Financial Statements (With Supplementary Information) Independent Auditor's Report December 31, 2015 and 2014
Index Page Independent Auditor's Report 2 Financial Statements Balance Sheets 4 Statements of Operations 5 Statements of Partners' Equity (Deficit) 6 Statements of Cash Flows 7 Notes to Financial Statements 8 Supplementary Information Schedules of Certain Revenues and Expenses 17 City of San Jose Net Cash Flow Analysis (Unaudited) 19 1
Independent Auditor's Report To the Partners Fallen Leaves Apartments, LP Report on Financial Statements We have audited the accompanying financial statements of Fallen Leaves Apartments, LP, which comprise the balance sheets as of December 31, 2015 and 2014, and the related statements of operations, partners' equity (deficit) and cash flows for the years then ended, and the related notes to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these 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. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits 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 of 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 Fallen Leaves Apartments, LP, as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. 2
Report on Supplementary Information Our audits were conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying 2015 and 2014 supplementary information on pages 17 through 18 is presented for purposes of additional analysis and is not 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 audits 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 statement or to the 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. Other Information The accompanying other information on page 19 has not been subjected to the auditing procedures applied in the audit of the financial statements, and accordingly, we do not express an opinion or provide any assurance on it. Atlanta, Georgia March 14, 2016 3
Balance Sheets December 31, 2015 and 2014 Assets 2015 2014 Investment in rental property, net $ 23,234,303 $ 24,142,656 Cash 927,226 363,889 Restricted cash Escrows 32,136 40,206 Tenants' security deposits 95,015 92,574 Replacement reserve 212,455 226,844 Bond trustee reserves 71,571 71,658 Total restricted cash 411,177 431,282 Tenants accounts receivable 4,875 9,324 Prepaid expenses 30,563 58,705 Deferred loan costs, net 402,229 427,806 Tax credit monitoring fees, net 22,019 27,524 Other assets - 159,901 Total assets $ 25,032,392 $ 25,621,087 Liabilities and Partners' Equity (Deficit) 2015 2014 Liabilities Accounts payable - operations $ 27,346 $ 16,335 Other accrued liabilities 12,048 13,744 Accrued interest - first mortgage 64,960 64,960 Accrued interest - other loans 2,756,431 2,633,555 Tenants security deposits liability 94,858 92,211 Asset management fee payable 7,500 7,500 Payable to limited partner and affiliates 39,369 40,306 Ground lease payable 216,022 87,611 Payable to general partner and affiliates 169,732 68,837 Mortgages and notes payable 18,979,671 19,309,671 Total liabilities 22,367,937 22,334,730 Contingency - - Partners' equity (deficit) 2,664,455 3,286,357 Total liabilities and partners' equity (deficit) $ 25,032,392 $ 25,621,087 See Notes to Financial Statements. 4
Statements of Operations Years Ended December 31, 2015 and 2014 2015 2014 Revenue Rental income $ 2,534,078 $ 2,446,929 Vacancies and concessions (11,198) (13,096) Other operating income 5,491 7,995 Total revenue 2,528,371 2,441,828 Operating expenses Salaries and employee benefits 182,454 210,366 Repairs and maintenance 82,157 66,050 Utilities 222,124 219,166 Property management fee 57,600 57,600 Real estate taxes 12,246 12,481 Property insurance 29,147 29,499 Bad debt expense 3,524 1,894 Miscellaneous operating expenses 65,598 58,360 Total operating expenses 654,850 655,416 Net operating income (loss) 1,873,521 1,786,412 Other income (expense) Interest income 136 183 Interest expense - first mortgage (736,732) (735,093) Interest expense - other loans (242,987) (242,987) Other financial income (expense) (74,351) (72,344) MGP management fee (12,500) (12,474) SAI facility fees (39,369) (40,306) Miscellaneous other income (expense) (4,900) - Asset management fee (7,500) (7,500) Other related party fees and expenses (372,321) (106,944) Depreciation (950,940) (939,141) Amortization (31,082) (30,826) Total other income (expense) (2,472,546) (2,187,432) Net loss $ (599,025) $ (401,020) See Notes to Financial Statements. 5
