at least $2,000,000 was achieved. The development reserve was established in 2014 and funded at a rate of 10% of operating revenue and 100% of special one-time transactions after the operating reserve was fully funded. The development reserve will be adjusted annually such that a balance of $1,000,000 and $2,000,000 is achieved in the operating and operating reserve accounts, respectively and the remaining funds, if any are deposited into the development reserve. 30

34 Notes to Consolidated Financial Statements December 31, 2016 and TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets consist of the following: AHSC grant - (CH) $ 1,411,449 $ - BMR Affordable Housing Funds (AHF) - (CUSE) 191, ,535 City of San Jose grant - (LOSE) 136, ,485 CDBG grant - (MISE) 4,775 46,025 City of Campbell grant - (CASE) - 10,079 County of Santa Clara grant - (SASE) - 4, UNRESTRICTED NET ASSETS (CONTROLLING INTEREST) $ 1,744,018 $ 428,474 On December 31, 2016 Merritt Community Capital Fund VI, L.P. transferred their interests in HomeSafe Santa Clara, L.P. to CH. Since the parties involved in the sale transaction are deemed to be affiliates under control of CH, generally accepted accounting principles require that the Partnership record the transaction based on the seller's carrying value of the assets at the time of acquisition. The excess of purchase price over carrying value is booked against CH's net assets. 17. RELATED PARTY Bookkeeping and property management fees The Organization earns property management and bookkeeping fees from related parties as well as other nonrelated entities. Fees from related parties were as follows: Property Property Management Fees (Per year) Bookkeeping Fees (Per Mo.) BESA $ 14,004 $ 250 HSSC* $ 12,500 $ 250 HSSJ $ 12,500 $ 250 * For 2015 only Property management and bookkeeping fees earned from related parties for each of the years ended December 31, 2016 and 2015, totaled $32,504 and $48,004, respectively. 31

35 Notes to Consolidated Financial Statements December 31, 2016 and RELATED PARTY (continued) Partnership management fee - HomeSafe Santa Clara, L.P. Caritas earns management fees for managing HomeSafe Santa Clara, L.P., in an annual amount of $10,000 per year, to be paid in arrears, subject to excess cash. Partnership management fees earned from HomeSafe Santa Clara, L.P. for the year ended December 31, 2016 and 2015, totaled $10,000. Partnership management fee - HS San Jose, L.P. Caritas earns partnership management fees for managing HS San Jose, L.P., in the amount of $10,000 per year. The fee increases by 4% per year and is to be paid in arrears, subject to excess cash. Partnership management fees earned from HS Jan Jose, L.P. for the years ended December 31, 2016 and 2015, totaled $15,791 and $15,184, respectively. Partnership management fee - Belovida Santa Clara, L.P. Charities Belovida, LLC earns an annual $1,000 management fees for managing Belovida Santa Clara, L.P. The fee increases by 3% per year and is to be paid in arrears, subject to excess cash. Partnership management fees earned from Belovida Santa Clara, L.P. for the years ended December 31, 2016 and 2015, totaled $1,230 and $1,194, respectively. Asset management fee As compensation for the services of Investor Limited Partners in monitoring activities of partnership, certain partnerships pay an asset management fee out of surplus cash that ranges from $2,509 to $8,441 per year, as defined in the management/regulatory agreements. Case management fees CH entered into service agreements with Catholic Charities, to provide housing services case management to tenants for certain partnerships and properties. Case management fees for years ended December 31, 2016 and 2015, totaled $246,404 and $222,042, respectively. Investment in partnerships See Note 5. Notes receivable and notes payable from affiliates See Note 8. 32

36 Notes to Consolidated Financial Statements December 31, 2016 and RELATED PARTY (continued) Notes receivable and notes payable from affiliates (continued) These and other transactions resulted in receivables from related parties: Due from Belovida Santa Clara, L.P.: Partnership management fee $ 9,949 $ 8,720 Property management fee 1,167 1,167 Other 1, HomeSafe Santa Clara, L.P.: Notes receivable - 400,000 Operating deficit advances - 77,617 Partnership management fee - 70,000 Property management fee - 1,042 Other Due from HS San Jose, L.P.: Operating deficit loan 140, ,000 Partnership management fee 110,571 93,325 Management fee 1,042 1,042 Other 2, Raymond James California Housing Opportunities Fund II, LLC: San Tomas Gardens, L.P.'s capital contribution 600,000 6,549,733 Merritt Community Capital Fund XVI, L.P.: Sierra Vista, L.P.'s capital contribution - 250,000 NEF Assignment Corporation: Parkside Studios, L.P.'s capital contribution - 240,000 Bank of America 2112 Monterey Road, L.P.'s capital contribution 19,350,146 - All properties: Other 1,834 2,547 $ 20,219,237 $ 7,836,479 33

37 Notes to Consolidated Financial Statements December 31, 2016 and RELATED PARTY (continued) Notes receivable and notes payable from affiliates (continued) These and other transactions resulted in payables to related parties: L.P. distribution due to: NEF Assignment Corporation $ 32,913 $ - Raymond James Tax Credit Fund 36, LLC 9,643 - Boston Financial Institutional Tax Credits XXVIII 1,146 - Asset management fees due to: Boston Financial Institutional Tax Credits XXVIII 6,290 6,280 Raymond James Tax Credit Fund 36, LLC 5,240 13,282 RCHP SLP III, L.P. 20,105 15,000 Wells Fargo Affordable Housing Community Development Corporation 3,377 3,278 NEF Assignment Corporation - 2,589 Merritt Community Capital Fund XVI, L.P. 5,150 3,750 Case management services due to: Catholic Charities 67,050 66, RENTAL ASSISTANCE INCOME $ 150,914 $ 110,582 The Organization has contracts with the Housing Authority of Santa Clara County (the "PHA") under Section 8 Housing Assistance Payments Program of the U.S. Department of Housing and Urban Development for Westwood, San Antonio Place, L.P., Kings Crossing, L.P., Parkside Studios, L.P., Campbell Senior Homes, LLC, Los Gatos Senior Homes, LLC, Santa Clara Senior Homes, LLC, and Sunnyvale Senior Homes, LLC. Under the terms of the contracts, the PHA will pay the Organization the difference between the rent charged to a tenant and the contract rent allowable by the PHA. Rental assistance income under this agreement for the years ended December 31, 2016 and 2015, totaled $1,467,762 and $1,085,177, respectively. In connection with various lender and HUD agreements, there are certain restrictions on occupancy of the Section 8 units which include maximum income limitations and maximum rents chargeable. In addition, Section 8 requires the maintenance of security deposits, replacement reserves, residual receipts and impound accounts which are to be held by the mortgagee and mortgagor in trust. Stoney Pine Charities Housing Corporation entered into a subsidy contract with HUD for 22 units. The contract was renewed effective July 1, 2015 and expires June 30, 2016 and was renewed for one year. Rents cannot be increased without prior written approval from HUD. 34

