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EX-10.28 - EXHIBIT 10.28 - CNL Growth Properties, Inc.exhibit1028-cgpq42016.htm
EX-32 - EXHIBIT 32 - CNL Growth Properties, Inc.exhibit32-cgpq42016.htm
EX-31.2 - EXHIBIT 31.2 - CNL Growth Properties, Inc.exhibit312-cgpq42016.htm
EX-31.1 - EXHIBIT 31.1 - CNL Growth Properties, Inc.exhibit311-cgpq42016.htm
EX-21.1 - EXHIBIT 21.1 - CNL Growth Properties, Inc.exhibits211-cgpq42016.htm

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 ___________________________________________________________________________
 FORM 10-K
____________________________________________________________________________
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
OR
¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number: 000-54686
 _________________________________________________________________________________
 CNL Growth Properties, Inc.
(Exact name of registrant as specified in its charter)
 _________________________________________________________________________________
Maryland
 
26-3859644
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
CNL Center at City Commons
450 South Orange Avenue
Orlando, Florida
 
32801
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (407) 650-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of exchange on which registered
None
 
Not applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of class)
___________________________________________________________________________ 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨



Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
¨
  
Accelerated filer
 
¨
Non-accelerated filer
 
x  (Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
There is currently no established public market for the registrant’s shares of common stock. Based on the Company’s $8.65 estimated net asset value per share as of June 30, 2016, the aggregate market value of the stock held by non-affiliates of the registrant on such date was approximately $195 million.
The number of shares of common stock outstanding as of March 10, 2017 was 22,526,171.
 
 
 
 
 



TABLE OF CONTENTS

 
 
Page
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
Item 15.
Item 16.




PART I
Statement Regarding Forward Looking Information
Statements contained under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (this “Annual Report”) that are not statements of historical or current fact may constitute “forward-looking statements” within the meaning of the Federal Private Securities Litigation Reform Act of 1995. The Company intends that such forward-looking statements be subject to the safe harbor created by Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are statements that do not relate strictly to historical or current facts, but reflect management’s current understandings, intentions, beliefs, plans, expectations, assumptions and/or predictions regarding the future of the Company’s business and its performance, the economy, and other future conditions and forecasts of future events and circumstances. Forward-looking statements are typically identified by words such as “believes,” “expects,” “anticipates,” “intends,” “estimates,” “plans,” “continues,” “pro forma,” “may,” “will,” “seeks,” “should,” “could” and words and terms of similar substance in connection with discussions of future operating or financial performance, business strategy and portfolios, projected growth prospects, cash flows, costs and financing needs, legal proceedings, amount and timing of anticipated future distributions, estimates of per share net asset value of the Company’s common stock, and/or other matters. The Company’s forward-looking statements are not guarantees of future performance. While the Company’s management believes its forward-looking statements are reasonable, such statements are inherently susceptible to uncertainty and changes in circumstances. As with any projection or forecast, forward-looking statements are necessarily dependent on assumptions, data and/or methods that may be incorrect or imprecise, and may not be realized. The Company’s forward-looking statements are based on management’s current expectations and a variety of risks, uncertainties and other factors, many of which are beyond the Company’s ability to control or accurately predict. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, the Company’s actual results could differ materially from those set forth in the forward-looking statements due to a variety of risks, uncertainties and other factors. Given these uncertainties, the Company cautions you not to place undue reliance on such statements.
For further information regarding risks and uncertainties associated with the Company’s business, and important factors that could cause the Company’s actual results to vary materially from those expressed or implied in its forward-looking statements, please refer to the factors listed and described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the “Risk Factors” sections of the Company’s documents filed from time to time with the U.S. Securities and Exchange Commission, including, but not limited to, this Annual Report and the Company’s quarterly reports on Form 10-Q, copies of which may be obtained from the Company’s website at http://www.cnlgrowthproperties.com.
All written and oral forward-looking statements attributable to the Company or persons acting on its behalf are qualified in their entirety by this cautionary note. Forward-looking statements speak only as of the date on which they are made, and the Company undertakes no obligation to, and expressly disclaims any obligation to, publicly release the results of any revisions to its forward-looking statements to reflect new information, changed assumptions, the occurrence of unanticipated subsequent events or circumstances, or changes to future operating results over time, except as otherwise required by law.

Item 1.
BUSINESS
General
CNL Growth Properties, Inc. was organized as a Maryland corporation on December 12, 2008 and has elected to be taxed, and currently qualifies as a real estate investment trust (“REIT”) for federal income tax purposes. The terms “us,” “we,” “our,” “our Company” and “CNL Growth Properties, Inc.” include CNL Growth Properties, Inc. and each of its subsidiaries.
On August 4, 2016, we obtained our stockholders' approval of a plan of liquidation and dissolution ("Plan of Dissolution") authorizing us to undertake an orderly liquidation. In an orderly liquidation, we will sell of all of our remaining assets, pay all of our known liabilities, provide for the payment of our unknown or contingent liabilities, distribute our remaining cash to our stockholders as liquidating distributions, wind-up our operations and dissolve the Company in accordance with Maryland law. See the Company's Form 8-K filed on August 5, 2016 for additional details.
As a result of the approval of the Plan of Dissolution by the stockholders in August 2016, we adopted the liquidation basis of accounting ("Liquidation Basis of Accounting"), as described further in Item 8. “Financial Statements and Supplementary Data” to the financial statements.


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Our Advisor and Property Manager
We are externally advised by CNL Global Growth Advisors, LLC (the “Advisor”) and our property manager is CNL Global Growth Managers, LLC (the “Property Manager”), each of which is an affiliate of CNL Financial Group, LLC, our sponsor (“CNL” or the “Sponsor”), a private investment management firm specializing in alternative investment products. The Advisor is responsible for managing our affairs on a day-to-day basis and for identifying, recommending and executing acquisitions (through the completion of our acquisition stage in April 2015) and dispositions on our behalf pursuant to an advisory agreement.
Substantially all of our operating, administrative and property management services are provided by sub-advisors to the Advisor and by sub-property managers to the Property Manager.
Our Exit Strategy
Due to the completion of our initial public offering and follow-on offering (collectively, the "Offerings") in April 2014, the completion of our acquisition phase in April 2015 and the estimated time needed to complete our development phase and have our assets substantially stabilize, our Advisor began to explore strategic alternatives. In August 2015, our board of directors appointed a special committee comprised of our independent board members (the “Special Committee”) to oversee the process of exploring strategic alternatives for future stockholder liquidity, including opportunities to merge with another company, the listing of our common stock on a national securities exchange, our sale or the sale of all of our assets. In September 2015, we engaged CBRE Capital Advisors, Inc. (“CBRE Cap”) to act as our exclusive financial advisor and assist us and the Special Committee with this process. In the ordinary course of CBRE Cap’s business, CBRE Cap, its affiliates, directors and officers, may trade or otherwise structure and effect transactions in our shares or assets for its own account or for the accounts of its customers and accordingly, may at any time hold a long or short position, finance positions, or otherwise structure and effect transactions in our shares or assets. CBRE Cap is an affiliate of CBRE Group, Inc. (“CBRE”), the parent holding company of affiliated companies that are engaged in the ordinary course of business in many areas related to commercial real estate and related services. Through CBRE’s affiliates, CBRE may have in the past, and may from time to time in the future, perform one or more roles in our transactions. Refer to “Our Real Estate Portfolio” below for a discussion on properties sold during 2015 and 2016.
Although our stockholders approved our Plan of Dissolution on August 4, 2016, there is no assurance we will have a final liquidity event in the near term. We expect to distribute all of the net proceeds from the sale of our assets to our stockholders within 24 months after the stockholder approval of our Plan of Dissolution. However, if we cannot sell our assets and pay our debts within 24 months, or if our board and the Special Committee determine that it is otherwise advisable to do so, we may transfer and assign our remaining assets to a liquidating trust. Upon such transfer and assignment, our stockholders will receive interests in the liquidating trust. The liquidating trust will pay or provide for all of our liabilities and distribute any remaining net proceeds from the sale of its assets to the holders of interests in the liquidating trust.
The dissolution process and the amount and timing of distributions to stockholders involves risks and uncertainties. Accordingly, it is not possible to predict the timing or aggregate amount which will ultimately be distributed to stockholders and no assurance can be given that the distributions will equal or exceed the estimate of net assets presented in the Consolidated Statement of Net Assets (Liquidation Basis of Accounting).
We expect to continue to qualify as a REIT throughout the liquidation until such time as any remaining assets, if any, are transferred into a liquidating trust. Our board shall use commercially reasonable efforts to continue to cause us to maintain our REIT status, provided however, our board may elect to terminate our status as a REIT if it determines that such termination would be in the best interest of our stockholders.
Our Real Estate Portfolio
Since our inception, and through the completion of our acquisition phase in April 2015, our Advisor and its sub-advisors evaluated various investment opportunities on our behalf and we entered into joint venture arrangements for the acquisition and development of 17 real estate properties and one three building office complex that was lender owned (“Gwinnett Center”). With the exception of the Gwinnett Center (which we sold during 2014), the investments we made focused on multifamily development projects in the southeastern and sunbelt regions of the United States due to favorable and compelling market and industry data, as well as, unique opportunities to co-invest with experienced development operators.
Prior to the formation of the Special Committee in August 2015, as discussed above in "Our Exit Strategy", our Advisor evaluated opportunities that arose from favorable market conditions in multifamily development and as part of that process, evaluated provisions within the individual joint venture agreements to consider specific asset sales. As a result of evaluating these opportunities, as well as a result of exploring strategic alternatives, as described above in “Our Exit Strategy”, during 2015, we, through our consolidated joint ventures, sold four real estate properties that were operational.

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During the seven months ended July 31, 2016 (prior to adopting Liquidation Basis of Accounting), we, through our consolidated joint ventures, sold two real estate properties that were operational. Subsequent to adopting Liquidation Basis of Accounting, we sold our wholly owned real estate property and, through our consolidated joint ventures, sold three additional real estate properties, all of which were operational. See Item 7. "Liquidity and Capital Resources – Net Sales Proceeds from Sales of Real Estate" for additional information.
As of December 31, 2016, we owned interests in seven Class A multifamily properties in the southeastern and sunbelt regions of the United States, all of which had substantially completed development and were operational. We had a total of 1,960 completed apartment units as of December 31, 2016. We generally expect our multifamily properties to reach stabilization within 24 months after completion.
Our multifamily properties are typically owned through a joint venture in which we have co-invested with an affiliate of a national or regional multifamily developer. As of December 31, 2016, we had co-invested in seven separate joint ventures with six separate developers or affiliates thereof. Our joint ventures are structured such that we serve as the managing member and own a majority interest. Under the terms of the limited liability company agreements of each joint venture, operating cash flow is generally distributed to the members of the joint venture on a pro rata basis. Generally, in a capital event, such as a sale or refinancing of the joint venture’s property, net proceeds will be distributed pro rata to each member until each member’s invested capital is returned and a minimum return on capital is achieved, and thereafter our joint venture partner will receive a disproportionately higher share of any proceeds at varying levels based on our having received certain minimum threshold returns. Prior to adopting the Liquidation Basis of Accounting, we determined that all of the joint ventures in which we had co-invested were variable interest entities in which we were the primary beneficiary. As such, the transactions and accounts of the joint ventures were consolidated in our accompanying financial statements under the going concern basis of accounting.
For additional information regarding our real estate properties, see Item 2. “Properties.”
Our Borrowing Policies
Under our articles of incorporation, the maximum amount of our indebtedness cannot exceed 300% of our “net assets,” as defined by the Statement of Policy Regarding Real Estate Investment Trusts adopted by the North American Securities Administrators Association on May 7, 2007 (the “NASAA REIT Guidelines”) as of the date of any borrowing unless any excess borrowing is approved by a majority of our independent directors and is disclosed to stockholders in our next quarterly report, together with a justification for the excess. In addition to the limitations contained in our articles of incorporation, our board of directors has adopted a policy to limit our aggregate borrowings to approximately 75% of the aggregate value of our assets unless substantial justification exists that borrowing a greater amount is in our best interests. Our policy limitation, however, does not apply to individual real estate assets.
As our indebtedness approaches maturity, we, along with our joint venture partners, may extend and refinance the construction loans on our development properties, or may determine to sell the property and use proceeds from the sale to repay the indebtedness. Many of our joint venture agreements provide for our partners’ cooperation in order to refinance our indebtedness.
Our Distribution Policy
In order to qualify as a REIT, we are required to distribute 90% of our annual REIT taxable income to our stockholders.
Stock Distributions
Due to our original investment strategy of seeking growth-oriented assets and our original investment focus of investing in development properties, the board determined to issue stock distributions in order to preserve cash as we developed properties and achieved stabilization of those properties upon completion of construction. Our board of directors authorized daily stock distributions effective July 1, 2010. On September 15, 2014, our board approved the termination of our stock distribution policy effective as of October 1, 2014. The board believed that additional stock distributions no longer provided an economic benefit, and believed that stock distributions were not in the best interests of our existing stockholders. As a result, we did not declare any further stock distributions effective October 1, 2014. See Item 5. "Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities" for additional information.
Special Cash Distributions
As described above in “Our Exit Strategy”, we evaluated opportunities that arose from favorable market conditions in multifamily development, explored strategic alternatives and sold properties. As a result, in February 2015 and December 2015, our board of directors declared special cash distributions in the amounts of $1.30 and $1.70, respectively, per share of common stock (the “Special Cash Distributions”). The Special Cash Distributions totaling approximately $67.6 million were paid in cash

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and were funded from the proceeds of refinancings and asset sales. See Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities – Special Cash Distributions” for additional information.
Liquidating Distributions
Subsequent to obtaining our stockholders' approval to our Plan of Dissolution, in August 2016 and December 2016, our board of directors declared liquidating distributions in the amounts of $2.35 and $2.30, respectively, per share of common stock (the "Liquidating Distributions"). The Liquidating Distributions totaling approximately $104.7 million were paid in cash and were funded from the proceeds of asset sales, including the sales of six properties in 2016. See Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities – Liquidating Distributions” for additional information.
Our Valuation Policy
The valuation process used to determine the estimated net asset value (“NAV”) was designed to follow recommendations of the Investment Program Association (“IPA”), a trade association for non-listed direct investment vehicles, in the IPA Practice Guideline 2013-01, “Valuations of Publicly Registered Non-Listed REITs,” which was issued by the IPA in April 2013. The purpose of our valuation policy is to establish guidelines to be followed in determining the net asset value per share of our common stock for regulatory and investor reporting and on-going evaluation of investment performance.
In accordance with our policy, the valuation committee of our board of directors, comprised of our independent directors, oversees our valuation process. For a discussion of the determination of our net asset value per share of our common stock, including our valuation process and methodology, see Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities - Market Information.”
In accordance with our valuation policy and as recommended by the IPA Valuation Guidelines, we will produce an estimated net asset value per share at least annually as of December 31 and disclose such amount as soon as possible after year end.
Our Disposition Policies
The determination of when a particular investment should be sold or otherwise disposed of may be made after considering all relevant factors, including refinancing opportunities, terms of the joint venture agreement, tax considerations, prevailing and projected economic and market conditions (including whether the value of the property or other investment is anticipated to decline substantially). On August 4, 2016, our stockholders approved our Plan of Dissolution pursuant to which our board of directors is authorized to undertake a sale of all of the Company's assets and distribute the net proceeds to our stockholders after payment of all of the Company's liabilities.

Financial Information about Industry Segments
We determined that we operate in one business segment, real estate ownership, which consists of owning, managing, leasing, acquiring, developing, investing in, and as conditions warrant, disposing of real estate assets. We internally evaluate all of our real estate assets as one industry segment and, accordingly, we do not report segment information.
Competition
We compete with many other entities engaged in real estate investment activities, including individuals, corporations, bank and insurance company investment accounts, REITs, real estate limited partnerships and other entities engaged in real estate investment activities, many of which will have greater resources than we do.
Our seven properties are located in the metropolitan areas of San Antonio, Cypress and Spring, Texas; Greenville, South Carolina; Hanover, Maryland; Tempe, Arizona and Suffolk, Virginia. Each location is in a highly competitive, large metropolitan area with multiple competing projects.
Employees
We are externally managed and as such we do not have any employees.