Statements of Partners Equity (Deficit) Years Ended December 31, 2015 and 2014 Co-general partner Managing general partner Limited partner Total partners' equity (deficit) Balance, January 1, 2014 $ (4,254) $ (4,254) $ 3,730,265 $ 3,721,757 Net loss (201) (200) (400,619) (401,020) Distributions (10) (10) (34,360) (34,380) Balance, December 31, 2014 (4,465) (4,464) 3,295,286 3,286,357 Net loss (299) (300) (598,426) (599,025) Distributions (11) (11) (22,855) (22,877) Balance, December 31, 2015 $ (4,775) $ (4,775) $ 2,674,005 $ 2,664,455 Partners' percentage of partnership losses 0.05% 0.05% 99.90% 100.00% See Notes to Financial Statements. 6
Statements of Cash Flows Years Ended December 31, 2015 and 2014 2015 2014 Cash flows from operating activities Net loss $ (599,025) $ (401,020) Adjustments to reconcile net loss to net cash provided by operating activities Depreciation 950,940 939,141 Amortization 31,082 30,826 Changes in: Tenants accounts receivable 4,449 764 Prepaid expenses 28,142 (38,336) Other assets 159,901 (159,866) Accounts payable - operations 11,011 (8,332) Other accrued liabilities (1,696) (304) Accrued interest - other loans 122,876 138,144 Tenants security deposits liability, net 206 (12) SAI facility fees payable (937) (882) Ground lease payable 128,411 (22,389) Payable to general partner and affiliates 100,895 54,345 Net cash provided by operating activities 936,255 532,079 Cash flows from investing activities Expenditures on rental property (42,587) (68,160) Change in reserve for replacements 14,389 (43,349) Change in other reserves 87 (7,484) Change in escrows 8,070 (2,150) Net cash used in investing activities (20,041) (121,143) Cash flows from financing activities Principal payments on mortgage note payable (330,000) (305,000) Distributions to partners (22,877) (34,380) Net cash used in financing activities (352,877) (339,380) Net increase in cash 563,337 71,556 Cash, beginning 363,889 292,333 Cash, end $ 927,226 $ 363,889 Supplemental disclosure of cash flow information Cash paid for interest $ 856,843 $ 839,936 See Notes to Financial Statements. 7
Notes to Financial Statements December 31, 2015 and 2014 Note 1 - Organization Fallen Leaves Apartments, LP (Partnership) was formed as a limited partnership under the laws of the State of California on October 23, 2002, for the purpose of constructing, owning and operating a low-income rental housing project. The property consists of 160 units, also known as Summer Breeze Apartments, located in San Jose, California. The project is currently operating under the name of Summer Breeze Apartments (the Project). The Partnership is owned by ROEM Fallen Leaves, LLC., a 0.05 percent Co-General Partner, Foundation for Affordable Housing V, Inc., a 0.05 percent Managing General Partner, and by SunAmerica Housing Fund 1121, a 99.90 percent Limited Partner. The Partnership has received an allocation of low-income housing tax credits from the State of California. To qualify for the tax credits, the Partnership must meet certain requirements, including attaining a qualified eligible basis sufficient to support the allocation. Each building of the Project has qualified and been allocated low-income housing credits pursuant to Internal Revenue Code Section 42 (Section 42), which regulates the use of the Project as to occupant eligibility and unit gross rent, among other requirements. Each building of the Project must meet the provisions of these regulations during each of 15 consecutive years in order to remain qualified to receive the tax credits. The Partnership has also agreed to maintain and operate the Project as low-income housing for another 40 years after the above period ends. Note 2 - Significant accounting policies Accounting method The financial statements have been prepared on the accrual basis of accounting. Accordingly, income is recognized as earned and expenses as incurred, regardless of the timing of payments. Accounts receivables and bad debt Tenant receivables are charged to bad debt expense when they are determined to be uncollectible based upon a periodic review of the accounts by management. Accounting principles generally accepted in the United States of America require that the allowance method be used to recognize bad debts; however, the effect of using the direct write-off method is not materially different from the results that would have been obtained under the allowance method. Rental property Rental property is recorded at cost. Depreciation of rental property is computed primarily using the following methods and estimated useful lives: Method Estimated Useful Lives Buildings and improvements Straight-line 40 years Land improvements Straight-line 20 years Equipment Straight-line 7-10 years Impairment of long-lived assets The Partnership reviews its rental property for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. When recovery is reviewed, if the undiscounted cash flows estimated to be generated by the property are less than its carrying amount, management compares the carrying amount of the property to its fair value in 8