38 Notes to Consolidated Financial Statements December 31, 2016 and RENTAL ASSISTANCE INCOME (continued) Sierra Vista I, L.P. has entered into a Section 8 Housing Assistance Payments ("HAP") Program Contract with HUD for 28 units. This contract was assigned from Sierra Vista I/Charities Housing to the Partnership on October 1, The term of the contract is October 1, 2013 through September 1, 2033 and provides for nonguaranteed maximum annual support in the amount of $411,869. San Tomas Gardens, L.P. has entered into a Section 8 HAP Contract with HUD for 94 units. This contract was assigned from San Tomas Charities Housing to the Partnership on December 1, The term of the contract is October 1, 2009 through September 1, 2044 and provides for nonguaranteed maximum annual support in the amount of $1,777, COMMITMENTS AND CONTINGENCIES Affordability restrictions See Notes 1 and 10. Operating deficit guarantee The Organization is obligated under agreements to advance funds to the following partnerships to pay operating deficits as they arise: Maximum Partnership Amount San Tomas Gardens, L.P. $ 900,000 Sunset Square, L.P. 600,000 Kings Crossing, L.P. 475,000 Parkside Studios, L.P. 236, Archer, L.P. 150, Monterey Road, L.P. 350,000 HS San Jose, L.P. 47,640 Purchase option and right of first refusal agreement $ 2,759,555 In connection with the development of affordable housing projects, which are owned by Limited Partnerships, the Organization has a right of first refusal, and the Partnerships have granted the Organization options to purchase the projects. 35

39 Notes to Consolidated Financial Statements December 31, 2016 and COMMITMENTS AND CONTINGENCIES (continued) Purchase option and right of first refusal agreement (continued) The refusal and option periods for the purchase of the projects are as follows: Refusal Option Period Project Beginning End Beginning End Sunset Square, L.P. 1/1/ /31/2019 1/1/ /31/2019 HS San Jose, L.P. 1/1/ /31/2020 1/1/ /31/2020 San Antonio Place, L.P. 1/1/ /31/2022 1/1/ /31/2022 Paseo Senter, L.P. 1/1/ /31/2026 1/1/ /31/2026 Paseo Senter II, L.P. 1/1/ /31/2026 1/1/ /31/ Archer, L.P. 1/1/ /31/2028 1/1/ /31/ Monterey Road, L.P. 10/4/ /4/2033 1/1/ /31/2032 Kings Crossing, L.P. 1/11/ /31/2029 1/1/ /31/2029 San Tomas Gardens, L.P. 1/1/ /31/2032 1/1/ /31/2032 Sierra Vista I, L.P. 1/1/ /31/2102 1/1/ /31/2033 Parkside Studios, L.P. 1/1/2030 N/A 1/1/2026 N/A Indemnification agreements In connection with the development of affordable housing projects, which are owned by Limited Partnerships, the Organization has entered into indemnification (guarantee) agreements with the investor limited partners in such partnerships pertaining to low-income housing tax credits and other tax benefits. 36

40 Notes to Consolidated Financial Statements December 31, 2016 and COMMITMENTS AND CONTINGENCIES (continued) Indemnification agreements (continued) Contingent liabilities for tax benefits not yet realized by investor limited partners, consisting mainly of housing tax credits, amount to the following: Monterey Road, L.P. $ 23,610,379 $ - San Tomas Gardens, L.P. 15,985,879 17,193,665 Parkside Studios, L.P. 13,837,016 16,258,869 Kings Crossing, L.P. 10,915,317 12,062,902 Paseo Senter, L.P. 9,187,365 10,619,311 Paseo Senter II, L.P. 7,435,975 8,634, Archer, L.P. 7,970,682 8,547,220 Sierra Vista I, L.P. 6,496,307 7,030,745 Belovida Santa Clara, L.P. 4,945,258 5,431,131 San Antonio Place, L.P. 3,354,700 3,567,531 HS San Jose, L.P. 696, ,390 Sunset Square, L.P. 443, ,173 HomeSafe Santa Clara, L.P. 283, ,963 Contingencies arising from grants and contracts $ 105,162,079 $ 91,409,440 Grants and contracts awarded to the Organization are subject to the funding agencies' criteria, terms and regulations under which expenditures may be charged and are subject to audit under such terms, regulations and criteria. Occasionally, such audits may determine that certain costs incurred in connection with the grants do not comply with the established criteria that govern them. In such cases, the Organization could be held responsible for repayments to the funding agency for the costs or be subject to a reduction of future funding in the amount of the costs. Management does not anticipate any material questioned costs for the contracts and grants administered during the period. 20. RETIREMENT PLAN The Organization has a defined contribution retirement plan (the "Plan") covering eligible employees. The Plan requires employer contributions of 5% of covered payroll. Total contributions made to the Plan, net of forfeitures of non-vested contributions for separated employees, was $61,892 and $48,273 for the years ended December 31, 2016 and 2015, respectively. 37

