Annual Report Timbercreek U.S. Multi-Residential Opportunity Fund #1. Timbercreek U.S. Multi-Residential Opportunity Fund #1

Transcription

1 Annual Report Timbercreek U.S. Multi-Residential Opportunity Fund #1 Timbercreek U.S. Multi-Residential Opportunity Fund #1 1

2 $18 million in total revenue $58 million in acquisitions 1,316 new suites added to the portfolio 2,696 suites across four states 7.4% average rent growth* The Fund targets a 15% net internal rate of return, inclusive of a 4-5% pre-tax quarterly distribution. Timbercreek U.S. Multi-Residential Opportunity Fund #1 (the Fund) provides investors with the opportunity to achieve attractive total returns from an asset class that has historically generated strong and stable long-term cash flows. The Fund targets under-managed or under-valued multi-unit residential assets in the southeast United States. With an active, value-add investment strategy to acquire and improve multi-residential real estate assets, it aims to capitalize on compelling investment opportunities currently available in the American southeast. Key Achievements * Average of rent growth rates since acquisition, per building, as at, for assets held longer than 6 months. 2 Timbercreek U.S. Multi-Residential Opportunity Fund #1 Timbercreek U.S. Multi-Residential Opportunity Fund #1 3

3 Repositioning Program Through its designated active property manager, the Fund increases revenue and cash flows by renovating and re-positioning each property to increase occupancy and enhance the overall value of the asset, while at the same time reducing operating costs through professional management, state-of-the-art operating systems and technologies, and energy-saving capital investments. Buy, Improve, Sell Buy: Identify multi-unit residential real estate assets that fit within the Fund s acquisition criteria (primarily garden style complexes) with a minimum of 200 residential suites located in the southeast United States. Sell: New upgrades ensure that Timbercreek is able to increase rents on vacant and renewal units, which allows Timbercreek to sell the improved and upgraded asset to a third party so profits can be returned to investors. Before After Improve: The properties undergo an overhaul, inside and out, and tenant to management in an effort to improve product, staffing, processes and, ultimately, the resident experience. Before Before Before Before After After After After Brand Exterior Upgrades Common Area Upgrades Individual Suite Upgrades Investment is made to rebrand the property, inclusive of signage, staff retraining and marketing materials. Improvements are made to all outside areas from a fresh coat of paint to balcony repairs to full professional landscaping of gardens, pools and tennis courts. Resident amenities and common areas are renovated to improve standard of living for both current and prospective residents. Suites receive renovations to kitchens, bathrooms, flooring and lighting to ensure quality features and energy efficient systems are used. * Before photos are typical of assets upon acquisition and after photos are typical results of the Repositioning Program. 4 Timbercreek U.S. Multi-Residential Opportunity Fund #1 Timbercreek U.S. Multi-Residential Opportunity Fund #1 5

4 New Acquisitions Portfolio Summary Property Location Units Purchase Price 1 (in $ million) Loanto-Value 2 Landmark at Lynden Square Charlotte, NC 476 $28, % Landmark at Chelsea Commons Chapel Hill, NC 250 $17, % Landmark at Saratoga Ridge Austin, TX 229 $16, % Landmark at Granite Park Charlottesville, VA 425 $32, % Landmark at Watercrest Cary, NC 344 $25, % Landmark at Eagle Landing Cary, NC 444 $30, % Landmark at Lake Ellenor Orlando, FL 296 $18, % Acquisitions Other Portfolio Properties Landmark at Alexander Pointe 1 Excludes closing costs 2 Includes capital expenditures Jacksonville, FL 232 $15, % Cary, NC Landmark at Watercrest Acquired May 6, Orlando, FL Landmark at Lake Ellenor Acquired November 26, Property Acquisition Date Occupancy (at ) Avg in-place rents At purchase Year end Landmark at Lynden Square Dec % $625 $660 Landmark at Chelsea Commons Dec % $741 $790 Cary, NC Landmark at Eagle Landing Acquired May 6, Landmark at Ellenor Lake provides excellent geographical diversification for the Fund with exposure to the Florida market, and Orlando in particular. Located in one of the strongest rental submarkets of Orlando, the building was previously operated with little focus on improvement. The acquisition provided an opportunity for Timbercreek to capitalize on its repositioning strategy to improve the physical appearance and rental income. Landmark at Saratoga Ridge Landmark at Granite Park Landmark at Watercrest Dec Dec May % 95% 93% $702 $706 $736 $818 $739 $805 The two buildings are well-located in the growing region of Raleigh-Cary MSA, NC, which is experiencing positive economic growth and strong multi-residential fundamentals. The acquisition provided the Fund an excellent opportunity to implement its repositioning strategy. With strategic capital investments and improved management, Timbercreek expects to significantly improve the asset s cash flow and value for resale. Jacksonville, FL Landmark at Alexander Pointe Acquired December 10, Landmark at Alexander Pointe further diversifies the Fund s exposure to the Florida market in one of the premier submarkets of Jacksonville. Not only is this an opportunity to improve the asset and grow rental income through the repositioning program, but also the Fund s operating partner has a large presence in the Jacksonville market, allowing Timbercreek to leverage the market knowledge and economies of scale provided. Landmark at Eagle Landing Landmark at Lake Ellenor Landmark at Alexander Pointe May 6 13 Nov Dec % 96% 95% $677 $728 $741 $718 $728 $741 6 Timbercreek U.S. Multi-Residential Opportunity Fund #1 Timbercreek U.S. Multi-Residential Opportunity Fund #1 7

5 Management s Discussion and Analysis For the year ended FORWARD-LOOKING STATEMENTS Caution regarding forward-looking statements The terms the Fund, we, us and our in this Management s Discussion and Analysis ( MD&A ) refer to Timbercreek U.S. Multi-Residential Opportunity Fund #1 (the Fund ) and its consolidated financial position and results of operations for the year ended (the Year ). This MD&A may contain forward-looking statements relating to anticipated future events, results, circumstances, performance or expectations that are not historical facts but instead represent our beliefs regarding future events. These statements are typically identified by expressions like believe, expects, anticipates, would, will, intends, projected, in our opinion and other similar expressions. By their nature, forward-looking statements require us to make assumptions which include, among other things, that (i) the Fund will have sufficient capital under management to effect its investment strategies and pay its targeted distributions to Unitholders, (ii) the investment strategies will produce the results intended by Timbercreek Asset Management Inc. (the Manager ), (iii) the markets will react and perform in a manner consistent with the investment strategies and (iv) the Fund is able to invest in assets of a quality that will generate returns that meet and/or exceed the Fund s targeted investment returns. Forward-looking statements are subject to inherent risks and uncertainties. There is significant risk that predictions and other forward-looking statements will prove not to be accurate. We caution readers of this MD&A not to place undue reliance on our forward-looking statements as a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed or implied in the forward-looking statements. Actual results may differ materially from management expectations as projected in such forward-looking statements for a variety of reasons, including but not limited to, general market conditions, interest rates, regulatory and statutory developments, the effects of competition in areas that the Fund may invest in and the risks detailed from time to time in the Fund s public disclosures. We caution that the foregoing list of factors is not exhaustive and that when relying on forwardlooking statements to make decisions with respect to investing in the Fund, investors and others should carefully consider these factors, as well as other uncertainties and potential events and the inherent uncertainty of forward-looking statements. Due to the potential impact of these factors, the Fund and the Manager do not undertake, and specifically disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable law. Management s Discussion and Analysis and Financial Statements This MD&A is dated March 20, Disclosure contained in this MD&A is current to that date, unless otherwise noted. Additional information on the Fund is also available on the Manager s website at Additional information about the Fund can be found on the SEDAR website at 8 Timbercreek U.S. Multi-Residential Opportunity Fund #1 Timbercreek U.S. Multi-Residential Opportunity Fund #1 9

6 BASIS OF PRESENTATION This MD&A has been prepared to provide information about the financial results of the Fund for the year ended. This MD&A should be read in conjunction with the Fund s audited consolidated financial statements for the year ended and the period from August 30, (date of formation) to which are prepared in accordance with International Financial Reporting Standards (IFRS). The functional and reporting currency of the Fund is U.S. dollars and unless otherwise specified, all amounts in this MD&A are in thousands of U.S. dollars, except per share and other non-financial data. Copies of these documents have been filed electronically with securities regulators in Canada through the System for Electronic Document Analysis and Retrieval ( SEDAR ) and may be accessed through the SEDAR website at BUSINESS OVERVIEW AND RECENT DEVELOPMENTS About the Fund Timbercreek U.S. Multi-Residential Opportunity Fund #1 (the Fund ) is a limited partnership governed by the laws of the Province of Ontario which was formed on August 30,. The Fund was established for the primary purpose of acquiring multi-residential investment properties in the south-eastern United States that are mispriced and/or undermanaged in the view of Timbercreek Asset Management Inc. (the Manager ). The objectives of the Fund are to (i) enhance the value of the investment properties through active management and a stabilization and improvement program with the goal of ultimately disposing of the investment properties to generate significant gains; and (ii) make quarterly cash distributions to Unitholders from Distributable Cash Flow (as defined in the Prospectus). Additional information relating to the investment objectives and investment restrictions of the Fund are contained in the Prospectus. Timbercreek Asset Management Inc. is the Manager of the Fund and provides strategic, advisory, asset management and other services necessary to manage the day-to-day operations of the Fund and the properties. The Manager entered into an operating agreement (the Operating Agreement ) with Elco Landmark Residential Holdings, LLC (together with Elco Landmark Residential Management, LLC, the Operator ) to identify multi-residential property investment opportunities, and ultimately property manage, reposition and redevelop the investment properties, utilizing the Operator s experience and expertise in the Fund s targeted geographic region. The Fund obtained bridge financing to fund the acquisition of Cary Portfolio. The amount of the bridge financing was $6,951 at a rate of 9% per annum, plus a 1% up-front fee of the principal balance. The bridge financing was repaid on July 31, from proceeds of the equity offering. On May 24,, the Fund completed a follow-on public offering of 1,100,746 Class A Units for net proceeds of $10,499 and 66,500 Class B Units for net proceeds of $611. The Fund also completed a concurrent private placement of 270,298 Class C Units for net proceeds of $2,723. A portion of the net proceeds of these offerings were used to repay the bridge financing. In May, Operating LP completed a private placement of 500,000 Class A units for net proceeds of $5,000 received from US Holding LP. On November 26,, the Fund completed the acquisition of an investment property for a total purchase price of $18,500 and incurred transaction costs of $158. The property is comprised of 296 suites and is located in Orlando, Florida. On December 2,, the Fund received $1,500 and Canadian dollars of $2,000 of bridge financing at a rate of 9% per annum, plus a 1% up-front fee of the principal balance. The maturity date for the bridge financing is March 31, 2014, and is in the process of being extend to September 30, The Fund used the proceeds to fund the acquisition of the investment properties completed on December 10,. On December 10,, the Fund completed the acquisition of an investment property for a total purchase price of $15,800 and incurred transaction costs of $149. The property is comprised of 232 suites and is located in Jacksonville, Florida. On December 10,, the Fund completed an offering of 293,477 Class C Units, for net proceeds of $3,061. The Fund is authorized to issue an unlimited number of Class A Units, Class B Units and Class C Units (the Units and holders of such Units being Unitholders ). Timbercreek Multi-Residential Opportunity Fund #1 G.P. Inc. is the general partner of the Fund (the General Partner ). The General Partner is a wholly-owned subsidiary of the Manager. As at the Fund indirectly owns 88.5% ( 92.6%) of the Class A limited partnership units of Timbercreek U.S. Multi-Residential Operating LP ( Operating LP ), a limited partnership formed pursuant to and governed by the laws of the state of Delaware. The remaining interest in Operating LP is held by Timbercreek U.S. Multi-Residential (U.S.) Holding L.P. ( US Holding LP ), a controlling interest of which is held by an affiliated entity of the Operator. The assets of the Fund are indirectly held by Operating LP, which carries out the business of the Fund. The Fund and its controlled subsidiaries are collectively referred to as the Fund in this MD&A. The term of the Fund is four years beginning on October 25,, the closing date of the Fund s initial public offering (the IPO ), subject to a single one-year extension at the discretion of the General Partner (the Term ) or subject to earlier termination upon the sale of the Fund s final investment property. The Term may only be further extended by special resolution of the Unitholders. Recent Developments The Fund commenced operations following the closing date of the Fund s IPO on October 25,. Significant developments during the year ended include: On March 15,, the Fund completed an offering of 567,500 Class C Units, for net proceeds of approximately $5,568. On May 6,, the Fund completed the acquisition of two multi-residential investment properties, comprised of 788 suites, located in Cary, North Carolina (the Cary Portfolio ) for a total purchase price of $55,700 and incurred transaction costs of $ Timbercreek U.S. Multi-Residential Opportunity Fund #1 Timbercreek U.S. Multi-Residential Opportunity Fund #1 11

7 FINANCIAL HIGHLIGHTS Year ended Period ended OPERATIONS Overall average portfolio occupancy rate 93.3% 96.0% Average in-place rent per unit/month $ 733 $ 906 Total number of suites acquired in the period 1,316 1,380 Total number of suites (as at) 2,696 1,380 OPERATING RESULTS Total assets $ 216,928 $ 111,585 Investment properties $ 204,062 $ 95,922 Mortgages payable, net of financing costs $ 137,919 $ 71,133 Net liabilities attributable to Unitholders and U.S. Holding LP $ 68,986 $ 39,337 Revenue from rental operations $ 18,087 $ 332 Net rental income $ 9,881 $ 167 Net income (loss) and comprehensive income (loss) $ 4,742 $ (514) Funds from operations ( FFO ) $ 3,489 $ (139) FFO per Unit: Class A Unit $0.63 $ (0.04) Class B Unit $ 0.69 $ - Class C Unit $ 0.69 $ (0.04) FFO payout ratio 79.5% - Total debt to fair value of investment properties 66.9% 67.0% Total debt to assets 65.1% 63.7% DISTRIBUTIONS Declared distributions $ 3,172 $ - Per Class A unit $ $ - Per Class B unit $ $ - Per Class C unit $ $ - Per US Holding LP unit $ $ - FINANCING Weighted average interest rate 4.0% 3.8% Weighted average mortgage term (years) CURRENT PORTFOLIO Property State Size (sq. ft.) No. of units Occupancy at Purchase Price Lake Ellenor Florida 247, % $ 18,658 Alexander Pointe Florida 244, % $ 15,949 Eagle Landing North Carolina 344, % $ 30,219 Watercrest North Carolina 317, % $ 25,706 Granite Park Virginia 369, % $ 32,186 Lynden Square North Carolina 437, % $ 28,827 Chelsea Commons North Carolina 262, % $ 17,814 Saratoga Ridge Texas 179, % $ 17,095 Total/Average 2,402,935 2, % $186,454 acquisitions Eagle Landing Eagle Landing was constructed in 1986 and is located in Cary, North Carolina. The 444 suite asset contains one, two and three bedroom apartment suites situated in a garden-style complex. The property amenities include two leasing offices/clubhouses, two swimming pools, tennis courts, children s playground, fitness center and two laundry rooms. Watercrest Watercrest was constructed in two phases: the first in 1992 and the second in 1995, and is located in Cary, North Carolina. The 344 suite asset contains one, two and three bedroom apartment suites situated in a garden-style complex. The property amenities include two leasing offices/ clubhouses, two swimming pools, tennis courts, children s playground, fitness center and two laundry rooms. Lake Ellenor Lake Ellenor was constructed in 1973 and is located in Orlando, Florida. The 296 suite complex contains one, two and three bedroom apartment suites situated in a garden-style complex. The property amenities include a centralized clubhouse, two swimming pools, fitness center and barbeque area. Alexander Pointe Alexander Pointe was constructed in 1986 and is located in Jacksonville, Florida. The 232 suite complex contains one, two and three bedroom apartment suites situated in a garden-style complex. The property amenities include a centralized clubhouse, two swimming pools, fitness center, and tennis courts. acquisitions Granite Park Granite Park was constructed in 1970 and is located in Charlottesville, Virginia. The 425 suite asset contains one, two and three bedroom apartment suites situated in 26 two and three storey apartment buildings. The property amenities include a clubhouse, leasing center, fitness center, three swimming pools, playground, barbeque and picnic areas. Lynden Square Lynden Square was constructed in two phases: the first in 1971 and the second in 1980, and is located in Charlotte, North Carolina. The 476 suite asset contains one, two, three and four bedroom apartment suites situated in 35 walk-up, two and three storey apartment buildings. The property amenities include a leasing office/clubhouse, two swimming pools, tennis courts, fitness center, business center, and two laundry rooms. Chelsea Commons Chelsea Commons was constructed in 1987 and is located in Carrboro, Orange County, North Carolina. The 250 suite asset consists of one, two and three bedroom apartment suites situated in 19 walk-up, two storey apartment buildings. The complex includes a leasing office/clubroom, business center, swimming pool, tennis courts, fitness center and laundry facility. Saratoga Ridge Saratoga Ridge was constructed in 1995 and is located in Austin, Texas near Grandview Hills and Concordia University. The asset consists of 229 suites throughout 10 three storey buildings, in addition to a clubhouse. The property amenities include a swimming pool, hot tub/spa, 24 hour fitness center, additional storage, garage and courtyard. 12 Timbercreek U.S. Multi-Residential Opportunity Fund #1 Timbercreek U.S. Multi-Residential Opportunity Fund #1 13