Notes to Financial Statements December 31, 2015 and 2014 order to determine whether an impairment loss has occurred. The amount of the impairment loss is equal to the excess of the asset's carrying value over its estimated fair value. No impairment loss has been recognized for the years ended December 31, 2015 and 2014. Intangible assets and amortization Deferred loan costs are amortized over the term of the bonds using the effective yield method. Tax credit monitoring fees are amortized over the fifteen-year compliance period using the straight line method. Amortization expense for the years ended December 31, 2015 and 2014 was $31,082 and $30,826, respectively. Estimated amortization expense for each of the ensuing five years and thereafter is as follows: Year Amortization 2016 $ 31,271 2017 31,398 2018 31,453 2019 31,429 2020 25,811 Thereafter 272,886 Total $ 424,248 Rental revenue Rental income is recognized as rentals become due. Rental payments received in advance are deferred until earned. All leases between the Partnership and the tenants of the property are operating leases. Advertising costs The Partnership's policy is to expense advertising costs when incurred. Income taxes The Partnership has elected to be treated as a pass-through entity for income tax purposes and, as such, is not subject to income taxes. Rather, all items of taxable income, deductions and tax credits are passed through to and are reported by its owners on their respective income tax returns. The Partnership's federal tax status as a pass-through entity is based on its legal status as a partnership. Accordingly, the Partnership is not required to take any tax positions in order to qualify as a pass-through entity. The Partnership is required to file and does file tax returns with the Internal Revenue Service and other taxing authorities. Accordingly, these financial statements do not reflect a provision for income taxes and the Partnership has no other tax positions which must be considered for disclosure. Income tax returns filed by the Partnership are subject to examination by the Internal Revenue Service for a period of three years. While no income tax returns are currently being examined by the Internal Revenue Service, tax years since 2012 remain open. 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. Accordingly, actual results could differ from those estimates. 9
Notes to Financial Statements December 31, 2015 and 2014 Reclassifications Certain items from the prior year financial statements have been reclassified to conform to the current year presentation. Note 3 - Rental property Rental property, net is comprised of the following at December 31: 2015 2014 Land $ 156,992 $ 156,992 Land improvements 844,017 843,113 Buildings and improvements 31,877,819 31,839,947 Equipment 1,053,053 1,049,242 Subtotal 33,931,881 33,889,294 Accumulated depreciation (10,697,578) (9,746,638) Net $ 23,234,303 $ 24,142,656 Note 4 - Restricted cash Restricted cash is comprised of the following as of December 31: 2015 2014 Replacement reserve Balance, January 1 $ 226,844 $ 183,495 Deposits 40,000 43,166 Interest 136 183 Other (54,525) - Balance, December 31 212,455 226,844 Bond trustee reserves 71,571 71,658 Security deposits held in trust 95,015 92,574 Mortgage escrow deposits 32,136 40,206 Total restricted cash, December 31 $ 411,177 $ 431,282 Note 5 - Related party transactions Operating deficit guaranty The Co-General Partner is obligated, as defined in the partnership agreement, to fund any Operating Deficits on behalf of the Partnership up to $560,000 during the period commencing on the achievement of Stabilization (occurred June 20, 2008), as defined, and ending on the third anniversary of the achievement of Stabilization. The operating deficit guaranty period ends on June 20, 2011. Advances are to be non-interest bearing and are repayable from net cash flow, as defined. As of December 31, 2015 and 2014, there is no outstanding operating deficit loan balance owed to the Co-General Partner. 10