41 Notes to Consolidated Financial Statements December 31, 2016 and SUBSEQUENT EVENTS On April 13, 2017, 2112 Monterey Road, L.P. closed on its permanent financing and paid down the Bank of America loan to $1,998,905, and the interest was fixed at 5.23%. In addition, the City of San Jose loan was paid down to $13,612,779 and the related accrued interest was paid off. The Housing Trust Silicon Valley loan was also paid off. The limited partner contributed $19,048,798 at the time. 38

42 SUPPLEMENTARY INFORMATION

43 ASSETS Charities Housing Development Corporation of Santa Clara County and Affiliates Consolidating Statements of Financial Position December 31, 2016 Developer and Management Affiliates Eliminating Entries Tax Credit Limited Partnerships Eliminating Entries % Owned Total HUD Current assets Cash - CH & mgmt. affiliates $ 10,983,471 $ 723,892 $ - $ 11,707,363 $ - $ - $ - $ 11,707,363 Cash - Partnerships/HUD entity ,282,867 41,142-2,324,009 Cash - construction ,838, ,838,941 Tenant rents receivable - 6,886-6,886 97, ,955 Management fee - affiliates 600,273 - (11,476) 588, (466,068) 122,729 Accounts receivable - affiliates 2,241, (22,459) 2,219,398 4,847 - (2,217,883) 6,362 Grants receivable 1,411,449 30,600-1,442, ,442,049 Partnership contributions receivable ,600,246 - (100) 19,600,146 Developer fee receivable - affiliates 1,744, ,744, (1,744,142) - Other receivables - 5,882-5, , ,790 Prepaid expenses 11,380 5,038-16, ,826 2, ,270 Total current assets 16,992, ,507 (33,935) 17,730,935 24,125,820 44,052 (4,428,193) 37,472,614 Property, furnishings and fixtures, net 35,378 14,676,978-14,712, ,910,298 3,721,556 (8,470,549) 234,873,661 Other assets Due from affiliates 322, , (182,423) 140,000 Investments in partnerships 9,356, ,356, (8,472,654) 883,399 Prepaid land lease, net of amortization ,374, ,374,148 Projects in development 1,058,833 80,790-1,139,623 9,227,998 - (343,996) 10,023,625 Contributions receivable, net of current portion , ,000 Notes receivable - affiliates 25,659, ,000 (150,000) 25,659, (25,659,952) - Deferred costs , ,580 Deposits 3, , ,018 Cash - tenant security deposits - 66,501-66, ,227 10, ,629 Cash held for replacement reserves - 524, ,877 3,665, ,373-4,293,328 Cash held for operating reserves ,508, ,508,999 Cash held for other reserves ,090,904 5,734-1,096,638 Total other assets 36,400, ,168 (150,000) 37,073,027 23,369, ,008 (34,659,025) 25,903,364 Total assets $ 53,428,600 $ 16,271,653 $ (183,935) $ 69,516,318 $ 272,405,472 $ 3,885,616 $ (47,557,767) $ 298,249,639 40

44 LIABILITIES AND NET ASSETS Charities Housing Development Corporation of Santa Clara County and Affiliates Consolidating Statements of Financial Position December 31, 2016 Developer and Management Affiliates Eliminating Entries Tax Credit Limited Partnerships Eliminating Entries % Owned Total HUD Current liabilities Accounts payable - affiliates $ 99 $ 47,653 $ (41,413) $ 6,339 $ 1,118,010 $ 4,947 $ (1,022,084) $ 107,212 Accounts payable 21, , , ,158 3,187 27, ,265 Accounts payable - construction ,354, ,354,683 Accrued expenses 26,608-7,478 34,086 70, , ,685 Rent received in advance - 1,437-1,437 51, ,110 Partnership distribution payable , ,702 Current portion of mortgages payable - 143, , , ,016,836 Developer fees payable ,744,142 - (1,744,142) - Current portion of accrued interest - 33,705-33,705 1,115,760 - (628,050) 521,415 Total current liabilities 47, ,895 (33,935) 351,675 6,596,561 8,771 (3,228,099) 3,728,908 Long-term liabilities Mortgages payable, net 1,050,000 7,075,888 (150,000) 7,975, ,300,049 4,594,401 (26,690,257) 177,180,081 Notes payable to affiliates ,614 - (204,417) 16,197 Accrued interest - 1,368,272-1,368,272 14,437,836 1,218,563 (131,909) 16,892,762 Tenant security deposits - 59,299-59, ,387 10, ,949 Security deposit clearing account , ,469 Total long-term liabilities 1,050,000 8,503,720 (150,000) 9,403, ,018,094 5,823,227 (27,026,583) 195,218,458 Total liabilities 1,097,715 8,841,615 (183,935) 9,755, ,614,655 5,831,998 (30,254,682) 198,947,366 Net assets Unrestricted Non-controlling interest ,736, ,736,944 Controlling interest 50,919,436 7,097,469-58,016,905 (17,946,127) (1,946,382) (17,303,085) 20,821,311 Total unrestricted 50,919,436 7,097,469-58,016,905 58,790,817 (1,946,382) (17,303,085) 97,558,255 Temporarily restricted 1,411, ,569-1,744, ,744,018 Total net assets 52,330,885 7,430,038-59,760,923 58,790,817 (1,946,382) (17,303,085) 99,302,273 Total liabilities and net assets $ 53,428,600 $ 16,271,653 $ (183,935) $ 69,516,318 $ 272,405,472 $ 3,885,616 $ (47,557,767) $ 298,249,639 41