8 U.S. MULTI-RESIDENTIAL REAL ESTATE MARKET OUTLOOK AND STRATEGY The Manager and Operator continue to believe there is a compelling opportunity to earn excellent risk adjusted returns through investments made in the U.S. multi-residential real estate market, notably within the south eastern United States. U.S. apartment fundamentals continued to improve nationally, while pricing continues to remain strong across most of the country. The multi-residential sector has been a beneficiary of changing demographics and has prospered because of, rather than in spite of, symptoms of the economic downturn and subsequent initial stages of recovery over the past year in the United States. In the four years following the financial crisis, the multi-residential sector enjoyed robust growth. The surge in rental housing demand has caused an emergence of new multi-residential construction; however additions to supply of multi-residential housing are reverting back to the long-term average. Although there is an increase in new supply of multi-residential product being constructed throughout many markets across the country, including the targeted investment regions of the Fund, the anticipated demand for rental housing is anticipated to continue to grow and exceed the growth in supply. Housing demand is driven by four major factors; (i) job growth and income growth, (ii) population growth, (iii) immigration, and (iv) demographic trends. According to Greenstreet Advisors, it is estimated that household formations will be approximately 6.8 million over the next 5 years. Based upon the long-term averages of the renter capture rate in new household formations, (34% of new household formations become renters), it is estimated that there will be 2.9 million new households seeking rental housing. These rental households will either elect to rent in traditional multi-residential dwellings, or, rent in the single family housing market. As the single family rental market has gained traction in the United States, it is estimated that 60% of renters will now look to the single-family housing rental market, 5% higher than the long-term average of 55%. Even with increased demand in the single-family rental housing market, the forecasted growth of household formations over the next 5 years is projected to create demand for approximately 925,000 additional apartment rentals. If overall renter capture rate outpaces its long-term average, with current estimates according to Greenstreet Advisors being 43%, the estimated demand for apartment rental will be nearly 1.2 million over the same timeframe. The anticipated demand for multi-residential housings outpaces the projected net increase in supply of nearly 700,000 multi-residential units over the next 5 years. As the sector enjoyed favorable economics and growth prospects following the financial crisis, there was an increase in permit activity amongst developers to build purpose built rental housing. Development projects typically require months from the commencement of a project to completion. The majority of new rental housing supply being added over the coming year is from approved permits and developments which began over the past 24 months. As new construction permitting reverts to its historical mean, the supply and demand for multi-residential will continues to move back towards its equilibrium levels. The 700,000 net units that are anticipated to become available in the rental universe over the next 5 years are consistent with long-term averages for apartment construction. The single-family housing market in the United States continues to recover. Drivers of the single family housing recovery continue to be historically low mortgage interest rates, job growth and a recovery in both economic conditions and investor confidence. According to Greenstreet research, on a national level, housing prices are still roughly 20% below where they peaked in 2006, even though mortgage rates are at historic lows. The recovery and performance of the single family housing market and rental housing market are not necessarily negatively correlated. As economic growth propels the recovery in the single family housing market, the ensuing job growth, a key driver in household formations, generates demand for rental housing, allowing both segments of the housing market to prosper. Demographics still look very favorable for the multi-residential sector, a testament to its ongoing sustainability. The number of renters is accelerating. Young adults are more likely to rent, as has historically been the case, due to mobility and financial factors (student loan debt, minimal savings, lack of credit history), however, the renter demographic is substantially widening to encompass more adults, which are increasing their propensity to rent. The younger cohort, those most likely to rent (aged 35 and under), suffered the most during the recession, however are now experiencing job growth, increasing their demand for rental housing. Furthermore, as the younger cohort continues to delay milestones in life, such as getting married, having children and buying their first house, in addition to record levels of student debt associated with this demographic, their demand for rental housing continues for longer periods of time. 14 Timbercreek U.S. Multi-Residential Opportunity Fund #1 Timbercreek U.S. Multi-Residential Opportunity Fund #1 15

9 CHARLOTTE, NC Charlotte is the largest city in the state of North Carolina and has been one of the fastest growing cities in the South Eastern United States over the past decade. Charlotte s population has grown from approximately 540,000 in 2000 to nearly 775,000 in, resulting in significant growth of household formations. Charlotte has become a major U.S. financial center and is the second largest banking center in the U.S. next to New York City. It is headquarters to Bank of America and Wells Fargo s east coast operations, as well as other financial institutions, such as TIAA- CREF. Charlotte s economy is further propelled the energy sector, being dubbed The New Energy Capital with more than 260 companies and nearly 28,000 jobs tied to the energy sector. Charlotte is anticipated to have continued job and population growth over the coming years as the U.S. economy continues its recovery. Expansions in the financial services and retail sector are anticipated to add approximately 22,300 jobs in Individuals who suffered financially during the recession have either been forced to, or now prefer to rent due to more stringent regulations and requirements surrounding obtaining mortgage financing, not desiring to have their biggest equity investment to be their home, or preferring the mobility that renting presents, allowing them to be easily transient for employment purposes. AUSTIN, TX Austin is a diverse and thriving economy. Austin is the capital of Texas and is the 11th largest city in the United States, being home to approximately 845,000 people and having a metropolitan statistical area ( MSA ) of approximately 1.8 million residents. Austin s economy is very diverse and is driven by government, healthcare, education and technology. Austin is home to the University of Texas at Austin, the fifth largest university in the United States with over 50,000 undergraduate and graduate students, as well as 24,000 faculty and administrative staff. The university has been labelled one of the Public Ivies, meaning it is a publically funded university however provides the educational quality comparable to the Ivy League universities. Being the state capital of Texas, there is significant employment in the government and public service sector. However, Austin s economy has diversified to become one of the leading technology focused business centers in the United States. Austin is home to many Fortune 500 companies headquarters and regional offices, including Advanced Micro Devices ( AMD ), Apple Inc., ebay, Google, IBM, Intel, Texas Instruments and Whole Foods. Dell s worldwide headquarters is located in Round Rock, Texas, a nearby suburb of Austin. A diverse economy, strong job growth and steady rental demand makes Austin an attractive investment market from a multi-residential perspective. The Texas apartment market shows continued signs of strength. Texas has experienced some of the highest levels of rental growth in the United States over the past year. Occupancy levels are also historically high and new supply is being quickly absorbed. Dallas, Houston and Austin are among the nation s top markets for apartment construction with over 46,000 units scheduled for completion. Although experiencing growth in supply of multi-residential housing product, Austin is anticipated to continue to experience job growth, fueling rental demand. Vacancy is anticipated to increase slightly due to the additions of new supply, however, rental growth rates are anticipated to remain strong and above national averages, with rent growth forecasted between 4.50% - 5.0%. Austin is considered one of the best performing regions for multi-residential and is increasingly becoming a market which is garnering institutional demand for multi-residential product. A driver of Austin s economic growth and performance in the multi-residential sector has been the addition of white-collar jobs. Much of the job growth is focused on the technology sector, which are relatively high paying jobs and attract a younger demographic seeking more of a live-work environment. For example, Apple Inc. has begun development and will open in phases, starting in 2014, on a $304 million, 38 acre America`s Operations Center which is anticipated to create nearly 3,650 full-time jobs when fully complete, and Oracle is anticipated to add 200 new jobs in the Austin market. U.S. Market Metrics Current Average Average Overall Asking Rent $ 947 $ 1,000 Occupancy 96.0% 95.0% Unemployment Rate 4.5% 6.7% Home Ownership Rates 60.1% 65.3% Metro Households (000) ,000 Total Inventory (000) ,244 Ratio Households: Inventory 24.4% 15.9% Although single family housing remains relatively affordable and there are above average levels of new supply of multi-residential forecasted to become available over the next 24 months, employment growth will continue to fuel rental demand. Vacancy rates are anticipated to increase slightly for 2014 as the new supply is absorbed into the market, however, the market is anticipated to continue to exhibit strong rental growth as average rents are anticipated to increase approximately 3.5% throughout Market Metrics Current U.S. Average Average Overall Asking Rent $ 852 $ 1,000 Occupancy 95.1% 95.0% Unemployment Rate 6.6% 6.7% Home Ownership Rates 58.3% 65.3% Metro Households (000) ,000 Total Inventory (000) ,244 Ratio Households: Inventory 14.0% 15.9% RALEIGH-DURHAM, NC Raleigh is one of the largest cities in the state of North Carolina, home to approximately 425,000 residents. Raleigh is part of one of the largest MSAs located in the South Eastern United States, the Raleigh-Durham-Chapel Hill MSA, being home to approximately 2 million people. The Raleigh-Durham-Chapel Hill MSA is nicknamed the Research Triangle Park ( RTP ) and is home to one of the most prominent high-tech research and development centers in the United States. Over 50,000 jobs across 170 technology focused companies are found in the RTP. RTP has a very well educated labor pool and there is an average of $2 billion annually invested in research and development throughout the RTP, making it one of the world s most renowned research, development and technology areas. Chapel Hill is the smallest of the three areas in the RTP, however, is home to one of the highest ranked, oldest and most prestigious publically funded universities, the University of North Carolina at Chapel Hill. The university, and thus Chapel Hill has a consistent source of rental housing demand due to its large student demographic population, with nearly 30,000 students and an additional 14,000 faculty and staff. The Raleigh market is anticipated to see growth in supply of multi-residential housing throughout 2014 as building completions as a result permits issued during are completed. This increase in supply is anticipated to slow the rapid rate of rental rate growth; however rent growth is anticipated to remain positive. The key driver in Raleigh`s ability to absorb the additional supply will be continued job growth throughout the region. Market Metrics Current U.S. Average Average Overall Asking Rent $ 860 $ 1,000 Occupancy 96.2% 95.0% Unemployment Rate 5.2% 6.7% Home Ownership Rates 67.7% 65.3% Metro Households (000) ,000 Total Inventory (000) ,244 Ratio Households: Inventory 15.5% 15.9% 16 Timbercreek U.S. Multi-Residential Opportunity Fund #1 Timbercreek U.S. Multi-Residential Opportunity Fund #1 17

10 CHARLOTTESVILLE, VA Charlottesville is located approximately one hour outside of Richmond, Virginia and is located within the Charlottesville MSA, home to nearly 210,000. Charlottesville s economy is characterized by a relatively defensive economy as much of the employment is found in the public sector, healthcare and education, notably the University of Virginia. As home to the University of Virginia, Charlottesville is greatly influenced by the employment, educational and cultural opportunities provided by the University. The area also benefits from a tourist trade drawn by the University and other historical sites. The local population has high percentages of residents between the ages of 16 and 34, the prime apartment renting ages, which contributes to the demand for rental housing. Median household income within the Charlottesville MSA for 2011 is $54,334, which is slightly lower than Virginia at $58,556, however, slightly higher than the U.S. overall at $49,697. The unemployment rate in Charlottesville MSA fell 50 basis points to 4.1% versus the Virginia unemployment rate of 5.0% and 6.7% for the U.S. Overall, given the improving economic outlook, apartment fundamentals appear to be strengthening and stable and consistent demand for rental housing, mainly derived from the University of Virginia continue to characterize the stable and predictable nature of Charlottesville s multi-residential market. Market Metrics Current U.S. Average Average Overall Asking Rent $ 867 $ 1,000 Occupancy 93.9% 95.0% Unemployment Rate 4.0% 6.7% Home Ownership Rates N/A 65.3% Metro Households (000) N/A 115,000 Total Inventory (000) N/A 18,244 Ratio Households: Inventory N/A 15.9% JACKSONVILLE, FL Jacksonville continues to exhibit healthy economic fundamentals as economic statistics continue to improve. Positive trends such reduced unemployment have allowed for further increases in rent levels, strengthening the multi-residential investment market. Professional service firms have led the broad-based job growth. Total employment levels are still below pre-recession levels, however, it is anticipated that job growth will eclipse that level during Firms such as Clean Energy, Deutsche Bank, Amazon and Bank of America are all scheduled to add new jobs to the Jacksonville economy in Job growth will generate household formations translating improved occupancy and an ability to increase rental rates. Forecasted job growth for the coming year is roughly 12,300 jobs. Jacksonville has exhibited relatively minimal supply growth of apartments over the past few years, quieting concerns of oversupply of multi-residential housing. As the market continues to strengthen, it is anticipated that occupancy rates will continue to improve. Occupancy rates are anticipated to improve by 50 basis points in 2014, following an increase of nearly 130 basis points in. In addition to improving occupancy, rent growth is projected to remain strong in Average market rent is becoming aligned with the national average of approximately 3.0% for 2014, with some submarkets outperforming. Market Metrics Current U.S. Average Average Overall Asking Rent $ 823 $ 1,000 Occupancy 93.0% 95.0% Unemployment Rate 5.6% 6.7% Home Ownership Rates 66.6% 65.3% Metro Households (000) ,000 Total Inventory (000) 71 18,244 Ratio Households: Inventory 12.9% 15.9% ORLANDO, FL Orlando is the economic focal point of Central Florida and one of the Florida s largest growing metropolitan areas. Orlando s employment market continues to strengthen due to the improving fundamentals in the leisure and hospitality sectors. Orlando is one of the most visited cities in the United States due to its many leisure and hospitality attractions, including Walt Disney Resort, Universal Orlando Real, Sea World and many others. Furthermore, Orlando is one of the busiest American destinations for conferences and conventions. In addition to an economy being buoyed by leisure and hospitality, Orlando s economy has diversified to include industrial, technology and education. Orlando is home to the University of Central Florida, the second largest university in the U.S. measured by enrollment. Nearly 60,000 undergraduate and graduate students attend the university, in addition to nearly 10,000 faculty and administration. Furthermore, Orlando is home to many major employers focused on technology such as General Dynamics, Siemens and Boeing, in addition to industries relatively resilient to economic activity such as national defense. Lockheed-Martin and the United States Military are substantial employers in Orlando. The construction of the $1.3 billion SunRail, a 31 mile commuter rail system, linking downtown Orlando to neighboring submarkets has begun, adding job growth to the construction industry. As the economic and job growth improved in Orlando, development activity in both the single family housing market and multi-residential market increased. It is anticipated that nearly 5,700 new multi-residential units will become available in 2014, an increase from the 3,000 added in, however, as job growth and economic activity continue to strengthen, the additional supply is not anticipated to cause a significant decrease in occupancy rates. Average rents are forecasted to grow around the national average at a rate of approximately 3.50% for Market Metrics Current U.S. Average Average Overall Asking Rent $ 910 $ 1,000 Occupancy 94.7% 95.0% Unemployment Rate 5.5% 6.7% Home Ownership Rates 68.0% 65.3% Metro Households (000) ,000 Total Inventory (000) ,244 Ratio Households: Inventory 14.5% 15.9% RESULTS OF OPERATIONS The Renovation and Repositioning Program As at, the Fund s investment property portfolio is comprised of eight garden style multi-residential investment properties. The following is a summary of the progress to date of the renovation and repositioning program. GRANITE PARK Charlottesville, Virginia Date of acquisition December 20, Number of suites 425 Purchase price $ 32,186 Occupancy on acquisition 93.4% Current occupancy as at 94.7% Average in-place rent on acquisition $ 706 Average rent in place as at $ 739 Market rent on acquisition $ 761 Renovation and Repositioning Program Since inception Total Budget Insuite upgrades $ 1,516 $ 2,003 Exterior upgrades $ 189 $ 189 Common area upgrades $ 181 $ 203 Building systems upgrades $ 32 $ 62 Structural upgrades $ 131 $ 131 Total $ 2,049 $ 2,588 As part of the Fund s repositioning efforts, the asset has been rebranded as Landmark at Granite Park and was 18 Timbercreek U.S. Multi-Residential Opportunity Fund #1 Timbercreek U.S. Multi-Residential Opportunity Fund #1 19