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Our Advisor
Substantially all of our operating, administrative and property management services are provided by sub-advisors to our Advisor and sub-property managers to the Property Manager. Under the terms of our advisory agreement, our Advisor has responsibility for our day-to-day operations, including serving as our consultant in connection with policy decisions to be made by our board of directors, identifying and making disposition decisions on our behalf and providing asset management and administrative services. In exchange for these services, our Advisor is entitled to receive certain fees and reimbursements from us.
Our current advisory agreement may be extended annually upon mutual consent of the parties. Our independent directors are required to review and approve the terms of our advisory agreement at least annually.
For additional information on our Advisor and the fees and reimbursements we pay, see Note 12. "Related Party Arrangements" in Item 8. “Financial Statements and Supplementary Data.”
Our Tax Status
We elected to be taxed as a REIT under Sections 856(c) of the Code commencing with our taxable year ended December 31, 2010. In order to be taxed as a REIT, we are subject to a number of organizational and operational requirements, including the requirement to make distributions to our stockholders each year of at least 90 percent of our REIT taxable income (excluding any net capital gain). As a REIT, we generally will not be subject to U.S. federal corporate income tax on income distributed to our stockholders. As a REIT, we may be subject to certain state and local taxes on our income and property, and federal income and excise taxes on our undistributed income.
Prior to our tax year ended December 31, 2015, we had tax losses for federal income tax purposes and therefore were not required to make cash distributions to our stockholders. For our tax year ended December 31, 2016 and 2015, we had taxable income before net operating loss utilization and dividend paid deduction for federal income tax purposes. In August and December 2016 we paid Liquidating Distributions and in February and December 2015, we paid Special Cash Distributions, as described above under “Our Distribution Policy.”
Available Information
We maintain a website at www.CNLGrowthProperties.com containing additional information about our business, and a link to the Securities and Exchange Commission (the “SEC” or “Commission”) website (www.sec.gov), but the contents of the website are not incorporated by reference in, or otherwise a part of, this report.

We make information available free of charge through our website, as soon as practicable after we file it with the SEC, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, definitive proxy statements on Form 14A and, if applicable, amendments to these reports.
 
Item 1A.
RISK FACTORS
The risks and uncertainties described below represent those risks and uncertainties that we believe are material to investors. Our stockholders or potential investors may be referred to as “you” or “your” in this Item 1A. “Risk Factors” section.
Company Related Risks
There is no public market for our shares and it is not likely that one will develop.
Our shares are not listed, there is no current public market for shares of our common stock and one is not likely to develop. We have no obligation to list our shares on any public securities market or provide any other type of liquidity to our stockholders. Additionally, our board of directors suspended our stock redemption plan. Therefore, it may be difficult for you to sell your shares promptly or at all, including in the event of an emergency; and if you are able to sell your shares, you may have to sell them at a substantial discount from your purchase price of such shares or less than your proportionate value of the net assets we own.

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Our board of directors estimated our net asset value per share as of December 31, 2016 and in doing so, we primarily relied upon a valuation of our portfolio of properties as of December 31, 2016. Valuations and appraisals of our properties are estimates of fair value and may not necessarily correspond to realizable value upon the sale of such properties; therefore, our estimated net asset value per share may not reflect the amount that would be realized upon a sale of each of our properties.
For the purposes of determining the estimated net asset value per share of our common stock as of December 31, 2016, we retained CBRE, Inc. ("CBRE"), an independent appraisal firm to provide restricted use real estate appraisals for our seven remaining real estate properties as of December 31, 2016 (the "Appraisals"). Our Advisor developed a valuation analysis of the Company, utilizing Appraisals, and provided the analysis to the Valuation Committee, which is comprised of the independent directors of our board. The methodologies used to value our properties involved certain subjective judgments, including but not limited to, estimated future cash flows for properties recently developed for which we have limited operating history. Due to the short-term nature of multifamily leases, the value of our properties and the estimated net asset value of our shares may be more susceptible to fluctuation than REITs with longer term leases where cash flows are not subject to as much potential volatility. In addition, the ultimate realization of the value of our assets depend to a great extent on economic and other conditions beyond our control and the control of our Advisor. Moreover, valuations do not necessarily represent the price at which an asset would sell, since market prices of assets can only be determined by negotiation between a willing buyer and seller. As a result of the foregoing, as well as other factors, and despite that we considered the guidelines recommended by the IPA for determining the net asset value for shares of non-traded real estate investment trusts such as us, the valuations of our properties may not correspond to the realizable value upon a sale of those assets; and our estimated net asset value per share may not be indicative of the proceeds a stockholder would receive upon the sale of his or her shares in a market transaction or if we were liquidated or dissolved and the proceeds were distributed to the stockholders.
We and our Advisor have limited operating histories and the prior performance of real estate investment programs sponsored by our sponsor or CNL may not be indicative of our future results.
We and our Advisor have limited operating histories. Prior to April 26, 2010, the date our operations commenced, we had no previous performance history. You should not rely upon the past performance of other real estate investment programs sponsored by our sponsor or CNL to predict our future results. You should consider our prospects in light of the risks, uncertainties and difficulties frequently encountered by companies that, like us, have a limited operating history. To be successful, our Advisor must, among other things:
attract, integrate, motivate and retain qualified personnel to manage our day-to-day operations;
respond to competition for our targeted real estate properties and other investments; and
continue to build and expand its operational structure to support our business.
There can be no assurance that our Advisor will succeed in achieving these goals.
Because we rely on affiliates of CNL for advisory and property management services, if these affiliates or their executive officers and other key personnel are unable to meet their obligations to us, we may be required to find alternative providers of these services, which could disrupt our business.
CNL, through one or more of its affiliates or subsidiaries, owns and controls our Advisor and our Property Manager, as well as, one of our sub-advisors and sub-property managers. In the event that any of these affiliates or related parties are unable to meet their obligations to us, we might be required to find alternative service providers, which could disrupt our business by causing delays and/or increasing our costs.
Further, our success depends to a significant degree upon the continued contributions of certain executive officers and other key personnel of our Advisor, its affiliates and related parties, each of whom would be difficult to replace. We do not have employment agreements with our executive officers, and we cannot guarantee that they will remain affiliated with us or our Advisor. Although several of our executive officers have entered into employment agreements with affiliates of our Advisor, these agreements are terminable at will, and we cannot guarantee that such persons will remain employed by our Advisor or its affiliates. We do not maintain key person life insurance on any of our executive officers.
Stockholders have limited control over changes in our policies and operations.
Our board of directors determines our investment policies, including our policies regarding financing, growth, debt capitalization, REIT qualification and distributions. Our board of directors may amend or revise these and other policies without a vote of our stockholders. Under our articles of incorporation and Maryland general corporation law, our stockholders currently have a right to vote only on the following matters:
the election or removal of directors;

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any amendment of our articles of incorporation, except that our board of directors may amend our articles of incorporation without stockholder approval to change our name, increase or decrease the aggregate number of our shares and of any class or series that we have the authority to issue, or classify or reclassify any unissued shares by setting or changing the preferences, conversion or other rights, restrictions, limitations as to distributions, qualifications or terms and conditions of redemption of such shares;
effect stock splits and reverse stock splits;
our termination, liquidation and dissolution;
our reorganization;
modification or elimination of our investment limitations as set forth in our articles of incorporation; provided, however, for so long as we are subject to the NASAA REIT Guidelines, the investment limitations imposed by the NASAA REIT Guidelines that are set forth in our articles of incorporation may not be modified or amended in any manner that would be inconsistent with the NASAA REIT Guidelines; and
our being a party to any merger, consolidation, sale or other disposition of substantially all of our assets (notwithstanding that Maryland law may not require stockholder approval).
All other matters are subject to the discretion of our board of directors. Although stockholders have the right to vote on amendments to our articles of incorporation in the manner described above, under Maryland general corporation law, an amendment to our articles of incorporation must be found to be advisable by our board of directors. That requirement has the effect of limiting stockholders’ control over our articles of incorporation. In addition, our board of directors has the authority to amend, without stockholder approval, the terms of both our advisory agreement and our property management agreement, which, in either case, could result in less favorable terms to our investors.
We may be restricted in our ability to replace our Property Manager under certain circumstances.
Our ability to replace our Property Manager is limited. Under the terms of our property management agreement, we may terminate the agreement (i) in the event of our Property Manager’s voluntary or involuntary bankruptcy or a similar insolvency event or (ii) for “cause.” In this case, “cause” means a material breach of the property management agreement of any nature by the Property Manager relating to all or substantially all of the properties being managed under the agreement that is not cured within 30 days after notice to the Property Manager. We may amend the property management agreement from time to time to remove a particular property from the pool of properties managed by our Property Manager (i) if the property is sold to a bona fide unaffiliated purchaser, or (ii) for “cause.” In this case, “cause” means a material breach of the property management agreement of any nature by the Property Manager relating to that particular property that is not cured within 30 days after notice to the Property Manager. Our board of directors may find the performance of our Property Manager to be unsatisfactory. However, unsatisfactory performance by the Property Manager may not constitute “cause.” As a result, we may be unable to terminate the property management agreement even if our board concludes that doing so is in our best interest.
Your investment return may be reduced if we are required to register as an investment company under the Investment Company Act.
We are not registered as an investment company under the Investment Company Act of 1940 (the “Investment Company Act”) based on exclusions that we believe are available to us. If we were obligated to register as an investment company, we would have to comply with a variety of substantive requirements under the Investment Company Act imposing, among other things:
limitations on capital structure;
restrictions on specified investments;
prohibitions on transactions with affiliates; and
compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly change our operations.
In order to be excluded from regulation under the Investment Company Act, we have and intend to continue to engage primarily in the business of acquiring real property, making mortgage loans and other loans collateralized by interests in real estate and making other real estate-related investments. We intend to rely on exemptions or exclusions provided by the Investment Company Act for the direct ownership, or the functional equivalent thereof, of certain qualifying real estate assets or by engaging in business through one or more majority-owned subsidiaries. We may rely on any other exemption or exclusion under the Investment Company Act.
To maintain compliance with the Investment Company Act exemption, we may be unable to sell assets we would otherwise want to sell and may need to sell assets we would otherwise wish to retain. In addition, we may have to acquire additional

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income- or loss-generating assets that we might not otherwise have acquired or may have to forego opportunities to acquire interests in companies that we would otherwise want to acquire and would be important to our investment strategy.
If we were required to register as an investment company but failed to do so, we would be prohibited from engaging in our business and criminal and civil actions could be brought against us. In addition, our contracts would be unenforceable unless a court required enforcement, and a court could appoint a receiver to take control of us and liquidate our business.
There can be no assurance that we will be able to achieve expected results or cash flows necessary to initiate or maintain cash distributions at any particular level.
There are many factors that can affect the type, availability and timing of cash distributions to stockholders. Cash distributions generally will be based upon such factors as the amount of cash available or anticipated to be available from real estate investments and other assets, current and projected cash requirements, expected and actual cash flow from operations, the estimated total return on our assets, our overall financial condition, our objective of qualifying as a REIT for tax purposes, as well as other factors. Cash distributions declared may not reflect our income earned in that particular distribution period. The amount of cash available for distributions is affected by many factors. Actual amounts available for cash distribution may vary substantially from estimates. We cannot assure you that:
properties currently in lease-up status will be stabilized as planned;
rents from our properties will stabilize, or once stabilized, will remain stable or increase; or
our real estate portfolio will increase in value or generate or increase our cash available for distributions to stockholders.
Many of the factors that can affect the availability and timing of cash distributions to stockholders are beyond our control, and a change in any one factor could adversely affect our ability to make distributions. For instance:
Amounts available for distributions may be reduced if we are required to spend more than expected to correct defects or to make improvements to properties.
Amounts available to pay distributions may decrease if the assets we acquire have lower yields than expected.
Federal income tax laws require REITs to distribute at least 90% of their REIT taxable income to stockholders each year, limiting the earnings that we may retain for corporate growth, such as asset acquisition, development or expansion, and making us more dependent upon additional debt or equity financing than corporations that are not REITs. If we borrow more funds in the future, more of our operating cash will be needed to make debt payments and amounts available for distributions may decrease.
The payment of principal and interest required to service the debt may leave us with insufficient cash to pay distributions.
We may pay distributions to our stockholders to comply with the distribution requirements of the Code and to eliminate, or at least minimize, exposure to federal income taxes and the nondeductible REIT excise tax. Differences in timing between the receipt of income and the payment of expenses, and the effect of required debt payments, could require us to borrow funds on a short term basis to meet the distribution requirements that are necessary to achieve the tax benefits associated with qualifying as a REIT.
In addition, subject to the applicable REIT rules, our board of directors, in its discretion, may retain any portion of our cash on hand or use debt and/or equity proceeds for capital needs and other corporate purposes. We cannot assure you that we will generate or have sufficient amounts available to make cash distributions to you at any specified level, or that the cash distributions we make may not be decreased or be eliminated in the future.
We have experienced losses in the past and may experience losses in the future.
We incurred net losses from continuing operations before gains on sale of real estate and easement since inception. Our losses can be attributed, in part, to our operating expenses which include pre-leasing costs for our development properties and various general and administrative expenses related to being a public reporting company, as well as the fact that a significant number of our properties are under development or construction was completed recently and have not yet stabilized. In addition, depreciation and amortization expense substantially reduces our income. We cannot assure you that we will be profitable in the future, that our properties will stabilize and produce sufficient income to fund our operating expenses, or that we will realize growth in the value of our assets.

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We are uncertain of our sources for funding of future capital needs.
Other than our mortgage loans associated with property acquisitions and development projects, neither we nor our Advisor has any established financing sources. If our capital resources, or those of our Advisor (to the extent it advances amounts to us or on our behalf), are insufficient to support our operations, we may not achieve our investment objectives.
For our operating properties, we will consider capital reserves on a property-by-property basis, as we deem appropriate, to pay operating expenses to the extent that the property does not generate operating cash flow to fund anticipated capital improvements. If we do not have enough capital reserves to supply needed funds for capital improvements throughout the life of our investment in a property and there is insufficient cash available from our operations or from other sources, we may be required to defer necessary improvements to a property. This may result in decreased cash flow and reductions in property values. If our reserves are insufficient to meet our cash needs, we may have to obtain financing from either affiliated or unaffiliated sources to fund our cash requirements. Additionally, due to the volatility and uncertainty experienced in recent years by financial markets, liquidity has tightened in financial markets, including the investment grade debt and equity capital markets. Consequently, there is greater uncertainty regarding our ability to access credit markets in order to obtain financing on reasonable terms or at all. Accordingly, in the event that we develop a need for additional capital in the future for the maintenance or improvement of our properties or for any other reason, we have not identified any established sources for such funding other than our existing mortgage loans. Although our Advisor has relationships with various lenders, we cannot assure you that sources of funding will be available to us for capital needs in the future.
Changes in accounting pronouncements could materially impact our reported financial performance.
Accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. From time to time, the Financial Accounting Standards Board (“FASB”) and the SEC, entities that create and interpret appropriate accounting standards, may change the financial accounting and reporting standards or their interpretation and application of these standards that govern the preparation of our financial statements. These changes could have a material impact on our reported financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in restating prior period financial statements.
Cyber security risks and cyber incidents could adversely affect our business and disrupt operations.
Cyber incidents can result from deliberate attacks or unintentional events. These incidents can include, but are not limited to, gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. The result of these incidents could include, but are not limited to, disrupted operations, misstated financial data, liability for stolen assets or information, increased cyber security protection costs, litigation and reputational damage adversely affecting customer or investor confidence.
Risks Relating to the Plan of Dissolution
Our board may abandon or delay implementation of the Plan of Dissolution.
Our Board and stockholders have adopted and approved the Plan of Dissolution for the liquidation and dissolution of the Company. Nevertheless, our board may terminate the Plan of Dissolution for any reason. This power of termination may be exercised both before and after any approval of the Plan of Dissolution Proposal by our stockholders, up to the time that the Articles of Dissolution have been accepted for record by the SDAT. Notwithstanding approval of the Plan of Dissolution Proposal by our stockholders, our board may modify or amend the Plan of Dissolution without further action by our stockholders to the extent permitted under then current law. Although our board has no present intention to pursue any alternative to the Plan of Dissolution, our board may conclude either that its duties under applicable law require it to pursue business opportunities that present themselves or that abandoning the Plan of Dissolution is otherwise in the best interests of the Company and its stockholders. If our board elects to pursue any alternative to the Plan of Dissolution, our stockholders may not receive any of the consideration currently estimated to be available for distribution to our stockholders pursuant to the Plan of Dissolution.
Distributions, if any, to our stockholders could be delayed and our stockholders could, in some circumstances, be held liable for amounts they received from the Company in connection with our dissolution.
Although our Board has not established a firm timetable for distributions to our stockholders, our board intends, subject to contingencies inherent in the winding-up of our business and the payment of our obligations and liabilities, to completely liquidate as soon as practicable after the adoption of the Plan of Dissolution. If we are unable to dispose of all of our assets within 24 months after adoption of the Plan of Dissolution or if it is otherwise advantageous or appropriate to do so, our board may establish a liquidating trust to which we could distribute in kind its unsold assets. Depending upon the Company’s cash flow and cash requirements and the progress of the sale process for our assets under the Plan of Dissolution, we may not make any distributions

