Carroll Co-Invest Fund II, LP Investor Update, Q3 2013

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1 Carroll Co-Invest Fund II, LP Investor Update, Q October 31, 2013 We are pleased to report that Carroll Co-Invest Fund II experienced a successful third quarter We completed renovation and value enhancement projects at ARIUM Links, ARIUM Barber Park, and ARIUM Grand Lagoon. We have also initiated work at ARIUM Resort. Our experience continues to demonstrate that value enhancement projects at our properties creates excitement and enthusiasm among existing residents and attracts increased numbers of prospective residents. All of our projects and work on Carroll owned properties are designed to heighten the living experience for our residents, increase net operating income, improve the value of each property, and further build and enhance the ARIUM brand. Fund Performance Carroll Co-Invest Fund II continues to generate consistent income while the portfolio also continues to increase in value. Net operating income has grown 12% across the portfolio since acquisition. Our analysis also indicates that the fair market value of investments within the Fund is 8% above acquisition price. Based on the fair market value of investments, Fund II has an unrealized gain in value of 21%. The Fund, which is now fully deployed, has returned 5% of investors capital commitment with an annualized current quarter return of 9%. Please, see the chart on the following page for specific property details.

2 As you may recall, Carroll Co-Invest Fund II closed to new investors at the end of the second quarter. Each property fits nicely with our investment philosophy of compounding your capital at high rates of return through the acquisition of superior quality, value-add, and core-plus real estate in strategic growth markets across the United States. The table below highlights the portfolio including a summary of its investment characteristics. Carroll Co-Investment Fund II Portfolio Property City Units Cap Rate COC * IRR ** Equity Multiple ** Closing Date Edgewater Clear Lake, TX % 10% 22% 2.2x 10/19/12 Sweetwater Lawrenceville, GA % 10% 21% 2.3x 11/29/12 North Point Roswell, GA % 12% 20% 2.2x 12/21/12 Westheimer Houston, TX % 13% 23% 2.4x 3/28/13 Villas at Westheimer Houston, TX % 13% 24% 2.5x 3/28/13 Barber Park Orlando, FL % 12% 25% 2.6x 4/10/13 Riverside Roswell, GA % 11% 26% 2.6x 4/25/13 East Cobb Marietta, GA % 10% 24% 2.4x 4/25/13 Parkside Nashville, TN % 8% 20% 2.1x 4/26/13 Grand Lagoon Panama City, FL % 15% 21% 2.2x 4/26/13 Links Savannah, GA % 14% 22% 2.3x 4/26/13 Danforth Jacksonville, FL % 9% 20% 2.1x 4/26/13 Crossroads Houston, TX % 8% 24% 1.8x 6/20/13 St. Johns Jacksonville, FL % 9% 21% 2.3x 6/20/13 Resort Pembroke Pines, FL 1, % 9% 20% 2.2x 6/24/13 * Third Quarter 2013 annualized gross return excluding fund start-up costs and quarterly recurring fund expenses. ** Projected at acquisition Portfolio Commentary I thought you might find of interest commentary and a couple examples of actual value enhancement projects occurring at Fund II properties. First, I will make a few comments on our investment philosophy. The value-add component of our investment approach is important as it is a key driver of our formula to achieve realistic rental rate growth at each property. To further explain, each new potential investment opportunity is reviewed by our acquisition team and analyzed in great detail prior to acquisition. Our acquisition team, which is led by Josh Champion, President of Investments, performs extensive macro analysis of the region and detailed micro analysis of the submarket where each potential investment exists. The team then goes through an in-depth underwriting process on the property including making reasonable assumptions on occupancy levels, capital expenditures, suggested value enhancement projects, and forecasted rental rate growth. When forecasting rental rate growth, the acquisitions team normally assumes modest increases in rental rates consistent with expected CPI growth. Any bump in forecasted rental rate growth is directly correlated to the impact that value enhancement projects at the property will have on the ability to increase rent. We normally are very conservative in these assumptions. Once a property is acquired, our value-add occurs in several forms including new management at the property and the enhancement of existing facilities; or more complex work such as the complete renovation of rental units, the construction of new fitness centers, cyber cafes, and other important social areas. The extent of our value-add work obviously varies by property. On the following pages, I will profile value enhancement projects at two Carroll properties, Arium Links and Arium Barber Park. Page 2

3 ARIUM Links ARIUM Links is located in Savannah, Georgia. It was constructed in the late 1990 s and has 360 units. It was part of a portfolio acquisition of four properties that were acquired at a significant discount to replacement cost. The portfolio includes properties in the secondary markets of Savannah, Georiga, Nashville, Tennessee, Jacksonville, Florida, and Panama City, Florida. All are performing well, and in fact, our Nashville property has a waiting list for new residents. At ARIUM Links, one of the changes we made was the complete removal of tennis courts and the design and construction of a unique social gathering area that includes an outdoor grill, fire pit, nice furniture, etc. You can see in the pictures below that the change was substantial. Before After The rebranding and value enhancement projects of Arium Links are already producing significant results. Arium Links has grown from 94% occupancy at acquisition in April 2013, to 96% at quarter end, while effective monthly rent per unit has increased 2% since acquisition. In addition to the positive investment results, feedback from residents relating to the new Carroll management team on site and the value enhancement projects has been overwhelmingly positive. Page 3