11 As part of the Fund s repositioning efforts, the asset has been rebranded as Landmark at Granite Park and was formerly referred to as Autumn Hill Apartments. Granite Park s rehabilitation program is now substantially complete. Renovations have been completed to amenities such as the leasing office, clubhouse, fitness center, dog park and various other amenities aimed at improving overall tenant satisfaction. The majority of exterior renovations have been completed, notably landscaping, site signage and parking lot repairs. The in-suite renovation program has been completed, assisting in further repositioning of the property. Granite Park is anticipated to generate a net operating income in the first year of operations after the acquisition that is consistent with the initial underwriting expectations. Although average in-place rental rates and occupancy lagged the initial forecast during the first two quarters of due to temporary effects of the repositioning program, the asset began to stabilize and its performance improved during the second half of. Average in-place rental rates increased by nearly 4.5% during. Furthermore, occupancy continued to improve and the property achieved occupancy close to 95% by the end of Q4, exceeding our target. As the property continues to experience natural turnover in the tenant base, rental rate increases aligned with initial targets and continued levels of high occupancy are anticipated. Project Occupancy 100.0% 98.0% 96.0% 94.0% 92.0% 90.0% 88.0% 86.0% 84.0% 82.0% 80.0% Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13 Year 2 Year 3 Targeted Rental Rates Budget Actual As part of the Fund s repositioning efforts, the asset has been rebranded as Landmark at Lynden Square and was formerly referred to as Heatherwood Apartments. Lynden Square s rehabilitation program is substantially complete. The majority of the amenity upgrades originally planned at Lynden Square have been completed, in addition to the renovations to exterior finishes of the complex. The majority of in-suite renovations have been completed which have assisted in the successful repositioning of the property within its local submarket. Average in-place rents are closely aligned with the initial underwriting expectation and increased approximately 5.6% during. Although occupancy levels were below expectations during the first two quarters of, the asset has seen significant improvements in occupancy levels throughout the second half of and achieved occupancy of approximately 94% during Q4, which aligned with initial underwriting expectations. As the property continues to experience natural turnover in the tenant base, rental rate increases aligned with initial targets and continued levels of high occupancy are anticipated. Project Occupancy 100.0% 98.0% 96.0% 94.0% 92.0% 90.0% 88.0% 86.0% 84.0% 82.0% 80.0% Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13 Year 2 Year 3 Targeted Rental Rates $700 Budget Actual $790 $770 $750 $730 $710 $690 $670 $650 Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13 In- Place at AcquisiNon Budget Actual $680 $660 $640 $620 $600 $580 Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13 In- Place at AcquisiNon Budget Actual LYNDEN SQUARE Charlotte, North Carolina Date of acquisition December 20, Number of suites 476 Purchase price $ 28,827 Occupancy on acquisition 95.0% Current occupancy as at 93.9% Average in-place rent on acquisition $ 625 Average rent in place as at $ 660 Market rent on acquisition $ 685 Renovation and Repositioning Program Since inception Total Budget Insuite upgrades $ 1,660 $ 2,079 Exterior upgrades $ 121 $ 127 Common area upgrades $ 200 $ 216 Building systems upgrades $ - $ 15 Structural upgrades $ 330 $ 330 Total $ 2,311 $ 2,767 CHELSEA COMMONS Orange County, North Carolina Date of acquisition December 20, Number of suites 250 Purchase price $ 17,814 Occupancy on acquisition 98.8% Current occupancy as at 92.5% Average in-place rent on acquisition $ 741 Average rent in place as at $ 790 Market rent on acquisition $ 801 Renovation and Repositioning Program Since inception Total Budget Insuite upgrades $ 1,009 $ 1,101 Exterior upgrades $ 238 $ 238 Common area upgrades $ 288 $ 288 Building systems upgrades $ 30 $ 30 Structural upgrades $ 154 $ 154 Total $ 1,719 $ 1, Timbercreek U.S. Multi-Residential Opportunity Fund #1 Timbercreek U.S. Multi-Residential Opportunity Fund #1 21

12 As part of the Fund s repositioning efforts, the asset has been rebranded as Landmark at Chelsea Commons and was formerly referred to as Highland Hills Apartments. Chelsea Commons repositioning program is substantially complete. Completed renovations include new signage, renovated leasing office and clubhouse, upgraded fitness center and the addition of a kid s room, renovated sport court and a dog park. Exterior renovations include siding repair and painting, garbage facility enclosures, plumbing repairs and HVAC upgrades. The in-suite program is complete with renovations focused on kitchen and bathroom areas. Average in-place rents grew in by nearly 6.5%, aligned with original underwriting expectations. Although occupancy levels have declined below the initial underwriting expectations temporarily during Q3, the property continued to stabilize and occupancy improved to 92.5% by the end of. The increased vacancy was attributed to short-term inconveniences associated with the construction during the repositioning program and higher than anticipated turnover. Occupancy is trending back towards the initial underwriting expectations and improved each month during Q4. As the property continues to experience natural turnover in the tenant base, rental rate increases aligned with initial targets and continued levels of high occupancy are anticipated. Project Occupancy 100.0% 98.0% 96.0% 94.0% 92.0% 90.0% 88.0% 86.0% 84.0% 82.0% 80.0% Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13 Year 2 Year 3 Targeted Rental Rates $820 $800 $780 $760 $740 $720 $700 Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13 SARATOGA RIDGE Austin, Texas Austin, Texas Date of acquisition December 20, Number of suites 229 Purchase price $ 17,095 Occupancy on acquisition 97.0% Current occupancy as at 95.7% Average in-place rent on acquisition $ 702 Average rent in place as at $ 818 Market rent on acquisition $ 762 Renovation and Repositioning Program Since inception Total Budget Insuite upgrades $ 78 $ 176 Exterior upgrades $ 111 $ 111 Common area upgrades $ 175 $ 175 Building systems upgrades $ 22 $ 22 Structural upgrades $ 40 $ 40 Total $ 426 $ 524 Budget Actual In- Place at AcquisiNon Budget Actual As part of the Fund s repositioning efforts, the asset has been rebranded as Landmark at Saratoga Ridge and was formerly referred to as Canyon Hills Apartments. Saratoga Ridge s rehabilitation program is complete. The amenity upgrade has been completed with renovations focused on improvements to the clubhouse and leasing center, outdoor grill and gazebo, as well as outdoor pools and the dog park. The majority of exterior renovations have been primarily focused on upgrades to landscaping and site signage. Although occupancy levels initially lagged underwriting expectations at the beginning of, the property continuously exceed occupancy projections during Q3 and Q4. Actual average in-place rental levels have improved significantly since acquisition, increasing by nearly 16.5% during, which is ahead of initial underwriting expectations. Saratoga Ridge is anticipated to continue to generate strong growth in rental rate levels, while occupancy levels remain strong. Project Occupancy 100.0% 98.0% 96.0% 94.0% 92.0% 90.0% 88.0% 86.0% 84.0% 82.0% 80.0% Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13 Year 2 Year 3 Targeted Rental Rates $830 $820 $810 $800 $790 $780 $770 $760 $750 $740 $730 Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13 WATERCREST Cary, North Carolina Cary, North Carolina As part of the Fund s repositioning efforts, the asset has been rebranded as Landmark at Watercrest and was formerly referred to as Hidden Oak Apartments. Watercrest s rehabilitation program is currently underway, with upgrades nearly complete to the amenity areas, the club-house and leasing center, landscaping and signage. Upgrades to the interior finishes are currently underway Budget Actual In- Place at AcquisiNon Date of acquisition May 6, Number of suites 344 Purchase price $ 25,706 Occupancy on acquisition 96.5% Current occupancy as at 92.5% Average in-place rent on acquisition $ 736 Average rent in place as at $ 805 Market rent on acquisition $ 801 Renovation and Repositioning Program Budget Actual Since inception Total Budget Insuite upgrades $ 1,174 $ 1,580 Exterior upgrades $ 41 $ 83 Common area upgrades $ 213 $ 249 Building systems upgrades $ 14 $ 14 Structural upgrades $ 261 $ 344 Total $ 1,703 $ 2, Timbercreek U.S. Multi-Residential Opportunity Fund #1 Timbercreek U.S. Multi-Residential Opportunity Fund #1 23

13 and are nearly complete with remaining investments to be made in appliance upgrades which are anticipated to occur as suites become vacant on turnover to new tenants. Remaining items within the rehabilitation program include improvements to the irrigation systems and targeted exterior repairs. The rehabilitation program is anticipated to be completed in accordance with the original underwriting budget and to be completed by the end of Q Average in-place rent levels are exceeding anticipated levels as new leases are being completed at the forecasted rent levels and renewals are exceeding original expectations. Since the acquisition of the property in May, average in-place rents have increased nearly 9.5%. Current occupancy at Watercrest is slightly below the initial underwriting target; however, occupancy has begun to improve as the repositioning process is completed. Occupancy improved to 92.5% by December, which is slightly above occupancy at the end of Q3. When the renovations are completed, significant increases in rental traffic and successful closing ratios will follow, improving the occupancy level. Furthermore, rental rate growth is anticipated to continue, exceeding initial underwriting expectations. Project Occupancy 100.0% 98.0% 96.0% 94.0% 92.0% 90.0% 88.0% 86.0% 84.0% 82.0% 80.0% $850 $800 $750 $700 $650 $600 May 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13 Jan 14 Feb 14 Mar 14 Apr 14 Year 2 Year 3 Targeted Rental Rates May 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13 Budget Actual In- Place at AcquisiNon Budget Actual As part of the Fund s repositioning efforts, the asset has been rebranded as Landmark at Eagle Landing and was formerly referred to as Woodbridge Apartments. Eagle Landing s rehabilitation program is currently underway, with upgrades completed to the amenity areas, club-house and leasing center, landscaping and signage. Upgrades to the interior finishes are currently underway and approximately 65% complete. The rehabilitation program is anticipated to be completed in accordance with the original underwriting budget and to be completed by the end of Average in-place rent levels are currently exceeding the anticipated levels, as new leases are being completed at the forecasted rent levels and renewals are exceeding original expectations. Since the acquisition of the property in May, average in-place rental rates have increased by approximately 6.0%. Occupancy at Eagle Landing rebounded during the latter half of Q3 and continued through Q4, increasing to nearly 95% and slightly ahead of initial underwriting expectations. As the rehabilitation program continues, the property is anticipated to enjoy strong levels of rent growth and maintain its targeted occupancy. Project Occupancy 100.0% 98.0% 96.0% 94.0% 92.0% 90.0% 88.0% 86.0% 84.0% 82.0% 80.0% May 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13 Jan 14 Feb 14 Mar 14 Apr 14 Year 2 Year 3 Targeted Rental Rates $720 $710 $700 $690 $680 $670 $660 $650 $640 $630 May 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13 Budget Actual In- Place at AcquisiNon Budget Actual EAGLE LANDING Cary, North Carolina Cary, North Carolina Date of acquisition May 6, Number of suites 444 Purchase price $ 30,219 Occupancy on acquisition 94.1% Current occupancy as at 94.6% Average in-place rent on acquisition $ 677 Average rent in place as at $ 718 Market rent on acquisition $ 737 Renovation and Repositioning Program Since inception Total Budget Insuite upgrades $ 1,198 $ 2,055 Exterior upgrades $ 105 $ 124 Common area upgrades $ 171 $ 191 Building systems upgrades $ 84 $ 120 Structural upgrades $ 90 $ 90 Total $ 1,648 $ 2,580 LAKE ELLENOR Orlando, Florida Orlando, Florida Date of acquisition November 26, Number of suites 296 Purchase price $ 18,658 Occupancy on acquisition 100.0% Current occupancy as at 96.4% Average in-place rent on acquisition $ 728 Average rent in place as at $ 728 Market rent on acquisition $ 751 Renovation and Repositioning Program Since inception Total Budget Insuite upgrades $ 57 $ 646 Exterior upgrades $ 11 $ 360 Common area upgrades $ 75 $ 344 Building systems upgrades $ - $ 50 Structural upgrades $ - $ - Total $ 143 $ 1, Timbercreek U.S. Multi-Residential Opportunity Fund #1 Timbercreek U.S. Multi-Residential Opportunity Fund #1 25

14 As part of the Fund s repositioning efforts, the asset has been rebranded as Landmark at Lake Ellenor and was formerly referred to as Bella Lakes Apartments. Lake Ellenor s rehabilitation program is currently underway, however still in its infancy. Targeted capital investments include renovations to the clubhouse and leasing centers, addition of fitness center and various tenant amenities such as barbeque areas, improved exterior pool areas and the addition of a dog park. Replacement of site signage has begun, as well as some exterior painting. In-suite renovations are anticipated to be completed during the first two quarters of 2014 with investments focused on the renovations of kitchens, bathrooms and in-suite flooring. Targeted rental rate growth is approximately 4.2% for Year 1 of operations with occupancy at a target of 96%. ALEXANDER POINTE Jacksonville, Florida Jacksonville, Florida Date of acquisition December 10, Number of suites 232 Purchase price $ 15,949 Occupancy on acquisition 92.7% Current occupancy as at 95.2% Average in-place rent on acquisition $ 741 Average rent in place as at $ 741 Market rent on acquisition $ 881 Renovation and Repositioning Program Since inception Total Budget Insuite upgrades $ - $ 680 Exterior upgrades $ - $ 55 Common area upgrades $ - $ 237 Building systems upgrades $ - $ 52 Structural upgrades $ - $ 26 Total $ - $ 1,050 As part of the Fund s repositioning efforts, the asset has been rebranded as Landmark at Alexander Pointe and As part of the Fund s repositioning efforts, the asset has been rebranded as Landmark at Alexander Pointe and was formerly referred to as Blanding Place Apartments. Alexander Pointe s rehabilitation program is currently underway, however still in its infancy. Targeted capital investments are consistent with many of the repositioning strategies either successfully executed upon, or currently underway within the Fund s portfolio. Renovations include the clubhouse and leasing centers, addition of fitness center and various tenant amenities such as barbeque areas, improved exterior pool areas and the addition of a dog park. Replacement of site signage has begun, as well as some exterior painting. In-suite renovations are anticipated to be completed during the first two quarters of 2014 with investments focused on the renovations of kitchens, bathrooms and in-suite flooring. Targeted rental rate growth is approximately 6.6% for Year 1 of operations with occupancy at a target of 94%. ANALYSIS OF FINANCIAL INFORMATION Below is an analysis of the Fund s financial information for the three months and year ended, and period ended. The Company did not have any operations from the date of formation to September 30,. Statement of Income and Comprehensive Income Three months ended The Fund generated net income of $4,742 for the year ended, which represents the first full year of operations of the Fund, and $1,591 for the three months ended. Whereas, for the period ended the Fund incurred a net loss of $514, which represented only 11 days of rental operations of the Fund. The current year operations represent a full year of operations for 4 properties acquired in and operations from the date of acquisition of 4 properties acquired in. The significant revenue and expense items are as follows: Year ended Period ended Revenue from rental operations $ 5,537 $ 18,087 $ 332 Total rental expenses 2,558 8, Net rental income 2,979 9, General and administrative expenses Asset management fees , Net income (loss) before undernoted items 2,661 8,768 (66) Foreign exchange gain/(loss) 1,871 3,172 (268) Net Finance costs (3,024) (8,233) (180) Net income (loss) before undernoted items 1,508 3,707 (514) Fair value adjustment of investment properties 83 3,049 - Current and deferred tax expense - 2,014 - Net income (loss) and comprehensive income (loss) $ 1,591 $ 4,742 $ (514) Net Rental Income The rental revenue for the three months and year ended was $5,537 and $18,087, respectively, and predominately represents the revenue earned from the leasing of suites. The rental revenue for the period from August 30, (date of formation) to was $332, which represented 11 days of operations from December 20, to. For the three months ended, operating expenses of $2,558 include property taxes of $447, property management fees of $226, repairs and maintenance of $371, utilities of $419, insurance of $112 and salaries and benefits of $575 incurred at the property level. For the year ended, operating expenses of $8,206 include property taxes of $1,484, property management fees of $723, repairs and maintenance of $1,088, utilities of $1,436, insurance of $365 and salaries and benefits of $1,942 incurred at the property level. Whereas, for the period ended, operating expenses of $165 include property taxes of $37, property management fees of $13, repairs and maintenance of $107 and salaries and benefits of $8 incurred at the property level. General and Administrative Expenses General and administrative expenses consist of primarily of audit fees, legal fees, unitholder reporting, filing fees and other corporate administration expenses of the Fund. For the three months ended, general and administrative expenses include audit fees and legal fees of $105, filing and unitholder reporting of $7 and corporate administration expenses of $26. For the year ended, general and administrative expenses include audit fees and legal fees of $307, filing and unitholder reporting of $55 and corporate administration expenses of $164. For the period from August 30, (date of formation) to, general and administrative expenses include audit fees and legal fees of $80, filing and unitholder reporting of $14 and corporate administration expenses of $ Timbercreek U.S. Multi-Residential Opportunity Fund #1 Timbercreek U.S. Multi-Residential Opportunity Fund #1 27