45 Consolidating Statement of Activities and Changes in Net Assets For the Year Ended December 31, 2016 Developer and Management Affiliates Eliminating Entries Tax Credit Limited Partnerships Eliminating Entries % Owned Total HUD Unrestricted revenue and support Rental and other income Rental income, net $ - $ 1,241,683 $ - $ 1,241,683 $ 10,961,775 $ 207,666 $ - $ 12,411,124 Developer fees 965, , (965,608) - Management fees 1,257,626 - (196,913) 1,060, (1,034,209) 26,504 Grants from affiliates 10,113 - (10,113) Unrestricted grants and contributions - 25,825-25, ,216 90, ,041 Contributions in-kind 75, , ,567 Consulting and services 71, , ,000 Interest income 754, ,538 20, (718,434) 58,288 Miscellaneous income , ,975 Income on partnership interest 391, , (487,755) (96,108) Loss on sale of asset (7,617) - - (7,617) Other revenue 12, , ,627 Net assets released from restrictions - 100, , ,680 Total unrestricted revenue and support 3,539,608 1,368,944 (207,026) 4,701,526 11,737, ,860 (3,206,006) 13,531,081 Functional expenses Program services Rental operations - 1,166,556 (207,026) 959,530 18,279, ,126 (1,760,066) 18,026,058 Project development 626, , (626,901) - Property management 968, , ,792 1,595,693 1,166,556 (207,026) 2,555,223 18,279, ,126 (2,386,967) 18,994,850 Supporting services Operating expenses 559,546 10, , (230,394) 339,397 Total functional expenses 2,155,239 1,176, ,026 3,125,014 18,279, ,126 2,617,361 19,334,247 Changes in net assets before non-operating expenses 1,384, ,143-1,576,512 (6,541,767) (249,266) (588,645) (5,803,166) Non-operating expenses Unrealized gain on interest rate swap , ,186 Total non-operating expenses , ,186 Changes in unrestricted net assets 1,384, ,143-1,576,512 (6,374,581) (249,266) (588,645) (5,635,980) 42

46 Consolidating Statement of Activities and Changes in Net Assets For the Year Ended December 31, 2016 Developer and Management Affiliates 100% Owned Eliminating Entries Total Tax Credit Limited Partnerships HUD Eliminating Entries 2016 Temporarily restricted contributions Grant income 1,411,449 4,775-1,416, ,416,224 Net assets released from restrictions - (100,680) - (100,680) (100,680) Changes in temporarily restricted net assets 1,411,449 (95,905) - 1,315, ,315,544 Change in net assets 2,795,818 96,238-2,892,056 (6,374,581) (249,266) (588,645) (4,320,436) Net assets, beginning of year Unrestricted 49,535,067 6,905,326-56,440,393 45,298,519 (1,697,116) (16,530,988) 83,510,808 Temporarily restricted - 428, , ,474 Total net assets, beginning of year 49,535,067 7,333,800-56,868,867 45,298,519 (1,697,116) (16,530,988) 83,939,282 Changes in net assets Contributions ,874, ,874,490 Distributions (43,801) - - (43,801) Syndication costs (147,262) - - (147,262) Opening net asset balance for HomeSafe Santa Clara ,452 - (183,452) - Net assets, end of year Unrestricted 50,919,436 7,097,469-58,016,905 58,790,817 (1,946,382) (17,303,085) 97,558,255 Temporarily restricted 1,411, ,569-1,744, ,744,018 Total net assets, end of year $ 52,330,885 $ 7,430,038 $ - $ 59,760,923 $ 58,790,817 $ (1,946,382) $ (17,303,085) $ 99,302,273 43

47 Consolidating Statements of Financial Position - Developer and Management Affiliates December 31, 2016 ASSETS Charities Housing Development Corporation San Antonio Charities Sunset Charities Paseo Senter, Housing Corp. LLC Charities Kings Crossing, LLC Charities Belovida, LLC Archer Charities, LLC Caritas Housing 2112 Monterey Road, LLC Hope Charities Housing Corp. Total Current assets Cash - CH & mgmt. affiliates $ 10,977,996 $ 2,186 $ - $ - $ - $ - $ - $ 28 $ - $ 3,261 $ - $ - $ - $ - $ - $ - $ - $ 10,983,471 Management fee - affiliates 118,655 31, ,995 22,510 9,949 16, , ,600 5,289 38, ,273 Accounts receivable - affiliates 2,233,355 10, ,569-30, (71,264) 2,241,648 Grants receivable 1,411, ,411,449 Developer fee receivable - affiliates 1,744, ,744,142 Prepaid expenses 11, ,380 Total current assets 16,496,977 43, ,995 61,079 9,949 47, ,048-3,261 20,600 5,289 38, (71,264) 16,992,363 Sierra Vista I Charities, LLC San Tomas Charities, LLC Parkside Charities, LLC Renascent Place Charities, LLC Westwood Ambassador, LLC Stevens Creek Charities, LLC Eliminating Entries Property, furnishings and fixtures, net 35, ,378 Other assets Due from affiliates 187,486-23, , ,423 Investments in partnerships 7,274, ,563 (190,156) 3,299,020 1,299,812 (150) (140) 899, , ,013 (748) (1,609) 1,165, (5,765,443) 9,356,053 Projects in development 1,058, ,058,833 Notes receivable - affiliates 25,659,952-50, , , (218,000) 25,659,952 Deposits 3, ,598 Total other assets 34,184, ,563 (116,336) 3,299,020 1,299,812 (150) (140) 1,010, , ,013 (748) (1,609) 1,165,321 25, (5,983,443) 36,400,859 Total assets $ 50,716,590 $ 1,018,181 $ (116,336) $ 3,458,015 $ 1,360,891 $ 9,799 $ 47,421 $ 1,188,347 $ 227,021 $ 321,274 $ 19,852 $ 3,680 $ 1,203,571 $ 25,001 $ - $ - $ (6,054,707) $ 53,428,600 LIABILITIES AND NET ASSETS Current liabilities Accounts payable - affiliates $ 99 $ - $ 4,648 $ 3,110 $ 645 $ 20,899 $ 645 $ 5,141 $ 18,599 $ 20 $ (481) $ 645 $ 8,615 $ 4,338 $ 3,487 $ 953 $ (71,264) $ 99 Accounts payable 21, ,008 Accrued expenses 26, ,608 Total current liabilities 47,715-4,648 3, , ,141 18, (481) 645 8,615 4,338 3, (71,264) 47,715 Long-term liabilities Mortgages payable, net 1,268, (218,000) 1,050,000 Total long-term liabilities 1,268, (218,000) 1,050,000 Total liabilities 1,315,715-4,648 3, , ,141 18, (481) 645 8,615 4,338 3, (289,264) 1,097,715 Net assets Unrestricted Controlling interest 47,989,426 1,018,181 (120,984) 3,454,905 1,360,246 (11,100) 46,776 1,183, , ,254 20,333 3,035 1,194,956 20,663 (3,487) (953) (5,765,443) 50,919,436 Total unrestricted 47,989,426 1,018,181 (120,984) 3,454,905 1,360,246 (11,100) 46,776 1,183, , ,254 20,333 3,035 1,194,956 20,663 (3,487) (953) (5,765,443) 50,919,436 Temporarily restricted 1,411, ,411,449 Total net assets 49,400,875 1,018,181 (120,984) 3,454,905 1,360,246 (11,100) 46,776 1,183, , ,254 20,333 3,035 1,194,956 20,663 (3,487) (953) (5,765,443) 52,330,885 Total liabilities and net assets $ 50,716,590 $ 1,018,181 $ (116,336) $ 3,458,015 $ 1,360,891 $ 9,799 $ 47,421 $ 1,188,347 $ 227,021 $ 321,274 $ 19,852 $ 3,680 $ 1,203,571 $ 25,001 $ - $ - $ (6,054,707) $ 53,428,600 44