Notes to Financial Statements December 31, 2015 and 2014 Development fee On December 1, 2002, ROEM Development Corporation (ROEM) and the Managing General Partner entered into a Developer Agreement with the Partnership to perform certain services in connection with the development of the Project. Pursuant to the Developer Agreement, ROEM and the Managing General Partner earned developer fees in the amounts of $1,080,000 and $120,000, respectively. Pursuant to an Amended Developer Fee Agreement (the Amendment) dated July 31, 2007, the Limited Partner became a party in the Developer Agreement as a Co-Developer. The outstanding Developer Fee bears interest at the Applicable Federal Long-Term Rate of 5.15 percent, commencing on July 31, 2007. Pursuant to the Amendment, the Managing General Partner has agreed to reduce the portion of the Development Fee to which it was entitled under the Developer Agreement in consideration of having received from the Co-General Partner a payment in the amount of such reduction. As of December 31, 2015 and 2014, the developer fees have been paid. MGP management fee Pursuant to the management agreement, the Managing General Partner is entitled to MGP management fees in connection with the performance of certain services provided to the Partnership. The fee shall be $10,000 per year adjusted by the Consumer Price Index, but not to not exceed $12,500 per year. The MGP management fee is payable to the extent that the Partnership has available cash flow, as defined. Any unpaid balance shall bear interest at a fixed rate of 5 percent per annum. During 2015 and 2014, MGP management fees of $12,500 and $12,474 were incurred and paid, respectively. Asset management fee The Partnership is required to pay a cumulative annual asset management fee of $7,500 to the Limited Partner for services rendered in connection with annual reviews of operations of the Partnership. Asset management fees are payable to the extent the Partnership has available cash flow. Any unpaid but accrued fees shall bear interest at a fixed rate of 8.0 percent per annum. Asset management fees in the amount of $7,500 and $7,500 were incurred during 2015 and 2014, respectively and as of December 31, 2015 and 2014, $7,500 and $7,500, respectively, remained payable. SAI facility fee The Partnership has agreed to pay to the Limited Partner a facility fee. The facility fee is an annual fee equal to the product of 30 basis points and the weighted average of the outstanding principal balance of the bonds during the fiscal year to which such fee relates. For the years ended December 31, 2015 and 2014, the SAI facility fee earned was $39,369 and $40,306, respectively. As of December 31, 2015 and 2014, $39,369 and $40,306 remained payable. Interest is charged at a fixed rate of 10 percent compounded annually for any unpaid amounts. No interest expense was incurred related to the SAI facility fee for the years ended December 31, 2015 and 2014. Incentive partnership management fee The Partnership has agreed to pay the Co-General Partner an annual incentive partnership management fee in a base amount of $2,500. Additional incentive partnership management fees can be earned by the Co-General Partner based on Net Cash Flow Percentage, as defined. The incentive management fee is payable to the extent that the Partnership has available cash flow, as defined. During 2015 and 2014, fees in the amount of $163,836 and $59,438 were incurred and $169,732 and $68,837 remains payable, respectively. 11
Notes to Financial Statements December 31, 2015 and 2014 Ground lease Only July 1, 2002, the Partnership entered into a lease agreement with ROEM Development Corporation (the Lessor). Under the terms of the agreement, the Partnership leases land owned by the Lessor for a term of 55 years, beginning July 1, 2002 at rate of $10,000 per year, which shall be deducted from an annual amount equal to 42 percent of Lessee's Net Cash Flow. The Partnership has accounted for the lease as an operating lease. Ground lease expense incurred for the years ended December 31, 2015 and 2014 was $208,485 and $47,506, respectively, which is included in other related party fees and expenses on the accompanying statements of operations. As of December 31, 2015 and 2014, the accrued ground lease payable was $216,022 and $87,611, respectively. Future