15 The Fund has entered into an asset management agreement ( Asset Management Agreement ) with the Manager. Pursuant to the Asset Management Agreement, the Manager is responsible for strategic, advisory, asset management, property management, leasing, construction management and administration services necessary to manage the day-to-day operations of the Fund and the properties. The Manager is entitled to asset management fees, property management fees, acquisition fees and capital management fees. However, these shall not exceed, on an aggregate basis, 1% per annum of the Fund s total assets, provided that, if such fees exceed 1% per annum of the Fund s total assets, the excess amount shall be carried forward and paid in the first subsequent year in which the total fees paid do not exceed 1% per annum of the Fund s total assets, up to an amount that, together with the total fees paid in such year, is equal to 1% of the Fund s total assets for such year. Any excess carried forward at the end of the Term shall not be paid. The excess amount carried forward as at is $1,783 ( $1,096). The description of the individual fees is as follows: (i) Asset Management Fees (ii) Three months ended Year ended An asset management fee equal to 1.0% per annum of the gross subscription proceeds of any one or more subsequent offerings, plus applicable taxes, calculated and payable monthly in arrears; A property management fee equal to 4% per annum of the effective gross rental income of Operating LP, plus applicable taxes, payable monthly in arrears; (iii) An acquisition fee equal to 1% of the gross purchase price of each property (or interest in a property), which shall also include, but is not limited to, due diligence costs, closing costs, legal fees, and any additional capital costs incurred in connection with the acquisition of the property, plus applicable taxes, payable on the completion of each acquisition; and (iv) A capital project management fee equal to 4% of the total costs of the applicable renovation and repositioning program, plus applicable taxes, payable as to 50% of such fee at the beginning of the program, and as to the remaining 50% at the completion of the program. Foreign Exchange Gain / (Loss) Foreign exchange gains of $1,871 and $3,172 for the three months and year ended (For the period ended foreign exchange loss of $268) are mainly due to the functional and reporting currency of the Fund in U.S. dollars and the liabilities to Unitholders and a portion of promissory notes payable are in Canadian dollars. As a result, net liabilities to Unitholders and a portion of promissory notes payable are translated into U.S. dollars at the end of each reporting period which results in a foreign exchange gain or loss depending upon the foreign exchange conversion rates between the Canadian dollar and the U.S. dollar. During the three months and year ended, the U.S. dollar appreciated by approximately 3.3% and 6.5%, respectively (For the period ended 0.1%) against the Canadian dollar. Interest expense includes interest relating to the mortgages payable and promissory notes. Period ended Asset management fees $ 180 $ 587 $ 77 Property management fees Acquisition fees Total $ 517 $ 1,676 $ 100 Net Finance Costs Three months ended Year ended Period ended Interest expense $ 1,236 $ 4,270 $ 89 Fair value adjustment of interest rate swaps (190) (190) - Distribution to partners 1,691 3,172 - Trailer fees Amortization of mortgage financing costs Amortization of unit offering costs Total $ 3,024 $ 8,233 $ 180 Mortgages payable at fixed interest rates bear interest at rates ranging between 3.75% and 5.78% at ( 3.75% and 3.79%), with a weighted average rate of 4.45% at ( 3.78%), and mature between 2020 and Mortgages payable at variable interest rates bear interest at rates of one-month LIBOR plus 1.70%, which at, is 1.87% ( nil), with a weighted average rate of 1.87% at ( nil), and mature in Collectively, the weighted average rate on mortgages payable is 4.00% (- 3.78%). The Fund has entered into two swap agreements for a notional amount of $13,975 and $12,000 maturing on November 26, 2020 and December 10, 2020, respectively, which commercially fixes the interest rate on two of the Fund s mortgages at 4.14% and 4.27%. The effective dates for the interest rate swaps are November 26, 2014 and December 10, The fair value of the swaps at is $190. For the period from August 30, (date of formation) to, there were no interest rate swaps held by the Fund. The amortization of mortgage payable financing costs relate to legal costs and other fees incurred on the placement of the mortgages and are amortized over the Term of the Fund. The Fund paid an annual trailer fee equal to 0.5% of the gross subscription proceeds received for the Class A Units to registered dealers from cash available for distribution to holders of Class A Units based on the number of Class A Units held by clients of such registered dealers at the end of the relevant quarter (calculated and paid at the end of each calendar quarter commencing on March 31, ). Amortization of unit offering costs relate to costs incurred for agency commissions, legal fees and other issuance costs in connection with the IPO and subsequent offerings. As the Class A, Class B, Class C, General Partner and US Holding LP Units meet the definition of a liability under IFRS, the unit offering costs are amortized over the Term of the Fund. The Units are classified as liabilities attributable to Unitholders in the consolidated financial statements; therefore distributions declared during the year ended are recorded as finance costs. Income Tax Expense The Fund is not subject to Canadian income taxes on income earned and gains realized by the Fund as those amounts will be included in the taxable income of its Unitholders. The Fund has a subsidiary which is subject to U.S. corporate taxes. The current income tax expense of the subsidiary is available as a tax credit to the Unitholders. The effective US tax rate of 31% ( nil%) differs from the statutory tax rate of 39% ( - 41%) as a portion of the Fund s income is not subject to U.S. income tax. The tax expense of $2,014 ( nil) is comprised of $1,900 ( nil) of deferred tax and $114 ( nil) of current tax. For the year ended, the Fund has recorded a net deferred tax liability of $1,900 due to temporary differences between the book carrying amount and the tax cost of properties, net of losses available for carry forward. Fair Value Adjustment of Investment Properties As the Fund has elected to record its investment properties at fair value in accordance with IAS 40, Investment Properties, at each reporting date the Fund records the fair value adjustment in profit or loss. For the three months and year ended, the Fund recorded a gain of $83 and $3,049, respectively, relating to a fair value adjustment of its investment properties. For the period from August 30, (date of formation) to, there was no fair value adjustment of investment properties as the properties were acquired in the month of December. Distributions Distributions are made by Operating LP indirectly to Unitholders and holders of US Holding LP units, on a quarterly basis as determined appropriate by the General Partner, in its sole discretion, in accordance with the following: (i) First, 100% to the holders of Operating LP Units (pro rata), until they have received cumulative distributions equal to their aggregate contributed capital; (ii) Second, 100% to the holders of Operating LP Units (pro rata) until they have been paid an 8% annual preferred return on all amounts contributed by them; (iii) Third, 75% to the holders of Operating LP Units (pro rata) and 25% to the Manager and the Operator (each as to 50% of such amount) for any distributions until the holders of Operating 28 Timbercreek U.S. Multi-Residential Opportunity Fund #1 Timbercreek U.S. Multi-Residential Opportunity Fund #1 29

16 LP Units have been paid a cumulative 14% annual preferred return on all amounts contributed by them; and (iv) Thereafter, 65% to the holders of Operating LP Units (pro rata) and 35% to the Manager and the Operator (each as to 50% of such amount). The applicable preferred return thresholds shall be calculated on a pre-tax basis and in U.S. dollars. The Fund intends to pay distributions to Partners on a quarterly basis within 15 days following the end of each quarter. Three months ended For the period from August 30, (date of formation) to, the Fund did not declare any distributions. Funds From Operations ( FFO ) and Distributable Cash Flow ( DCF ) FFO is a measure of operating performance based on the funds generated by the business before reinvestment or provision for other capital needs. FFO as presented is based on the recommendations of the Real Property Association of Canada. It may not, however, be comparable to similar measures presented by other real estate trusts or companies in similar or different industries. The Fund considers FFO a useful measure when determining the cash flow available for distribution to Unitholders as outlined above in Distributions. The FFO payout ratio, a non-ifrs financial measure, compares distributions declared to FFO. The Fund considers this ratio to be an important measure of the sustainability of the level of distributions. DCF is defined as cash flow generated by the Fund, less any amounts the General Partner may reasonably decide to consider to be necessary for the payment of any costs, or reserves, that have been or are reasonably expected to be incurred. A reconciliation of net income to FFO and DCF is as follows: Year ended Per Unit Total Distribution Per Unit Total Distribution Class A $ $ 1,475 Class B Class C ,273 US Holding LP Total $ 1,691 $ 3,172 Year ended Period ended Net income (loss) and comprehensive income (loss) $ 4,742 $ (514) Adjustments: Fair value of adjustment of investment properties (3,049) - Fair value of adjustment of interest rate swaps (190) - Amortization of unit offering costs Foreign exchange (gain) loss (3,172) 268 Distributions to Partners 3,172 - Deferred tax expense 1,900 - Income attributable to US Holding LP (533) 18 Funds from operations ( FFO ) $ 3,489 $ (139) Interest expense mark-to-market adjustment (300) - Amortization of mortgages payable financing costs Mortgage principal repayment (295) - Distributable Cash Flow $ 3,099 $ (137) FFO per Unit: Class A Unit $ 0.63 $ (0.04) Class B Unit $ 0.69 $ - Class C Unit $ 0.69 $ (0.04) Total distributions declared to Unitholders $ 2,776 $ - FFO payout ratio 79.5% - Distributable Cash Flow payout ratio 89.6% - The Fund has targeted a total return objective of a 15% IRR (or average annualized rate of return) on a pre-tax basis, net of all fees and expenses, inclusive of an annual cash distribution yield of 4% to 5% (which includes the allocation to Unitholders of U.S. taxes paid by a subsidiary of the Fund). For the December, distribution, the General Partner approved an amount that exceeded the annual targeted cash distribution yield, while reserving adequate cash to ensure the Fund can meet its short-term liquidity needs and future reserves. Statements of Financial Position As at As at Cash and cash equivalents $ 8,516 $ 6,247 Other assets 4,350 9,416 Investment properties 204,062 95,922 Total assets $ 216,928 $ 111,585 Accounts payable and accrued liabilities 2, Distributions payable 1,691 - Promissory notes 3,380 - Tenant rental deposits and prepaid rents Current tax liability Mortgages payable 137,919 71,133 Deferred tax liability 1,900 - Net liabilities attributable to Unitholders 60,526 36,403 Net liabilities attributable to US Holding LP 8,460 2,934 Total liabilities including net liabilities attributable to Unitholders and US Holding LP $ 216,928 $ 111,585 ASSETS Investment Properties As at, the fair value of investment properties was $204,062 and reflects a fair value gain of $3,049 recognized during the year. During the year ended, the Fund invested $9,999 into the investment properties as part of its renovation and repositioning programs with upgrades of $6,692 related to in-suite, $816 for exterior, $1,303 for common area, $182 for building systems, and $1,006 for structural upgrades. The Fund s assets are generally performing as anticipated and consistent with the initial underwriting. The majority of the rehabilitation programs are nearly complete at the Colonial Portfolio and the Fund anticipates that the increased cash flows, which are mainly attributable to the rehabilitation program, will continue to increase asset value. As the rehabilitation program at the Cary Portfolio, Lake Ellenor and Alexander Pointe continue, we believe the value creation as a result of the rehabilitation program is not fully reflected in the current appraised value of these investment properties; however, as rental revenues and cash flows increase resulting from improved rents, increases in the valuation are expected. In the early phase of a property s renovation and repositioning program, it is typical that a significant amount of the capital invested does not have an immediate impact on the valuation of a property as it takes months (depending on the value creation program) to stabilize a subject property. In addition, all of the transaction and closing costs associated with an acquisition are not included in the fair value determination of an investment property. These transaction and closing costs are factored into the underwriting of the property and are expected to be recouped as the Fund continues to surface value in its portfolio. On the properties acquired by the Fund, these costs equated to approximately 0.5% of the purchase price. Other Assets Other assets as at is $4,350 ( - $9,416), which includes tenant and other receivables, fair value of interest rate swaps, prepaid expenses and other assets, holdbacks in escrow, and due from Operator. 30 Timbercreek U.S. Multi-Residential Opportunity Fund #1 Timbercreek U.S. Multi-Residential Opportunity Fund #1 31

17 LIABILITIES Mortgages Payable The Fund takes a conservative approach to leverage and actively manages its mortgage portfolio to reduce interest costs while ensuring it is not exposed to interest rate volatility risk. Currently, the risk-free interest rates underlying mortgage financings are at historically low levels. This provides an opportunity for the Fund to reduce the risk of increased interest rates by securing long-term fixed interest rate mortgages. Mortgages payable at fixed interest rates bear interest at rates ranging between 3.75% and 5.78% at ( 3.75% and 3.79%), with a weighted average rate of 4.45% at ( 3.78%), and mature between 2020 and Mortgages payable at variable interest rates bear interest at rates of one-month LIBOR plus 1.70%, which at, is 1.87% ( nil), with a weighted average rate of 1.87% at ( nil), and mature in Collectively, the weighted average rate on mortgages payable is 4.00% (- 3.78%). For the variable mortgages, the Fund has entered into two swap agreements for a notional amount of $13,975 and $12,000 maturing on November 26, 2020 and December 10, 2020, respectively, which commercially fixes the interest rate on two of the Fund s mortgages at 4.14% and 4.27%. The effective dates for the interest rate swaps are November 26, 2014 and December 10, The fair value of the swaps at is $190. In connection with the acquisition of the Cary Portfolio, the Fund assumed existing mortgages of $32,135 and recorded a mark-to-market adjustment of $3,208. The mark-to-market adjustment is amortized over the term of the loan. Mortgages payable are secured by the investment properties and a guarantee from the Operator and/or the Operator s key principal. Partners Capital Minimum future principal repayments $ 135,933 $ 71,574 Mark-to-market adjustment 2,907 - Unamortized financing costs (921) (441) $ 137,919 $ 71,133 Unit type Class A Unitholders $ 32,255 $ 20,788 Class B Unitholders Class C Unitholders 27,625 15,611 US Holding LP 8,460 2,934 General partner 7 4 Total net liabilities attributable to Unitholders and US Holding LP $ 68,986 $ 39,337 On October 25,, the Fund completed its IPO of Class A Units for net proceeds of approximately $21,024 and a concurrent private placement offering of Class C Units, for net proceeds of approximately $15,789, which the Fund used to acquire an indirect controlling interest in Operating LP. US Holding LP completed a concurrent private placement of US Holding LP Units for net proceeds of $2,945, which it used to acquire the interest attributable to US Holding LP Unitholders in Operating LP. On March 15,, the Fund completed a subsequent issuance of 567,500 Class C Units, for net proceeds of $5,568. On May 24,, the Fund completed a follow-on public offering from treasury of 1,100,746 Class A Units for net proceeds of $10,499; and 66,500 Class B Units for net proceeds of $611. Also on May 24,, the Fund completed a private placement of 270,298 Class C Units for net proceeds of $2,723. Included in the net proceeds are issuance costs of $801 on these offerings, which includes agents commissions, legal and structuring costs. On December 10,, the Fund completed a subsequent issuance of 293,477 Class C Units, for proceeds of $3,061. The changes in the number of Units for each class are as follows: General Partner Class A Units Class B Units Class C Units Total Units outstanding, January 1, 372 2,244,350-1,605,000 3,849,722 Issuance of Units 279 1,100,746 66,500 1,131,275 2,298,800 Units outstanding, 651 3,345,096 66,500 2,736,275 6,148,522 General Partner Class A Units Class B Units Class C Units As at March 20, 2014, the outstanding Units of the Fund were: Class A 3,345,096; Class B 66,500 and Class C 2,736,275. Total Units outstanding, August 30, (date of formation) Issuance of Units 372 2,244,350-1,605,000 3,849,722 Units outstanding, 372 2,244,350-1,605,000 3,849,722 Each Unit entitles the holder to the same rights and obligations as all other Unitholders and no Unitholder is entitled to any privilege, priority or preference in relation to any other holder of Units, subject to the proportionate entitlement of the holders of Class A Units, Class B Units and Class C Units to participate in distributions made by the Fund and to receive proceeds upon termination of the Fund, in each case based on the proportionate share of each class of Units (taking into account the agents fees incurred in connection with the issuance of such Units, as applicable). Class A and Class B Units are publicly offered; however, there is no market through which these Units may be sold or redeemed. Class B Units differ from Class A Units in that they have a minimum commitment by an investor of $20 (Canadian dollars), include a reduced agents fee and there is no trailer fee payable in respect of the Class B Units. The Class C Units are offered by private placement and are designed for the Manager, certain institutional, high net worth and other investors. The Class C Units differ from Class A Units and Class B Units as there is no agents fee and trailer fee in respect of the Class C Units. The Fund is not required to redeem Units prior to the completion of the Term. 32 Timbercreek U.S. Multi-Residential Opportunity Fund #1 Timbercreek U.S. Multi-Residential Opportunity Fund #1 33