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to our stockholders until we have repaid all of our known retained obligations and liabilities, paid all of our expenses, and complied with the requirements of Maryland law for companies in dissolution, including requirements for the creation and maintenance of adequate contingency reserves as required by Maryland law. Thereafter, we anticipate making distributions to our stockholders as promptly as practicable in accordance with the Plan of Dissolution and the liquidation and dissolution process selected by our board in its sole discretion.
If we fail to create an adequate contingency reserve for payment of its expenses and liabilities, or if we transfer our assets to a liquidating trust and the contingency reserve and the assets held by the liquidating trust are less than the amount ultimately found payable in respect of expenses and liabilities, each of our stockholders could be held liable for the payment to our creditors of such stockholder’s pro rata portion of the excess, limited to the amounts previously received by the stockholder in distributions from the Company or the liquidating trust, as applicable. If a court holds at any time that we failed to make adequate provision for its expenses and liabilities or if the amount ultimately required to be paid in respect of such liabilities exceeds the amount available from the contingency reserve and the assets of the liquidating trust, our creditors could seek an injunction to prevent us from making distributions under the Plan of Dissolution on the grounds that the amounts to be distributed are needed to provide for the payment of such expenses and liabilities. Any such action could delay or substantially diminish the cash distributions to be made to our stockholders and/or holders of beneficial interests of any liquidation trust.
We will continue to incur the expenses of complying with public company reporting requirements.
Until our liquidation and dissolution is complete, we have an obligation to continue to comply with the applicable reporting requirements of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), even if compliance with these reporting requirements is economically burdensome. In order to curtail expenses, we intend, after filing our Articles of Dissolution, to seek relief from the SEC from the reporting requirements under the Exchange Act. We anticipate that, if such relief is granted, we would continue to file current reports on Form 8-K to disclose material events relating to our liquidation and dissolution, along with any other reports that the SEC might require, but would discontinue filing annual and quarterly reports on Forms 10-K and 10-Q. However, the SEC may not grant any such relief. To the extent that we delay filing the Articles of Dissolution, we would be obligated to continue complying with the applicable reporting requirements of the Exchange Act. The expenses we incur in complying with the applicable reporting requirements will reduce the assets available for ultimate distribution to our stockholders.
Approval of the Plan of Dissolution may lead to stockholder litigation which could result in substantial costs and distract our management.
Historically, extraordinary corporate actions by a company, such as our Plan of Dissolution, sometimes lead to securities class action lawsuits being filed against that company. We may become involved in this type of litigation as a result of the Plan of Dissolution. As of the date of this filing, no such lawsuits relative to the Plan of Dissolution were pending or, to our knowledge, threatened. However, if such a lawsuit is filed against us, the litigation is likely to be expensive and, even if we ultimately prevail, the process will divert management’s attention from implementing the Plan of Dissolution. If we were not to prevail in such a lawsuit, we may be liable for damages. We cannot predict the amount of any such damages, however, if applicable, they may be significant and may reduce the cash available for distribution to our stockholders.
Risks That May Delay or Reduce Our Liquidating Distributions
As we move forward with our plan to sell and liquidate our remaining assets, we continue to estimate the total amount stockholders could receive is between approximately $11.41 and $12.39 per share, which is the range of liquidation values that our board of directors estimated at the time the Plan of Dissolution was approved for submission to the stockholders and later approved by the stockholders on August 4, 2016. This range includes special and partial liquidating distributions we paid to stockholders in 2015 and 2016. We anticipate paying the balance within 24 months after stockholder approval of the Plan of Dissolution which occurred on August 4, 2016. However, our expectations about the amount of liquidating distributions that we will make and when we will make them are based on many estimates and assumptions, one or more of which may prove to be incorrect. As a result, the actual amount of liquidating distributions we pay to stockholders may be more or less than we estimate. In addition, the liquidating distributions may be paid later than we predict. For each property, our joint venture partner must consent to the property’s listing and sale, which may further delay the sale process. Although the sum of the special and partial liquidating distributions plus the current net asset value per share under the Liquidation Basis of Accounting at December 31, 2016 of our remaining assets is higher than the range of liquidation values set forth above, we note that the net asset value per share under the Liquidation Basis of Accounting does not take into account the various valuation methodologies disclosed and discussed in the proxy statement provided to stockholders in connection with the approval of the Plan of Dissolution or reflect the remaining uncertainties associated with continuing to own and operate our remaining properties and to complete the sale of our properties. Similarly, although the 2016 NAV (defined below) plus the sum of the special and partial liquidating distributions is higher than the range of liquidation values set forth above, we note that the 2016 NAV also does not take into account all of the various

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valuation methodologies disclosed and discussed in the proxy statement provided to stockholders in connection with the approval of the Plan of Dissolution or reflect the remaining uncertainties associated with continuing to own and operate our remaining properties and to complete the sale of our properties. In addition to the risks that we generally face in our business, factors that could cause actual payments to be lower or made later than we expect include, among others, the risks set forth below:
If any of the parties to our future sale agreements default thereunder, or if these sales do not otherwise close, our liquidating distributions may be delayed or reduced.
In light of the approval by the Company’s stockholders on August 4, 2016 of the Plan of Dissolution, we will seek to enter into binding sale agreements for each of our remaining properties. The consummation of the potential sales for which we will enter into sale agreements in the future will be subject to satisfaction of closing conditions. If any of the transactions contemplated by these future sale agreements do not close because of a buyer default, failure of a closing condition or for any other reason, we will need to locate a new buyer for the assets which we may be unable to do promptly or at prices or on terms that are as favorable as the original sale agreement. We will also incur additional costs involved in locating a new buyer and negotiating a new sale agreement for this asset. These additional costs are not included in our projections. In the event that we incur these additional costs, our liquidating payments to our stockholders would be delayed or reduced.
If we are unable to find buyers for our assets at our expected sales prices, our liquidating distributions may be delayed or reduced.
In calculating our estimated range of liquidating distributions, we assumed that we will be able to find buyers for all of our assets at amounts based on our estimated range of market values for each property. However, we may have overestimated the sales prices that we will ultimately be able to obtain for these assets. For example, in order to find buyers in a timely manner, we may be required to lower our asking price below the low end of our current estimate of the property’s market value. If we are not able to find buyers for these assets in a timely manner or if we have overestimated the sales prices we will receive, our liquidating payments to our stockholders would be delayed or reduced. Furthermore, the projected liquidating distribution is based upon the Advisor’s estimates of the range of market value for each property, but real estate market values are constantly changing and fluctuate with changes in interest rates, supply and demand dynamics, occupancy percentages, lease rates, the availability of suitable buyers, the perceived quality and dependability of income flows from tenancies and a number of other factors, both local and national. In addition, minority ownership matters, transactional fees and expenses, environmental contamination at our properties or unknown liabilities, if any, may adversely impact the net liquidation proceeds from those assets.
If our liquidation costs or unpaid liabilities are greater than we expect, our liquidating distributions may be delayed or reduced.
Before making the final liquidating distribution, we will need to pay or arrange for the payment of all of our transaction costs in the liquidation, all other costs and all valid claims of our creditors. Our Board may also decide to acquire one or more insurance policies covering unknown or contingent claims against us, for which we would pay a premium which has not yet been determined. Our board may also decide to establish a reserve fund to pay these contingent claims. The amounts of transaction costs in the liquidation are not yet final, so we have used estimates of these costs in calculating the amounts of our projected liquidating distributions. To the extent that we have underestimated these costs in calculating our projections, our actual net liquidation value may be lower than our estimated range. In addition, if the claims of our creditors are greater than we have anticipated or we decide to acquire one or more insurance policies covering unknown or contingent claims against us, our liquidating distributions may be delayed or reduced. Further, if a reserve fund is established, payment of liquidating distributions to our stockholders may be delayed or reduced.
Pursuing the Plan of Dissolution may cause us to fail to qualify as a REIT, which would dramatically lower the amount of our liquidating distributions.
For so long as we qualify as a REIT and distribute all of our taxable income, we generally are not subject to federal income tax. Although our board does not presently intend to terminate our REIT status prior to the final distribution of the net proceeds from the sale of our assets and our dissolution, our board may take actions pursuant to the Plan of Dissolution that would result in such a loss of REIT status. Upon the final distribution of the net proceeds from the sale of our assets and our dissolution, our existence and our REIT status will terminate. However, there is a risk that our actions in pursuit of the Plan of Dissolution may cause us to fail to meet one or more of the requirements that must be met in order to qualify as a REIT prior to completion of the Plan of Dissolution. For example, to qualify as a REIT, at least 75% of our gross income must come from real estate sources and 95% of our gross income must come from real estate sources and certain other sources that are itemized in the REIT tax laws, mainly interest and dividends. We may encounter difficulties satisfying these requirements as part of the liquidation process. In addition, in connection with that process, we may recognize ordinary income in excess of the cash received. The REIT rules require us to pay out a large portion of our ordinary income in the form of a dividend to our stockholders. However, to the extent that we recognize ordinary income without any cash available for distribution, and if we were unable to borrow to fund the required dividend or find another way to meet the REIT distribution requirements, we may cease to qualify as a REIT. While we expect to

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comply with the requirements necessary to qualify as a REIT in any taxable year, if we are unable to do so, we will, among other things (unless entitled to relief under certain statutory provisions):
not be allowed a deduction for dividends paid to stockholders in computing our taxable income;
be subject to federal income tax, including any applicable alternative minimum tax, on our taxable income, including recognized gains, at regular corporate rates;
be subject to increased state and local taxes; and
be disqualified from treatment as a REIT for the taxable year in which we lose our qualification and for the four following taxable years.
As a result of these consequences, our failure to qualify as a REIT could substantially reduce the funds available for distribution to our stockholders.
Pursuing the Plan of Dissolution may cause us to be subject to federal income tax, which would reduce the amount of our liquidating distributions.
We generally are not subject to federal income tax to the extent that we distribute to our stockholders during each taxable year (or, under certain circumstances, during the subsequent taxable year) dividends equal to our taxable income for the year. However, we are subject to federal income tax to the extent that our taxable income exceeds the amount of dividends paid to our stockholders for the taxable year. In addition, we are subject to a 4% nondeductible excise tax on the amount, if any, by which certain distributions paid by us with respect to any calendar year are less than the sum of 85% of our ordinary income for that year, plus 95% of our capital gain net income for that year, plus 100% of our undistributed taxable income from prior years. While we intend to make distributions to our stockholders sufficient to avoid the imposition of any federal income tax on our taxable income and the imposition of the excise tax, differences in timing between the actual receipt of income and actual payment of deductible expenses, and the inclusion of such income and deduction of such expenses in arriving at our taxable income, could cause us to have to either borrow funds on a short-term basis to meet the REIT distribution requirements, find another alternative for meeting the REIT distribution requirements, or pay federal income and excise taxes. The cost of borrowing or the payment of federal income and excise taxes would reduce the funds available for distribution to our stockholders.
So long as we continue to qualify as a REIT, any net gain from “prohibited transactions” will be subject to a 100% tax. “Prohibited transactions” are sales of property held primarily for sale to customers in the ordinary course of a trade or business. The prohibited transactions tax is intended to prevent a REIT from retaining any profit from ordinary retailing activities such as sales to customers of condominium units or subdivided lots in a development project. The Code provides for a “safe harbor” which, if all its conditions are met, would protect a REIT’s property sales from being considered prohibited transactions. Whether a real estate asset is property held primarily for sale to customers in the ordinary course of a trade or business is a highly factual determination. We believe that all of our properties are held for investment and the production of rental income, and that none of the sales of our properties will constitute a prohibited transaction. We do not believe that the sales of the Company’s properties pursuant to the Plan of Dissolution should be subject to the prohibited transactions tax. However, due to the anticipated sales volume and other factors, the contemplated sales may not qualify for the protective safe harbor. We have received an opinion from a nationally recognized accounting firm concluding that the sales of our properties in anticipation of, simultaneous and subsequent to the adoption of the Plan of Dissolution should not constitute prohibited transactions within the meaning of the Code. This opinion is not binding upon the Internal Revenue Service ("IRS") which may assert that the contemplated sales are subject to the prohibited transactions tax. In addition to the opinion, we received a private letter ruling form the IRS indicating the sales of properties pursuant to the Plan of Dissolution will not constitute prohibited transactions. The ruling was issued based on facts and other representations made by the Advisor.
Distributing interests in a liquidating trust may cause our stockholders to recognize gain prior to the receipt of cash.
The REIT provisions of the Code generally require that each year we distribute as a dividend to our stockholders 90% of our REIT taxable income (determined without regard to the dividends paid deduction and excluding net capital gain). Liquidating distributions we make pursuant to the Plan of Dissolution will qualify for the dividends paid deduction, provided that they are made within 24 months of the adoption of such plan. Conditions may arise which cause us not to be able to liquidate within such 24-month period. For instance, it may not be possible to sell our assets at acceptable prices during such period. In such event, rather than retain our assets and risk losing our status as a REIT, we may elect to transfer our remaining assets and liabilities to a liquidating trust in order to meet the 24-month requirement. We may also elect to transfer our remaining assets and liabilities to a liquidating trust within such 24-month period to avoid the costs of operating as a public company. Such a transfer would be treated as a distribution of our remaining assets to our stockholders, followed by a contribution of the assets to the liquidating trust. As a result, a Company stockholder would recognize gain to the extent such stockholder’s share of the cash and the fair market value of any assets received by the liquidating trust was greater than the stockholder’s basis in the stock, notwithstanding that the stockholder would not contemporaneously receive a distribution of cash or any other assets with which to satisfy the

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resulting tax liability. In addition, it is possible that the fair market value of the assets received by the liquidating trust, as estimated for purposes of determining the extent of the stockholder’s gain at the time interests in the liquidating trust are distributed to the stockholders, will exceed the cash or fair market value of property received by the liquidating trust on a sale of the assets. In this case, the stockholder would recognize a loss in a taxable year subsequent to the taxable year in which the gain was recognized, which loss may be limited under the Code.
You may not receive any profits resulting from the sale of one or more of our properties, or receive such profits in a timely manner, because we may provide financing to the purchaser of such property.
You may experience a delay before receiving your share of the net proceeds of liquidation. In a liquidation, we may sell our properties either subject to or upon the assumption of any then outstanding mortgage debt or, alternatively, may provide financing to purchasers. We do not have any limitations or restrictions on taking such purchase money obligations, however, we would do so if in the board's discretion, it was deemed in the best interests of the stockholders. To the extent we receive promissory notes or other property in lieu of cash from sales, such proceeds, other than any interest payable on those proceeds, will not be included in net sale proceeds until and to the extent the promissory notes or other property are actually paid, sold, refinanced or otherwise disposed of. We may receive initial down payments in the year of sale in an amount less than the selling price and subsequent payments may be spread over a number of years. In such event, you may experience a delay in the distribution of the net proceeds of a sale until such time as the installment payments are received.
Risks Related to Conflicts of Interest and Our Relationships with Our Advisor, Its Affiliates and Related Parties
We are subject to conflicts of interest arising out of our relationships with our Advisor and its affiliates and related parties, including the material conflicts discussed below.
Individuals associated with our Advisor, Property Manager and other entities affiliated with CNL that conduct our day-to-day operations will face competing demands on their time.
We rely upon our Advisor, including its investment committee, our Property Manager and the executive officers and employees of entities affiliated with CNL, to conduct our day-to-day operations. Certain of these persons also conduct the day-to-day operations of other programs sponsored by CNL, and they may have other business interests as well. We currently anticipate that our executive officers and the executive officers of our Advisor, as well as, the managers of our Advisor and the Advisor’s representatives on its investment committee, will devote the time necessary to fulfill their respective duties to us and our Advisor. However, because these persons have competing interests on their time and resources, they may find it difficult to allocate their time between our business and these other activities. During times of intense activity in other programs and ventures, they may devote less time and resources to our business than is necessary or appropriate.
Although we have substantially completed our acquisition phase, we may have similar investment objectives to other funds with the same sponsor or executive officers as ours, and as such an investment opportunity may be suitable for both us and any such fund. Our board and our Advisor have agreed that, in the event an investment opportunity is presented to both our Advisor’s Investment Committee and the investment committee of the advisor for another fund with the same sponsor or executive officers as us, and it is determined that the opportunity may be suitable for both us and the other fund, and for which both entities have sufficient uninvested funds, the investment opportunity will be offered to the entities on an alternating basis pursuant to policies adopted by us and each such fund with similar investment objectives.
Our Advisor and its affiliates, including all of our executive officers and our affiliated director, will face conflicts of interest as a result of their compensation arrangements with us, which could result in actions that are not in the best interest of our stockholders.
We pay substantial fees to our Advisor and our Property Manager (including their sub-advisors and sub-property managers, respectively) and their affiliates. These fees could influence their advice to us, as well as the judgment of our Advisor and its affiliates performing services for us. Among other matters, these compensation arrangements could affect their judgment with respect to:
the continuation, renewal or enforcement of our agreements with our Advisor, its affiliates and related parties;
property sales, which may entitle our Advisor to real estate commissions;
property acquisitions, which entitle our Advisor to investment services fees and asset management fees payable to our Advisor;
borrowings to acquire assets, which increase the investment services fees and asset management fees payable to our Advisor;