48 Consolidating Statements of Activities and Changes in Net Assets - Developer and Management Affiliates For the Year Ended December 31, 2016 Charities Housing Development Corporation San Antonio Charities Sunset Charities Paseo Senter, Housing Corp. LLC Charities Kings Crossing, LLC Charities Belovida, LLC Archer Charities, LLC Caritas Housing Total Unrestricted revenue and support Rental and other income Developer fees $ 965,608 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 965,608 Management fees 1,140,235 38,283-40,000 22,510 1,230 39,393 25, ,600 5,289 25, (101,455) 1,257,626 Grants from affiliates 10, ,113 Contributions in-kind 75, ,567 Consulting and services 71, ,000 Interest income 754, (1) ,835 Miscellaneous income Income (loss) on partnership interest 491,433 (53) (29,894) (119) - - (44) (76,176) 6,881 (255) - (68) (58) ,647 Other revenue 12, ,627 Total unrestricted revenue and support 3,522,000 38,230 (29,894) 39,881 22,510 1,230 39,349 (50,386) 6,881 (251) 20,600 5,221 25, (101,455) 3,539,608 Functional expenses Program services Project development 626, ,901 Property management 968, ,792 1,595, ,595,693 Supporting services Operating expenses 564,557 22,102 1,835 2,510 2,163 2,510 30,723 13,640 2,490 3,381 2,028 3,427 2,510 3,511 2, (101,455) 559,546 Total functional expenses 2,160,250 22,102 1,835 2,510 2,163 2,510 30,723 13,640 2,490 3,381 2,028 3,427 2,510 3,511 2, ,455 2,155, Monterey Road, LLC Hope Charities Housing Corp Sierra Vista I Charities, LLC San Tomas Charities, LLC Parkside Charities, LLC Renascent Place Charities, LLC Westwood Ambassador, LLC Stevens Creek Charities, LLC Eliminating Entries Changes in unrestricted net assets 1,361,750 16,128 (31,729) 37,371 20,347 (1,280) 8,626 (64,026) 4,391 (3,632) 18,572 1,794 23,182 (3,511) (2,661) (953) - 1,384,369 Temporarily restricted contributions Grant income 1,411, ,411,449 Changes in temporarily restricted net assets 1,411, ,411,449 Change in net assets 2,773,199 16,128 (31,729) 37,371 20,347 (1,280) 8,626 (64,026) 4,391 (3,632) 18,572 1,794 23,182 (3,511) (2,661) (953) - 2,795,818 Net assets, beginning of year Unrestricted 46,627,676 1,002,053 (89,255) 3,417,534 1,339,899 (9,820) 38,150 1,247, , ,886 1,761 1,241 1,171,774 24,174 (826) - (5,765,443) 49,535,067 Temporarily restricted Total net assets, beginning of year 46,627,676 1,002,053 (89,255) 3,417,534 1,339,899 (9,820) 38,150 1,247, , ,886 1,761 1,241 1,171,774 24,174 (826) - (5,765,443) 49,535,067 Net assets, end of year Unrestricted 47,989,426 1,018,181 (120,984) 3,454,905 1,360,246 (11,100) 46,776 1,183, , ,254 20,333 3,035 1,194,956 20,663 (3,487) (953) (5,765,443) 50,919,436 Temporarily restricted 1,411, ,411,449 Total net assets, end of year $ 49,400,875 $ 1,018,181 $ (120,984) $ 3,454,905 $ 1,360,246 $ (11,100) $ 46,776 $ 1,183,206 $ 208,422 $ 321,254 $ 20,333 $ 3,035 $ 1,194,956 $ 20,663 $ (3,487) $ (953) $ (5,765,443) $ 52,330,885 45