18 SUMMARY OF QUARTERLY RESULTS The Fund was formed on August 30, and there were no operations for the period from August 30, (date of formation) to September 30, ; as result no income statement was prepared for that period. The summary of quarterly results beginning the three month period ended December 31, is as follows: (unaudited) September 30, (unaudited) June 30, (unaudited) March 31, (unaudited) Revenue from rental operations $ 5,537 $ 5,010 $ 4,294 $ 3,246 $ 332 Total rental expenses 2,558 2,250 1,978 1, Net rental income 2,979 2,760 2,316 1, General and administrative expenses Asset management fees Net income (loss) before undernoted items 2,661 2,535 1,953 1,619 (66) Foreign exchange gain/(loss) 1,871 (1,348) 1, (268) Net finance costs 3,024 2,068 1,917 1, Net income (loss) before undernoted items 1,508 (881) 1,914 1,166 (514) Fair value adjustment of investment properties 83 2, Deferred and current income tax expense - 1, Net income (loss) and comprehensive income (loss) $ 1,591 $ 266 $ 1,959 $ 926 $ (514) The fluctuations in the quarterly results of the Fund are directly related to the impact on rental income from the acquisitions of new investment properties, foreign exchange gain / (loss) on translation of net liabilities attributable to Unitholders and the progress of the investment property repositioning programs which impacts the fair value adjustment. CAPITAL STRUCTURE AND LIQUIDITY Capital structure The Fund defines its capital structure as the aggregate of partners equity (as recorded in the statement of financial position as net liabilities attributable to Unitholders and US Holding LP ), mortgages payable and promissory notes. The Fund manages its capital structure and cash generated from operations to ensure that there are sufficient resources to operate the investment properties, make capital and development expenditures, meet its debt servicing obligations, fund general administrative costs and make distributions to Unitholders and US Operating LP Unitholders. The Manager aims to maintain a targeted loan to value of 65% on a consolidated basis, noting that the Fund will not exceed 70% loan to value on the incurrence of any new debt on a consolidated basis. The total capital managed by the Fund is summarized as follows: As at As at Carrying Carrying Value Fair Value Value Fair Value Mortgages payable $ 137,919 $ 141,380 $ 71,133 $ 71,133 Promissory notes payable 3,380 3, Net liabilities attributable to Unitholders 60,526 60,526 36,403 36,403 Net liabilities attributable to US Holding LP 8,460 8,460 2,934 2,934 Total $210,285 $213,746 $ 110,470 $ 110,470 Liquidity Access to liquidity is an important element of the Fund, allowing it to implement its investment strategy and meet liabilities as they become due. To date, the Fund has financed its operations using cash flows generated from the rental operations, proceeds raised in the equity offerings, mortgage financings and short-term promissory notes. The Fund s cash position as at December 31, was $8,516 ( - $6,247). In connection with the mortgage financings of the Cary Portfolio and the Colonial Portfolio, the Lenders requested total cash of $6,849 at closing to be retained in escrow to pay for planned capital expenditures relating to the properties. These escrow funds ensure that the Fund has adequate resources to complete various renovation programs. As at, the Fund has a balance of $2,359 in holdback escrow, which is withdrawn as capital expenditures progress. Further, as part of the financing of Lake Ellenor and Alexander Pointe, the Fund has an ability to obtain additional financing of $2,450 to pay for planned capital expenditures relating to these two properties. The additional financing will be added to the mortgages payable balance of these properties. The Manager expects to be able to meet all of the Fund s ongoing obligations and finance growth through short-term cash generated from operations, future equity offerings, mortgage financings and when necessary promissory notes to bridge the timing of property acquisitions and equity offerings. The Fund is not in arrears on any distributions to Unitholders or interest payments on its mortgages payable or promissory notes. In addition, the Fund is in compliance with all the investment and debt restrictions contained in the limited partnership agreement of the Fund. The following are the contractual maturities of financial liabilities as at, including expected interest payments, where applicable: Carrying amount Contractual cash flow Within a year 1 5 years Over 5 years Mortgage payable $ 135,933 $ 176,051 $ 6,282 $ 30,809 $ 138,960 Accounts payable and other liabilities 2,292 2,292 2, Tenant rental deposits and prepaid rents Promissory notes payable 3,380 3,608 3, Current tax liability Distributions payable 1,691 1,691 1, Net liabilities attributable to Unitholders 60,526 60,526-60,526 - Net liabilities attributable to US Holding LP 8,460 8,460-8,460 - $ 213,042 $ 253,388 $ 14,633 $ 99,795 $ 138,960 RELATED PARTY TRANSACTIONS RELATED PARTY TRANSACTIONS The Manager, the the General Partner Partner and the and Fund the are Fund related are by related virtue by of common virtue of management. common management. The terms of the Asset Management Agreement are described in detail in Note 14 in the Fund s consolidated The terms of the Asset Management Agreement are described in detail in Note 14 in the Fund s financial statements. consolidated financial statements. The fees paid to the Manager in accordance with the Asset Management Agreement are described in the The Analysis fees of paid Financial to the Information Manager in section. accordance with the Asset Management Agreement are described in the Analysis of Financial Information section. As at, $26 ( receivable of $306) was payable to the Manager for costs As incurred at December on behalf 31, of the, Fund, $26 and (December is included 31, in the accounts receivable payable of and $306) accrued was liabilities. payable to the Manager for costs incurred on behalf of the Fund, and is included in the accounts payable and accrued As at, $255 ( $nil) was receivable from the Operator for shared expenses liabilities. incurred by the Fund on behalf of the Operator. As at, $255 ( $nil) was receivable from the Operator for shared COMMITMENTS expenses incurred by the Fund on behalf of the Operator. The Fund is required to pay an annual trailer fee equal to 0.5% of the gross subscription proceeds received for the Class A Units to registered dealers from cash available for distribution to holders of Class A Units based on the number of Class A Units held by clients of such registered dealers at the end of the relevant quarter (calculated and paid at the end of each calendar quarter commencing on March 31, ). For the three months and year ended the Fund has incurred trailer fees of $42 and $157, respectively. 34 Timbercreek U.S. Multi-Residential Opportunity Fund #1 Timbercreek U.S. Multi-Residential Opportunity Fund #1 35 FAIR VALUE MEASUREMENT The following table shows the carrying amounts and fair values of assets and liabilities:

19 COMMITMENTS The Fund is required to pay an annual trailer fee equal to 0.5% of the gross subscription proceeds received for the Class A Units to registered dealers from cash available for distribution to holders of Class A Units based on the number of Class A Units held by clients of such registered dealers at the end of the relevant quarter (calculated and paid at the end of each calendar quarter commencing on March 31, ). For the three months and year ended the Fund has incurred trailer fees of $42 and $157, respectively. FAIR VALUE MEASUREMENT The following table shows the carrying amounts and fair values of assets and liabilities: Assets not measured at fair value Loans and receivable Carrying Values FVTPL Other financial liabilities Fair Value Other assets $ 4,160 $ 190 $ - $ 4,350 Cash and cash equivalents 8, ,516 Assets measured at FVTPL Investment properties Liabilities not measured at fair value - 204, ,062 Accounts payable and accrued liabilities - - 2,292 2,292 Tenant rental deposits and prepaid rents Promissory notes payable - - 3,380 3,380 Distributions payable - - 1,691 1,691 Mortgage payable , ,380 Net liabilities attributable to Unitholders ,526 60,526 Net liabilities attributable to US Holding LP - - 8,460 8,460 (a) Other financial assets and liabilities The fair values of cash and cash equivalents, tenant and other receivables, deposit in trust, holdbacks in escrow, due from Manager, due from Operator, accounts payable and accrued liabilities, tenant rental deposits and prepaid rents, and promissory notes payable approximate their carrying values at due to their short-term nature. (b) Mortgages payable The fair value of the mortgages payable has been determined by discounting the cash flows of these mortgages using estimated market rates determined by the yield on a United States treasury bond with the nearest maturity date to the underlying mortgage plus an estimated risk premium at the reporting date. As a result, the fair value of the mortgages payable is based on level 2 inputs. (c) Interest rate swaps Included in other assets is the fair value of two interest rate swap contracts, which are used to economically hedge exposure to variable cash flows associated with interest payments on two of the Fund s mortgages. Management estimates the fair value of this derivative as the present value of expected future cash flows to be received or paid, based on available market data, which includes market yields and counterparty credit spreads. As a result, the fair value of the interest rate swaps are based on level 2 inputs. (d) Net liabilities attributable to Unitholders and US Holding LP The fair value of the net liabilities attributable to Unitholders and US Holding LP are limited to the net assets of the Fund, and equates to their carrying value as at. There were no transfers between level 1, level 2 and level 3 during the year ended. ACCOUNTING POLICIES AND CRITICAL ESTIMATES Accounting policies adopted in the Year Except for the changes below, the Fund has consistently applied the accounting policies set out to all periods presented in these consolidated financial statements. The Fund has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of initial application of January 1,. a) IFRS 13 Fair Value Measurement e) Presentation of Items of Other Comprehensive Income (Amendments to IAS 1) f) IAS 19 Employee Benefits (2011) With the exception of IFRS 13, Fair Value Measurements, there were no material effects upon adoption of these new standards and amendments to standards. IFRS 13 establishes a single framework for measuring fair value and making disclosures about fair value measurements when such measurements are required or permitted by other IFRSs. It unifies the definition of fair value 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. It replaces and expands the disclosure requirements about fair value measurements in other IFRSs, including IFRS 7. As a result, the Fund has included additional disclosures in the consolidated financial statements. Future accounting changes A number of new standards, amendments to standards and interpretations are effective for annual periods beginning on or after January 1, 2014 and have not been applied in preparing these consolidated financial statements. Those which may be relevant to the Fund are set out below. The Fund does not plan to adopt these standards early. (i) IFRS 9, Financial instruments, ( IFRS 9 ): In November 2009 the IASB issued IFRS 9, Financial Instruments (IFRS 9 (2009)), and in October 2010 published amendments to IFRS 9 (IFRS 9 (2010)). IFRS 9 (2009) introduces new requirements for the classification and measurement of financial assets. Under IFRS 9 (2009), financial assets are classified and measured based on the business model in which they are held and the characteristics of their contractual cash flows. IFRS 9 (2010) introduces additional changes relating to financial liabilities. The mandatory effective date is not yet determined. The extent of the impact of adoption of these amendments has not yet been determined. (ii) IAS 32, Financial Instruments: Presentation ( IAS 32 ): In December 2011, the IASB published Offsetting Financial Assets and Financial Liabilities and issued new disclosure requirements in IFRS 7. The effective date for the amendments to IAS 32 is annual periods beginning on or after January 1, These amendments are to be applied retrospectively. The Fund intends to adopt the amendments to IAS 32 in its consolidated financial statements for the annual period beginning January 1, The Fund does not expect the implementation of these standards to have a significant impact on the consolidated financial statements. (iii) IFRIC 21, Levies ( IFRIC 21 ): In, the International Accounting Standards Board (IASB) issued IFRIC 21, Levies ( IFRIC 21 ). The IFRIC addresses accounting for a liability to pay a levy within the scope of IAS 37, Provisions, contingent liabilities and contingent assets ( IAS 37 ). A levy is an outflow of resources embodying economic benefits that is imposed by governments on entities in accordance with legislation, other than income taxes within the scope of annual periods beginning on or after January 1, 2014, and is to be applied retrospectively. The Fund is currently assessing the impact of the new interpretation on its consolidated financial statements. Critical judgments and estimates In the preparation of the consolidated financial statements, management has made judgments, estimates and assumptions that affect the application of the Fund s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. In making estimates and judgments, management relies on external information and observable conditions where possible, supplemented by internal analysis as required. There are no known trends, commitments, events or uncertainties that management believes will materially affect the methodology or assumptions utilized in making those estimates and judgments in the consolidated financial statements. The significant estimates and judgments used in determining the recorded amount for assets and liabilities in the consolidated financial statements include the following: 36 Timbercreek U.S. Multi-Residential Opportunity Fund #1 Timbercreek U.S. Multi-Residential Opportunity Fund #1 37