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refinancing debt, which may entitle our Advisor or its affiliates to receive a financing coordination fee in connection with assisting in obtaining such financing;
whether we seek to internalize our management functions, which could result in our retaining some of our Advisor’s and its affiliates’ key officers and employees for compensation that is greater than that which they currently earn or which could require additional payments to our Advisor or its affiliates to purchase the assets and operations of our Advisor, its affiliates and related parties performing services for us;
a liquidity event with respect to our shares of common stock, which may entitle our Advisor to a subordinated incentive fee;
a sale of assets, which may entitle our Advisor to a subordinated share of net sales proceeds; and
whether and when we seek to sell our operating partnership or its assets, which sale could entitle our Advisor to additional fees.
The fees our Advisor receives in connection with transactions involving the purchase and management of our assets are not necessarily based on the quality of the investment or the quality of the services rendered to us. The basis upon which fees are calculated may influence our Advisor to recommend riskier transactions to us.
Our officers and directors and the Advisor have conflicts of interest that may cause them to manage our liquidation in a manner not solely in the best interests of our stockholders.
Some of our directors and officers and the Advisor have interests in the liquidation that are different from your interests as a stockholder, including the following:
All of our executive officers are officers of the Advisor and/or one or more of the Advisor’s affiliates and are compensated by those entities, in part, for their service rendered to the Company. We currently do not pay any direct compensation to our executive officers.
The Advisor will be entitled to subordinated incentive fees in connection with the sale of the Company’s assets, which are estimated to be between approximately $1.6 million and $3.6 million, depending upon and correlated to the price received by us for the sale of our properties.
Consequently, our officers and directors and the Advisor may make decisions or take actions based on factors other than the best interests of our stockholders throughout the period of the liquidation process.
None of the agreements with our Advisor, Property Manager or any other affiliates and related parties were negotiated at arm’s length.
Agreements with our Advisor, Property Manager or any other affiliates and related parties may contain terms that are not in our best interest and would not otherwise apply if we entered into agreements negotiated at arm’s length with third parties.
Risks Related to Our Business
Our property acquisition strategy involves a high risk of loss.
Our strategy for acquiring properties focused on multifamily development properties, which may be located in markets undergoing positive changes or facing time-sensitive deadlines. These investments are typically riskier than stabilized properties or properties located in stable markets or markets that have validated their growth opportunities. There is no assurance that we have selected appropriate markets to affect our strategy; and there is a risk that our properties will experience declines in value.
We may suffer losses in developing properties, including losses due to environmental and other liabilities, labor disputes, occupational health and safety, cost overruns and other factors. Additionally, properties that we acquired for development may decline in value after our acquisition for reasons specific to the property or the real estate market generally.
The returns we earn on our real estate assets will be affected by economic and regulatory changes that have an adverse impact on the real estate market in general, and we cannot assure you that we will be profitable or that we will realize growth in the value of our real estate properties.
The returns we earn on our real estate assets will be impacted by risks generally incident to the ownership of real estate, including:
changes in local conditions, including oversupply of space or reduced demand for real estate assets of the type we own;

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inflation and other increases in operating costs, including insurance premiums, utilities and real estate taxes;
changes in supply of, or demand for, similar or competing properties in a geographic area;
an inability to refinance properties on favorable terms;
changes in interest rates and availability of permanent mortgage funds that may render the sale of a property difficult or unattractive;
the illiquidity of real estate investments generally;
changes in tax, real estate, environmental, land use and zoning laws;
vacancies or inability to rent space on favorable terms;
acts of God, such as earthquakes, floods and hurricanes;
inability to collect rents from tenants;
discretionary consumer spending and changing consumer tastes; and
periods of high interest rates and negative capital market conditions.
We may be limited in our ability to vary our portfolio in response to changes in economic, market or other conditions, including by restrictions on transfer imposed by our joint venture partners, if any, or by our lenders. Additionally, the return on our real estate assets also may be affected by a continued or exacerbated general economic slowdown, as a whole, or by the local economies where our properties are located, including:
poor economic conditions may result in defaults by tenants of our properties;
job transfers and layoffs may cause tenant vacancies to increase; and
increasing concessions, reduced rental rates or capital improvements may be required to maintain occupancy levels.
Should capitalization rates increase, the value of our existing multifamily portfolio could decline, or if costs of developing a multifamily asset increase, we may not achieve as high of a return on our multifamily development properties as anticipated.
To date, we have invested substantially all of the available proceeds from our equity offerings in multifamily development properties. If capitalization rates increase, we would expect declines in the pricing of assets upon sale or at the time of a valuation. If we are required to sell investments into such a market, we could experience a decrease in the value of our investments. In most domestic markets, there is a spread between capitalization rates on stabilized multifamily assets and the return on cost at which new multifamily projects can be developed. The opportunity to develop at higher returns on cost and finance at today’s interest rates enables us to potentially produce higher levered returns than had we bought a stabilized multifamily property. However, if capitalization rates increase, we would expect the value of our current investments to decline. In addition, if costs of developing a multifamily asset increase, the difference between the costs to develop and the price to purchase stabilized multifamily properties will shrink and make the risk adjusted return for development less attractive.
Increases in unemployment could adversely affect multifamily property occupancy and rental rates.
Increases in unemployment in the markets in which we have acquired multifamily properties could significantly decrease occupancy and rental rates. In times of increasing unemployment, multifamily occupancy and rental rates have historically been adversely affected by:
A decline in household formation;
Rental of fewer units as a result of renters’ decision to share rental units;
A reduced demand for higher-rent units, such as those of high quality multifamily communities;
The inability or unwillingness of residents to pay rent increases; and
Increased rent collection losses.
If employment levels remain flat or increase, our properties may not perform as anticipated and we may not realize growth in the value of our multifamily properties.

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As a result of limited geographic diversification of our properties, our operating results and the value of our real estate assets may be affected by economic changes that have an adverse impact on the real estate market in those areas.
All of our properties are located in the southeastern and sunbelt regions of the United States. As a result of this limited geographic diversification, our operating results, amounts available for cash distributions to stockholders and the value of our real estate assets are likely to be impacted by economic changes affecting the real estate markets in that area. We are subject to greater risk to the extent that we lack a geographically diversified portfolio.
Concentration of our portfolio in the multifamily sector may leave our profitability vulnerable to a downturn or slowdown in such sector.
Our portfolio is invested in multifamily properties. As a result, we are subject to risks inherent to investments in a single real estate sector. With the concentration of our investments in multifamily, the potential effects on our revenues resulting from a downturn or slowdown in the multifamily sector will be more significant than if we had a diversified portfolio.
Increased development of similar multifamily properties that compete with our properties in any particular location could adversely affect the operating results of our properties.
The areas in which our properties are located that experience demographic or other shifts that cause increases in the development of multifamily properties that compete with our properties. This increased competition and construction could:
make it more difficult to find tenants to lease units in our multifamily communities; and
drive lower rental prices in order to lease units in our multifamily communities.
As a result, our operating results, as well as the value of our multifamily properties, could be adversely affected by increased competition.
Continued market disruptions may adversely affect our operating results.
In recent years, the global financial markets have experienced pervasive and fundamental disruptions. A disruption in the financial markets often results in a significant negative impact on the financial markets. Such disruptions have had and may continue to have an adverse impact on the availability of credit to businesses, generally, and have resulted in and could lead to further weakening of the U.S. economy and the economies of other countries. Our business may be affected by market and economic challenges experienced by the U.S. economy or real estate industry generally or by the local economic conditions where our properties are located, including the current dislocations in the credit markets and general global economic recession. Availability of debt financing secured by commercial real estate has been significantly restricted as a result of tightened underwriting standards. Continued declines in the financial markets may materially affect the value of our investment properties, and may affect our ability to pay cash distributions, if any, the availability or the terms of financing that we have or may anticipate utilizing, and our ability to make principal and interest payments on, or refinance, any outstanding debt when due. Such challenging economic conditions may also negatively impact the ability of our tenants to enter into new leasing transactions or satisfy rental payments under existing leases.
Our operating results could be negatively impacted during periods of rising inflation or during periods of deflation.
Inflationary expectations or periods of rising inflation could also be accompanied by rising prices of commodities that are critical to the development or maintenance of real estate assets or to the return expected with respect to such assets. During periods of high inflation, capital tends to move to other assets, such as (historically) gold, which may adversely affect the prices at which we are able to sell our investments. There may be limited cash available for distribution from real estate assets with fixed income streams. The market value of such investments may decline in value in times of higher inflation rates. Although multifamily leases are generally short term and we would expect increases in rent during periods of inflation, as inflation may affect both income and expenses, any increase in income may not be sufficient to cover increases in expenses.
During periods of deflation, the demand for assets in which we have invested could fall, reducing the revenues generated by, and therefore the value of, such investments, resulting in reduced returns to us and our stockholders. Where the operating costs and expenses associated with any such investments do not fall by a corresponding amount, the rate of return to us and our stockholders could be further reduced. As a result, it may be more difficult for leveraged assets to meet or service their debt obligations. Periods of deflation are often characterized by a tightening of money supply and credit, which could limit the amounts available to us with which to acquire or refinance our investments, which would limit the number and size of investments that we may make and affect the rate of return to us and our stockholders. Such economic constraints could also make the real estate assets in which we may invest more illiquid, preventing us from divesting such assets efficiently and so reducing the return to us and our stockholders from such investments.

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Our co-venture partners or other partners in co-ownership arrangements could take actions that decrease the value of an investment to us and lower our overall return on our investments.
Generally, we have entered into co-venture arrangements with third parties in connection with our investments in multifamily development projects. Such investments may involve risks not otherwise present with other forms of real estate investment, including, for example:
the possibility that our co-venturer or partner might become bankrupt;
the possibility that a co-venturer or partner might breach a loan agreement or other agreement or otherwise, by action or inaction, act in a way detrimental to us or the investment;
the possibility that such co-venturer or partner may at any time have economic or business interests or goals that are or that become inconsistent with our business interests or goals;
the possibility that because a co-venturer or partner will have competing interests for their time and resources, they may find it difficult to allocate their time between our business and their other activities. During times of intense activity in other programs and ventures, they may devote less time and resources to our business than is necessary or appropriate;
the possibility that we may incur liabilities as the result of an action taken by our co-venturer or partner;
the possibility that a co-venturer or partner may exercise buy/sell rights that force us to either acquire the entire investment, or dispose of our share, at a time and price that may not be consistent with our investment objectives; or
the possibility that we may not be able to control the management of such assets and such co-venturer or partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives, including our policy with respect to qualifying and maintaining our qualification as a REIT.
Uninsured losses relating to real property or excessively expensive premiums for insurance coverage may adversely affect your returns.
The nature of the activities at certain properties we own exposes us and our tenants or operators to potential liability for personal injuries and, in certain instances, property damage claims. In addition, there are types of losses, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters that may be uninsurable or not economical to insure, or may be insured subject to limitations such as large deductibles or co-payments. Insurance risks associated with potential terrorist acts could sharply increase the premiums we pay for coverage against property and casualty claims. Mortgage lenders generally require property owners to purchase specific coverage insuring against terrorism as a condition for providing mortgage, bridge or mezzanine loans. These policies may or may not be available at a reasonable cost, if at all, which could inhibit our ability to finance or refinance our properties. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. We cannot assure you that we will have adequate coverage for such losses. In the event that any of our properties incurs a casualty loss that is not fully covered by insurance, the value of the particular asset will likely be reduced by the uninsured loss. In addition, we cannot assure you that we will be able to fund any uninsured losses.
If we sell properties by providing financing to purchasers, we will bear the risk of default by the purchaser.
In some instances we may sell a property by providing financing to the purchaser. In so doing, however, we will bear the risk that the purchaser defaults on its obligation. There are no limits or restrictions on our ability to accept purchase money obligations. If we receive promissory notes or other property in lieu of cash from property sales, the distribution of the proceeds of sales to our stockholders will be delayed until the promissory notes or other property are actually paid, sold, refinanced or otherwise disposed of. In some cases, we may receive initial down payments in cash and other property in the year of sale in an amount less than the selling price and subsequent payments will be spread over a number of years.
The costs of compliance with environmental laws and regulations may adversely affect our income and the amounts available for distributions.
All real property and the operations conducted on real property are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, and the remediation of contamination associated with disposals. Some of these laws and regulations may impose joint and several liability on tenants, owners or operators for the costs of investigation or remediation of contaminated properties, regardless of fault or the legality of the original disposal. These laws and

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regulations often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of the hazardous or toxic substances. The costs of removing or remediating could be substantial. In addition, the presence of these substances, or the failure to properly remediate these substances, may adversely affect our ability to sell or rent a property or to use the property as collateral for borrowing.
Environmental laws and regulations also may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures. Environmental laws and regulations provide for sanctions in the event of noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Third parties may seek recovery from owners or operators of real properties for personal injury or property damage associated with exposure to released hazardous substances. Compliance with new or more stringent laws or regulations or stricter interpretation of existing laws may require material expenditures by us. We cannot assure you that future laws, ordinances or regulations will not impose any material environmental liability on us or that the environmental condition of our properties will not be affected by the manner in which tenants operate their businesses, the existing condition of the land, operations in the vicinity of the properties such as the presence of underground storage tanks, or the activities of unrelated third parties.
We may incur significant costs to comply with the Americans with Disabilities Act or similar laws.
Our properties will generally be subject to the Americans with Disabilities Act of 1990, as amended (or “Disabilities Act”), or similar laws of foreign jurisdictions. Under the Disabilities Act, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The Disabilities Act has separate compliance requirements for “public accommodations” and “commercial facilities” that generally require that buildings and services be made accessible and available to people with disabilities. In addition, with respect to any apartment properties located in the United States, we also must comply with the Fair Housing Amendment Act of 1988, or FHAA, which requires that apartment communities first occupied after March 13, 1991 be accessible to disabled residents and visitors.
The requirements of the Disabilities Act or the FHAA could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties or, in some cases, an award of damages. We will attempt to acquire properties that comply with the Disabilities Act, the FHAA or similar laws of foreign jurisdictions or place the burden on the seller or other third party, such as a tenant, to ensure compliance with these laws. However, we cannot assure you that we will be able to acquire properties or allocate responsibilities in this manner. We may incur significant costs to comply with these laws.
Property tax increases may reduce the income from our properties.
The amount we pay in property taxes may increase from time to time due to rising real estate values and adjustments in assessments. Increases in real estate values or assessment rate adjustments will result in higher taxes. We may not be able to increase rental revenues sufficiently to cover any such increases in real estate taxes.
Short-term leases may expose us to the effects of declining market rent.
Multifamily properties typically have short-term leases for a term of one year or less. There is no assurance that we will be able to renew these leases as they expire or attract replacement tenants on comparable terms, if at all.
Governmental regulation may increase the costs of operating properties.
There are various local, state and federal fire, health, life-safety and similar regulations that we are required to comply with, and that may subject us to liability in the form of fines or damages for noncompliance. Complying, or failure to comply, with these laws or regulations could increase the cost of acquiring or operating properties. Further, there can be no assurance that new applications of laws, regulations and policies, or changes in such laws, regulations and policies, will not occur in a manner that could have a detrimental effect on the properties we owned prior to the change, which could result in us incurring added costs to comply or maintain licenses and permits.
Financing Related Risks
Mortgage indebtedness and other borrowings will increase our business risks.
We have obtained mortgage financing in connection with the acquisition and development of our properties. We may incur or increase our mortgage debt by obtaining loans secured by some or all of our assets to obtain funds to acquire additional investments or to pay distributions to our stockholders. If necessary, we also may borrow funds to satisfy the requirement that we distribute at least 90% of our annual “REIT taxable income,” or otherwise as is necessary or advisable to assure that we maintain our qualification as a REIT for federal income tax purposes.