49 Consolidating Statements of Financial Position - 100% Owned Properties December 31, 2016 ASSETS Westwood Apartments 107 Los Gatos 220 Los Gatos Sierra Vista Total Current assets Cash - CH & mgmt. affiliates $ 18,701 $ 19,063 $ 161,765 $ 82,278 $ 197,119 $ 25,160 $ 192,491 $ 13,511 $ 13,804 $ - $ - $ - $ 723,892 Tenant rents receivable ,079 (126) , ,886 Accounts receivable - affiliates Grants receivable , ,600 Other receivables , ,882 Prepaid expenses - - 4, ,038 Total current assets 18,881 19, ,627 82, ,144 56, ,763 14,335 14, ,507 Campbell Senior Homes, LLC Cupertino Senior Homes,LLC Milpitas Senior Homes, LLC Los Gatos Senior Homes, LLC Santa Clara Senior Homes,LLC Sunnyvale Senior Homes, LLC San Tomas Gardens Eliminating Entries Property, furnishings and fixtures, net 839,228 1,534,912 1,744,321 2,349,752 1,629,172 2,531,365 2,520, ,737 1,307, ,676,978 Other assets Projects in development , ,790 Notes receivable - affiliates ,000 25,000 25,000 25,000 25,000 25, ,000 Cash - tenant security deposits 6,561 4,946 35,129 4,901 2,509 3,820 3,601 2,047 2, ,501 Cash held for replacement reserves 49,934 71, ,263 49,167 19,561 13,620 16,627 40,424 7, ,877 Total other assets 56,495 76, ,182 79,068 47,070 42,440 45,228 67,471 35, ,168 Total assets $ 914,604 $ 1,630,526 $ 2,284,130 $ 2,511,050 $ 1,873,386 $ 2,630,386 $ 2,767,727 $ 301,543 $ 1,358,301 $ - $ - $ - $ 16,271,653 LIABILITIES AND NET ASSETS Current liabilities Accounts payable - affiliates $ 1,037 $ 1,012 $ 29,299 $ 4,680 $ 1,561 $ 2,872 $ 3,124 $ 1,247 $ 2,821 $ - $ - $ - $ 47,653 Accounts payable ,462 1, ,827 1,396 14,711 1, ,421 Rent received in advance ,437 Current portion of mortgages payable - 1,088 89,310 53, ,679 Current portion of accrued interest , ,705 Total current liabilities 1,129 2, ,352 59,716 2,231 4,717 4,821 15,958 4, ,895 Long-term liabilities Mortgages payable, net - 147,843 1,338,548 1,104, ,276 1,246,608 1,385, ,762 1,230, ,075,888 Accrued interest - 43,631 30, ,304 71, , , , ,368,272 Tenant security deposits 5,712 4,444 33,780 3,951 1,553 3,288 2,648 1,564 2, ,299 Security deposit clearing account Total long-term liabilities 5, ,918 1,402,803 1,709, ,158 1,401,197 1,756, ,326 1,335, ,503,720 Total liabilities 6, ,257 1,645,155 1,769, ,389 1,405,914 1,761, ,284 1,339, ,841,615 Net assets Unrestricted Controlling interest 907,763 1,432, , ,583 1,100,688 1,219, , ,259 18, ,097,469 Total unrestricted 907,763 1,432, , ,583 1,100,688 1,219, , ,259 18, ,097,469 Temporarily restricted ,309 4, , ,569 Total net assets 907,763 1,432, , ,583 1,291,997 1,224,472 1,006, ,259 18, ,430,038 Total liabilities and net assets $ 914,604 $ 1,630,526 $ 2,284,130 $ 2,511,050 $ 1,873,386 $ 2,630,386 $ 2,767,727 $ 301,543 $ 1,358,301 $ - $ - $ - $ 16,271,653 46

50 Consolidating Statements of Activities and Changes in Net Assets - 100% Owned Properties For the Year Ended December 31, 2016 Westwood Apartments 107 Los Gatos 220 Los Gatos Sierra Vista Total Unrestricted revenue and support Rental and other income Rental income, net $ 89,011 $ 76,772 $ 589,169 $ 167,899 $ 24,153 $ 33,822 $ 120,426 $ 43,708 $ 96,723 $ - $ - $ - $ 1,241,683 Unrestricted grants and contributions , ,825 Interest income Miscellaneous income Total rental and other income 89,115 76, , ,944 24,175 59, ,440 43,737 96, ,268,264 Net assets released from restrictions ,225 60, ,680 Total unrestricted revenue and support 89,115 76, , ,944 64, , ,440 43,737 96, ,368,944 Functional expenses Program services Rental operations 87,557 97, , ,197 49, , ,633 33, , ,166,556 87,557 97, , ,197 49, , ,633 33, , ,166,556 Supporting services Operating expenses , , , ,245 Total functional expenses 87,557 97, , ,197 49, , ,633 33, , ,176,801 Campbell Senior Homes, LLC Cupertino Senior Homes, LLC Milpitas Senior Homes, LLC Los Gatos Senior Homes, LLC Santa Clara Senior Homes, LLC Sunnyvale Senior Homes, LLC San Tomas Gardens Eliminating Entries Changes in net assets before non-operating expenses 1,558 (21,006) 162,475 20,747 14,935 12,444 5,807 10,400 (15,217) ,143 Changes in unrestricted net assets 1,558 (21,006) 162,475 20,747 14,935 12,444 5,807 10,400 (15,217) ,143 Temporarily restricted contributions Grant income , ,775 Net assets released from restrictions (40,225) (60,455) (100,680) Changes in temporarily restricted net assets (40,225) (55,680) (95,905) Change in net assets 1,558 (21,006) 162,475 20,747 (25,290) (43,236) 5,807 10,400 (15,217) ,238 Net assets, beginning of year Unrestricted 906,205 1,453, , ,757 1,085,752 1,221, , ,509 33, ,905,326 Temporarily restricted , ,535 46, ,485 4, ,474 Total net assets, beginning of year 906,205 1,453, , ,836 1,317,287 1,267,708 1,000, ,859 33, ,333,800 Net assets, end of year Unrestricted 907,763 1,432, , ,583 1,100,688 1,219, , ,259 18, ,097,469 Temporarily restricted ,309 4, , ,569 Total net assets, end of year $ 907,763 $ 1,432,269 $ 638,975 $ 741,583 $ 1,291,997 $ 1,224,472 $ 1,006,350 $ 168,259 $ 18,370 $ - $ - $ - $ 7,430,038 47

