Financial Statements and Supplementary Information with Independent Auditors' Report June 30, 2015
TABLE OF CONTENTS INDEPENDENT AUDITORS' REPORT 1 FINANCIAL STATEMENTS Statement of Financial Position, June 30, 2015 3 Statement of Activities, For the Year Ended June 30, 2015 4 Statement of Cash Flows, For the Year Ended June 30, 2015 5 Notes to the Financial Statements 6 SUPPLEMENTARY INFORMATION Combining Statement of Financial Position, June 30, 2015 25 PAGE Combining Statement of Activities, For the Year Ended June 30, 2015 27 Combining Statement of Cash Flows, For the Year Ended June 30, 2015 29 Note to the Supplementary Information 31
Vavrinek, Trine, Day & Co., LLP Certified Public Accountants VALUE THE DIFFERENCE INDEPENDENT AUDITORS' REPORT To the Audit Committee Millennium Housing Corporation We have audited the accompanying financial statements of Millennium Housing Corporation (a California nonprofit Organization), which comprise the statement of financial position as of June 30, 2015 and the related statements of activities and cash flows for the year then ended, and the related notes to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of 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 financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the 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 financial statements referred to above present fairly, in all material respects, the financial position of Millennium Housing Corporation as of June 30, 2015, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. 1 10681 Foothill Blvd., Suite 300 Rancho Cucamonga, CA 91730 Tel: 909.466.4410 www.vtdcpa.com Fax: 909.466.4431
Other Matter Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The supplementary combining information on pages 25 through 29 and the note to supplementary information on page 31 is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. Rancho Cucamonga, California October 15, 2015 2
STATEMENT OF FINANCIAL POSITION ASSETS Current Assets: Cash and cash equivalents $ 4,508,934 Cash and cash equivalents held with fiscal agent 10,091,936 Investments held with fiscal agent 2,061,478 Accounts receivable 616,545 Interest receivable 79,732 Other receivable 164 Prepaid expense 18,204 Total Current Assets 17,376,993 Non-Current Assets: Property and equipment, net of accumulated depreciation 158,025,680 Other Assets: Deposits 13,199 Notes receivable 145,667 Loan fees, net of accumulated amortization 4,542,108 Investments held with fiscal agent 12,665,747 Total Other Assets 17,366,721 Total Assets $ 192,769,394 LIABILITIES AND NET ASSETS Current Liabilities: Accounts payable $ 117,192 Accrued interest 2,187,523 Accrued liabilities 234,585 Deferred income 121,637 Tenant security deposits 13,914 Current portion of notes payable 2,175,000 Total Current Liabilities 4,849,851 Non-Current Liabilities: Notes payable, net of current portion 196,461,529 Total Liabilities 201,311,380 Unrestricted Net Deficit (8,541,986) Total Liabilities and Net Assets $ 192,769,394 See accompanying notes to the financial statements. 3
STATEMENT OF ACTIVITIES FOR THE YEAR ENDED REVENUES Rental income $ 21,166,759 Tenant services and other 5,132,933 Interest 433,022 Total Revenues 26,732,714 EXPENSES Program Services: Administrative 5,201,956 Utilities 4,736,237 Operating and maintenance 962,529 Taxes and insurance 586,274 Interest 10,453,755 Depreciation and amortization 6,161,944 Rental assistance 688,024 Total Program Services 28,790,719 Support Services: Bond related costs 424,835 Loss on sale of assets 106 Total Management and Administration 424,941 Total Expenses 29,215,660 CHANGE IN UNRESTRICTED NET ASSETS (2,482,946) UNRESTRICTED NET DEFICIT, BEGINNING OF PERIOD (6,059,040) UNRESTRICTED NET DEFICIT, END OF PERIOD $ (8,541,986) See accompanying notes to the financial statements. 4
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED CASH FLOWS FROM OPERATING ACTIVITIES Decrease in net assets $ (2,482,946) Items not requiring cash: Depreciation and amortization 6,161,944 Amortization of bond discount 455,643 Deferred interest 110,572 Book value of capital assets transferred (10,074,319) (Increase)/Decrease in assets: Accounts receivable (418,824) Interest receivable 198,888 Other receivable (131,740) Inventory 40,216 Prepaid expense 318 Increase/(Decrease) in liabilities: Accounts payable 19,302 Accrued interest (148,355) Accrued liabilities 28,495 Deferred income 22,913 Tenant deposits 65 Net Cash Provided by Operating Activities (6,217,828) CASH FLOWS FROM INVESTING ACTIVITIES Decrease in investments held with fiscal agent 995,002 Purchase of capital assets (1,872,010) Receipts from notes receivable 13,151 Net Cash Used for Investing Activities (863,857) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from notes 46,790,304 Cost of issuance 1,951,292 Payments on notes payable (38,708,768) Net Cash Provided by Financing Activities 10,032,828 CHANGE IN CASH AND CASH EQUIVALENTS 2,951,143 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 11,649,727 CASH AND CASH EQUIVALENTS, END OF PERIOD $ 14,600,870 SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION Cash Paid During the Period For: Interest $ 9,178,494 See accompanying notes to the financial statements. 5