20 (i) Measurement of fair values: The Fund s accounting policies and disclosures require the measurement of fair values for both financial and non-financial assets and liabilities. When measuring the fair value of an asset or liability, the Fund uses market observable data where possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). Level 3: Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs). The Manager reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or appraisals are used to measure fair values, the Manager will assess the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified. The information about the assumptions made in measuring fair value is included in the following notes of the consolidated financial statements: Note 5 investment properties; Note 8 interest rate swap contract; and Note 17 fair value measurement. RISKS AND UNCERTAINTIES The General Partner of the Fund has the overall responsibility for the establishment and oversight of the Fund s risk management framework. The Fund s risk management policies are established to identify and analyze the risks faced by the Fund, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and in response to the Fund s activities. expenditures, meet its debt servicing obligations, fund general administrative costs and make cash distributions to Unitholders. Currency risk Currency risk is the risk that the Fund faces from fluctuations in the Canadian/ U.S. dollar exchange rate. The revenues and expenses of the Properties are denominated in U.S. dollars and distributions indirectly made to the Fund by the Operating LP are in U.S. dollars. The Fund converts such distribution amounts received into Canadian dollars prior to distributions to Unitholders. As a consequence, distributions of the Fund will be affected by fluctuations in the Canadian/U.S. dollar exchange rate. The Fund does not enter into any hedging arrangements to limit the impact of changes in the Canadian/U.S. dollar exchange rate. The Fund is subject to certain risks and uncertainties that may affect the Fund s future performance and its ability to execute on its investment objectives. We have processes and procedures in place in an attempt to control or mitigate certain risks, while other risks cannot be or are not mitigated. Material risks that cannot be mitigated include a significant decline in the general real estate market, and not having adequate sources of bank financing available. The Fund, like most real estate rental entities, is exposed to a variety of risks and uncertainties. For an explanation of the various risks which the Fund is exposed to, please refer to the Annual Information Form for the year ended, a copy of which can be found on SEDAR at ADDITIONAL INFORMATION Additional information relating to the Fund is available on SEDAR at or by contacting: Carrie Morris, Managing Director, Capital Markets & Corporate Communications Timbercreek Asset Management Inc Yonge Street, Suite 500 Toronto, Ontario M4W 2K2 (416) In the normal course of operations, the Fund is exposed to various financial risks, including changes in interest rates and government regulatory controls. The following describes these financial risks and how they are managed by the Fund: Interest rate risk Interest rate risk is the risk that the fair value of future cash flows of financial assets or financial liabilities will fluctuate because of changes in market interest rates. As of, $23,525 of mortgages payable ( - nil) bear interest at variable rates. If there were an increase of 0.50% interest rates, with all other variables constant, the impact from variable rate mortgages would be a decrease in net income $118. However, if there were a 0.50% decrease in interest rates, with all other variables constant, it would result in an increase in net income of $118. The Fund has entered into two interest rate swap contracts of $13,975 and $12,000, effective from November 26, 2014 and December 10, 2014, which fixes the interest rates of variable interest rate mortgages at 4.14% and 4.27%. Credit risk Credit risk is the risk of financial loss to the Fund if a tenant or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Fund s receivables from tenants. Since the Fund is exposed to credit risk by the collection of accounts receivable from tenants, the Operator routinely obtains credit history reports on prospective tenants before entering into a tenancy agreement. In addition, the Operator obtains security deposits from tenants in geographic regions where permitted by law. Liquidity risk Liquidity risk is the risk that the Fund will not be able to meets its financial obligations as they fall due. Real estate property investments tend to be relatively illiquid, with the degree of liquidity generally fluctuating in relation to demand for and the perceived desirability of such investments. Such illiquidity may tend to limit the Fund s ability to vary its portfolio promptly in response to changing economic or investment conditions. If the Fund were required to liquidate a real estate property investment, the proceeds to the Fund might be significantly less than the aggregate carrying value of such investment property. The Fund manages cash from operations and its capital structure to ensure that there are sufficient resources to operate the investment properties, make capital and development 38 Timbercreek U.S. Multi-Residential Opportunity Fund #1 Timbercreek U.S. Multi-Residential Opportunity Fund #1 39

21 Independent Auditors Report Consolidated Statements of Financial Position (In thousands of U.S. dollars) To the Unitholders of Timbercreek U.S. Multi-Residential Opportunity Fund #1: We have audited the accompanying consolidated financial statements of Timbercreek U.S. Multi-Residential Opportunity Fund #1, which comprise the consolidated statements of financial position as at and, the consolidated statements of income (loss) and comprehensive income (loss), changes in net liabilities and cash flows for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and 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 our 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, we consider 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. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of 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. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Timbercreek U.S. Multi-Residential Opportunity Fund #1 as at and, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards. Chartered Professional Accountants, Licensed Public Accountants ASSETS Note Cash and cash equivalents $ 8,516 $ 6,247 Other assets 6 4,350 9,416 Total current assets 12,866 15,663 Investment properties 5 204,062 95,922 Total noncurrent assets 204,062 95,922 Total assets $ 216,928 $111,585 LIABILITIES Accounts payable and accrued liabilities $ 2,292 $ 911 Tenant rental deposits and prepaid rents Promissory notes payable 7 3,380 - Distributions payable 1,691 - Mortgages payable current portion Current tax liability Total current liabilities 8,908 1,115 Mortgages payable long-term 8 137,134 71,133 Deferred tax liability 13 1,900 - Total noncurrent liabilities excluding net liabilities attributable to Unitholders and US Holding LP 139,034 71,133 Net liabilities attributable to Unitholders 9 60,526 36,403 Net liabilities attributable to US Holding LP 10 8,460 2,934 Total net liabilities attributable to Unitholders and US Holding LP 68,986 39,337 Total liabilities including net liabilities attributable to Unitholders and US Holding LP $ 216,928 $111,585 Commitments 14 See accompanying notes to the consolidated financial statements. Approved by the Board of Directors of Timbercreek U.S. Multi-Residential Opportunity Fund GP #1 Inc., as general partner of Timbercreek U.S. Multi-Residential Opportunity Fund #1: Ugo Bizzarri Director David Melo Director March 20, 2014 Toronto, Canada 40 Timbercreek U.S. Multi-Residential Opportunity Fund #1 Timbercreek U.S. Multi-Residential Opportunity Fund #1 41

22 Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) (In thousands of U.S. dollars) Consolidated Statement of Changes in Net Liabilities For the year ended and period from August 30, (date of formation) to (In thousands of U.S. dollars) Note Year ended August 30, (date of formation) to Revenue from rental operations 12 $18,087 $ 332 Rental expenses: Property operating expenses 5, Realty taxes 1, Property management fees Total rental expenses 8, Net rental income 9, General and administrative expenses Asset management fees , Net income (loss) before foreign exchange gain, finance costs, fair value adjustment and income tax expense 8,768 (66) Foreign exchange gain (loss) 3,172 (268) Net finance costs: Interest expense 4, Fair value adjustment of interest rate swaps 8 (190) - Distributions to Partners 14(c) 3,172 - Trailer fees related to Class A units 14(b) Amortization of mortgages payable financing costs Amortization of unit offering costs Total finance costs 8, Net income (loss) before fair value adjustment and income tax expense 3,707 (514) Fair value adjustment of investment properties 5 3,049 - Income tax expense 13 2,014 - Net income (loss) and comprehensive income (loss) $ 4,742 $ (514) Net income (loss) and comprehensive income (loss) attributable to: Unitholders $ 4,243 $ (496) US Holding LP 499 (18) Net income (loss) and comprehensive income (loss) $4,742 $ (514) General Partner Class A Unitholders Class B Unitholders Class C Unitholders US Holding LP Total Net liabilities, beginning of year $ 4 $ 20,788 $ - $ 15,611 $ 2,934 $ 39,337 Net proceeds from issuance of units 3 10, ,352 5,000 27,465 Foreign currency translation - (1,788) (19) (1,370) (3,177) Increase (decrease) in net assets from operations - 2, , ,742 Amortization of unit offering costs Net liabilities, end of year $ 7 $ 32,255 $ 639 $ 27,625 $ 8,460 $68,986 General Partner Class A Unitholders Class B Unitholders Class C Unitholders US Holding LP Total Net proceeds from issuance of units $ 4 $ 21,024 $ - $ 15,789 $ 2,945 $ 39,762 Increase (decrease) in net assets from operations - (283) - (213) (18) (514) Amortization of unit offering costs Net liabilities, end of period $ 4 $20,788 $ - $ 15,611 $ 2,934 $ 39,337 See accompanying notes to the consolidated financial statements. See accompanying notes to the consolidated financial statements. 42 Timbercreek U.S. Multi-Residential Opportunity Fund #1 Timbercreek U.S. Multi-Residential Opportunity Fund #1 43

23 Consolidated Statements of Cash Flow (In thousands of U.S. dollars) Notes to the Consolidated Financial Statements For the year ended and period from August 30, (date of formation) to (In thousands of U.S. dollars, except unit and per unit amounts) Cash provided by (used in): OPERATING ACTIVITIES Year ended August 30, (date of formation) to Net income (loss) and comprehensive income (loss) $ 4,742 $ (514) Finance costs 8, Foreign exchange (gain) loss (3,172) 268 Fair value adjustment of investment properties (3,049) - Income taxes 2,014 - Change in working capital: (Increase) decrease in tenant and other receivables (119) (9) (Increase) decrease in prepaid expenses and other assets (816) (508) (Increase) decrease in deposits in trust 150 (1,650) (Increase) decrease in holdbacks in escrow 4,490 - (Increase) decrease in due from the Manager 306 (306) (Increase) decrease in due from the Operator (255) - Increase (decrease) in accounts payable and accrued liabilities Increase (decrease) in tenant deposits and prepaid rent FINANCING ACTIVITIES 13,143 (1,604) Mortgage financing 32,519 64,725 Mortgage repayments (295) - Proceeds from issuance of units to Unitholders, net of issuance costs 27,465 39,762 Proceeds from (repayment of) promissory notes, net 3,557 - Finance costs paid (5,147) (800) Distributions to Partners (1,481) - INVESTING ACTIVITIES 56, ,687 Acquisition of investment properties (56,141) (95,836) Capital expenditures to investment properties (11,351) - (67,492) (95,836) Increase in cash and cash equivalents 2,269 6,247 Cash and cash equivalents, beginning of period 6,247 - Cash and cash equivalents, end of period $ 8,516 $ 6,247 See accompanying notes to the consolidated financial statements ORGANIZATION Timbercreek U.S. Multi-Residential Opportunity Fund #1 (the Fund ) is a limited partnership governed by the laws of the Province of Ontario which was formed on August 30,. The Fund has been established for the purpose of (i) indirectly acquiring multi-residential investment properties located throughout the southeastern United States, that are mispriced and/or undermanaged in the view of Timbercreek Asset Management Inc. (the Manager ), and (ii) enhancing the value of the investment properties through active management and a stabilization and improvement program, with the goal of ultimately disposing of the investment properties to generate significant gains. Elco Landmark Residential Holdings, LLC (the Operator ) has been hired to operate and act as the property manager of the investment properties. The registered office of the Fund is located at 1000 Yonge Street, Suite 500, Toronto, Ontario, M4W 2K2. As at, the Fund indirectly owns 88.5% ( 92.6%) of the equity of Timbercreek U.S. Multi-Residential Operating LP ( Operating LP ), a limited partnership formed pursuant to and governed by the laws of Delaware. The remaining interest in Operating LP is held by Timbercreek U.S. Multi-Residential (U.S.) Holding L.P. ( US Holding LP ), a controlling interest of which is held by an affiliated entity of the Operator. The assets of the Fund are indirectly held by the Operating LP, which carries out the business of the Fund. Timbercreek Multi-Residential Opportunity Fund #1 G.P. Inc. is the general partner of the Fund (the General Partner ). The General Partner is a wholly-owned subsidiary of the Manager. The net income of the Fund is allocated 0.01% to the General Partner and 99.99% to the limited partners. The term of the Fund is four years beginning on October 25,, being the closing date of the Fund s initial public offering ( IPO ), subject to a single one-year extension at the discretion of the General Partner (the Term ) or to earlier termination upon the sale of the Fund s final investment property. The Term may only be further extended by special resolution of the Unitholders. 2. BASIS OF PREPARATION (a) Statement of compliance: The consolidated financial statements of the Fund have been prepared in accordance with International Financial Reporting Standards ( IFRS ) and were authorized for issue by the General Partner on March 20, (b) Basis of measurement: These consolidated financial statements have been prepared on a historical cost basis, except for investment properties and the interest rate swap contract which have been measured at fair value. The preparation of these consolidated financial statements requires the use of certain critical accounting estimates. It also requires management to exercise judgment in the process of applying the Fund s accounting policies. Areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 3(i). (c) Functional and presentation currency: The functional and presentation currency of the Fund is U.S. dollars. Transactions in currencies other than the U.S. dollar are translated at the exchange rate on the transaction date. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into U.S. dollars at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortized cost in U.S. dollars at the beginning of the period, adjusted for effective interest and payments during the period, and the amortized cost in U.S. dollars translated at the exchange rate at the end of the reporting period. Nonmonetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to U.S. dollars at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on translation are recognized in profit or loss. Non-monetary 44 Timbercreek U.S. Multi-Residential Opportunity Fund #1 Timbercreek U.S. Multi-Residential Opportunity Fund #1 45

24 items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. 3. SIGNIFICANT ACCOUNTING POLICIES (a) Basis of consolidation: These consolidated financial statements include the accounts of the Fund and its controlled subsidiaries. The Fund controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of its subsidiaries included in these consolidated financial statements are from the date that control commences until the date that control ceases. The Fund has no interests in joint arrangements and associates, or structured entities that are not controlled by the Fund. The Fund early adopted IFRS 10, Consolidated Financial Statements; IFRS 11, Joint Arrangements and IFRS 12, Disclosure of Interests in Other Entities in the period ended. (b) Investment properties: The Fund accounts for real estate classified as investment property using the fair value method. A property is determined to be an investment property when it is principally held to earn rental income, capital appreciation, or both. Investment properties are initially measured at cost, including transaction costs associated with acquiring the property where such acquisitions are determined to be an asset acquisition. Subsequent to initial recognition, investment properties are carried at fair value at each reporting date with any gains or losses arising from changes in fair value recognized in the consolidated statement of income and comprehensive income during the period in which they arise. The fair value of investment properties reflects, among other things, rental income from current leases and assumptions about rental income, appropriate discount rates, capitalization rates and estimates of future rental income, operating expenses and capital expenditures. Subsequent capital expenditures are charged to investment properties only when it is probable that future economic benefits of the expenditure will flow to the Fund and the cost can be measured reliably. Gains or losses from the disposal of investment properties are determined as the difference between the net disposal proceeds and the carrying amount and are recognized in the consolidated statements of income and comprehensive income in the year of disposal. (c) Revenue recognition: The Fund has retained substantially all of the risks and benefits of ownership of its investment properties and, therefore, accounts for its leases with tenants as operating leases. Revenue from investment properties includes all rental income earned from the properties, including residential tenant rental income, parking income, laundry income, cable and antenna income and all other miscellaneous income paid by the tenants under the terms of their existing lease. Revenue recognition under a lease commences when a tenant has a right to use the leased unit and is recognized pursuant to the terms of the lease agreement. (d) Finance costs: Finance costs consist of interest on mortgages payable and promissory notes payable, amortization of financing costs relating to placement of mortgages payable and promissory notes payable, offering costs relating to Units, distributions to the Unitholders, and trailer fees related to Class A units. (e) Financial instruments: Financial instruments are classified as one of the following: (i) fair value through profit and loss ( FVTPL ), (ii) loans and receivables, (iii) held-to-maturity, (iv) available-for-sale, or (v) other liabilities. Financial instruments are recognized initially at fair value, plus in the case of financial instruments not FVTPL any incremental direct transaction costs. Financial assets and liabilities classified as FVTPL are subsequently measured at fair value with gains and losses recognized in profit and loss. Financial instruments classified as held-to-maturity, loans and receivables or other liabilities are subsequently measured at amortized cost. Available-for-sale financial instruments are subsequently measured at fair value and any unrealized gains and losses are recognized through other comprehensive income. The classification of financial instruments is outlined in note 17. The Fund classifies financial instruments issued as financial liabilities or equity instruments in accordance with the substance of the contractual terms of the instrument. The Fund has no held for trading, available-for-sale, held-to-maturity investments or FVTPL financial instruments. Transaction costs related to financial instruments measured at amortized cost are amortized using the effective interest rate method over the anticipated life of the related instrument. Financial assets carried at amortized cost are assessed at each reporting date to determine whether there is objective evidence indicating the assets might be impaired. The Fund considers evidence of impairment for receivables at both a specific asset and collective level. All receivables are assessed for specific impairment. All receivables found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset s original effective interest rate. Losses are recognized in profit or loss and reflected in an allowance against the associated account receivable. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. (f) Cash and cash equivalents: The Fund considers highly liquid investments with an original maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value to be cash equivalents. (g) Fair value of derivative: The Fund s derivative consists of two interest rate swap contracts used to economically hedge exposure to variable cash flows associated with interest payments on two of the Fund s mortgages. Management estimates the fair value of this derivative as the present value of expected future cash flows to be received or paid, based on available market data, which includes market yields and counterparty credit spreads. (h) Income taxes: The Fund is organized as a partnership for Canadian tax purposes and therefore the taxable income, for Canadian tax purposes, is subject to tax by the Unitholder. The Fund has a subsidiary that is considered to be a corporation for U.S. tax purposes. Therefore, this subsidiary is subject to U.S. tax on its taxable income. Taxes paid by the subsidiary are allocated to the Unitholders and may be available as a credit against the Canadian taxes otherwise payable. Accordingly, the Fund provides for income tax with respect to its taxable subsidiary. Income tax expense is comprised of current and deferred tax. Current tax and deferred tax are recognized in profit or loss, except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates and laws enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for: (i) temporary differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future; (ii) temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profits; and (iii) taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously. In determining the amount of current and deferred tax the Fund takes into account the impact of uncertain tax provisions and whether additional taxes and interest may be due. The Fund believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax laws and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgments about future events. New information may become available that causes the Fund to change its judgment regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the period that such a determination is made. 46 Timbercreek U.S. Multi-Residential Opportunity Fund #1 Timbercreek U.S. Multi-Residential Opportunity Fund #1 47