minimum payments over each of the next five years are expected to be $10,000. Note payable Co-general partner Pursuant to a promissory note dated July 31, 2007, the Co-General Partner and the Partnership entered into a loan agreement in the amount of $127,882. The loan is unsecured and bears interest at the rate of 5 percent per annum. Payments of principal and interest are made out of available cash flow. The entire outstanding principal balance and accrued interest are due on July 31, 2017. As of December 31, 2015 and 2014, the loan has been repaid in full. Note 6 - Capital contributions Capital contributions are due from the Limited Partner when certain milestones are achieved as disclosed in the partnership agreement. As of December 31, 2015 and 2014, the limited partner has made all required contributions totaling $12,244,593. Note 7 - Mortgage and notes payable Mortgage payable- Wells Fargo Bank On December 1, 2002, the City of San Jose (the Issuer) authorized the issuance of Multifamily Housing Revenue Senior Bonds Series 2002 J-1, Series 2002 J-2, and Junior Bond Series J-3 in the amounts of $13,360,000, $3,340,000, and $2,100,000, respectively, on behalf of the Partnership. The Issuer directed the deposit of the bond proceeds with Wells Fargo Bank, N.A. (the Trustee). On December 18, 2002, the Partnership signed a Promissory Note with the Issuer for $13,360,000 (the J-1 Note). Interest on the note accrues at a variable rate that has specified increases over time, which was 5.15 percent per annum as of December 31, 2015. The Partnership is obligated to make interest-only payments on the 15 th day of each month. Once certain benchmarks have been met, the Note is expected to convert to an amortizing loan. At such time, the Partnership will be required to make equal monthly payments of principal and interest in an amount sufficient to repay the Note by the maturity date of April 15, 2036. The J-1 Note is secured by a deed of trust in favor of the Trustee acting on behalf of the Issuer. As of December 31, 2015 and 2014, the principal balance on the Bonds was $12,905,000 and $13,235,000, respectively. As of December 31, 2015 and 2014, the total accrued interest on the notes was $64,960 and $64,960. For the years ended December 31, 2015 and 2014, interest expense related to the notes was $736,732, and $735,093, respectively. Note payable- City of San Jose The Partnership entered into a loan agreement on December 1, 2002 with the City of San Jose in an amount up to $6,346,148. The loan bears interest at a fixed rate of 4 percent per annum. Interest 12
Notes to Financial Statements December 31, 2015 and 2014 only payments are due and payable out of Net Cash Flow, as defined, commencing on May 1, 2006 and every May 1 st of each year thereafter. The note is secured by a second deed of trust on the rental property. Principal and any unpaid interest is payable on December 1, 2044. As of December 31, 2015 and 2014, the principal balance was $6,074,671 each year. Interest expense for the years ended December 31, 2015 and 2014 was $242,987 and $242,987, respectively. Accrued interest at December 31, 2015 and 2014 was $2,756,431 and $2,633,555, respectively. Aggregate scheduled annual maturities of the notes payable over each of the next five years are as follows: Wells Fargo City of San Jose Total 2016 $ 340,000 $ - $ 340,000 2017 365,000-365,000 2018 380,000-380,000 2019 405,000-405,000 2020 425,000-425,000 Thereafter 10,990,000 6,074,671 17,064,671 Total $ 12,905,000 $ 6,074,671 $ 18,979,671 Note 8 - Property management fee The Partnership has entered into an agreement with FPI Management, Inc., an unrelated party, to provide property management services to the Partnership. The contract provides for monthly management fees of $4,800 or 4 percent of collected income, whichever is greater. For each of the years ended December 31, 2015 and 2014, property management fees of $57,600 were incurred and paid. Note 9 - Net cash flow Annual cash distributions to the partners can only be paid from the Partnership's Net Cash Flow, as defined in the Partnership Agreement. Net Cash Flow, where positive, is distributed in the following order or priority: a. To pay any outstanding Excess LP Loan Amount, as defined in the Partnership Agreement, and then to the payment of any remaining Limited Partner loans and General Partner loans; b. To pay the Limited Partner unpaid SAI facility fees and accrued interest; c. To pay the Managing General Partner unpaid MGP Management Fees and accrued interest; d. To pay the Limited Partner unpaid asset management fees and accrued interest; e. To pay the Limited Partner loan and accrued interest; f. To pay the outstanding developer fee and accrued interest 1. Up to $673,000 of total deferred developer fee, ROEM deferred developer fee seventy-three percent (73%) and Limited Partner deferred developer fee twentyseven percent (27%) 13