NOTES TO THE FINANCIAL STATEMENTS NOTE #1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Organization and Nature of Business Millennium Housing Corporation (the Organization) is a non-profit public benefit corporation organized in November of 1999, to assist governmental entities in providing and maintaining affordable housing projects through the acquisition and operation of mobilehome parks located in California. During the year the Organization maintained twelve projects known as Sahara, Rancho Vallecitos, Palomar Estates East, Palomar Estates West, Copacabana, Rancho Feliz, San Juan Mobile Estates, Lamplighter Salinas Mobilehome Park, Castle Mobilehome Estates, Las Casitas de Sonoma, Vista de Santa Barbara, and Hacienda Valley which consist of 2,997 mobilehome spaces leased or rented to owners under various terms. Palomar Estates East and West and Hacienda Valley were refinanced in the current year. As part of the refinance, Palomar Estates East and Palomar Estates West are separate entities. Also, as part of the refinance, the Organization acquired Hacienda Valley, for more information see Note #10. The Organization is the sole member of Millennium Housing LLC who currently holds the following projects, Castle, Rancho Feliz, Las Casitas, Sahara, Copacabana, Rancho Vallecitos, Vista de Santa Barbara, and Hacienda Valley. The Organization, Millennium Housing of California, and Coach of San Diego are organizations under the common control of management with substantially the same Board of Directors. B. Financial Statement Presentation The accompanying financial statements are presented in accordance with Financial Accounting Standards Board (FASB) ASC 958-210-50. Under ASC 958-210-50, the Organization is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted, temporarily restricted, and permanently restricted. Unrestricted net assets have no donor restrictions and may be used for any purpose consistent with the Organization s mission. Accordingly, the Organization has presented the net assets as unrestricted. In addition, the Organization is required to present a statement of cash flows. C. Method of Accounting The financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. D. Cash and Cash Equivalents Cash and cash equivalents consist of cash held in checking and money market accounts and certificates of deposit with maturities of less than 90 days. The Organization maintains cash balances in financial institutions which are insured up to $250,000. At June 30, 2015, the amount in excess of federal depository insurance coverage was approximately $4,104,357. 6
NOTES TO THE FINANCIAL STATEMENTS NOTE #1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED) E. Income Taxes The Organization is a non-profit public benefit corporation that is exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code and classified by the Internal Revenue Service as other than a private foundation and qualifies for deductible contributions as provided in Section 170(b) (1) (A) (vi). It is also exempt from State franchise and income taxes under Section 23701(d) of the California Revenue and Taxation Code. Accordingly, no provision for income taxes has been reflected in these financial statements. Income tax returns for 2011 and forward may be audited by regulatory agencies; however, the Organization is not aware of any such actions at this time. The Organization has adopted Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 740 that clarifies the accounting for uncertainty in tax positions taken or expected to be taken on a tax return and provides that the tax effects from an uncertain tax position can be recognized in the financial statements only if, based on its merits, the position is more likely than not to be sustained on audit by the taxing authorities. Management believes that all tax positions taken to date are highly certain and, accordingly, no accounting adjustment has been made to the financial statements. F. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. G. Property and Equipment Property and equipment are recorded at cost. The property consists primarily of land, community buildings, recreation facilities, and landscaping and utility connections. Depreciation and amortization expense is calculated on the straight-line method over the following estimated useful lives: Years Furniture and equipment 5-10 Park owned residences 15 Buildings and land improvements 30 Vehicles 5 Repairs and maintenance which do not extend the useful lives of the assets are charged to operations when incurred. Expenditures for land, buildings and land improvements, furniture and equipment, vehicles, and park owned residences that exceed $3,000 are capitalized. When equipment is sold or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts and any gain or loss is included in income. 7
NOTES TO THE FINANCIAL STATEMENTS NOTE #1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED) H. Loan Fees Loan fees are amortized using the straight-line method over 35 and 40 years (the term of the mortgage note). I. Administrative Expenses Administrative expenses include property and asset management services, salaries and benefits, and other administrative costs involved in daily operations. J. Cash and Investments Held with Fiscal Agent A portion of the Organization's funds are held by trustees and have been invested in interest bearing money market accounts and guaranteed investment contracts. Statement of Financial Position classification of the guaranteed investment contract balances have been made in accordance with the permitted withdrawal purposes defined in the Investment Agreements. Reserve balances are classified as non-current investments. Accounts which will be used for current operations or debt service due within one year are classified as current. See Note #3. K. Fair Value Measurements The Organization determines the fair market values of certain financial instruments based on a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value. The following provides a summary of the hierarchical levels used to measure fair value: Level 1 - Quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. The Organization used quoted market prices to determine fair value of the money market investments and contract values as provided by the counterparty to estimate fair value of the guaranteed investment contracts. 8