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Although our articles of incorporation impose limits on our total indebtedness, there is no limit on the amount we may invest in any single property or other asset or on the amount we can borrow to purchase any individual property or other investment. Further, we may exceed the limits set forth in our articles if approved by a majority of our independent directors.
In addition to the limitations in our articles of incorporation, our board of directors has adopted a policy to generally limit our aggregate borrowings to not exceed approximately 75% of the aggregate value of our assets, unless substantial justification exists that borrowing a greater amount is in our best interest. Our policy limitation, however, will not apply to individual real estate assets and will only apply once we have invested substantially all of our capital. As a result, we may borrow more than 75% of the initial acquisition and development budget of each real estate asset we acquire to the extent our board of directors determines that borrowing these amounts is reasonable. Principal and interest payments reduce cash that would otherwise be available for other purposes. Further, incurring mortgage debt increases the risk of loss because defaults on indebtedness secured by a property may result in foreclosure actions initiated by lenders and our loss of the property securing the loan that is in default. For tax purposes, a foreclosure of non-recourse debt is generally treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds. We also may provide full or partial guarantees to lenders of mortgage debt to the entities that own our properties. In this case, we will be responsible to the lender for satisfaction of the debt if it is not paid by the entity. If any mortgages contain cross-collateralization or cross-default provisions, there is a risk that more than one real property may be affected by a default.
Instability in the credit markets and real estate markets could have a material adverse effect on our results of operations, financial condition and ability to pay cash distributions.
We may not be able to continue to maintain financing for investments on terms and conditions acceptable to us, if at all. Domestic and international financial markets have experienced unusual volatility and uncertainty. If this volatility and uncertainty persists, our ability to borrow monies to refinance, or finance other activities related to, real estate assets will be significantly impacted, and the return on any properties we refinance likely will be lower. In addition, if we pay fees to lock-in a favorable interest rate, falling interest rates or other factors could require us to forfeit these fees. Additionally, the reduction in equity and debt capital resulting from turmoil in the capital markets may result in fewer buyers seeking to acquire commercial properties leading to lower property values and the continuation of these conditions could adversely impact our timing and ability to sell our properties.
In addition to volatility in the credit markets, the real estate market is subject to fluctuation and can be impacted by factors such as general economic conditions, supply and demand, availability of financing and interest rates. To the extent we purchased real estate in an unstable market, we are subject to the risk that if the real estate market ceases to attract the same level of capital investment in the future that it attracted at the time of our purchases, or the number of parties seeking to acquire properties decreases, the value of our investments may not appreciate or may decrease significantly below the amount we paid for our investments.
Disruptions in the financial markets could adversely affect the multifamily sector’s ability to obtain financing and credit enhancements from Fannie Mae and Freddie Mac, which could adversely affect us.
The Federal National Mortgage Association (or “Fannie Mae”) and the Federal Home Loan Mortgage Corporation (or “Freddie Mac”) are government sponsored enterprises that have historically been major sources of financing for the multifamily sector. Should Fannie Mae and/or Freddie Mac have their precepts changed or reduced, be disbanded or reorganized by the government or otherwise discontinue providing liquidity to the multifamily sector, it would significantly reduce our or prospective buyers' of our properties access to debt capital and/or increase borrowing costs. If new federal regulations heighten Fannie Mae’s and Freddie Mac’s underwriting standards, adversely affect interest rates and reduce the amount of capital they can make available to the multifamily sector, it could have a material adverse effect on both the multifamily sector and us if private alternative sources of funding are reduced or unavailable. Any potential reduction in loans, guarantees and credit enhancement arrangements from Fannie Mae and Freddie Mac could jeopardize the effectiveness of the multifamily sector’s derivative securities market, potentially causing breaches in loan covenants, and through reduced loan availability, impact the value of multifamily assets, which could impair the value of a significant portion of multifamily communities. Specifically, the potential for a decrease in liquidity made available to the multifamily sector by Fannie Mae and Freddie Mac could (i) make it more difficult for us to secure new takeout financing for current multifamily development projects; (ii) hinder our ability to refinance completed multifamily assets; (iii) decrease the amount of available liquidity and credit that could be used to further diversify our portfolio of multifamily assets; and (iv) require us to obtain other sources of debt capital with potentially different terms.
Rising interest rates negatively affect our ability to pay existing debt obligations and refinance our properties.
We may be unable to refinance or sell properties collateralized by debt that is maturing on acceptable terms and conditions, if at all. This risk may be greater in the case of interest-only loans or balloon payment loans where no or little payments

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on the principal amount of the loan have been made. If interest rates are higher at the time we intend to refinance, we may not be able to refinance the properties at reasonable rates and our net income could be reduced. In addition, we have incurred and may continue to incur indebtedness that bears interest at a variable rate. Increases in interest rates on variable rate loans would increase our interest costs, which could have an adverse effect on our operating cash flow. An increase in interest rates, either on refinancing of properties or on variable rate loans, could increase the amount of our debt payments and reduce cash flow. In addition, if rising interest rates cause us to need additional capital to repay indebtedness, we may need to borrow more money or to liquidate one or more of our investments at inopportune times that may not permit realization of the maximum return on such investments.
To hedge against interest rate fluctuations, we may use derivative financial instruments. Using derivative financial instruments may be costly and ineffective.
We have and may continue to engage in hedging transactions to manage the risk of changes in interest rates with respect to borrowings made or to be made, or ordinary obligations incurred or to be incurred, by us. We may use derivative financial instruments for this purpose, collateralized by our assets and investments. Derivative instruments may include interest rate swap contracts, interest rate cap or floor contracts, futures or forward contracts, options or repurchase agreements. Our actual hedging decisions will be determined in light of the facts and circumstances existing at the time of the hedge and may differ from time to time.
To the extent that we use derivative financial instruments to hedge against interest rate fluctuations, we have additional REIT tax compliance requirements and we will be exposed to credit risk, basis risk and legal enforceability risks. In this context, credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. Basis risk occurs when the index upon which the contract is based is more or less variable than the index upon which the hedged asset or liability is based, thereby making the hedge less effective. Finally, legal enforceability risks encompass general contractual risks, including the risk that the counterparty will breach the terms of, or fail to perform its obligations under, the derivative contract. We may be unable to manage these risks effectively. To the extent the hedges are not timely designated as hedges, for tax purposes, income associated with the instrument will be non-qualifying and could jeopardize our qualifications as a REIT.
Federal Income Tax Risks
Failure to qualify as a REIT would adversely affect our operations and our ability to pay distributions to you.
We elected to be treated as a REIT in connection with the filing of our federal tax return for the taxable year ended December 31, 2010. We believe that, commencing with such year, we have been organized, have operated, and are continuing to operate in a manner so as to qualify as a REIT for U.S. federal income tax purposes. However, our qualification and taxation as a REIT depends upon our ability to meet, on a continuing basis, and through actual operating results, requirements regarding the type of assets we own, and other tests imposed by the Code. Qualification as a REIT is governed by highly technical and complex provisions for which there are only limited judicial or administrative interpretations. Accordingly, there is no assurance we have operated or will continue to operate in a manner so as to qualify or remain qualified as a REIT.
If we fail to qualify as a REIT for any taxable year, (i) we will be subject to federal income tax, including any applicable alternative minimum tax, on our taxable income for that year at regular corporate rates, (ii) unless entitled to relief under relevant statutory provisions, we will be disqualified from treatment as a REIT for the four taxable years following the year of losing our REIT status, and (iii) we will not be allowed a deduction for distributions made to stockholders in computing our taxable income. Losing our REIT status would reduce our net earnings available for distribution to stockholders because of the additional tax liability. If this occurs, we might be required to borrow funds or liquidate some investments in order to pay the applicable tax.
Our investment strategy may cause us to incur penalty taxes, lose our REIT status, or own and sell properties through TRSs, each of which would diminish the return to our stockholders.
The sale of one or more of our properties may be considered prohibited transactions under the Code. If we are deemed to have engaged in a “prohibited transaction” (i.e., we sell a property held by us primarily for sale in the ordinary course of our trade or business), all taxable gain we derive from such sale would be subject to a 100% federal tax penalty. The Code sets forth a safe harbor for REITs that wish to sell property without risking the imposition of the 100% penalty tax. The principal requirements of the safe harbor are that: (i) the REIT must hold the applicable property for not less than two years for the production of rental income prior to its sale; (ii) the aggregate expenditures made by the REIT, or any partner of the REIT, during the two-year period preceding the date of sale which are includible in the basis of the property do not exceed 30% of the net selling price of the property; and (iii) the REIT does not make more than seven sales of property during the taxable year, the aggregate adjusted bases of property sold during the taxable year does not exceed 10% of the aggregate bases of all of the REIT’s assets as of the beginning of the taxable year or the fair market value of property sold during the taxable year does not exceed 10% of the fair market value of all

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of the REIT’s assets as of the beginning of the taxable year. Given our investment strategy, the sale of one or more of our properties may not fall within the prohibited transaction safe harbor.
If we desire to sell a property pursuant to a transaction that does not fall within the safe harbor, we may be able to mitigate the 100% penalty tax if we acquired the property through a taxable REIT subsidiary (“TRS”) or acquired the property and transferred it to a TRS for a non-tax business purpose prior to the sale (i.e., for a reason other than the avoidance of taxes). However, there may be circumstances that prevent us from using a TRS in a transaction that does not qualify for the safe harbor. Additionally, even if it is possible to effect a property disposition through a TRS, we may decide to forego the use of a TRS in a transaction that does not meet the safe harbor based on our own internal analysis, the opinion of counsel or the opinion of other tax advisors. In cases where a property disposition does not satisfy the safe harbor rules, the Internal Revenue Service could successfully assert that the disposition constitutes a prohibited transaction, in which event all of the net taxable gain from the sale of such property will be payable as a tax, thereby reducing the amount of cash available for distribution to stockholders. If a property is acquired or subsequently transferred to a TRS, the taxable income, including gain, will be subject to federal corporate tax and potentially state and local income taxes. This tax obligation would diminish the amount of the proceeds from the sale of such property that would be distributable to our stockholders. As a result, the timing and amount available for distribution to our stockholders would be substantially less than if the REIT had not operated and sold such property through the TRS and such transaction was not successfully characterized as a prohibited transaction. As discussed above, we have received a tax opinion from a nationally recognized accounting firm as well as a private letter ruling from the IRS, both of which indicated sales pursuant to our Plan of Dissolution should not constitute a prohibited transaction.
As a REIT, the value of our investment in all of our TRSs may not exceed 25% of the value of all of our assets at the end of any calendar quarter. If the Internal Revenue Service were to determine the value of our interests in all of our TRSs exceeded 25% of the value of our total assets at the end of any calendar quarter, then we would fail to qualify as a REIT. If we determine it to be in our best interest to own a substantial number of our properties through one or more TRSs, then it is possible that the Internal Revenue Service may conclude that the value of our interests in our TRSs exceeds 25% of the value of our total assets at the end of any calendar quarter and therefore cause us to fail to qualify as a REIT. The Protecting Americans from Tax Hikes Act 2015 (“PATH Acts”) modified this provision by reducing 25% to 20% for tax years beginning after December 31, 2017. Additionally, as a REIT, no more than 25% of our gross income with respect to any year may be from sources other than investments relating to real property or mortgages on real property and from certain other specified sources. Distributions paid to us from a TRS are considered to be non-qualifying income for purposes of satisfying the 75% gross income test required for REIT qualification. Therefore, we may fail to qualify as a REIT if distributions from all of our TRSs, when aggregated with all other non-real estate income with respect to any one year, are more than 25% of our gross income with respect to such year.
Certain fees paid to us may affect our REIT status.
Income received in the nature of rental subsidies or rent guarantees, in some cases, may not qualify as rental income from real estate and could be characterized by the Internal Revenue Service as non-qualifying income for purposes of satisfying the 75% and 95% gross income tests required for REIT qualification. If the aggregate of non-qualifying income in any taxable year ever exceeded 5% of our gross revenues for such year, we could lose our REIT status for that taxable year and the four taxable years following the year of losing our REIT status.
If our operating partnership fails to maintain its status as a partnership or disregarded entity, its income may be subject to taxation, which would reduce the cash available to us for distribution to our stockholders.
We intend to maintain the status of our operating partnership as either a disregarded entity or an entity taxable as a partnership for federal income tax purposes. However, if the Internal Revenue Service were to successfully challenge the status of the operating partnership as a disregarded entity or an entity taxable as a partnership, our operating partnership would be taxable as a corporation. In such event, this would reduce the amount of distributions the operating partnership could make to us. This could also result in our losing REIT status, and becoming subject to a corporate level tax on our income. This would substantially reduce the cash available to us to pay distributions and the return on your investment. In addition, if any of the partnerships or limited liability companies through which our operating partnership owns its properties, in whole or in part, loses its characterization as a partnership or disregarded entity for federal income tax purposes, it would be subject to taxation as a corporation, thereby reducing distributions to our operating partnership. Such a recharacterization of an underlying property owner could also threaten our ability to maintain REIT status.
In certain circumstances, we may be subject to federal and state taxes on income as a REIT, which would reduce our cash available for distribution to our stockholders.
As a REIT, we may become subject to federal income taxes and related state taxes. For example, if we have gain from a “prohibited transaction,” such gain will be subject to the 100% penalty tax. We may not be able to make sufficient distributions to avoid excise taxes applicable to REITs. We may also decide to retain income we earn from the sale or other disposition of our

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assets and pay income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. We may also be subject to state and local taxes on our income or property, either directly or at the level of our operating partnership or at the level of the other entities through which we indirectly own our assets.
Complying with REIT requirements may limit our ability to hedge risk effectively.
The REIT provisions of the Code may limit our ability to hedge the risks inherent to our operations. Except to the extent permitted by the Code and Treasury Regulations, any income we derive from a hedging transaction which is clearly identified as such as specified in the Code, including gain from the sale or disposition of such a transaction, will not constitute gross income for purposes of the 75% and 95% gross income tests, and therefore will be exempt from these tests, but only to the extent that the transaction hedges (i) indebtedness incurred or to be incurred by us to acquire or carry real estate assets or (ii) currency fluctuations with respect to any item of income that would qualify under the 75% or 95% gross income tests. To the extent that we do not properly identify such transactions as hedges, hedge with other types of financial instruments, or hedge other types of indebtedness, the income from those transactions is not likely to be treated as qualifying income for purposes of the gross income tests. As a result of these rules, we may have to limit the use of hedging techniques that might otherwise be advantageous, which could result in greater risks associated with interest rate or other changes than we would otherwise incur.
Legislative or regulatory action could adversely affect us or your investment in us.
In recent years, numerous legislative, judicial and administrative changes have been made in the provisions of the federal income tax laws applicable to investments similar to an investment in shares of our common stock. Additional changes to the tax laws are likely to continue to occur, and we cannot assure you that any such changes will not adversely affect the taxation of our stockholders. Any such changes could have an adverse effect on an investment in our shares or on the market value or the resale potential of our assets. You are urged to consult with your own tax advisor with respect to the impact of recent legislation on your investment in our shares and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our shares. You also should note that our counsel’s tax opinion is based upon our representations and existing law and Treasury Regulations, applicable as of the date of its opinion, all of which are subject to change, either prospectively or retroactively.
Although REITs continue to receive more favorable tax treatment than entities taxed as corporations (i.e. a deduction for dividends paid is afforded REITs), it is possible that future legislation would result in a REIT having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be taxed for U.S. federal income tax purposes as a corporation. As a result, our articles of incorporation provide our board of directors with the power, under certain circumstances, to revoke or otherwise terminate our REIT election and cause us to be taxed as a corporation, without the vote of our stockholders. Our board of directors has fiduciary duties to us and our stockholders in accordance with the Maryland General Corporation Law and could only cause such changes in our tax treatment if it determines in good faith that such changes are in the best interest of our stockholders.
Excessive non-real estate asset values may jeopardize our REIT status.
In order to qualify as a REIT, among other requirements, at least 75% of the value of our assets must consist of investments in real estate, investments in other REITs, cash and cash equivalents and government securities. Accordingly, the value of any other property that is not considered a real estate asset for federal income tax purposes must represent in the aggregate not more than 25% of our total assets. In addition, under federal income tax law, we may not own securities in, or make loans to, any one company (other than a REIT, a qualified REIT subsidiary or a TRS) which represent in excess of 10% of the voting securities or 10% of the value of all securities of that company (other than certain specified securities), or which have, in the aggregate, a value in excess of 5% of our total assets, and we may not own securities of one or more TRSs which have, in the aggregate, a value in excess of 25% of our total assets.
The 75%, 25%, 10% and 5% REIT qualification tests are determined at the end of each calendar quarter. If we fail to meet any such test at the end of any calendar quarter, and such failure is not remedied within 30 days after the close of such quarter, we will cease to qualify as a REIT, unless certain requirements are satisfied.
We may have to borrow funds or sell assets to meet our distribution requirements.
Subject to some adjustments that are unique to REITs, a REIT generally must distribute 90% of its taxable income to its stockholders. For the purpose of determining taxable income, we may be required to accrue interest, rent and other items treated as earned for tax purposes, but that we have not yet received. In addition, we may be required not to accrue as expenses for tax purposes some items which actually have been paid, or some of our deductions might be subject to certain disallowance rules under the Code. As a result, we could have taxable income in excess of cash available for distribution. If this occurs, we may have to borrow funds or liquidate some of our assets in order to meet the distribution requirements applicable to a REIT.