4 ARIUM Barber Park ARIUM Barber Park is a 526 unit property that was acquired on April 10, It is located in Orlando, Florida and is only four miles from Downtown Orlando and six miles north of the Orlando International Airport. ARIUM Barber Park had experienced consistently strong occupancy levels prior to acquisition, and a part of our investment thesis was that the implementation of targeted value enhancements would provide the opportunity for consistent rental rate increases and even greater overall performance. In addition to unit upgrades (appliances, faucets, fixtures, lighting, etc.) we also improved amenities at the property. After acquisition we constructed outdoor kitchens near both pool areas, created a new dog park, completely refurbished the main clubhouse, converted a game room into a cyber café, and remodeled all three gyms. The pictures below are before and after shots of one of the remodeled gyms. As you can see in the before and after pictures the change is significant. Before After The rebranding and value enhancement projects at Arium Barber Park continue to drive positive investment performance. Occupancy has always been strong at the property (93%-94%); however, monthly net effective rent has improved 3% since acquisition in April We expect continued strong performance at the property as newly renovated units come on line. Page 4

5 Market Update Very similar to my report last quarter, the capital markets continue to be dominated by talks relating to tapering and its impact on interest rates and the economy. In our discussions with capital partners and other investment professionals, there seems to be an increased consensus that interest rates will remain low for the foreseeable future. Lower rates of interest have been beneficial in allowing us to secure attractive long-term fixed rate debt with each acquisition. In addition to the positive interest rate environment we believe the current trends remain attractive for multifamily investing. Our analysis of economic data and industry specific metrics suggests that the runway for continued strength in the sector remains long. I have included three graphs that I think you will find of interest that supports the part of our investment thesis relating to demographics and the demand for rental housing in the foreseeable future. As you can see in the graph below, nearly 23 million young adults under the age of 35 are currently classified as living at home with parents. As job growth improves, these young adults will be an increased source of future demand for apartments. Young Adults Living at Home Pent up rental demand from 2.5 million "excess" year olds living at home Yr. Olds Living At Home Trend Line Based on LT Avg. Source: US Census Bureau Page 5

6 Population trends among young adults continue to favor the multifamily sector as well. As you can see below, annual population projections suggest that for 2012 through 2017 the 22 to 35 year old demographic will grow by an additional 3.3 million people. The homeownership rate among this demographic has consistently remained low. We expect this trend to continue for some time Annual Population Projections in Key Housing Demographics Em 22 to 35 Year Olds (in millions) E 13E 14E 15E 16E 17E 18E 19E 20E Source: US Census Bureau The home ownership rate is at its lowest level since the fourth quarter 1995 (65%). Many experts believe the home ownership rate will continue to decline. The impact of even a modest decline is significant. For every 1% decline in the home ownership rate an additional 1.1 million new rental households is created. 70% U.S. Homeownership Rate (Quarterly) 69% 68% 67% 66% Quarter 1 Quarter 2 Quarter 3 Quarter 4 65% 64% 63% 62% Source: US Census Bureau Although we cannot influence economic trends, we can directly influence the performance of our properties through active management. Our objective remains to acquire attractive properties below replacement cost, manage them effectively, and create heightened value for our residents. I am confident we are executing well and that the current market environment provides ample opportunity for continued success. Page 6

7 Organizational Update The first three quarters of 2013 have been an exciting time at Carroll Organization. The multifamily sector has provided opportunities for us to make great investments. Both Fund I and Fund II are performing well. I am pleased that our management team continues to execute and that all Carroll associates work hard daily to ensure the experience of our residents is positive, our portfolio performs well, and that our organization provides a culture that is challenging for associates and rewards them for the value created for our residents, investors, and partners. I am also pleased to report that we are raising capital for our newest investment offering, Carroll Multifamily Real Estate Fund III. Our deal flow and investment opportunities continue to be strong and we are optimistic about the possibilities available to invest our new offering. We expect to focus on attractive markets throughout the Southeast as well as new opportunities in the growing markets of Phoenix, Denver, and other selected Western cities. I have attached a summary for your review. Of course, we would be delighted for you to consider expanding your relationship with Carroll. Finally, I would like to invite you to join me, Darren DeVore, Principal, and Josh Champion, President of Investments, for an investor update conference call on November 11, During the call Josh, Darren and myself will go into great detail regarding Fund II investments, as well as provide market commentary and answer any questions you may have. My assistant, Elika Maserrat, will be sending you an invite soon. I hope you will have a chance to join the call if your schedule permits. Thank you again for your continued confidence in all of us at Carroll. As always, please call us with any questions or observations. Sincerely, M. Patrick Carroll CEO Page 7