NOTES TO THE FINANCIAL STATEMENTS NOTE #2 PROPERTY AND EQUIPMENT The Organization s acquisition of the projects was funded from proceeds of the notes payable from the California Mobilehome Park Financing Authority, the City of La Verne, and the Independent Cities Finance Authority. Property and equipment consists of the following: Balance at Balance at June 30, 2014 Additions Deletions June 30, 2015 Capital assets not being depreciated: Land $ 80,874,621 $ 7,622,765 $ - $ 88,497,386 CIP 8,998 - (8,998) - Total capital assets not being depreciated 80,883,619 7,622,765 (8,998) 88,497,386 Capital assets being depreciated: Buildings and land improvements 93,617,949 5,004,194-98,622,143 Furniture and equipment 335,211 98,902 (44,073) 390,040 Vehicles 101,845 56,169 (53,400) 104,614 Park owned residences 1,152,411 106,191-1,258,602 Total capital assets being depreciated 95,207,416 5,265,456 (97,473) 100,375,399 Less accumulated depreciation Buildings and land improvements (25,864,334) (4,142,034) - (30,006,368) Furniture and equipment (151,691) (43,153) 44,073 (150,771) Vehicles (87,931) (14,499) 53,400 (49,030) Park owned residences (519,397) (121,539) - (640,936) Total accumulated depreciation (26,623,353) (4,321,225) 97,473 (30,847,105) Total capital assets being depreciated, net 68,584,063 944,231-69,528,294 Total capital assets, net of accumulated depreciation $ 149,467,682 $ 8,566,996 $ (8,998) $ 158,025,680 Depreciation expense was $3,388,938 for the year ended June 30, 2015. An additional accumulated depreciation of $932,287 is included as a result of the transfer of Hacienda Valley Mobilehome Park as discussed at Note #10. NOTE #3 CASH AND INVESTMENTS A. Cash and Investments held with Fiscal Agent At June 30, 2015, cash and investments held by trustee in designated funds is reflected as cash and investments held with fiscal agent in the accompanying statement of financial position, which represents a portion of the proceeds from the notes payable. Funds may be withdrawn according to the provisions contained in the loan and indenture section of the trust agreements. The Organization uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. For additional information on how the Organization measures fair value, refer to Note #1 Summary of Significant Accounting Policies. 9
NOTES TO THE FINANCIAL STATEMENTS NOTE #3 CASH AND INVESTMENTS, (CONTINUED) A. Cash and Investments held with Fiscal Agent, (Continued) Fair Value Blackrock Liquidity Money Market Funds. $ 10,091,936 Total Cash and cash equivalents held with fiscal agent 10,091,936 Guaranteed Investment Contract CDC Funding Corp - Repair/Replacement Fund (Palomar East) 255,016 (interest rate 4.56%, termination date 2036). Guaranteed Investment Contract CDC Funding Corp - Repair/Replacement Fund (Palomar West) 379,107 (interest rate 4.56%, termination date 2036). Guaranteed Investment NATIXIS - Float Fund and Repair/Replacement Fund (Lamplighter) 804,190 (interest rates 2.61% to 3.22%, termination date 2020). Guaranteed Investment NATIXIS - Float Fund and Repair/Replacement Fund (San Juan) 204,013 (interest rates 3.01% to 3.70%, termination date 2028). Guaranteed Investment NATIXIS - Float Fund and Repair/Replacement Fund (Castle) 419,152 (interest rates 1.01% to 2.91%, termination date 2022). Total Investment held with fiscal agent - current 2,061,478 Guaranteed Investment Contract CDC Funding Corp (Palomar East) 1,083,391 (interest rate of 4.56%, maturity date 2036). Guaranteed Investment Contract CDC Funding Corp (Palomar West) 1,580,788 (interest rate of 4.56%, maturity date 2036). Guaranteed Investment Contract Deutsche Bank (Sahara) 741,401 (interest rate of 1.47% maturity date 2020). Guaranteed Investment Contract Deutsche Bank (Rancho Feliz/Las Casitas) 1,395,252 (interest rate of 1.47%, termination date 2020). Guaranteed Investment Contract Deutsche Bank (Copacabana) 526,113 (interest rate of 1.47%, termination date 2020). Guaranteed Investment Contract Deutsche Bank (Vista de Santa Barbara) 614,758 (interest rate of 1.47%, termination date 2020). Guaranteed Investment Contract Deutsche Bank (Rancho Vallecitos) 1,408,324 (interest rate of 1.47%, termination date 2020). Guaranteed Investment NATIXIS (Lamplighter) 1,670,957 (interest rates 3.36%, maturity date 2020). Guaranteed Investment NATIXIS (San Juan) 2,527,950 (interest rate of 4.07%, maturity date 2028). Guaranteed Investment NATIXIS (Castle) 519,713 (interest rate 2.91%, termination date 2022). Guaranteed Investment Contract IXIX Funding (Hacienda Valley) 597,100 (interest rate of 4.01%, maturity date 2039). Total Investments held with fiscal agent - non-current $ 12,665,747 24,819,161 10
NOTES TO THE FINANCIAL STATEMENTS NOTE #3 CASH AND INVESTMENTS, (CONTINUED) A. Cash and Investments held with Fiscal Agent, (Continued) Amounts reported on the Statement of Financial Position Cash and cash equivalents held with fiscal agent $ 10,091,936 Investments held with fiscal agent - current 2,061,478 Investments held with fiscal agent - non-current 12,665,747 Total Cash and Investments held with fiscal agent $ 24,819,161 B. Assets and Liabilities Recorded at Fair Value on a Recurring Basis The following table presents the balances of the assets measured at fair value on a recurring basis as of June 30, 2015. The Organization did not have any liabilities measured at fair value on a recurring basis as of June 30, 2015. Assets: Level 1 Level 3 Money Market Funds $ 10,091,936 $ - Guaranteed Investment Contracts - 14,727,225 Total Investments at Fair Value $ 10,091,936 $ 14,727,225 C. Assets and Liabilities Recorded at Fair Value on a Recurring Basis The following table