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Despite our REIT status, we remain subject to various taxes which would reduce operating cash flow if and to the extent certain liabilities are incurred.
Even if we remain qualified as a REIT, we may be subject to certain applicable federal, foreign and state and local taxes on our income and property that could reduce operating cash flow, including but not limited to: (i) tax on any undistributed real estate investment trust taxable income; (ii) “alternative minimum tax” on our items of tax preference; (iii) certain state income and franchise taxes (because not all states treat REITs the same as they are treated for federal income tax purposes); (iv) a tax equal to 100% of net gain from “prohibited transactions;” (v) tax on gains from the sale of certain “foreclosure property;” (vi) tax on gains of sale of certain “built-in gain” properties; (vii) tax on capital gains retained; and (viii) certain taxes and penalties if we fail to comply with one or more REIT qualification requirements, but nevertheless qualify to maintain our status as a REIT.
Foreclosure property includes property with respect to which we acquire ownership by reason of a borrower’s default on a loan or possession by reason of a tenant’s default on a lease. We may elect to treat certain qualifying property as “foreclosure property,” in which case, the income from such property will be treated as qualifying income under the 75% and 95% gross income tests for three years following such acquisition. To qualify for such treatment, we must satisfy additional requirements, including that we operate the property through an independent contractor after a short grace period. We will be subject to tax on our net income from foreclosure property. Such net income generally means the excess of any gain from the sale or other disposition of foreclosure property and income derived from foreclosure property that otherwise does not qualify for the 75% gross income test, over the allowable deductions that relate to the production of such income.
We may also decide to retain income we earn from the sale or other disposition of our assets and pay income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. Any such taxes incurred will reduce the amount of cash available for distribution.
Risks Related to Our Organizational Structure
You will be limited in your right to bring claims against our officers and directors.
Our articles of incorporation provide that a director will not have any liability as a director so long as he or she performs his or her duties in accordance with the applicable standard of conduct and without negligence or misconduct on the part of our officers and non-independent directors, our Advisor or affiliates and without gross negligence or willful misconduct by our independent directors. In addition, our articles of incorporation provide that, subject to the applicable limitations set forth therein or under Maryland law, no director or officer will be liable to us or our stockholders for monetary or other damages. Our articles of incorporation also provide that, with the approval of our board of directors, we may indemnify our employees and agents for losses they may incur by reason of their service in such capacities so long as they satisfy these requirements. We have entered into separate indemnification agreements with each of our directors and executive officers. As a result, we and our stockholders may have more limited rights against these persons than might otherwise exist under common law. In addition, we may be obligated to fund the defense costs incurred by these persons in some cases.
The limit on the percentage of shares of our stock that any person may own may discourage a takeover or business combination that may benefit our stockholders.
Our articles of incorporation restrict the direct or indirect ownership by one person or entity to no more than 9.8%, by number or value, of any class or series of our equity stock (which includes common stock and any preferred stock we may issue), and this restriction may be waived only by our board of directors, in its sole discretion, under certain conditions. This restriction may deter individuals or entities from making tender offers for shares of our common stock on terms that might be financially attractive to stockholders or which may cause a change in our management. This ownership restriction may also prohibit business combinations that would have otherwise been approved by our board of directors and stockholders and may also decrease your ability to sell your shares of our common stock.
Our ability to issue preferred stock may include a preference in distributions superior to our common stock and to issue preferred stock or additional common stock also may deter or prevent a sale of shares of our common stock in which you could profit.
Stockholders do not have preemptive rights to any shares we may issue in the future. Our articles of incorporation authorize our board of directors to issue up to 200,000,000 shares of preferred stock. Our board of directors has the discretion to establish the preferences and rights, including a preference in distributions superior to our common stockholders, of any issued preferred stock. If we authorize and issue preferred stock with a distribution preference over our common stock, payment of any distribution preferences of outstanding preferred stock would reduce the amount of funds available for the payment of distributions on our common stock. Further, holders of preferred stock are normally entitled to receive payment in the event we liquidate, dissolve or wind up before any payment is made to our common stockholders which may reduce the amount available to common stockholders.

23




Our board of directors also may increase the aggregate number of authorized shares of capital stock or the number of authorized shares of capital stock of any class or series without stockholder approval. In addition, under certain circumstances, the issuance of preferred stock or additional shares of common stock may render more difficult or tend to discourage:
a merger, offer or proxy contest;
the assumption of control by a holder of a large block of our securities; or
the removal of incumbent management, including our advisor and property manager.

Item 1B.
UNRESOLVED STAFF COMMENTS
None.
Item 2.
PROPERTIES
As of December 31, 2016, we owned interests in seven Class A multifamily properties, all of which were operational and as to which development was complete. Our properties are subject to encumbrances, as described in “Schedule III – Real Estate and Accumulated Depreciation” of Item 15. “Exhibits and Financial Statement Schedules” and Note 10, “Indebtedness” of Item 8. “Financial Statements and Supplementary Data” of this Annual Report. The following table presents information on our properties owned as of December 31, 2016:
Property Name and Location
 
Date
Acquired
 
Operator/Developer
 
Ownership
Interest
 
Number of
Units
 
Completion
Date
 
Percent Leased
Class A Multifamily:
 
 
 
 
 
 
 
 
 
 
 
 
Fairfield Ranch
Cypress, TX
 
9/24/2013
 
Allen Harrison Development,
LLC(1)
 
80%
 
294 units
 
Q1 2015
 
95%
Premier at Spring Town Center
Spring, TX
 
12/20/2013
 
MCRT Spring Town LLC(1)
 
95%
 
396 units
 
Q3 2015
 
93%
Oxford Square
Hanover, MD
 
3/7/2014
 
Woodfield Investments, LLC(1)
 
95%
 
248 units
 
Q4 2015
 
96%
Aura at The Rim
San Antonio, TX
 
2/18/2014
 
Trinsic Residential Group, L.P.(1)
 
54%
 
308 units
 
Q1 2016
 
93%
Haywood Reserve(2)
Greenville, SC
 
10/15/2014
 
Daniel Haywood, LLC(2)
 
90%
 
292 units
 
Q2 2016
 
52%
Aura on Broadway
Tempe, AZ
 
12/12/2014
 
Trinsic Residential Group, L.P.(1)
 
90%
 
194 units
 
Q3 2016
 
95%
Bainbridge 3200(3)
Suffolk, VA
 
4/30/2015
 
The Bainbridge Companies, LLC(1)
 
90%
 
228 units
 
Q4 2016
 
82%
FOOTNOTES:
(1)
This property is owned through a joint venture in which this entity or one of its affiliates (i) is our joint venture partner, (ii) serves, or in the case of the completed development properties, served, as developer of the project and (iii) provides any lender required guarantees on the loan. Generally, we fund development and the applicable joint venture makes distributions of operating cash flow on a pro rata basis using each member’s ownership interest. In addition, generally, proceeds from a capital event, such as a sale of the property or refinancing of the debt, will be distributed pro rata until the members of the joint venture receive the return of their invested capital and a specified minimum return thereon, and thereafter, the respective co-venture partner will receive a disproportionately higher share of any remaining proceeds at varying levels based on our having received certain minimum threshold returns.
(2)
Property formerly known as Haywood Place.
(3)
Property formerly known as Hampton Roads.
We had a total of 1,960 completed apartment units as of December 31, 2016. Our multifamily properties that are operational are all new, and feature the latest trends in design, construction and amenities. They are typically three and four story buildings in a landscaped setting. Our multifamily properties are typically appointed with swimming pools, a clubhouse, fitness facilities and other amenities reflective of the trend toward upscale multifamily living. The seven fully-operating properties in which we owned interests and operated at December 31, 2016 averaged 942 square feet of living area per apartment unit and averaged monthly rental revenue per apartment unit of $1,287 as of December 31, 2016. Resident lease terms generally range from 11 to 14 months.
Geographic Concentration of Our Real Estate Portfolio
As of December 31, 2016, all our properties were located in the southeastern and sunbelt regions of the U.S., including three properties in Texas.

24




 
Item 3.
LEGAL PROCEEDINGS
From time to time, we may be a party to legal proceedings in the ordinary course of, or incidental to the normal course of, our business, including proceedings to enforce our contractual or statutory rights. While we cannot predict the outcome of these legal proceedings with certainty, based upon currently available information, we do not believe the final outcome of any pending or threatened legal proceeding will have a material adverse effect on our results of operations or financial condition.
 
Item 4.
MINE SAFETY DISCLOSURE
None.


25




PART II
 
Item 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
There is no established public trading market for our common stock. Therefore, there is a risk that a stockholder may not be able to sell our stock at a time or price acceptable to the stockholder, or at all.
To assist our board of directors and our valuation committee, which is comprised solely of our independent directors (the “Valuation Committee”), with establishing an estimated net asset value ("NAV") per share of our common stock as of December 31, 2016, we engaged CBRE, Inc. (“CBRE”), an independent appraisal firm to provide restricted use MAI (defined below) real estate appraisals of our seven remaining real estate properties (the "Appraisals"). The engagement of CBRE was based on a number of factors including, CBRE's and its affiliates' experience as one of the world's largest commercial real estate services and investment firms, and CBRE's familiarity with our portfolio as it has provided real estate appraisals for all of the Company's previous NAV determinations. Our Advisor developed a valuation analysis, utilizing the Appraisals, and provided the analysis to the Valuation Committee containing, among other information, a NAV per share for our common stock as of December 31, 2016 (the “Valuation Report”).
In January 2017, the Valuation Committee reviewed the Valuation Report and concluded that the NAV per share for the Company’s common stock was reasonable, and unanimously approved a recommendation to the board to approve and adopt $5.01 as the Company’s estimated NAV per share as of the December 31, 2016. At a special meeting of the board held in January 2017, the board accepted the recommendation of the Valuation Committee and unanimously approved $5.01 as the Company’s estimated NAV per share as of December 31, 2016 (the “2016 NAV”). The 2016 NAV reflects various asset sales in 2015 and 2016 for which partial distributions in the amount of $3.00 and liquidating distributions in the aggregate amount of $4.65 per share were paid to the Company’s stockholders in 2015 and 2016, respectively. Total 2015 partial distributions and 2016 liquidating distributions through December 31, 2016 were $7.65.
The board of directors estimated the 2016 NAV based on certain recommendations and methodologies of the Investment Program Association, a trade association for non-listed direct investment vehicles (“IPA”), as set forth in IPA Practice Guideline 2013-01 “Valuations of Publicly Registered Non-Listed REITs” (“IPA Practice Guideline 2013-01”). The 2016 NAV is adjusted for transaction costs and anticipated expenses and income that we expect to incur or earn from the properties through the sale date of each property plus expenses related to the Plan of Dissolution approved by stockholders on August 4, 2016. The 2016 NAV as estimated will likely change prior to the completion of our Plan of Dissolution and does not necessarily represent the amount a stockholder would receive now or in the future. The 2016 NAV is based on a number of assumptions, estimates and data that are inherently imprecise and susceptible to uncertainty and changes in circumstances.
Valuation Methodologies
Our Advisor relied on the following sources in determining the major assumptions utilized in the Valuation Report: 
Restricted-use MAI (defined below) appraisals of each of the Company’s multifamily properties (“MAI Appraisals”);
The Company's filings with the SEC;
Financial materials, projections and guidance provided by our senior management and by our joint venture partners;
Market intelligence and broker opinion of value; and
The Advisor's experience from our previous property sales.
The MAI Appraisals were prepared in accordance with the Uniform Standards of Professional Appraisal Practice by CBRE, who is a member of the Appraisal Institute and has a Member of Appraisal Institute (“MAI”) designation. The individual appraisers determined capitalization rates based on comparable sales and other market intelligence.
In performing their respective analyses, CBRE and our Advisor made numerous assumptions as of various points in time with respect to industry performance, general business, economic and regulatory conditions, current and future rental market for our properties, many of which are necessarily subject to change and beyond the control of CBRE, the Advisor and the Company. The analyses performed by CBRE are not necessarily indicative of actual values, trading values or actual future results of our real estate properties that might be achieved, all of which may be significantly more or less favorable than suggested by the MAI Appraisals. The analyses performed by the Advisor are not necessarily indicative of actual values, trading values or actual future results of our common stock that might be achieved, all of which may be significantly more or less favorable than suggested by

26




the Valuation Report. The respective analyses do not purport to reflect the prices at which the properties may actually be sold, and such estimates are inherently subject to uncertainty. The actual value of our common stock may vary significantly depending on numerous factors that generally impact the price of securities, the financial condition of the Company and the state of the real estate industry more generally. Accordingly, with respect to the estimated NAV per share of our common stock, none of the Company, the Advisor or CBRE can give any assurance that:
a stockholder would be able to resell his or her shares at this estimated value per share;
a stockholder would ultimately realize distributions per share equal to our estimated net asset value per share upon liquidation of our assets and settlement of our liabilities or a sale of the Company;
our shares would trade at a price equal to or greater than the estimated NAV per share if we listed them on a national securities exchange; or
the methodology used to estimate our NAV per share would be acceptable to FINRA or under the Employee Retirement Income Security Act (ERISA) for compliance with its reporting requirements.
Refer to our Form 8-K filed on January 24, 2017 for additional details on the 2016 NAV valuation, valuation methodologies, material assumptions, limitations and engagement of CBRE.
Our Common Stock Offerings
Through the close of our Offerings on April 11, 2014, we raised a total of approximately $208.3 million (22.7 million shares). As of March 10, 2017, we had 6,703 common stockholders of record.
Recent Sales of Unregistered Securities
There were no sales of unregistered securities in the past three years.
Secondary Sales of Registered Shares between Investors
For the years ended December 31, 2016, 2015 and 2014, we are aware of transfers of 128,740, 16,435 and 1,447 shares, respectively, by investors. The shares were transferred at an average sales price of $6.00, $7.79 and $6.67 per share during 2016, 2015 and 2014, respectively. We are not aware of any other trades of our shares.
Distributions
Distributions to our stockholders are governed by the provisions of our articles of incorporation. On June 24, 2010, our board of directors authorized a distribution policy providing for daily stock distributions and distributions pursuant to this policy began on July 1, 2010. During the year ended December 31, 2014, our board of directors authorized the declaration of a monthly stock distribution of 0.006666667 of a share of common stock on each outstanding share of common stock (which represented an annualized distribution rate of 0.08 of a share based on a calendar year), payable to all common stockholders of record as of the close of business on the first day of each month and distributed quarterly. On September 15, 2014, our board approved the termination of the stock distributions and distribution reinvestment plan, as described above in Item 1. “Business – Our Distribution Policy” section and below under “Redemption Plan and Issuer Purchases of Equity Securities."
Special Cash Distributions
As described in Item 1. “Business – Our Exit Strategy”, we evaluated opportunities that arose from favorable market conditions in multifamily development, explored strategic alternatives and sold properties. As a result, in February 2015 and December 2015, our board of directors declared Special Cash Distributions in the amounts of $1.30 and $1.70, respectively, per share of common stock. The Special Cash Distributions totaling approximately $67.6 million were paid in cash and were funded from the proceeds of refinancings and asset sales.
Liquidating Distributions
Subsequent to obtaining our stockholder's approval for our Plan of Dissolution, in August 2016 and December 2016, our board of directors declared Liquidating Distributions in the amounts of $2.35 and $2.30, respectively, per share of common stock to stockholders of record of the Company's common stock as of the close of business on August 24, 2016 and December 6, 2016, respectively. The Liquidating Distributions totaling approximately $104.7 million were paid in cash in 2016 and were funded from the proceeds of asset sales, including the sales of six properties in 2016.