25 A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable (which the Fund has defined as more likely than not) that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. (i) Critical judgments and estimates: In the preparation of these consolidated financial statements, management has made judgments, estimates and assumptions that affect the application of the Fund s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. In making estimates and judgments, management relies on external information and observable conditions where possible, supplemented by internal analysis as required. There are no known trends, commitments, events or uncertainties that management believes will materially affect the methodology or assumptions utilized in making those estimates and judgments in these consolidated financial statements. The significant estimates and judgments used in determining the recorded amount for assets and liabilities in the consolidated financial statements include the following: (i) Measurement of fair values: The Fund s accounting policies and disclosures require the measurement of fair values for both financial and non-financial assets and liabilities. When measuring the fair value of an asset or liability, the Fund uses market observable data where possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). Level 3: Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs). The Manager reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or appraisals are used to measure fair values, the Manager will assess the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified. The information about the assumptions made in measuring fair value is included in the following notes: Note 5 investment properties; Note 8 interest rate swap contract; and Note 17 fair value measurement. (ii) Accounting for acquisitions: The Fund assesses whether an acquisition transaction is an asset acquisition or a business combination under IFRS 3, Business Combinations ( IFRS 3 ). This assessment requires management to make judgments about whether the assets acquired and liabilities assumed constitute a business as defined in IFRS 3 and if the integrated set of activities, including inputs and processes acquired, are capable of being conducted and managed as a business and the Fund obtains control of the business. When the cost of a business combination exceeds the fair value of the identifiable assets acquired or liabilities assumed, such excess is recognized as goodwill. Transaction-related costs are expensed as incurred. Subsequent to initial measurement, the carrying cost of individual assets and liabilities are based on their respective classification. (iii) Accounting for subsidiaries: Significant judgment is required in assessing whether the Fund should consolidate the underlying structured entities in accordance with IFRS 10 (see note 10). (j) Changes in accounting policies: Except for the changes below, the Fund has consistently applied the accounting policies set out to all periods presented in these consolidated financial statements. The Fund has adopted the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of initial application of January 1,. a) IFRS 13 Fair Value Measurement b) Presentation of Items of Other Comprehensive Income (Amendments to IAS 1) c) IAS 19 Employee Benefits (2011) With the exception of IFRS 13, Fair Value Measurements, there were no material effects upon adoption of these new standards and amendments to standards. IFRS 13 establishes a single framework for measuring fair value and making disclosures about fair value measurements when such measurements are required or permitted by other IFRSs. It unifies the definition of fair value 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. It replaces and expands the disclosure requirements about fair value measurements in other IFRSs, including IFRS 7. As a result, the Fund has included additional disclosures in this regard (see notes 5 and 17). The change had no impact on the measurement of the Fund s assets and liabilities. (k) Future accounting changes: A number of new standards, amendments to standards and interpretations are effective for annual periods beginning on or after January 1, 2014 and have not been applied in preparing these consolidated financial statements. Those which may be relevant to the Fund are set out below. The Fund does not plan to adopt these standards early. (i) IFRS 9, Financial instruments, ( IFRS 9 ): In November 2009 the IASB issued IFRS 9, Financial Instruments (IFRS 9 (2009)), and in October 2010 published amendments to IFRS 9 (IFRS 9 (2010)). IFRS 9 (2009) introduces new requirements for the classification and measurement of financial assets. Under IFRS 9 (2009), financial assets are classified and measured based on the business model in which they are held and the characteristics of their contractual cash flows. IFRS 9 (2010) introduces additional changes relating to financial liabilities. The mandatory effective date is not yet determined. The extent of the impact of adoption of these amendments has not yet been determined. (ii) IAS 32, Financial Instruments: Presentation ( IAS 32 ): In December 2011, the IASB published Offsetting Financial Assets and Financial Liabilities and issued new disclosure requirements in IFRS 7. The effective date for the amendments to IAS 32 is annual periods beginning on or after January 1, These amendments are to be applied retrospectively. The Fund intends to adopt the amendments to IAS 32 in its consolidated financial statements for the annual period beginning January 1, The Fund does not expect the implementation of these standards to have a significant impact on the consolidated financial statements. (iii) IFRIC 21, Levies ( IFRIC 21 ): In, the International Accounting Standards Board (IASB) issued IFRIC 21, Levies. The IFRIC addresses accounting for a liability to pay a levy within the scope of IAS 37, Provisions, contingent liabilities and contingent assets ( IAS 37 ). A levy is an outflow of resources embodying economic benefits that is imposed by governments on entities in accordance with legislation, other than income taxes within the scope of annual periods beginning on or after January 1, 2014, and is to be applied retrospectively. The Fund is currently assessing the impact of the new interpretation on its consolidated financial statements. If the acquisition does not meet the definition of a business combination, the Fund accounts for the acquisition as an asset acquisition. The investment property acquired is initially measured at the purchase price, including directly attributable costs. Subsequent to initial measurement, investment properties are carried at fair value. 48 Timbercreek U.S. Multi-Residential Opportunity Fund #1 Timbercreek U.S. Multi-Residential Opportunity Fund #1 49

26 4. ACQUISITIONS The following acquisitions have been accounted for as asset purchases and recognized initially at fair value plus transaction costs, with the results of operations included in these consolidated financial statements from the date of acquisition. The fair value of consideration has been allocated to the identifiable assets acquired and liabilities assumed as follows: The details of the acquisitions are as follows: acquisitions On May 6,, the Fund completed the acquisition of the Cary Portfolio at a purchase price of $55,700 and incurred transaction costs of $225. The Fund assumed existing mortgages with a contractual value of $32,135 and recorded a mark-to-market adjustment of $3,208. Consideration for the net assets acquired was satisfied through securing new mortgage financing of $8,994, promissory notes of $6,951 and the balance from cash on hand. The promissory notes carried interest at a rate of 9% per annum, plus a 1% up-front fee of the principal balance. On July 31,, the Fund repaid the promissory notes including accrued interest. On November 26,, the Fund completed the acquisition of one investment property (Lake Ellenor) at a purchase price of $18,500 and incurred transaction costs of $158. Consideration for the net assets acquired was satisfied through securing new mortgage financing of $12,575, and the balance from cash on hand. On December 10,, the Fund completed the acquisition of one investment property (Alexander Pointe) at a purchase price of $15,800 and incurred transaction costs of $149. Consideration for the net assets acquired was satisfied through securing new mortgage financing of $10,950, and the balance from cash on hand. acquisitions On December 20,, the Fund completed the acquisition of four investment properties at a total purchase price of $95,437 and incurred transaction costs of $485. The Fund financed the purchase price of these properties from the gross proceeds of new mortgage financing, before holdbacks in escrow, of $71,574 and incurred lender costs of $443. The balance was funded from proceeds raised from the issuance of Units and the proceeds received from the US Holding LP. 5. INVESTMENT PROPERTIES Cary Portfolio Lake Ellenor Alexander Pointe The investment properties are pledged as security for the mortgages payable. Investment properties $ 59,133 $ 18,658 $ 15,949 $ 93,740 $ 95,922 Mortgage payable (including mark-tomarket adjustment of $3,208) (35,343) - - (35,343) - Tenant rental deposits and prepaid rents (212) (102) (51) (365) (180) Other working capital, net (186) (115) (90) (391) 94 Total assets acquired, net $ 23,392 $ 18,441 $ 15,808 $ 57,641 $ 95,836 Deposit applied $ 1,500 $ 650 $ 500 $ 2,650 $ - Cash paid on closing 21,892 17,791 15,308 54,991 95,836 Total consideration paid $ 23,392 $ 18,441 $ 15,808 $ 57,641 $ 95,836 Balance, beginning of period $ 95,922 $ - Acquisitions of investment properties (note 4) 93,740 95,922 Capital expenditures 11,351 - Fair value adjustment 3,049 - Balance, end of period $204,062 $ 95,922 The fair value is based on valuations by independent external appraisers accedited by professional institutes with recent experience in the location of the property being valued. The Manager engages a third party appraiser semi-annually, or more frequently as may be required during equity offerings, to provide valuations on the investment properties. The fair value measurement has been categorized as a Level 3 fair value based on the inputs to the valuation technique used. The following table shows the valuation technique used in measuring the fair value of the investment properties: Valuation Technique Direct Capitalization Method: The valuation model is based on the conversion of stabilized net operating income generated from the property to a market value. The stabilized net operating income is capitalized with an overall rate which reflects the investment characteristics offered by the asset (quality of building and amenities, and location). The key valuation assumptions used in the fair value of the investment properties are set out in the following The key valuation assumptions used in the fair value of the investment properties are set out in the table: following table: Capitalization rates: The fair value of the investment properties as at was based on the purchase price given the The fair value of the investment properties as at was based on the purchase proximity of the acquisition to year-end. price given the proximity of the acquisition to year-end. Notes to Consolidated Financial Statements (cont d) If the capitalization rate were to increase by 25 basis points ( bps ), the value of investment properties would (In If the thousands capitalization of U.S. dollars, rate were except to unit increase and per by unit 25 basis amounts) decrease by $5,249. If the capitalization rate were to decrease points by 25 ( bps ), bps, the the value value of investment of investment properties properties would decrease by $5,249. If the capitalization rate were to decrease by 25 bps, the value For would increase by $7,533. of investment the year properties ended December would increase 31, by $7,533. and period from August 30, (date of formation) to 6. OTHER ASSETS 6. OTHER ASSETS Inter-relationship between key unobservable inputs and fair value measurement The estimated fair value would increase (decrease) if: - Overall capitalization rates were lower (higher) - Occupancy rates were higher (lower) - Market rental rates were higher (lower) Range 6.50% to 6.75% Weighted average 6.60% Occupancy rate 94% Market rental rates per unit weighted average / month (in dollars) $768 TIMBERCREEK U.S. MULTI-RESIDENTIAL OPPORTUNITY FUND #1 Tenant and other receivables $ 128 $ 9 Prepaid expenses and other assets (a) 1, Deposits in trust (b) - 1,650 Holdbacks in escrow (c) 2,359 6,849 Interest rate swaps (note 8) Due from Manager Due from Operator (d) $ 4,350 $ 9,416 (a) Included in in prepaid prepaid expenses expenses and other and other assets assets are prepaid are prepaid property property taxes, insurance taxes, insurance and utility deposits. and utility deposits. (b) As at, deposits in trust included refundable cash deposits held pursuant to agreements of (b) purchase As at December and sale of 31, investment, deposits properties. in trust included refundable cash deposits held pursuant to agreements of purchase and sale of investment properties. (c) Holdbacks in escrow consist of cash on deposit requested by the lenders to be retained in escrow to pay for planned capital expenditures relating to the investment properties. These funds are released by the lender to (c) Holdbacks in escrow consist of cash on deposit requested by the lenders to be retained in pay escrow the respective to pay for obligations planned as capital they become expenditures due. relating to the investment properties. These (d) The funds balance are released relates to by shared the lender expenses to incurred pay the by respective the Fund on obligations behalf of the as Operator. they become due. 7. (d) PROMISSORY The balance relates NOTES to shared PAYABLE expenses incurred by the Fund on behalf of the Operator. On December 2,, the Fund obtained financing to bridge the timing gap between the acquisition of two investment properties (note 4) and the equity offering. The amount of the bridge financing was $1,500 and Canadian dollars of $2,000 at interest rate of 9% per annum, plus a 1% up-front fee of the principal balance. The maturity date of the bridge financing is March 31, 2014, and is in the process of being extended to September 30, Timbercreek U.S. Multi-Residential Opportunity Fund #1 Timbercreek U.S. Multi-Residential Opportunity Fund # MORTGAGES PAYABLE

27 7. PROMISSORY NOTES PAYABLE On December 2,, the Fund obtained financing to bridge the timing gap between the acquisition of two investment properties (note 4) and the equity offering. The amount of the bridge financing was $1,500 and Canadian dollars of $2,000 at interest rate of 9% per annum, plus a 1% up-front fee of the principal balance. The maturity date of the bridge financing is March 31, 2014, and is in the process of being extended to September 30, MORTGAGES PAYABLE Minimum future principal repayments $ 135,933 $ 71,574 Mark-to-market adjustment 2,907 - Unamortized financing costs (921) (441) Total mortgages payable $ 137,919 $ 71,133 Less: current portion $137,134 $ 71,133 Mortgages payable at fixed interest rates bear interest at rates ranging between 3.75% and 5.78% at ( 3.75% and 3.79%), with a weighted average rate of 4.45% at ( 3.78%), and mature between 2020 and Mortgages payable at variable interest rates bear interest at rates of one-month LIBOR plus 1.70%, which at, is 1.87% ( nil), with a weighted average rate of 1.87% at ( nil), and mature in Collectively, the weighted average rate on mortgages payable is 4.00% (- 3.78%). The Fund has entered into two swap agreements for a notional amount of $13,975 and $12,000 maturing on November 26, 2020 and December 10, 2020, respectively, which commercially fixes the interest rate on two of the Fund s mortgages at 4.14% and 4.27%. The effective dates for the interest rate swaps are November 26, 2014 and December 10, The fair value of the swaps at is $190. Mortgages payable are secured by the investment properties and are guaranteed by the Operator and/or the Operator s key principal. Financing costs incurred on the placement of the mortgages are recognized using the effective interest rate method and accounted for as an adjustment to the mortgages payable. The minimum future principal repayments required to meet mortgage obligations at December 31, are as follows: Regular principal Balance due repayments on maturity Total 2014 $ 785 $ - $ ,786-1, ,059-2, ,827-2, ,919-2,919 Thereafter 8, , ,557 $ 19,153 $ 116,780 $ 135, UNITHOLDERS LIABILITIES The Fund is authorized to issue an unlimited number of Class A Units, Class B Units and Class C Units (collectively, the Units and the holders of such units being Unitholders ), all of which rank equally with respect to distributions, except as set out below. Each Unit entitles the holder to the same rights and obligations as all other Unitholders and no Unitholder is entitled to any privilege, priority or preference in relation to any other holder of Units, subject to the proportionate entitlement of the holders of Class A Units, Class B Units and Class C Units to participate in distributions made by the Fund and to receive proceeds upon termination of the Fund, in each case based on the proportionate share of each class of Units (taking into account the agents fees incurred in connection with the issuance of such units, as applicable). these Units may be sold or redeemed. Class B Units differ from Class A Units in that they have a minimum commitment by an investor of $20 (Canadian Dollars), include a reduced agents fee and there is no trailer fee payable in respect of the Class B Units. The Class C Units are offered by private placement and are designed for the Manager, certain institutional, high net worth and other investors. The Class C Units differ from Class A Units and Class B Units in that the costs associated with the private placement of the Class C Units are lower than the costs associated with the public offering of Class A Units and Class B Units and there is no trailer fee payable in respect of the Class C Units. The Fund is not required to redeem Units prior to the completion of the Term. Under IFRS, a financial liability arises from a contractual obligation to deliver cash or another financial asset to another party. The limited life of the Fund creates an obligation for the Fund to repay Unitholders at the end of the Term; as a result the Units meet the definition of a financial liability. Thus, the Units are classified as liabilities attributable to Unitholders in the consolidated statement of financial position. The Unitholders liabilities of the Fund are denominated in Canadian dollars and are translated into U.S. dollars at each reporting date. As the Units are classified as liabilities, the distributions on these Units are recognized as part of finance costs. In addition, the issue costs incurred on the offerings are amortized to finance costs over the Term of the Fund. On October 25,, the Fund completed its IPO through the issuance of 2,244,350 Class A Units, for net proceeds of approximately $21,024, and 1,605,000 Class C Units, for net proceeds of approximately $15,789. Included in the net proceeds are issue costs of $1,933 on these offerings, which includes agents commissions, issue and structuring costs. On March 15,, the Fund completed a subsequent issuance of 567,500 Class C Units, for net proceeds of $5,568. On May 24,, the Fund completed a follow-on public offering of 1,100,746 Class A Units for net proceeds of $1,499; 66,500 Class B Units for net proceeds of $611. Also on May 24,, the Fund completed a private placement of 270,298 Class C Units for net proceeds of $2,723. Included in the net proceeds are issue costs of $801 on these offerings, which includes agents commissions, issue and structuring costs. On December 10,, the Fund completed a subsequent issuance of 293,477 Class C Units, for proceeds of $3,061 General Partner Class A Units Class B Units Class C Units 10. INTERESTS IN OTHER STRUCTURED ENTITIES The Fund has interests in two structured entities being its 99.99% interest in Timbercreek U.S. Multi-Residential Holding Partnership and its 88.5% interest ( 92.6%) in Operating LP. Although the Fund does not have substantive voting rights in these structured entities, the General Partner determined the Fund should consolidate these entities as the Fund receives the majority of the returns related to their operations. Total Units outstanding, January 1, 372 2,244,350-1,605,000 3,849,722 Issuance of Units 279 1,100,746 66,500 1,131,275 2,298,800 Units outstanding, 651 3,345,096 66,500 2,736,275 6,148,522 General Partner Class A Units Class B Units Class C Units Total Units outstanding, August 30, (date of formation) Issuance of Units 372 2,244,350-1,605,000 3,849,722 Units outstanding, 372 2,244,350-1,605,000 3,849,722 The interest attributable to US Holding LP results from the issuance of Class A units of Operating LP to US Holding LP. Substantially all of the assets, liabilities, revenue and expenses of the Fund are held within and earned from the operations of Operating LP. Class A and Class B Units are publicly offered; however, there is no market through which In May,, Operating LP completed a private placement of 500,000 Class A units for net proceeds of $5,000 received from US Holding LP. 52 Timbercreek U.S. Multi-Residential Opportunity Fund #1 Timbercreek U.S. Multi-Residential Opportunity Fund #1 53