presents changes in the Organization's Level 3 investment assets measured at fair value on a recurring basis for the year ending June 30, 2015. The Organization did not have any Level 3 investment liabilities as of June 30, 2015. Level 3 Assets Balance, Beginning of Year $ 11,036,252 Deposits 3,690,973 Balance, End of Year $ 14,727,225 The Organization did not have any assets or liabilities recorded at fair value on a non-recurring basis. NOTE #4 LOAN FEES Fees are amortized over 35 or 40 years and consist of the following: Balance at Balance at June 30, 2014 Additions Deletions June 30, 2015 Total Loan Fees $ 7,963,327 $ 1,017,784 $ (3,885,427) $ 5,095,684 Less accumulated amortization (1,665,997) (2,773,006) 3,885,427 (553,576) Loan Fees, net of accumulated amortization $ 6,297,330 $ (1,755,222) $ - $ 4,542,108 Amortization expense was $2,773,006 for the year ended June 30, 2015. 11
NOTES TO THE FINANCIAL STATEMENTS NOTE #5 NOTES PAYABLE The Organization funds each project acquisition through a debt issuance. The outstanding balances as of June 30, 2015 and the debt related activity for the year then ended are summarized in the table below which is followed by information for each outstanding debt issuance. Notes payable consist of the following: Balance at Payments/ Balance at June 30, 2014 Additions Amortization June 30, 2015 A. Mortgage Note Payable to Independent Cities Finance Authority Mobile Home Park Revenue Refunding Bonds Series 2013 A (Rancho Vallecitos) $ 21,175,000 $ - $ (270,000) $ 20,905,000 B. Mortgage Note Payable to Independent Cities Finance Authority Mobile Home Park Revenue Bonds Series 2012 A,B & C (Sahara) 11,760,000 - (170,000) 11,590,000 C. Note payable to the City of Palm Springs (Sahara) 300,000 - (25,000) 275,000 D. Mortgage Note Payable to California Mobilehome Park Financing Authority Mobile Home Park Revenue Bonds Series 2003 A,B & C (Palomar Estates) 36,785,000 - (36,785,000) - E. Mortgage Note Payable to California Mobilehome Park Financing Authority Mobile Home Park Revenue Bonds Series 2015 (Palomar East) - 14,590,000-14,590,000 F. Mortgage Note Payable to California Mobilehome Park Financing Authority Mobile Home Park Revenue Bonds Series 2015 (Palomar West) - 21,235,000-21,235,000 G. Mortgage Note Payable to the Independent Cities Finance Authority Mobile Home Park Revenue Bonds 2014 Series (Copacabana) 9,025,000 - (135,000) 8,890,000 H. Mortgage Note Payable to Independent Cities Finance Authority Series Mobile Home Park Revenue Refunding Bonds Series 2012 A (Las Casitas & Rancho Feliz) 23,185,000 - (335,000) 22,850,000 I. Mortgage Note Payable to Independent Cities Finance Authority Mobile Home Park Revenue Bonds 2006 Series A,B & C (San Juan Estates) 35,345,000 - (695,001) 34,649,999 J. Mortgage Note Payable to the Independent Cities Finance Authority Mobile Home Park Revenue Bonds 2010 Series A,B,C, & D (Lamplighter) 25,030,000 - (200,000) 24,830,000 K. Note Payable to the Independent Cities Finance Authority (Lamplighter) 308,767 - (58,767) 250,000 L. Mortgage Note Payable to the Independent Cities Finance Authority Mobile Home Park Revenue Bonds 2011 Series A,B, & C (Castle) 9,380,000 - (35,000) 9,345,000 M. Note Payable to the City of Capitola (Castle) 1,392,565 110,572-1,503,137 N. Mortgage Note Payable to the Independent Cities Finance Authority Mobile Home Park Revenue Bonds 2013 Series A & B (Vista de Santa Barbara) 14,680,000 - - 14,680,000 O. Mortgage Note Payable to the Independent Cities Finance Authority Mobile Home Park Revenue Refunding Bonds 2014 Series (Hacienda Valley) - 10,415,000-10,415,000 P. Note Payable to City of Morgan Hill Redevelopment Agency (Hacienda Valley) - 1,568,088-1,568,088 Total Notes Payable 188,366,332 47,918,660 (38,708,768) 197,576,224 12
NOTES TO THE FINANCIAL STATEMENTS NOTE #5 NOTES PAYABLE, (CONTINUED) Balance at Payments/ Balance at June 30, 2014 Additions Amortization June 30, 2015 Less: Current Portion (2,730,000) (2,175,000) 2,730,000 (2,175,000) Less: Series 2013 (Rancho Vallecitos) Original Issue Premium 26,495 - (662) 25,833 Less: Series 2012 (Sahara) Original Issue Discount (225,173) - 6,823 (218,350) Less: Series 2003 (Palomar Estates) Original Issue Discount (442,457) - 442,457 - Less: Series 2015 (Palomar Estates East) Original Issue Premium - 372,233-372,233 Less: Series 2015 (Palomar Estates West) Original Issue Premium - 1,118,401-1,118,401 Less: Series 2003 (Copacabana) Original Issue Premium 177,354 - (5,067) 172,287 Less: Series 2012 (Rancho Feliz/Las Casitas) Original Issue Discount (131,641) - 3,873 (127,768) Less: Series 2006 (San Juan Estates) Original Issue Discount (66,538) - 2,385 (64,153) Less: Series 2010 (Lamplighter) Original Issue Discount (390,030) - 10,834 (379,196) Less: Series 2011 (Castle) Original Issue Discount (95,907) - 2,997 (92,910) Less: Series 2013 (Vista de Santa Barbara) Original Issue Discount (199,346) - 5,778 (193,568) Less: Series 2014 (Hacienda Valley) Original Issue Premium - 460,658 (13,162) 447,496 Notes Payable, Net of Current Portion $ 184,330,909 $ 47,234,294 $ (35,509,350) $ 196,461,529 Aggregate maturities of notes payable are as follows: Years Ending June 30, 2016 $ 2,175,000 2017 3,295,000 2018 3,340,000 2019 3,470,000 2020 3,650,000 Thereafter 181,646,224 Total $ 197,576,224 13