27




The following table presents total cash (special and liquidating) and stock distributions declared and issued for each quarter in the years ended December 31, 2016, 2015 and 2014:
Periods
 
Cash
Distribution
per Share
 
Total Cash
Distribution
Declared
 
Share Distribution
Declared
per Share Held(1)
 
Stock
Distributions
Declared
(Shares)(1)
 
Stock
Distributions
Declared(2)
 
Total Cash and
Stock
Distributions
Declared
2016 Quarter
 
 
 
 
 
 
 
 
 
 
 
 
First
 
$

 
$

 
(3) 
 

 
$

 
$

Second
 

 

 
(3) 
 

 

 

Third
 
2.35

(5) 
52,936,504

(5) 
(3) 
 

 

 
52,936,504

Fourth
 
2.30

(5) 
51,810,196

(5) 
(3) 
 

 

 
51,810,196

Total
 
$
4.65

 
$
104,746,700

 
 
 

 
$

 
$
104,746,700

2015 Quarter
 

 
 
 
 
 
 
 
 
 
 
First
 
$
1.30

(4) 
$
29,284,024

(4) 
(3) 
 

 
$

 
$
29,284,024

Second
 

 

 
(3) 
 

 

 

Third
 

 

 
(3) 
 

 

 

Fourth
 
1.70

(4) 
38,294,494

(4) 
(3) 
 

 

 
38,294,494

Total
 
$
3.00

 
$
67,578,518

 
 
 

 
$

 
$
67,578,518

2014 Quarter
 
 
 
 
 
 
 
 
 
 
 
 
First
 
$

 
$

 
0.66667 per month
 
325,315

 
$
3,220,619

 
$
3,220,619

Second
 

 

 
0.00667 per month
 
420,384

 
4,161,802

 
4,161,802

Third
 

 

 
0.00667 per month
 
441,689

 
4,372,721

 
4,372,721

Fourth
 

 

 
(3) 
 

 

 

Total
 
$

 
$

 
 
 
1,187,388

 
$
11,755,142

 
$
11,755,142

FOOTNOTES:
(1)
Represents amount of shares declared and distributed, including shares issued subsequent to the applicable quarter end. The distribution of new common shares was non-taxable to the recipients when issued. The stock distributions may cause the interest of later investors in our common stock to be diluted as a result of the stock distributions issued to earlier investors.
(2)
For purposes of this table, we calculated the dollar amount of stock distributions declared using our NAV as of December 31, 2013, of $9.90 per share for shares issued after December 31, 2013.
(3)
Our board approved the termination of our distribution policy effective as of October 1, 2014. As a result, we did not declare any further stock distributions effective October 1, 2014.
(4)
Special cash distributions were funded using net sales proceeds received from the sale of real estate. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information.
(5)
Liquidating distributions were funded using net sales proceeds received from the sale of real estate. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information.
For the year ended December 31, 2016, all of the cash Liquidating Distributions paid to stockholders were considered liquidating distributions for federal income tax purposes. The Liquidating Distributions will be applied to reduce a stockholders' basis but not below zero. The amount of distributions in excess of a stockholders' basis will be considered a gain which should be recognized in the year the distribution is received. For the year ended December 31, 2015, approximately 6.1%, 47.4% and 46.5% of the cash distributions paid to stockholders were considered taxable as ordinary income, capital gain and return of capital, respectively, for federal income tax purposes. Of the 47.4% treated as capital gain for the year ended December 31, 2015, approximately 6.4% were taxed as 1250 unrecaptured gain. No amounts distributed to stockholders for the years ended December 31, 2016 and 2015 were required to be or have been treated as return of capital for purposes of calculating the stockholders’ return on their invested capital as described in our advisory agreement.
In determining the apportionment between taxable income and a return of capital, the amounts distributed to stockholders in excess of current or accumulated E&P are treated as a return of capital to the stockholders. E&P is a statutory calculation, which is derived from taxable income and determined in accordance with the Code. It is not intended to be a measure of the REIT’s performance, nor do we consider it to be an absolute measure or indicator of our source or ability to pay distributions to stockholders. Prior to termination of and pursuant to the stock distribution policy, the distribution of new common shares to the recipients was not taxable upon receipt. Stock distributions may cause the interest of later investors in our stock to be diluted as a result of the stock issued to earlier investors.

28




Securities Authorized for Issuance under Equity Compensation Plans
None.
Redemption Plan and Issuer Purchases of Equity Securities
We had adopted a share redemption plan that allowed a stockholder who held shares for at least one year to request that we redeem between 25% and 100% of its shares. On September 15, 2014, our board approved the suspension of our amended and restated redemption plan (the “Redemption Plan”), and terminated the distribution reinvestment plan effective as of October 1, 2014.
During the year ended December 31, 2014, we utilized all funds available for redemption requests received under the Redemption Plan and accepted redemption requests for 40,447 shares of common stock at an average redemption price of $9.90 per share for approximately $0.4 million. Upon the termination of the Redemption Plan, outstanding redemption requests of approximately 51,000 shares received in good order prior to September 10, 2014 were placed in the redemption queue. We did not accept or otherwise process any additional redemption requests after September 10, 2014. Redemptions were funded with offering proceeds. Shares redeemed were retired and not available for reissue.

Item 6.
SELECTED FINANCIAL DATA
The following selected financial data for CNL Growth Properties, Inc. should be read in conjunction with Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 8. “Financial Statements and Supplementary Data."
As a result of the approval of the Plan of Dissolution by the stockholders in August 2016, we adopted the liquidation basis of accounting ("Liquidation Basis of Accounting"), as described further in Item 8. “Financial Statements and Supplementary Data” to the financial statements.
    
 
 
Liquidation Basis
 
 
December 31, 2016
Statement of Net Assets Data:
 
 
Total assets
 
$
350,559,846

Mortgage and construction notes payable
 
$
179,135,370

Liability for non-controlling interests
 
$
35,080,687

Liability for estimated costs in excess of estimated receipts during liquidation
 
$
11,306,997

Total liabilities
 
$
235,510,263

Net assets in liquidation
 
$
115,049,583

Weighted average number of shares of common stock outstanding (basic and diluted)
 
22,526,171

Net assets in liquidation value per common share
 
$
5.11

Other Data:
 
 
Liquidating distributions declared
 
$
104,746,700

Liquidating distributions declared per share
 
$
4.65


29



 
 
Going Concern Basis
 
 
Seven Months Ended
July 31,
 
Year Ended December 31,
 
 
2016
 
2015
 
2014
 
2013
 
2012
Operating Data:
 
 
 
 
 
 
 
 
 
 
Revenues
 
$
21,202,806

 
$
32,947,081

 
$
15,309,618

 
$
3,542,226

 
$
5,460

Operating loss
 
(1,152,584
)
 
(787,031
)
 
(3,886,892
)
 
(3,890,425
)
 
(1,964,648
)
Loss from continuing operations(1)
 
(5,455,166
)
 
(6,106,804
)
 
(5,419,908
)
 
(4,484,616
)
 
(1,963,719
)
Income (loss) from discontinued operations(1)
 

 
26,556,668

 
2,378,499

 
586,384

 
(1,172,768
)
Gain on sale of real estate, net of tax
 
40,917,543

 
61,208,195

 

 

 

Gain on sale of easement
 

 
603,400

 

 

 

(Income) loss from continuing operations attributable to non-controlling interests(1)
 
(21,931,862
)
 
(37,899,343
)
 
897,670

 
645,371

 
9,498

(Income) loss from discontinued operations attributable to non-controlling interests(1)
 

 
(13,459,486
)
 
(45,265
)
 
(29,358
)
 
3,037

Net income (loss) attributable to common stockholders(1)
 
$
13,530,515

 
$
30,902,630

 
$
(2,189,004
)
 
$
(3,282,219
)
 
$
(3,123,952
)
Income (loss) from continuing operations per share(1)
 
$
0.60

 
$
0.79

 
$
(0.21
)
 
$
(0.32
)
 
$
(0.24
)
Income (loss) from discontinued operations per share(1)
 

 
0.58

 
0.11

 
0.05

 
(0.14
)
Net income (loss) per share (basic and diluted)
 
$
0.60

 
$
1.37

 
$
(0.10
)
 
$
(0.27
)
 
$
(0.38
)
Weighted average number of shares of common stock outstanding (basic and diluted)(2)
 
22,526,171

 
22,526,171

 
21,361,725

 
12,249,900

 
8,262,638

Special cash distributions declared(3)
 

 
67,578,518

 

 

 

Special cash distributions declared per share
 

 
3.00

 

 

 

Net cash provided by (used in) operating activities
 
297,368

 
5,241,165

 
4,281,141

 
672,083

 
(869,890
)
Net cash provided by (used in) investing activities
 
56,408,742

 
81,757,496

 
(187,920,865
)
 
(128,018,204
)
 
(70,705,796
)
Net cash (used in) provided by financing activities
 
(24,302,710
)
 
(115,673,924
)
 
195,503,567

 
148,177,428

 
68,539,209

Other Data:
 
 
 
 
 
 
 
 
 
 
Properties owned at the end of period(4)
 
10

 
13

 
16

 
12

 
7

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Going Concern Basis
 
 
 
 
As of December 31,
 
 
 
 
2015
 
2014
 
2013
 
2012
Balance Sheet Data:
 
 
 
 
 
 
 
 
 
 
Total assets(5)
 
 
 
$
440,482,790

 
$
478,276,500

 
$
272,492,393

 
$
114,890,689

Long-term debt obligations(5)
 
 
 
$
267,025,839

 
$
254,561,600

 
$
117,360,210

 
$
44,479,650

Total liabilities(5)
 
 
 
$
292,594,262

 
$
284,365,567

 
$
138,114,282

 
$
54,444,049

Noncontrolling interests
 
 
 
$
25,554,478

 
$
34,900,995

 
$
23,415,094

 
$
9,849,660

Total equity
 
 
 
$
147,888,528

 
$
193,910,933

 
$
134,378,111

 
$
60,446,640


30



FOOTNOTES:
(1)
The results of operations relating to the Long Point Property and the Gwinnett Center that were classified as held for sale were reported as discontinued operations for all applicable periods presented.
(2)
For purposes of determining the weighted average number of shares of common stock outstanding, stock distributions issued from inception through September 15, 2014 were treated as if they were outstanding as of the beginning of the periods presented. On September 15, 2014, the Company’s board approved the termination of our stock distribution policy. As a result, we did not declare any further monthly stock distributions, effective October 1, 2014.
(3)
During 2015, we declared special cash distributions of $3.00 per share. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information.
(4)
As of July 31, 2016, December 31, 2015 and December 31, 2014, one, five and nine, respectively, of the properties owned were under development. All properties had been placed in service as of December 31, 2016.
(5)
Amounts as of December 31, 2014, 2013 and 2012 do not reflect the reclassification of loan costs, net, as a reduction to long-term debt obligations under the FASB issued Accounting Standard Update ("ASU") No. 2015-03, "Simplifying the Presentation of Debt Issue Costs."

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Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview
CNL Growth Properties, Inc. was organized as a Maryland corporation on December 12, 2008 and has elected to be taxed, and currently qualifies as a real estate investment trust (“REIT”) for federal income tax purposes. The terms “us,” “we,” “our,” “our Company” and “CNL Growth Properties, Inc.” include CNL Growth Properties, Inc. and each of its subsidiaries.
On August 4, 2016, our stockholders approved our Plan of Dissolution authorizing us to undertake an orderly liquidation. In an orderly liquidation, we would sell of all of our remaining assets, pay all of our known liabilities, provide for the payment of our unknown or contingent liabilities, distribute our remaining cash to our stockholders as liquidating distributions, wind-up our operations and dissolve the Company in accordance with Maryland law. The Plan of Dissolution enables our board of directors to sell any and all of our assets without further approval of the stockholders and provides that liquidating distributions be made to the stockholders as determined by the board of directors. Pursuant to REIT rules, in order to be able to deduct liquidating distributions as dividends, we must complete the disposition of our assets by August 5, 2018, two years after the date the Plan of Dissolution was approved by stockholders. To the extent that all of our assets are not sold by such date, we may transfer and assign our remaining assets to a liquidating trust. Upon such transfer and assignment, our stockholders will receive interests in the liquidating trust. The liquidating trust will pay or provide for all of our liabilities and distribute any remaining net proceeds from the sale of our assets to the holders of interest in the liquidating trust. See the Company's Form 8-K filed on August 5, 2016 for additional details.
As a result of the approval of the Plan of Dissolution by the stockholders in August 2016, we adopted the Liquidation Basis of Accounting, as described further in Item 8. “Financial Statements and Supplementary Data” to the financial statements.
Our Advisor and Property Manager
We are externally advised by CNL Global Growth Advisors, LLC (the “Advisor”) and our property manager is CNL Global Growth Managers, LLC (the “Property Manager”), each of which is an affiliate of CNL Financial Group, LLC, our sponsor (“CNL” or the “Sponsor”), a private investment management firm specializing in alternative investment products. The Advisor is responsible for managing our affairs on a day-to-day basis and for identifying, recommending and executing acquisitions (through the completion of our acquisition stage in April 2015) and dispositions on our behalf pursuant to an advisory agreement.
Substantially all of our operating, administrative and property management services are provided by sub-advisors to the Advisor and by sub-property managers to the Property Manager.
Our Common Stock Offerings
From October 20, 2009, through April 11, 2014 we received aggregate offering proceeds of approximately $208.3 million from our Offerings.
Exit Strategy
Due to the completion of our Offerings in April 2014, the completion of our acquisition phase in April 2015 and the estimated time needed to complete our development phase and have our assets substantially stabilize, our Advisor began to explore strategic alternatives. In August 2015, our board of directors appointed a special committee comprised of our independent board members (the “Special Committee”) to oversee the process of exploring strategic alternatives for future stockholder liquidity, including opportunities to merge with another company, the listing of our common stock on a national securities exchange, our sale or the sale of all of our assets. In September 2015, we engaged CBRE Capital Advisors, Inc. (“CBRE Cap”) to act as our exclusive financial advisor and assist us and the Special Committee with this process. In the ordinary course of CBRE Cap’s business, CBRE Cap, its affiliates, directors and officers, may trade or otherwise structure and effect transactions in our shares or assets for its own account or for the accounts of its customers and accordingly, may at any time hold a long or short position, finance positions, or otherwise structure and effect transactions in our shares or assets. CBRE Cap is an affiliate of CBRE Group, Inc. (“CBRE”), the parent holding company of affiliated companies that are engaged in the ordinary course of business in many areas related to commercial real estate and related services. Through CBRE’s affiliates, CBRE may have in the past, and may from time to time in the future, perform one or more roles in our transactions. Refer to “Our Real Estate Portfolio” below for a discussion on properties sold during 2015 and 2016.
Plan of Dissolution
Although our stockholders approved our Plan of Dissolution on August 4, 2016, there is no assurance we will have a final liquidity event in the near term. We expect to distribute all of the net proceeds from the sale of our assets to our stockholders