Notes to Financial Statements December 31, 2015 and 2014 2. Up to $327,000 of total deferred developer fee, ROEM deferred developer fee ninety-two percent (92%) and Limited Partner deferred developer fee eight percent (8%); g. To pay the Co-General Partner loan and accrued interest, ninety-two percent (92%) to the 2007 GP Loan and eight percent (8%) to the Limited Partner Distributions; h. To pay any outstanding operating deficit loans; i. To pay the Co-General Partner an incentive partnership management fee up to $2,500; j. Forty-two percent (42%) of remaining Net Cash Flow to repayment of the City of San Jose Subordinate Loan; k. Twenty-eight percent (28%) to pay the annual rental due under the ground lease to be applied to the repayment of the City of San Jose ROEM Loan, l. The NCF Percentage, as defined, to the Co-General Partner as payment of the Incentive Partnership Management fee; m. And thirty percent (30%) minus the NCF percentage, as defined, of such remaining Net Cash Flow to the Partners, pro rata, in accordance with their percentage. Notwithstanding the foregoing, during such time as regulations of the Project lenders are applicable to the apartment complex, the total amount of Net Cash Flow which may be so distributed to the Partners with respect to any fiscal year shall not exceed such amounts as such regulations permit to be distributed. Note 10 - Concentration of credit risk The Partnership maintains its cash balances in several accounts in various banks. At times, these balances may exceed the federal insurance limits; however, the Partnership has not experienced any losses with respect to its bank balances in excess of government provided insurance. Management believes that no significant concentration of credit risk exists with respect to these cash balances at December 31, 2015. Note 11 - Contingency The Partnership's low-income housing tax credits are contingent on its ability to maintain compliance with applicable sections of Section 42 of the Internal Revenue Code. Failure to maintain compliance with tenant income eligibility, and rent limits, or to correct instances of non-compliance within a reasonable time period could result in recapture of previously claimed tax credits plus interest. In addition, such potential non-compliance may require an adjustment to the contributed capital by the limited partner. Note 12 - Low income housing tax credits (unaudited) The Partnership has received an allocation of $14,696,060 of federal low-income housing tax credits. As of December 31, 2015, $14,696,060 of the tax credits have been utilized by the partners. 14
Notes to Financial Statements December 31, 2015 and 2014 Note 13 - Surplus cash (unaudited) As of December 31, 2015, the Partnership has $830,876 of operating cash flow to be distributed as follows: LPA Section Fee 2015 Amount 11.1 (a) (ii) SAI facility fee $ 39,369 11.1 (a) (iii) Managing general partner fees 12,500 11.1 (a) (iv) Asset management fees 7,500 11.1 (a) (vi) (A) (1) Repayment of City of San Jose Loan 324,033 11.1 (a) (vi) (A) (1) Ground lease 216,022 11.1 (a) (vi) (A) (1) Incentive partnership management fee 169,732 11.1 (a) (vi) (A) (1) Distributions to partners 61,720 Note 14 - Subsequent events Total cash flow to be distributed $ 830,876 Events that occur after the balance sheet date but before the financial statements were available to be issued must be evaluated for recognition or disclosure. The effects of subsequent events that provide evidence about conditions that existed at the balance sheet date are recognized in the accompanying financial statements. Subsequent events which provide evidence about conditions that existed after the balance sheet date require disclosure in the accompanying notes. Management evaluated the activity of the Partnership through March 14, 2016 (the date the financial statements were available to be issued) and concluded that no subsequent events have occurred that would require recognition in the financial statements or disclosure in the notes to the financial statements. 15