NOTES TO THE FINANCIAL STATEMENTS NOTE #5 NOTES PAYABLE, (CONTINUED) A. In fiscal year 2013 the Organization issued the 2013 Series A Mobile Home Park Refunding Revenue Bonds (Rancho Vallecitos) obligated to the Independent Cities Finance Authority. Proceeds from this were used to establish irrevocable escrow funds to refund in full the $20,361,227 of the 2001 Series A, B, & C Mobile Home Park Revenue Bonds payable to the California Mobilehome Park Financing Authority. As a result, the 2001 Series A, B, & C Mobile Home Park Revenue Bonds are considered defeased and the liability for those Bonds have been removed from the Organization s financial statements. The bonds mature in 70 semi-annual installments beginning October 2013, and interest is payable in semiannual installments beginning October 2013. Interest rates vary from 1.20% to 5.00% per annum. The bonds are collateralized by the rental property and a lien on the project's rental income. The notes payable to the Independent Cities Finance Authority mature as follows: Years Ending June 30, 2016 $ 275,000 2017 285,000 2018 295,000 2019 305,000 2020 325,000 Thereafter 19,420,000 Total $ 20,905,000 B. In fiscal year 2012 the Organization issued the 2012 Series A, B, & C Mobile Home Park Refunding Revenue Bonds (Sahara) obligated to the Independent Cities Finance Authority with interest rates ranging from 1.25% to 6.25%. Proceeds from this were used to establish irrevocable escrow funds to refund in full the $10,195,000 of the 2002 Series A & B Mobile Home Park Revenue Bonds payable to the City of Palm Springs. As a result, the 2002 Series A & B Mobile Home Park Revenue Bonds are considered defeased and the liability for those Bonds have been removed from the Organization s financial statements. Mortgage Note Payable obligated to the Independent Cities Finance Authority in connection with receiving the proceeds from the issuance of the Series 2012 A, B, & C Mobile Home Park Refunding Revenue Bonds (Sahara) in the original amounts of $10,845,000, $1,000,000 and $210,000, respectively. The Series A bonds mature in 70 semi-annual installments beginning December 2012, and interest is payable in semiannual installments beginning December 2012. The Series B bonds mature in 48 semi-annual payments beginning June 2023 and the Series C bonds mature in 20 semi-annual payment beginning December 2012. The bonds are collateralized by the rental property and a lien on the project's rental income. The notes payable to the Independent Cities Finance Authority mature as follows: Years Ending June 30, 2016 $ 175,000 2017 180,000 2018 185,000 2019 190,000 2020 190,000 Thereafter 10,670,000 Total $ 11,590,000 14
NOTES TO THE FINANCIAL STATEMENTS NOTE #5 NOTES PAYABLE, (CONTINUED) C. Note payable obligated to the City of Palm Springs in connection with the rehabilitation of the Sahara Mobilehome Park in the original amount of $450,000. The note is payable in 18 annual installments of $25,000 beginning in fiscal year 2009. The balance outstanding at June 30, 2015 is $275,000. Years Ending June 30, 2016 $ 25,000 2017 25,000 2018 25,000 2019 25,000 2020 25,000 Thereafter 150,000 Total $ 275,000 D. In fiscal year 2015 the Organization issued the 2015 Series Mobile Home Park Revenue Refunding Bonds (Palomar Estates East) obligated to the Independent Cities Finance Authority. Proceeds from this were used to refund in full the $36,785,000 of the California Mobilehome Park Financing Authority Mobile Home Park Revenue Bonds (Palomar Estates East and West Mobilehome Park) Series 2003A and Mobile Home Park Subordinate Revenue Bonds (Palomar Estates East and West Mobilehome Park) Series 2003B. As a result, the 2003 Series A & B Mobile Home Park Revenue Bonds are considered defeased and the liability for those Bonds have been removed from the Organization s financial statements. The bonds mature in 21 annual installments beginning September 2016, and interest is payable in semiannual installments beginning September 2015. Interest rates vary from 2.00% to 3.75% per annum. The bonds are collateralized by the rental property and a lien on the projects rental income. The notes payable to the Independent Cities Finance Authority mature as follows: Years Ending June 30, 2016 $ - 2017 455,000 2018 395,000 2019 430,000 2020 490,000 Thereafter 12,820,000 Total $ 14,590,000 15
NOTES TO THE FINANCIAL STATEMENTS NOTE #5 NOTES PAYABLE, (CONTINUED) E. In fiscal year 2015 the Organization issued the 2015 Series Mobile Home Park Revenue Refunding Bonds (Palomar Estates West) obligated to the Independent Cities Finance Authority. Proceeds from this were used to refund in full the $36,785,000 of the California Mobilehome Park Financing Authority Mobile Home Park Revenue Bonds (Palomar Estates East and West Mobilehome Park) Series 2003A and Mobile Home Park Subordinate Revenue Bonds (Palomar Estates East and West Mobilehome Park) Series 2003B. As a result, the 2003 Series A & B Mobile Home Park Revenue Bonds are considered defeased and the liability for those Bonds have been removed from the Organization s financial statements. The bonds mature in 21 annual installments beginning September 2016, and interest is payable in semiannual installments beginning September 2015. Interest rates vary from 2.000% to 3.625% per annum. The bonds are collateralized by the rental property and a lien on the projects rental income. The notes payable to the Independent Cities Finance Authority mature as follows: Years Ending June 30, 2016 $ - 2017 650,000 2018 665,000 2019 675,000 2020 710,000 Thereafter 18,535,000 Total $ 21,235,000 F. In fiscal year 2014 the Organization issued the 2014 Series Mobile Home Park Refunding Revenue Bonds (Copacabana) obligated to the City of La Verne. Proceeds from this were used to establish irrevocable escrow funds to refund in full the $8,643,795 of the 2003 Series A, B, & C Mobile Home Park Revenue Bonds payable to the City of La Verne. As a result, the 2003 Series A, B, & C Mobile Home Park Revenue Bonds are considered defeased and the liability for those Bonds have been removed from the Organization s financial statements. The bonds mature in 64 semiannual installments beginning June 2015, and interest is payable in semiannual installments beginning December 2014. Interest rates vary from 2.60% to 5.00% per annum. The bonds are collateralized by the rental property and a lien on the project's rental income. The notes payable to the City of La Verne mature as follows: Years Ending June 30, 2016 $ 130,000 2017 130,000 2018 135,000 2019 140,000 2020 140,000 Thereafter 8,215,000 Total $ 8,890,000 16