51 Consolidating Statements of Financial Position - Tax Credit Partnerships December 31, 2016 ASSETS Sunset Square, L.P. San Antonio Place, L.P. Pensione Bird SRO, L.P. Paseo Senter, L.P. Paseo Senter II, L.P. Kings Crossing, L.P. 90 Archer, L.P Monterey Road, L.P. Total Current assets Cash- Partnerships $ 172,449 $ 147,137 $ 92,107 $ 124,635 $ 156,071 $ 149,526 $ 202,873 $ 108,470 $ - $ 604,200 $ 30,957 $ 227,351 $ 267,091 $ - $ - $ - $ - $ 2,282,867 Cash - construction ,624, , ,549-35,649-1,838,941 Tenant rents receivable 8, ,959 8,740 16,474 15,227 2,492 9,259-18, ,803 4, ,185 Accounts receivable - affiliates , , ,847 Partnership contributions receivable ,350, , ,600,246 Other receivables , , ,908 Prepaid expenses 8,951 9,131 12,735 42,852 37,613 16,886 6,131 7,506-9,379 1,660 4,282 9, ,826 Total current assets 190, , , , , , ,496 21,228, , ,242 32, , ,063 46,649-35,649-24,125, Monterey Road South, L.P. San Tomas Gardens, L.P. HomeSafe Santa Clara, L.P. Sierra Vista I, L.P. Parkside Studios, L.P. Renascent Place,L.P. Renascent Place South, L.P. Stevens Creek, L.P. Eliminating Entries Property, furnishings and fixtures, net 11,452,802 15,435,471 5,410,830 33,593,443 28,474,023 33,293,243 13,323,202 35,363,773-21,358,962 2,333,206 8,492,520 16,378, ,910,298 Other assets Prepaid land lease, net of amortization ,374, ,374,148 Projects in development ,294, ,600-3,932,053-9,227,998 Contributions receivable, net of current portion , ,000 Deferred costs ,707 8,618 30,257 27,703 99,850-48,468-15,540 61, ,580 Deposits Cash - tenant security deposits 88,054 97,944 73, , ,212 93,326 29,140 67,084-48,774 13,015 18,463 44, ,227 Cash held for replacement reserves 190, , , , , , ,338 5, , ,829 64,701 29, ,665,078 Cash held for operating reserves 145, , , , , , , , , , , , ,508,999 Cash held for other reserves , , , , ,090,904 Total other assets 424,471 1,041, ,002 1,274,731 1,092,925 1,186, , ,872 5,294,345 1,535, , ,205 5,021,973 1,600-3,932,053-23,369,354 Total assets LIABILITIES AND NET ASSETS $ 12,067,360 $ 16,634,608 $ 6,142,334 $ 35,044,693 $ 29,779,042 $ 34,666,749 $ 13,896,869 $ 56,930,600 $ 5,428,780 $ 23,776,749 $ 2,813,717 $ 9,526,161 $ 21,681,859 $ 48,249 $ - $ 3,967,702 $ - $272,405,472 Current liabilities Accounts payable - affiliates $ 50,469 $ 102,244 $ 49,416 $ 93,134 $ 172,371 $ 95,156 $ 66,282 $ 27,072 $ 271,417 $ 24,531 $ 16,052 $ 35,919 $ 66,598 $ 47,349 $ - $ - $ - $ 1,118,010 Accounts payable 19,118 12,905 9,960 51,256 20,323 20,651 2,805 23,634-5,840 1,722 2,383 43, , ,158 Accounts payable - construction ,354, ,354,683 Accrued expenses 800 5,300 3,018 4,400 4, ,955 20, , , ,913 Rent received in advance 125 1, , , ,034 29, ,036 Partnership distribution payable - 1, , , ,702 Current portion of mortgages payable 207, ,570 80, ,915 2, , ,411-54, ,157 Developer fees payable ,500, , ,744,142 Current portion of accrued interest 77,647 44,447 22,450 66,428 51,519 77,255 24, ,915 2, ,396 19, ,381-1,115,760 Total current liabilities 355, ,270 84, , , , ,231 3,105, , ,213 33, , ,677 48,149-17,412-6,596,561 Long-term liabilities Mortgages payable, net 10,328,549 12,738,088 3,303,013 23,607,474 19,601,007 26,329,446 5,829,623 32,777,230 4,007,490 27,511,209 2,004,525 12,408,723 6,903, ,950, ,300,049 Notes payable to affiliates 72, , ,614 Accrued interest 1,182, ,257 1,745,380 3,560,727 3,341, , , , ,823 24, , , , ,437,836 Tenant security deposits 86,558 97,413 70, , ,003 91,780 27,566 65,197-47,638 11,641 16,950 42, ,387 Obligations under interest rate swap 232, ,208 Total long-term liabilities 11,901,527 13,815,758 5,119,266 27,308,857 23,071,706 27,153,156 6,581,208 33,764,117 4,183,313 27,582,942 2,748,647 12,528,978 7,308, ,950, ,018,094 Total liabilities 12,257,516 13,983,028 5,204,177 27,621,932 23,401,056 27,471,876 6,689,439 36,869,723 4,455,564 28,549,155 2,782,455 12,806,877 7,506,006 48,149-3,967, ,614,655 Net assets Unrestricted Non-controlling interest - 1,677,017-5,923,235 4,578,490 5,895,161 7,207,573 20,060, ,141 12,954,580-4,676,412 13,010, ,736,944 Controlling interest (190,156) 974, ,157 1,499,526 1,799,496 1,299,712 (143) ,075 (17,726,986) 31,262 (7,957,128) 1,165, (17,946,127) Total unrestricted (190,156) 2,651, ,157 7,422,761 6,377,986 7,194,873 7,207,430 20,060, ,216 (4,772,406) 31,262 (3,280,716) 14,175, ,790,817 Total net assets (190,156) 2,651, ,157 7,422,761 6,377,986 7,194,873 7,207,430 20,060, ,216 (4,772,406) 31,262 (3,280,716) 14,175, ,790,817 Total liabilities and net assets $ 12,067,360 $ 16,634,608 $ 6,142,334 $ 35,044,693 $ 29,779,042 $ 34,666,749 $ 13,896,869 $ 56,930,600 $ 5,428,780 $ 23,776,749 $ 2,813,717 $ 9,526,161 $ 21,681,859 $ 48,249 $ - $ 3,967,702 $ - $272,405,472 48