Supplementary Information 16
Schedules of Certain Revenues and Expenses Years Ended December 31, 2015 and 2014 2015 2014 Rental income Rent revenue - gross potential $ 2,521,740 $ 2,438,921 Garage and parking spaces 895 1,145 Miscellaneous rent revenue 11,443 6,863 Total rental income $ 2,534,078 $ 2,446,929 Vacancies and concessions Apartments vacancies $ 8,510 $ 13,096 Rental concessions 2,688 - Total vacancies and concessions $ 11,198 $ 13,096 Other operating income Laundry and vending $ 3,858 $ 3,548 Security deposit forfeitures 1,633 4,447 Total other operating income $ 5,491 $ 7,995 Salaries and employee benefits Salaries - administrative $ 70,430 $ 78,451 Salaries - maintenance 63,802 74,804 Payroll taxes 12,058 14,284 Health insurance and other benefits 17,155 20,635 Workmen's compensation insurance 19,009 22,192 Total salaries and employee benefits $ 182,454 $ 210,366 Repairs and maintenance Exterminating $ 3,600 $ 3,600 Grounds 7,560 7,560 Fire protection 1,721 1,082 Security services/contract 6,068 2,991 Supplies 7,878 5,515 Painting, decorating and cleaning 18,859 8,572 Pool 5,036 3,949 Repairs and maintenance - other than contracts 19,246 25,274 Repairs and maintenance - contracts 12,189 7,507 Total repairs and maintenance $ 82,157 $ 66,050 17
Schedules of Certain Revenues and Expenses Years Ended December 31, 2015 and 2014 2015 2014 Utilities Electricity $ 39,998 $ 45,067 Water 80,414 70,916 Sewer 48,547 45,408 Trash removal 14,145 13,203 Gas 39,020 44,572 Total utilities $ 222,124 $ 219,166 Miscellaneous operating expenses Office supplies and expense $ 1,971 $ 4,609 Training and travel 2,250 1,273 Telephone and answering service 3,771 3,410 Credit collection and eviction 866 763 Computer supplies and expense 2,478 2,184 Miscellaneous administrative 3,249 2,642 Rent free unit 14,400 14,400 Advertising and newspaper 146 231 Legal 540 - Audit 8,255 9,465 Other taxes, licenses and insurance 27,672 19,383 Total miscellaneous operating expenses $ 65,598 $ 58,360 Interest expense - other loans Interest expense - second mortgage $ 242,987 $ 242,987 Total interest expense - other loans $ 242,987 $ 242,987 Other financial income (expense) Trustee fees $ (74,298) $ (72,339) Miscellaneous financial expenses (53) (5) Total other financial income (expense) $ (74,351) $ (72,344) Miscellaneous other income (expense) Miscellaneous other expense $ (4,900) $ - Total miscellaneous other income (expense) $ (4,900) $ - Other related party fees and expenses Incentive management fee - GP $ 163,836 $ 59,438 Ground lease 208,485 47,506 Total other related party fees and expenses $ 372,321 $ 106,944 See Independent Auditor s Report 18
City of San Jose Net Cash Flow Analysis (Unaudited) Year Ended December 31, 2015 Project Name: Summer Breeze Apartments Auditor: Developer(s): ROEM Development Corp Period: Property Manager: FPI Management, LLC. # of Units: CohnReznick, LLP 160 12/31/2015 Budget Item Per Unit Borrower Notes: Gross Potential Rent 2,534,078 15,838 Other Income 5,491 34 Vacancy, Collection, Concessions Losses 11,198 0.4% 70 Operating Income: 2,528,371 15,802 Administrative Expenses 65,598 410 Management Fees 57,600 0.0228 360 Salaries and Benefits 182,454 1,140 Repairs and Maintenance 82,157 513 Utilities 222,124 1,388 Taxes and Insurance 41,393 259 Services (if permitted) - - Other Operating Expenses 3,524 22 Operating Expenses: 654,850 4,093 Debt Service: 1,139,230 7,120 Purchase of fixed assets/capital items: 42,587 266 Net deposits into restricted cash: (14,389) (90) Other Adjustments: - - Other Permitted Expenses (as permitted in promissory note): Deferred Developer Fee - - Ground Lease: - - SAI Facility Fee 39,369 246 Other: - - Partnership Admin Fees: 20,000 125 Net Cash Flow 646,724 4,042 City's Percent of Net Cash Flow 42.0% 42.0% City's Share of Net Cash Flow 271,624 1,698 Replacement Reserve Activity: Replacement Reserve Beginning Balance 226,844 1,418 Deposits to Replacement Reserve 40,136 251 Withdrawals from Replacement Reserves 54,525 341 Net Replacement Reserve Activity (14,389) (90) Ending Replacement Reserve Balance 212,455 1,328 Capital Expenditures Total (42,587) (266) Deferred Developer Fee Activity: Initial Closing Deferred Fee Amount 1,200,000 7,500 Amount Previously Paid to this Period 1,200,000 7,500 Beginning Deferred Developer Fee Balance - - Deferred Developer Fee Payments - - Ending Developer Fee Balance - - See Independent Auditor s Report 19