NOTES TO THE FINANCIAL STATEMENTS NOTE #5 NOTES PAYABLE, (CONTINUED) G. In fiscal year 2013 the Organization issued the 2012 Series A Mobile Home Park Refunding Revenue Bonds (Rancho Feliz and Las Casitas de Sonoma) obligated to the Independent Cities Finance Authority. Proceeds from this were used to establish irrevocable escrow funds to refund in full the $15,075,000 of the 2003 Series A & B Mobile Home Park Revenue Bonds payable to the Rohnert Park Financing Authority and the $4,678,036 of the 2001 Series A & B Mobilehome Park Revenue Bonds payable to the Rohnert Park Financing Authority. As a result, the 2002 Series A & B and the 2001 Series A & B Mobile Home Park Revenue Bonds are considered defeased and the liability for those Bonds have been removed from the Organization s financial statements. Additionally, as a result of the refinancing Millennium Housing Corporation has acquired the Las Casitas de Sonoma Mobilehome Park project. The bonds mature in 35 annual installments beginning October 2013, and interest is payable in semiannual installments beginning April 2013. Interest rates vary from 2.00% to 5.00% per annum. The bonds are collateralized by the rental property and a lien on the projects rental income. The notes payable to the Independent Cities Financing Authority mature as follows: Years Ending June 30, 2016 $ 345,000 2017 355,000 2018 365,000 2019 375,000 2020 375,000 Thereafter 21,035,000 Total $ 22,850,000 H. Mortgage Note Payable obligated to the Independent Cities Finance Authority in connection with receiving the proceeds from the issuance of Series 2006A, Series 2006B, and Taxable Series 2006C Mobile Home Park Revenue Bonds (San Juan Mobile Estates) in the original amounts of $29,660,000, $9,765,000, and $485,000, respectively. The Series A and Series B bonds mature in 70 semiannual installments beginning November 2006 and ending November 2041. The taxable Series C bonds mature in 70 semiannual installments beginning November 2006 and ending May 2016. Interest is also payable in 70 semiannual installments beginning November 2006. Interest rates vary from 2.50% to 8.00% per annum. The bonds are collateralized by the rental property and a lien on the project's rental income. The notes payable to the Independent Cities Financing Authority mature as follows: Years Ending June 30, 2016 $ 725,000 2017 700,000 2018 730,000 2019 765,000 2020 805,000 Thereafter 30,924,999 Total $ 34,649,999 17
NOTES TO THE FINANCIAL STATEMENTS NOTE #5 NOTES PAYABLE, (CONTINUED) I. Mortgage Note Payable obligated to the Independent Cities Finance Authority in connection with receiving the proceeds from the issuance of Series 2010A, Series 2010B, Series 2010C and Taxable Series 2010D Mobile Home Park Revenue Bonds (Lamplighter Salinas Mobilehome Park) in the original amounts of $18,930,000, $5,495,000, $700,000, and $500,000 respectively. The Series A and Series B bonds mature in annual installments beginning July 2011 and ending July 2050. The Series C and Taxable Series D bonds mature in July 2050. Interest is payable in semiannual installments beginning July 2011. Interest rates vary from 5.50% to 6.25% per annum. The bonds are collateralized by the rental property and a lien on the project's rental income. The notes payable to the Independent Cities Financing Authority mature as follows: Years Ending June 30, 2016 $ 210,000 2017 220,000 2018 230,000 2019 245,000 2020 245,000 Thereafter 23,680,000 Total $ 24,830,000 J. Note Payable (Lamplighter) to the Independent Cities Finance Authority, payable in 6 installments beginning in 2014. Interest accrues at 6% per annum and final payment is due July 2020. The balance outstanding at June 30, 2015 is $250,000 and is payable only from residual receipts. Years Ending June 30, 2016 $ 40,000 2017 40,000 2018 45,000 2019 45,000 2020 45,000 Thereafter 35,000 Total $ 250,000 18
NOTES TO THE FINANCIAL STATEMENTS NOTE #5 NOTES PAYABLE, (CONTINUED) K. Mortgage Note Payable obligated to the Independent Cities Finance Authority in connection with receiving the proceeds from the issuance of Series 2011A, B, & C Mobile Home Park Revenue Bonds (Castle Mobile Estates) in the original amounts of $6,235,000, $470,000, and $2,750,000 respectively. The bonds mature in annual installments beginning February 2012 and ending August 2046. Interest is payable in semiannual installments beginning July 2011. Interest rates vary from 4.75% to 7.75% per annum. The bonds are collateralized by the rental property and a lien on the project's rental income. The notes payable to the Independent Cities Financing Authority mature as follows: Years Ending June 30, 2016 $ 120,000 2017 120,000 2018 130,000 2019 130,000 2020 145,000 Thereafter 8,700,000 Total $ 9,345,000 L. Note payable obligated to the City of Capitola in connection with the rehabilitation of the Castle Mobile Estates Mobilehome Park in the original amount of $1,000,000. The note accrues interest at a rate of 3% per annum with no payments in the first 15 years. Beginning in 2026 the note is to be paid back with residual receipts should they be available. The balance outstanding at June 30, 2015 is $1,503,137. M. Mortgage Note Payable obligated to the Independent Cities Finance Authority in connection with receiving the proceeds from the issuance of Series 2013 A & B Mobile Home Park Revenue Bonds (Vista de Santa Barbara Mobilehome Park) in the original amounts of $8,430,000 and $6,250,000 respectively. The bonds mature in 57 semiannual installments beginning September 2020 and interest is payable in semiannual installments beginning March 2014. Interest rates vary from 4.50% to 5.875% per annum. The bonds are collateralized by the rental property and a lien on the project's rental income. The notes payable to the Independent Cities Financing Authority mature as follows: Years Ending June 30, 2016 $ - 2017-2018 - 2019-2020 - Thereafter 14,680,000 Total $ 14,680,000 19