52 Consolidating Statements of Activities and Changes in Net Assets - Tax Credit Partnerships For the Year Ended December 31, 2016 Sunset Square, L.P. San Antonio Place, L.P. Pensione Bird SRO, L.P. Paseo Senter, L.P. Paseo Senter II, L.P. Kings Crossing, L.P. 90 Archer, L.P Monterey Road, L.P. Total Unrestricted revenue and support Rental and other income Rental income, net $ 1,130,668 $ 1,089,541 $ 803,750 $ 1,298,058 $ 1,127,033 $ 1,215,980 $ 371,949 $ 171,345 $ - $ 2,081,974 $ 159,774 $ 907,111 $ 604,592 $ - $ - $ - $ - $ 10,961,775 Unrestricted grants and contributions , , ,216 Interest income ,979 2, , , ,990 Miscellaneous income , ,217 - (6) 1, ,337 Loss on sale of asset (7,617) (7,617) Total unrestricted revenue and support 1,123,780 1,100, ,091 1,300,350 1,128,288 1,218, , , ,216 2,083, , , , ,737,701 Functional expenses Program services Rental operations 1,320,860 1,639,063 1,061,594 2,603,043 2,218,648 2,184, , ,536-2,765, ,816 1,348,413 1,186, ,279,468 Total functional expenses 1,320,860 1,639,063 1,061,594 2,603,043 2,218,648 2,184, , ,536-2,765, ,816 1,348,413 1,186, ,279, Monterey Road South, L.P San Tomas Gardens, L.P. HomeSafe Santa Clara, L.P. Sierra Vista, L.P. Parkside Studios, L.P. Renascent Place L.P. Renascent Place South L.P. Stevens Creek L.P. Eliminating Entries Changes in net assets before nonoperating expenses (197,080) (538,163) (254,503) (1,302,693) (1,090,360) (965,748) (441,560) (650,754) 753,216 (681,889) (152,191) (441,049) (578,993) (6,541,767) Non-operating expenses Unrealized gain on interest rate swap 167, ,186 Total non-operating expenses 167, ,186 Changes in unrestricted net assets (29,894) (538,163) (254,503) (1,302,693) (1,090,360) (965,748) (441,560) (650,754) 753,216 (681,889) (152,191) (441,049) (578,993) (6,374,581) Change in net assets (29,894) (538,163) (254,503) (1,302,693) (1,090,360) (965,748) (441,560) (650,754) 753,216 (681,889) (152,191) (441,049) (578,993) (6,374,581) Net assets, beginning of year Unrestricted (160,262) 3,190,889 1,192,660 8,725,454 7,468,346 8,170,263 7,648,993 1,092, ,000 (4,090,517) - (2,853,092) 14,693, ,298,519 Temporarily restricted Total net assets, beginning of year (160,262) 3,190,889 1,192,660 8,725,454 7,468,346 8,170,263 7,648,993 1,092, ,000 (4,090,517) - (2,853,092) 14,693, ,298,519 Changes in net assets Contributions ,766, ,423 94, ,874,490 Distributions - (1,146) (9,642) (32,913) - (100) - - (43,801) Current year syndication costs (147,262) (147,262) Opening net asset balance for HomeSafe Santa Clara , ,452 Net assets, end of year Unrestricted (190,156) 2,651, ,157 7,422,761 6,377,986 7,194,873 7,207,433 20,060, ,216 (4,772,406) 31,261 (3,280,718) 14,175, ,790,817 Temporarily restricted Total net assets, end of year $ (190,156) $ 2,651,580 $ 938,157 $ 7,422,761 $ 6,377,986 $ 7,194,873 $ 7,207,433 $ 20,060,877 $ 973,216 $ (4,772,406) $ 31,261 $ (3,280,718) $ 14,175,853 $ 100 $ - $ - $ - $ 58,790,817 49

53 Sunnyvale Senior Homes, LLC - Net Cash Flow Calculations For the Year Ended December 31, 2016 Excess cash flow for the year has been computed in accordance with the City of Sunnyvale's calculation. Excess cash flow for the year ended is as follows: 2016 Net operating income $ 36,883 Adjustments Security deposit cash account interest (2) Payments into replacement reserves (4,500) Acquisitions of fixed asset (32,179) (36,681) Distribution of cash flow (in order of priority): $ Current portion of accrued interest owed to the City of Sunnyvale note 50% $ % retained by borrower 101 $

54 SINGLE AUDIT REPORTS AND SCHEDULES

55 INDEPENDENT AUDITOR'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS To the Board of Directors Charities Housing Development Corporation of Santa Clara County San Jose, California We have audited, in accordance with the auditing standards generally accepted in the United States of America (the "U.S.") and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the consolidated financial statements of Charities Housing Development Corporation of Santa Clara County (a California nonprofit public benefit corporation) (the "Organization"), which comprise the consolidated statement of financial position as of December 31, 2016, and the related consolidated statements of activities, functional expenses, changes in net assets and cash flows for the year then ended, and the related notes to the consolidated financial statements, and have issued our report thereon dated May 12, Internal Control Over Financial Reporting In planning and performing our audit of the consolidated financial statements, we considered the Organization's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Organization's internal control. Accordingly, we do not express an opinion on the effectiveness of the Organization's internal control. 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, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 52

56 Compliance and Other Matters As part of obtaining reasonable assurance about whether the Organization's consolidated financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Organization's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Organization's internal control and compliance. Accordingly, this communication is not suitable for any other purpose. May 12, 2017 Armanino LLP San Jose, California 53

57 INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE To the Board of Directors Charities Housing Development Corporation of Santa Clara County San Jose, California Report on Compliance for Each Major Federal Program We have audited Charities Housing Development Corporation of Santa Clara County (a California nonprofit public benefit corporation) (the "Organization")'s compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the Organization's major federal programs for the year ended December 31, The Organization's major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Management's Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditor's Responsibility Our responsibility is to express an opinion on compliance for each of the Organization's major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America (the "U.S."); the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the U.S.; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (the "Uniform Guidance"). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the Organization's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the Organization's compliance. Opinion on Each Major Federal Program In our opinion, the Organization complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended December 31,

58 Report on Internal Control Over Compliance Management of the Organization is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the Organization's internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the Organization's internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weakness or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. May 12, 2017 Armanino LLP San Jose, California 55