28 In October,, Operating LP completed a private placement of 300,000 Class A units for net proceeds of $2,945 received from US Holding LP. 11. RELATED PARTY TRANSACTIONS AND BALANCES Except as disclosed elsewhere in these consolidated financial statements, related party transactions include the following transactions and balances. The Manager, the General Partner and the Fund are related by virtue of common management. In accordance with the Asset Management Agreement (note 14(a)), for the year ended December 31,, $587, $723 and $366 ( - $77, $13 and $10), were charged by the Manager to the Fund relating to asset management fees, property management fees, and acquisition fees, respectively. The acquisition fees are capitalized to the cost of investment properties. A portion of the fees earned by the Manager is payable to the Operator. As at, $26 ( receivable of $306) was payable to the Manager for costs incurred on behalf of the Fund, and is included in the accounts payable and accrued liabilities. As at, $255 ( $nil) was receivable from the Operator for shared expenses incurred by the Fund on behalf of the Operator. 12. OPERATING LEASES The Fund leases residential rental properties under operating leases generally with a term of not more than 12 months and, in many cases, tenants lease rental space on a month-to-month basis. As such, rental revenue represents all revenue earned from the Fund s operating leases and totaled $18,087 for the year ended (from August 30, (date of formation) to $332). 13. INCOME TAXES The Fund is not subject to Canadian income taxes on income earned and gains realized by the Fund as those amounts will be included in the taxable income of its Unitholders. The Fund has a subsidiary which is subject to U.S. corporate taxes. The current income tax expense of the subsidiary is available as a tax credit to the Unitholders. The effective US tax rate of 31% ( nil%) differs from the statutory tax rate of 39% ( - 41%) as a portion of the Fund s income is not subject to U.S. income tax. The tax expense of $2,014 ( nil) is comprised of $1,900 ( nil) of deferred tax and $114 ( nil) of current tax. For the year ended, the Fund has recorded a net deferred tax liability of $1,900 due to temporary differences between the book carrying amount and tax cost of properties net of losses available for carry forward. 14. COMMITMENTS (a) Asset Management Agreement The Fund has entered into an asset management agreement ( Asset Management Agreement ) with the Manager. Pursuant to the Asset Management Agreement, the Manager is responsible for strategic, advisory, asset management, property management, leasing, construction management and administration services necessary to manage the day-to-day operations of the Fund and the properties. The Manager is entitled to asset management fees, property management fees, acquisition fees and capital management fees. However, these shall not exceed, on an aggregate basis, 1% per annum of the Fund s total assets, provided that, if such fees exceed 1% per annum of the Fund s total assets, the excess amount shall be carried forward and paid in the first subsequent year in which the total fees paid do not exceed 1% per annum of the Fund s total assets, up to an amount that, together with the total fees paid in such year, is equal to 1% of the Fund s total assets for such year. Any excess carried forward at the end of the Term shall not be paid. The excess amount carried forward as at is $1,783 ( $1,096). The description of the individual fees is as follows: (i) An asset management fee equal to 1.0% per annum of the gross subscription proceeds of any one or more subsequent offerings, plus applicable taxes, calculated and payable monthly in arrears; (ii) A property management fee equal to 4% per annum of the effective gross rental income of Operating LP, plus applicable taxes, payable monthly in arrears; (iii) An acquisition fee equal to 1% of the gross purchase price of each property (or interest in a property), which shall also include, but is not limited to, due diligence costs, closing costs, legal fees, and any additional capital costs incurred in connection with the acquisition of the property, plus applicable taxes, payable on the completion of each acquisition; and (iv) A capital project management fee equal to 4% of the total costs of the applicable renovation and repositioning program, plus applicable taxes, payable as to 50% of such fee at the beginning of the program, and as to the remaining 50% at the completion of the program. (b) Trailer fees The Fund pays an annual trailer fee equal to 0.5% of the gross subscription proceeds received for the Class A Units to registered dealers from cash available for distribution to holders of Class A Units based on the number of Class A Units held by clients of such registered dealers at the end of the relevant quarter (calculated and paid at the end of each calendar quarter commencing on March 31, ). The Fund incurred trailer fees of $157 for the year ended ( nil). (c) Distributions Distributions will be made by Operating LP indirectly to Unitholders and holders of US Holding LP Units ( U.S. Unitholders ) in the following order of priority: (i) First, 100% to the holders of Operating LP Units (pro rata), until they have received cumulative distributions equal to their aggregate contributed capital; (ii) Second, 100% to the holders of Operating LP Units (pro rata) until they have been paid an 8% annual preferred return on all amounts contributed by them; (iii) Third, 75% to the holders of Operating LP Units (pro rata) and 25% to the Manager and the Operator (each as to 50% of such amount) for any distributions until the holders of Operating LP Units have been paid a cumulative 14% annual preferred return on all amounts contributed by them; and (iv) Thereafter, 65% to the holders of Operating LP Units (pro rata) and 35% to the Manager and the Operator (each as to 50% of such amount). The applicable preferred return thresholds shall be calculated on a pre-tax basis and in U.S. dollars. The Fund intends to pay distributions to Unitholders on a quarterly basis within 15 days following the end of each quarter. For the year ended, the Fund declared distributions as follows: Year ended Per Unit Total Distribution Class A $ 1,475 Class B Class C ,273 US Holding LP Total $ 3,172 The distributions paid to Unitholders are net of income taxes payable by the Fund s taxable subsidiary. The income taxes paid will generally be allocated to Unitholders as foreign tax credits. For the period from August 30, (date of formation) to, the Fund did not declare any distributions. 15. CAPITAL MANAGEMENT The Fund manages its capital structure in order to support ongoing operations while focusing on its primary objective of acquiring multi-family real estate located in the southeastern United States that is mispriced and/or undermanaged with a goal of enhancing the value of the assets through active management and a stabilization and improvement program. The Fund defines its capital structure to include mortgages payable, net liabilities attributable to Unitholders and US Holding LP. The Fund reviews its capital structure on an ongoing basis and adjusts its capital structure in 54 Timbercreek U.S. Multi-Residential Opportunity Fund #1 Timbercreek U.S. Multi-Residential Opportunity Fund #1 55

29 response to property acquisition or disposition opportunities, the availability of mortgage financing and anticipated changes in general economic conditions. There has been no change in the process since the previous year. 16. RISK MANAGEMENT The General Partner of the Fund has the overall responsibility for the establishment and oversight of the Fund s risk management framework. The Fund s risk management policies are established to identify and analyze the risks faced by the Fund, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and in response to the Fund s activities. In the normal course of operations, the Fund is exposed to various financial risks, including changes in interest rates and government regulatory controls. The following describes these financial risks and how they are managed by the Fund: (i) Interest rate risk: Interest rate risk is the risk that the fair value of future cash flows of financial assets or financial liabilities will fluctuate because of changes in market interest rates. As of, $23,525 of mortgages payable ( - nil) bear interest at variable rates. If there were an increase of 0.50% in interest rates, with all other variables constant, the impact from variable rate mortgages would be a decrease in net income $118. However, if there were a 0.50% decrease in interest rates, with all other variables constant, it would result in an increase in net income of $118. The Fund has entered into two interest rate swap contracts of $13,975 and $12,000, effective from November 26, 2014 and December 10, 2014, which fixes the interest rates of variable interest rate mortgages at 4.14% and 4.27%. (ii) Credit risk: Credit risk is the risk of financial loss to the Fund if a tenant or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Fund s receivables from tenants. Since the Fund is exposed to credit risk by the collection of accounts receivable from tenants, the Operator routinely obtains credit history reports on prospective tenants before entering into a tenancy agreement. In addition, the Operator obtains security deposits from tenants in geographic regions where permitted by law. (iii) Liquidity risk: Liquidity risk is the risk that the Fund will not be able to meets its financial obligations as they fall due. Real estate property investments tend to be relatively illiquid, with the degree of liquidity generally fluctuating in relation to demand for and the perceived desirability of such investments. Such illiquidity may tend to limit the Fund s ability to vary its portfolio promptly in response to changing economic or investment conditions. If the Fund were required to liquidate a real estate property investment, the proceeds to the Fund might be significantly less than the aggregate carrying value of such property. The Fund manages cash from operations and its capital structure to ensure that there are sufficient resources to operate the investment properties, make capital and development expenditures, meet its debt servicing obligations, fund general administrative costs and make distributions. The following are the contractual maturities of financial liabilities as at, including expected interest payments, where applicable: Carrying amount Contractual cash flow Within a year 1 5 years Over 5 years Mortgage payable $ 135,933 $ 176,051 $ 6,282 $ 30,809 $ 138,960 Accounts payable and other liabilities 2,292 2,292 2, Tenant rental deposits and prepaid rents Current tax liability Promissory notes payable 3,380 3,608 3, Distributions payable 1,691 1,691 1, Net liabilities attributable to Unitholders 60,526 60,526-60,526 - Net liabilities attributable to US Holding LP 8,460 8,460-8,460 - (iv) Currency risk: Currency risk is the risk that the Fund faces from fluctuations in the Canadian/U.S. dollar exchange rate. The revenues and expenses of the investment properties are denominated in U.S. dollars and distributions made to the Fund by the Operating LP are in U.S. dollars. The Fund converts such distribution amounts received into Canadian dollars prior to distributions to Unitholders. As a consequence, distributions of the Fund will be affected by fluctuations in the Canadian/U.S. dollar exchange rate. The Fund does not enter into any hedging arrangements to limit the impact of changes in the Canadian/U.S. dollar exchange rate. 17. FAIR VALUE MEASUREMENT The following table shows the carrying amounts and fair values of assets and liabilities: Assets not measured at fair value Loans and receivable Carrying Values FVTPL Other financial liabilities Fair value Other assets $ 4,160 $ 190 $ - $ 4,350 Cash and cash equivalents 8, ,516 Assets measured at FVTPL Investment properties (note 5) Liabilities not measured at fair value - 204, ,062 Accounts payable and accrued liabilities - - 2,292 2,292 Tenant rental deposits and prepaid rents Promissory notes payable - - 3,380 3,380 Distributions payable - - 1,691 1,691 Mortgages payable - (a) Other financial assets and liabilities The fair values of cash and cash equivalents, tenant and other receivables, deposit in trust, holdbacks in escrow, due from Manager, due from Operator, accounts payable and accrued liabilities, tenant rental deposits and prepaid rents, and promissory notes payable approximate their carrying values at due to their short-term nature. (b) Mortgages payable The fair value of the mortgages payable has been determined by discounting the cash flows of these mortgages using estimated market rates determined by the yield on a United States treasury bond with the nearest maturity date to the underlying mortgage plus an estimated risk premium at the reporting date. As a result, the fair value of the mortgages payable is based on level 2 inputs. (c) Interest rate swaps Included in other assets is the fair value of two interest rate swap contracts, which are used to economically hedge exposure to variable cash flows associated with interest payments on two of the Fund s mortgages. Management estimates the fair value of this derivative as the present value of expected future cash flows to be received or paid, based on available market data, which includes market yields and counterparty credit spreads. As a result, the fair value of the interest rate swaps are based on level 2 inputs. (d) Net liabilities attributable to Unitholders and US Holding LP The fair value of the net liabilities attributable to Unitholders and US Holding LP are limited to the net assets of the Fund, and equates to their carrying value as at. As a result, the fair value of the net liabilities attributable to Unitholders and US Holding LP are based on level 3 inputs. There were no transfers between level 1, level 2 and level 3 during the year ended , ,380 Net liabilities attributable to Unitholders ,526 60,526 Net liabilities attributable to US Holding LP - - 8,460 8,460 $ 213,042 $ 253,388 $ 14,633 $ 99,795 $ 138, Timbercreek U.S. Multi-Residential Opportunity Fund #1 Timbercreek U.S. Multi-Residential Opportunity Fund #1 57

30 Investment Committee The Fund s Investment Committee has extensive experience in the investment management and real estate sectors. Expertise and specialties range from portfolio management and research to real estate underwriting and acquisitions. The Fund s properties are managed by Elco Landmark, an experienced property manager with a successful, long-term track record in the targeted geographic regions. Ugo Bizzarri Committee Chair, Founding Managing Director, Portfolio Management & Investments, Timbercreek Asset Management Joseph Lubeck Chief Executive Office, Elco Landmark Residential Holdings Corrado Russo Managing Director, Investments/Portfolio Manager, Timbercreek Asset Management Samuel Sahn Portfolio Manager, Global Real Estate Securities, Timbercreek Asset Management Elizabeth Truong Chief Investment Officer, Elco Landmark Residential Holdings Michael Tsourounis Executive Director, Direct Investment & Valuations, Timbercreek Asset Management Forward Looking Information Certain statements in this annual report about Timbercreek U.S. Multi-Residential Opportunity Fund #1 (the Fund ) and its business operations and strategy, and financial performance and condition may constitute forward-looking information, future oriented financial information, or financial outlooks (collectively, forward-looking information ). The forward-looking information is stated as of the date of this presentation and is based on estimates and assumptions made by the management of the Fund in light of its experience and perception of historical trends, current conditions and expected future developments, as well as other factors that management of the Fund believes are appropriate and reasonable in the circumstances. There can be no assurance that such forward-looking information will prove to be accurate, as actual results, performance and future events could differ materially from those anticipated in such statements. Management of the Fund refers you to the Amended and Restated Prospectus of the Fund, dated May 15, (the Prospectus ), for information regarding this forward-looking information, including the assumptions made in preparing forward-looking information and management s expectations and the risk factors that could cause the Fund s actual results, yields, levels of activity, performance or achievements or future events or developments to differ materially from those expressed or implied by the forward-looking statements. Head Office 1000 Yonge Street, Suite 500 Toronto, Ontario M4W 2K2 (t) (e) inquiries@timbercreek.com Website: Transfer Agent & Registrar CST Trust Company 320 Bay Street Toronto, Ontario M5H 4A6 Auditors KPMG LLP Legal Counsel Goodmans LLP 58 Timbercreek U.S. Multi-Residential Opportunity Fund #1 Timbercreek U.S. Multi-Residential Opportunity Fund #1 59