NOTES TO THE FINANCIAL STATEMENTS NOTE #5 NOTES PAYABLE, (CONTINUED) N. In fiscal year 2015 the Organization issued the 2014 Series Mobile Home Park Revenue Refunding Bonds (Hacienda Valley Estates) obligated to the Independent Cities Finance Authority. Proceeds from this bond were used to refinance the $11,290,000 and $945,000 2004 Series A & B Mobile Home Park Revenue Bonds payable to the Independent Cities Finance Authority. As a result, the 2004 Series A & B Mobile Home Park Revenue Bonds are considered defeased and the liability for those Bonds have been removed from the Organization s financial statements. Additionally, as a result of the refinancing Millennium Housing Corporation has acquired the Hacienda Valley Mobilehome Park project. The bonds mature in 35 annual installments beginning November 2015. Interest is payable in 70 semiannual installments beginning May 2015. Interest rates vary from 3.00% to 5.00% per annum. The bonds are collateralized by the rental property and a lien on the projects rental income. The notes payable to the Independent Cities Financing Authority mature as follows: Years Ending June 30, 2016 $ 130,000 2017 135,000 2018 140,000 2019 145,000 2020 155,000 Thereafter 9,710,000 Total $ 10,415,000 O. Note payable (Hacienda Valley Estates) to the City of Morgan Hill Redevelopment Agency (Agency Residual Receipt Note), payable from residual receipts including interest at 3% per annum, final payment due April of 2039, secured by a deed of trust in real property. The balance outstanding at June 30, 2015 is $1,568,088. NOTE #6 EMPLOYEE RETIREMENT PLAN On July 1, 2003, the Organization adopted a 401(k) qualified retirement plan. The 401(k) employer contribution for the fiscal year ended June 30, 2015 was $41,715. NOTE #7 DEFICIT NET ASSETS The business plan for each park that the Organization acquires includes a program for capital improvements, addressing deferred maintenance items and rental subsidies. Funds supporting these activities are established from a portion of the proceeds of the individual mobilehome park bond issues that are deposited into speciallydesignated trust accounts and augmented by any prior year's operating surplus. The Organization's financial statements reflect deficit net assets of $2,975,036 and $6,873,246 in Palomar Estates East and West Mobilehome Park, respectively due primarily to the ground lease discussed in Note #8 and the related depreciation as well as the debt refinancing in the current year and the aforementioned rental subsidies and capital improvement activities. 20
NOTES TO THE FINANCIAL STATEMENTS NOTE #7 DEFICIT NET ASSETS, (CONTINUED) Deficit net assets of $1,614,242 reflected in Lamplighter Salinas Mobilehome Park are due primarily to the aforementioned capital improvement activities. To the extent these expenditures were prefunded upon acquisition of the Park, they do not affect cash flows from operations. Management believes that the deficit will be eliminated through the results of future operations. Deficit net assets of $454,770 reflected in Castle Mobilehome Estates are due primarily to the acquisition of the project in July of 2011 and due to the aforementioned capital improvement activities. To the extent these expenditures were prefunded upon acquisition of the Park, they do not affect cash flows from operations. Management believes that the deficit will be eliminated through the results of future operations. Deficit net assets of $759,079 reflected in Sahara Mobilehome Park are due primarily to the costs associated with refinancing the project s debt in 2012. Management believes that the deficit will be eliminated through the results of future operations. Deficit net assets of $142,506 reflected in Rancho Vallecitos Mobilehome Park are due primarily to the costs associated with refinancing the project s debt in 2013. Management believes that the deficit will be eliminated through the results of future operations. Deficit net assets of $754,041 reflected in Vista de Santa Barbara Mobilehome Park are due primarily to costs associated with the acquisition of the project in October of 2013 and the rental assistance program. Management believes that the deficit will be eliminated through the results of future operations. Deficit net assets of $554,300 in the Hacienda Valley Mobilehome Park are due primarily to the costs associated with refinancing the project s debt in the current year along with rental subsidies and capital improvement activities. Management believes that the deficit will be eliminated through the results of future operations. NOTE #8 COMMITMENTS Management Agreements In May of 2012, the Organization entered into a new year-to-year agreement with Haven Management for management services relating to Sahara Mobilehome Park. For the year ended June 30, 2015, the fee was $4,366 per month. In October of 2012, the Organization entered into a year-to-year agreement with Haven Management for management services relating to Rancho Feliz Mobilehome Park and Las Casitas de Sonoma. For the 3year ended June 30, 2015, the combined fee was $9,393 per month. In April of 2013, the Organization entered into a year-to-year agreement with Haven Management for management services relating to Rancho Vallecitos Mobilehome Park. For the year ended June 30, 2015, the fee was $5,136 per month. 21
NOTES TO THE FINANCIAL STATEMENTS NOTE #8 COMMITMENTS, (CONTINUED) In April of 2015, the Organization entered into a new year-to-year agreement with Haven Management for management services relating to Palomar Estates East Mobilehome Park. For the year ended June 30, 2015, the fee was $5,203 per month. In April of 2015, the Organization entered into a new year-to-year agreement with Haven Management for management services relating to Palomar Estates West Mobilehome Park. For the year ended June 30, 2015, the fee was $5,245 per month. In June of 2014, the Organization entered into a new year-to-year agreement with Bessire and Casenhiser for management services relating to Copacabana Mobilehome Park. For the year ended June 30, 2015, the fee was $4,359 per month. In June of 2006, the Organization entered into a year-to-year agreement with Bessire and Casenhiser for management services relating to San Juan Mobile Estates Mobilehome Park. For the year ended June 30, 2015, the fee was $7,078 per month. In July of 2010, the Organization entered into a year-to-year agreement with Haven Management for management services relating to Lamplighter Salinas Mobilehome Park. For the year ended June 30, 2015, the fee was $6,000 per month. In August of 2011, the Organization entered into a year-to-year agreement with Haven Management for management services relating to Castle Mobile Estates Mobilehome Park. For the year ended June 30, 2015, the fee was $3,394 per month. In October of 2013, the Organization entered into a year-to-year agreement with Bessire and Casenhiser for management services relating to Vista de Santa Barbara Mobilehome Park. For the year ended June 30, 2015, the fee was $3,015 per month. In November of 2014, the Organization entered into a new year-to-year agreement with Haven Management for management services relating to Hacienda Valley Mobilehome Park. For the year ended June 30, 2015, the fee was $3,721 per month. Operating Lease In August of 2012, the Organization entered into a five-year operating lease with the Irvine Company for office space. The commencement date of the lease is September 1, 2013, and the terms of the lease are as follows: The basic rent following the commencement date shall be $4,065 per month. Commencing one year following the commencement date, the basic rent shall be $4,248 per month. Commencing two years following the commencement date, the basic rent shall be $4,431 per month. Commencing three years following the commencement date, the basic rent shall be $4,631 per month. Commencing four years following the commencement date, the basic rent shall be $4,848 per month. 22
NOTES TO THE FINANCIAL STATEMENTS NOTE #8 COMMITMENTS, (CONTINUED) Ground Lease Palomar East and West Mobilehome Parks included a ground lease with Farmer's and Merchant Bank. Palomar West's lease calls for a ground rent of 12 percent of collected rent, trash, sewer, and RV parking. Palomar East ground rent is $17,455 per month and adjusts every five years by the increase in cost of living, but in 2017 the ground rent is recalculated to equal 7 percent of the appraised land value. Both parks' leases expire in 2037. Depreciation is being charged on a straight-line basis over the life of the lease. Under the terms of the lease and upon expiration, Farmer's and Merchant bank will acquire the parks without compensation to Millennium Housing Corporation. NOTE #9 INTERCOMPANY CONSOLIDATIONS The Combining Statement of Financial Position is affected in that the intercompany balances recorded as other receivables in the amount of $162,525 to the Organization and as accrued liabilities of $69,248 to Sahara Mobilehome Park and $93,277 to Vista de Santa Barbara Mobilehome Park were eliminated and not presented in the Statement of Financial Position. The $69,248 represents a purchase of a coach for onsite staff by the Organization on behalf of Sahara Mobilehome Park that is being repaid by Sahara as funds are available. The $93,277 represents costs paid by the Organization on behalf of Vista de Santa Barbara Mobilehome Park during the acquisition that will be repaid when funds become available. The Combining Statement of Activities and Changes in Net Assets reflects the elimination of intercompany administration fees resulting from asset and debt management provided by the Organization to the individual Mobilehome Parks in the amount of $1,285,587. This balance is not presented in the Statement of Activities. Professional services consist of fees paid to Millennium Housing Corporation for the management of assets and all related debt activity; reporting to bond investors and rating agencies; and all bond and regulatory compliance. NOTE #10 REORGANIZATION Hacienda Valley Estates Hacienda Valley Estates Mobilehome Park was transferred from Millennium Housing of California to Millennium Housing Corporation, a corporation under the common control of Millennium Housing Corporation s management with substantially the same Board of Directors. The transferred balance was comprised of the net value of the property at the date of transfer. Hacienda Valley Estates carried a deficit balance of $615,644 at the time of transfer, Millennium Housing of California will make whole Millennium Housing Corporation for the deficit with a contribution equal to the amount of the deficit Prior to the reorganization, the property was leveraged by bonds with the property serving as collateral. As part of the reorganization, the bonds were refunded under the Independent Cities Finance Authority Mobile Home Park Revenue Refunding Bonds Series 2014 with the property to serve as collateral. 23