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within 24 months after the stockholder approval of our Plan of Dissolution. However, if we cannot sell our assets and pay our debts within 24 months, or if our board and the Special Committee determine that it is otherwise advisable to do so, we may transfer and assign our remaining assets to a liquidating trust. Upon such transfer and assignment, our stockholders will receive interests in the liquidating trust. The liquidating trust will pay or provide for all of our liabilities and distribute any remaining net proceeds from the sale of its assets to the holders of interests in the liquidating trust.
The dissolution process and the amount and timing of distributions to stockholders involves risks and uncertainties. Accordingly, it is not possible to predict the timing or aggregate amount which will ultimately be distributed to stockholders and no assurance can be given that the distributions will equal or exceed the estimate of net assets presented in the Consolidated Statement of Net Assets.
We expect to continue to qualify as a REIT throughout the liquidation until such time as any remaining assets, if any, are transferred into a liquidating trust. Our board shall use commercially reasonable efforts to continue to cause us to maintain our REIT status, provided however, our board may elect to terminate our status as a REIT if it determines that such termination would be in the best interest of our stockholders.
Our Real Estate Portfolio
Since our inception, and through the completion of our acquisition phase in April 2015, our Advisor and its sub-advisors evaluated various investment opportunities on our behalf and we entered into joint venture arrangements for the acquisition and development of 17 real estate properties and one three building office complex that was lender owned (“Gwinnett Center”). With the exception of the Gwinnett Center (which we sold during 2014), the investments we made focused on multifamily development projects in the southeastern and sunbelt regions of the United States due to favorable and compelling market and industry data, as well as, unique opportunities to co-invest with experienced development operators.
Prior to the formation of the Special Committee in August 2015, as discussed above in "Our Exit Strategy", our Advisor evaluated opportunities that arose from favorable market conditions in multifamily development and as part of that process, evaluated provisions within the individual joint venture agreements to consider specific asset sales. As a result of evaluating these opportunities, as well as a result of exploring strategic alternatives, as described above in "Our Exit Strategy", during 2015, we, through our consolidated joint ventures, sold four real estate properties that were operational. In 2016 we sold six properties, as further described below in Item 7. “Liquidity and Capital Resources – Net Sales Proceeds from Sales of Real Estate”. During the seven months ended July 31, 2016 (prior to adopting Liquidation Basis of Accounting), we, through our consolidated joint ventures, sold two real estate properties that were operational. Subsequent to adopting Liquidation Basis of Accounting, we sold our wholly owned real estate property and, through our consolidated joint ventures, sold three additional real estate properties, all of which were operational. See Item 7. "Liquidity and Capital Resources – Net Sales Proceeds from Sales of Real Estate" for additional information.
As of December 31, 2016, we owned interests in seven Class A multifamily properties in the southeastern and sunbelt regions of the United States, all of which had substantially completed development and were operational. Generally, the development period for our properties is up to 24 months with the properties becoming partially operational as buildings within the project are completed and certificates of occupancy obtained. We had a total of 1,960 completed apartment units as of December 31, 2016. We generally expect our multifamily properties to reach stabilization within 24 months after completion.
Our multifamily properties are typically owned through a joint venture in which we have co-invested with an affiliate of a national or regional multifamily developer. As of December 31, 2016, we had co-invested in seven separate joint ventures with six separate developers or affiliates thereof. Our joint ventures are structured such that we serve as the managing member and own a majority interest. Under the terms of the limited liability company agreements of each joint venture, operating cash flow is generally distributed to the members of the joint venture on a pro rata basis. Generally, in a capital event, such as a sale or refinancing of the joint venture’s property, net proceeds will be distributed pro rata to each member until each member’s invested capital is returned and a minimum return on capital is achieved, and thereafter our joint venture partner will receive a disproportionately higher share of any proceeds at varying levels based on our having received certain minimum threshold returns. We have determined that all of the joint ventures in which we have co-invested as of December 31, 2016 are variable interest entities in which we are the primary beneficiary. As such, the transactions and accounts of the joint ventures are consolidated in our accompanying financial statements.
For a description of the individual properties included in our real estate portfolio, including the location, date acquired, operator/developer, completion date or estimated completion date of development, percentage leased and capitalized costs or development budget for each property, as of December 31, 2016, see Item 2. “Properties.”

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Liquidity and Capital Resources
On August 4, 2016, our stockholders approved our Plan of Dissolution pursuant to which our board of directors is authorized to undertake a sale of all of our assets and distribute the net proceeds to our stockholders after payment of all of our liabilities. As of December 31, 2016, our cash totaled $17.9 million.  We will use our cash on hand and net sales proceeds received from the sale of real estate to pay all obligations, pay liquidating distributions and any other corporate purposes deemed appropriate. Our total assets and net assets in liquidation were $350.6 million and $115.0 million, respectively, at December 31, 2016. Our ability to meet our obligations is contingent upon the disposition of our assets in accordance with our Plan of Dissolution. We estimate that the proceeds from the sale of assets pursuant to the Plan of Dissolution will be adequate to pay our obligations, however, we cannot provide any assurance as to the prices or net proceeds we will receive from the disposition of our assets.
We believe that cash flows provided by operating activities along with sale proceeds will continue to provide adequate capital to fund our operating, administrative and other expenses incurred during liquidation as well as debt service obligations. As a REIT, we must distribute annually at least 90% of our REIT taxable income.
Sources of Liquidity and Capital Resources
Net Sales Proceeds from Sales of Real Estate
During 2014, due to favorable market conditions in multifamily development and our increased focus on multifamily development, we sold the Gwinnett Center, a three building office complex and received net sales proceeds of approximately $15.0 million. During the year ended December 31, 2015, due to continuing trends and favorable market conditions in multifamily development and exploring strategic alternatives, as described above in "Our Exit Strategy", we, through our consolidated joint ventures, sold four properties and we received aggregate net sales proceeds net of closing costs of approximately $223.0 million. We used a portion of the net sales proceeds from each property sale to repay the mortgage or development and construction loan related to each of the properties, pay distributions to our co-venture partners in accordance with the terms of the joint venture agreement, and pay Special Cash Distributions to stockholders, as described below in “Liquidity and Capital Resources — Special Cash Distributions”.
As part of continuing to evaluate strategic alternatives, from January through July 2016, we through our consolidated joint ventures, sold two additional properties. We received sales proceeds net of closing costs of $110.0 million. We used a portion of the net sales proceeds from the sale of these two properties to repay the development and construction loans related to both properties, and paid distributions to our respective co-venture partners, in accordance with the terms of each joint venture agreement.
In August 2016, subsequent to obtaining stockholder approval to our Plan of Dissolution and adopting Liquidation Basis of Accounting, we sold the Whitehall Property, our wholly-owned property, for gross sales proceeds of approximately $51.2 million, which equaled its liquidation value. We received proceeds, net of closing costs, of approximately $50.7 million and used a portion of the net sales proceeds to repay the mortgage note payable related to this property. In addition, we, through our consolidated joint ventures, sold three additional properties between October and December 2016, for aggregate gross sales proceeds of approximately $166.3 million, which equaled their liquidation values. We used the proceeds from the sales, net of closing costs and repaid the development and construction loans related to these three properties and paid distributions to our respective co-venture partners in accordance with the terms of each joint venture agreement.
In February 2017, we, through our consolidated joint venture, completed the sale of the Oxford Square Property for gross sales proceeds of approximately $65.7 million, which equaled its liquidation value as of December 31, 2016. We used a portion of the sales proceeds to repay the construction loan payable related to the property and also made a distribution to our joint venture partner representing their disproportionately higher share of proceeds from the sale in accordance with the Oxford Square joint venture agreement.
The sale of one or more of our properties may fall outside the prohibited transaction safe harbor. If we are deemed to have engaged in a “prohibited transaction” (i.e., we sell a property held by us primarily for sale in the ordinary course of our trade or business), all taxable gain we derive from such sale would be subject to a 100% federal tax. The Internal Revenue Code sets forth a safe harbor for REITs that wish to sell property without risking the imposition of the 100% penalty tax. The principal requirements of the safe harbor are that: (i) the REIT must hold the applicable real estate asset for not less than two years for the production of rental income prior to its sale; ( ii) the aggregate expenditures made by the REIT, or any partner of the REIT, during the two-year period preceding the date of sale which are included in the basis of the property do not exceed 30% of the net selling price of the property; and (iii) the REIT does not make more than seven sales of property during the taxable year or the aggregate adjusted bases of property sold during the taxable year does not exceed 10% of the aggregate bases of all of the REIT’s assets as of the beginning of the taxable year or the fair market value of property sold during the taxable year does not exceed 10% of the fair market value of all of the REIT’s assets as of the beginning of the taxable year.

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We requested and received a Letter Ruling from the Internal Revenue Service indicating our property sales as part of the Plan of Dissolution approved by our stockholders on August 4, 2016 would not constitute prohibited transactions. The ruling was issued based on facts and other representations made by our Advisor.
Net Cash Provided by Operating Activities
Prior to the adoption of Liquidation Basis of Accounting, our net cash flows provided by operating activities were approximately $0.3 million, $5.2 million and $4.3 million for the seven months ended July 31, 2016 and the years ended December 31, 2015 and 2014, respectively.  Cash flows from operating activities declined during the seven months ended July 31, 2016, primarily due to the sale of two properties in 2016, four operational properties in 2015 and an increase in general and administrative expenses, asset management fees, and property management fees as a result of additional properties and units being operational. Cash flows from operating activities also declined due to an increase in professional fees related to our exit strategy. Cash flows from operating activities improved from 2014 to 2015, primarily as a result of more properties and units being operational during 2015 than in the prior periods and an increase in occupancy as the units become operational and leased.
Our primary sources of non-operating cash flow from August 1, 2016 through December 31, 2016 include the following:
$215.6 million of net proceeds from the sale of four properties; and
$16.4 million of borrowings on our construction loans in connection with construction draws relating to the completion of our development properties.
Our primary uses of non-operating cash flow from August 1, 2016 through December 31, 2016 include the following:
$104.7 million for payment of liquidating distributions;
$108.9 million for early repayment of mortgage and construction notes payable, primarily in connection with the sale of four properties;
$37.9 million for distributions to noncontrolling interests, including approximately $37.6 million representing their disproportionate share of net sales proceeds from the sale of three properties;
$14.4 million for development property costs, including capital expenditures; and
$0.4 million for repayment of advance from an affiliate of noncontrolling interest.
Borrowings
We obtained construction financing on our multifamily development projects equal to approximately 65% to 75% of the development budgets. Generally, our construction financing provides for a term of three years, extendable for up to an additional two years, and requires monthly interest only payments during the initial term at variable rates generally equal to 2% to 2.7% above LIBOR rates. If extended, the loans typically require monthly principal and interest payments thereafter based on a 30-year amortization, with the unpaid principal balance due at maturity. To the extent we don't sell the property, we expect to consider refinancing our construction debt prior to the initial maturity date as each development property stabilizes. An affiliate of each applicable co-venture partner provided the lenders with any required completion and repayment guarantees. Although we typically have not entered into interest rate caps or other types of hedging instruments on all of our debt to hedge interest rate risk, we have entered into interest rate caps for one of our loans, as described in the notes to our consolidated financial statements, and may determine to enter into additional hedging transactions in the future.
As part of executing under our Plan of Dissolution, if we have not sold a property prior to our indebtedness approaching maturity, we, along with our joint venture partners, may extend and refinance the construction loans on our development properties. However, our ability to continue to obtain indebtedness could be adversely affected if our joint venture partners do not agree to the extension or by credit market conditions, which result in lenders reducing or limiting funds available for loans, including loans collateralized by real estate.
During the years ended December 31, 2016, 2015 and 2014, we borrowed approximately $70.0 million, $122.5 million and $145.7 million, respectively, in connection with construction draws relating to our development properties, of which approximately $53.6 million was borrowed during the seven months ended July 31, 2016. During the years ended December 31, 2015 and 2014, we paid loan costs totaling approximately $0.5 million and $2.5 million, respectively, in connection with our indebtedness. There were no loan costs paid during 2016.
We, through joint ventures formed to make investments, generally borrowed on a non-recourse basis. The use of non-recourse financing allowed us to limit our exposure on any investment to the amount invested. Non-recourse indebtedness

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means the indebtedness of the borrower or its subsidiaries is collateralized only by the assets to which such indebtedness relates, without recourse to the Company or any of its subsidiaries.
In April 2015, the Hampton Roads Joint Venture entered into a LIBOR-based interest rate cap agreement to hedge the interest rate on the $25.3 million mortgage note secured by the Hampton Roads Property. The Hampton Roads Property Joint Venture entered into this agreement to mitigate the risk of future LIBOR interest rate increases above 1.0% by obtaining a maximum interest rate cap until March 2017.
In February 2015 and April 2014, we, through two different consolidated joint ventures which developed two separate properties, modified two original development and construction loans with the existing lenders. We were able to increase the level of indebtedness in February 2015 and April 2014 on the respective property by approximately $3.5 million and $5.5 million, respectively, based on an appraised value that exceeded the original cost of each property. We used the refinancing proceeds received in April 2014 to acquire our joint venture partner’s 5% interest in the Whitehall Joint Venture, at which point, we wholly-owned this property. We repaid one loan in 2015 and repaid the other loan in 2016 in connection with the sale of each of these two properties.
In September 2014, the Spring Town Joint Venture entered into a LIBOR-based interest rate cap agreement to hedge the interest rate on the $18.5 million mortgage note secured by the Spring Town Property. The Spring Town Joint Venture entered into this agreement to mitigate the risk of future LIBOR interest rate increases above 1% by obtaining a maximum interest rate cap through December 2015. After December 2015 through July 2016 the interest rate cap mitigated the risk of future LIBOR above 1.9%. This interest rate cap terminated in July 2016.
In March 2014, as part of acquiring the Oxford Square Property, we obtained $4.9 million in temporary financing through our Oxford Square Joint Venture in the form of a temporary loan and our joint venture partner advanced approximately $1.2 million for the development costs. In June 2014, we used unused proceeds from our Offerings to repay the $4.9 million loan and entered into a new construction loan that matures in June 2018.
In April 2014, the Whitehall Joint Venture, which developed the Whitehall Property completed in April 2013, refinanced its original development and construction loan which had an outstanding principal balance of $22.3 million and entered into a new $28.2 million variable rate, seven-year loan. We were able to increase the level of indebtedness on the Whitehall Property based on an appraised value that exceeded our original cost. 
For additional information on our borrowings, see Note 10, “Indebtedness” in our consolidated financial statements in Item 8. “Financial Statements and Supplementary Data” of this Annual Report.
Capital Contributions from Noncontrolling Interests
During the years ended December 31, 2015 and 2014, our co-venture partners made capital contributions aggregating to approximately $1.9 million and $14.2 million, respectively. Our co-venture partners did not make any capital contributions during the year ended December 31, 2016. As of December 31, 2016, our co-venture partners did not have any commitments to fund additional capital contributions in accordance with the terms of our joint venture agreements relating to the multifamily development properties.
Uses of Liquidity and Capital Resources
Acquisition and Development of Properties
We completed our acquisition phase when we acquired our last multifamily development property in 2015 and acquired five properties in 2014. In connection with our development projects, we funded approximately $67.8 million, $143.0 million and $203.7 million in acquisition and development costs during 2016, 2015 and 2014, respectively, of which approximately $53.4 million was funded during the seven months ended July 31, 2016.
Debt Service
During the year ended December 31, 2016, we paid $160.1 million of mortgage and construction loans payable (of which approximately $51.2 million was paid during the seven months ended July 31, 2016), which included the early repayment of approximately $159.8 million using a portion of the net sales proceeds from the sale of six properties. In 2015, we paid approximately $111.3 million of mortgage and construction loans payable, and $0.3 million in a related prepayment penalty, using a portion of the net sales proceeds from the sale of six properties. During the year ended December 31, 2014, we repaid approximately $36.7 million of outstanding loans, which included approximately $22.3 million related to refinancing Whitehall Joint Venture’s original construction loan, approximately $4.9 million related to Oxford Square Joint Venture’s temporary loan, and approximately $8.0 million related to Gwinnett Center as the result of the sale of the property.

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In October and November 2015, we, through two separate consolidated joint ventures, exercised our options to extend the maturity dates of the construction loans collateralized by the two separate properties by one year to November 30, 2016 and December 20, 2016, respectively. We sold both properties in 2016 prior to their maturity dates.
In September 2016, we, through one of our consolidated joint ventures, extended the original construction loan relating to our Remington Fairfield Property by one year to September 2017. In addition, we, through one of our consolidated joint ventures, have begun discussions with the lender of the construction loan relating to our Aura at the Rim Property, which is scheduled to mature to April 2017, to exercise our extension option.
Scheduled maturities of $96.6 million during 2017 reflect the maturity of four loans during 2017 as described further in Note 10. “Indebtedness” in the accompanying consolidated financial statements. We have begun discussions with our joint venture partners relating to the 2017 maturities and if we are not able to sell the respective properties in 2017 and use net sales proceeds to repay the related indebtedness as part of executing under our Plan of Dissolution, we believe that we will be able to refinance or exercise our extension options for any debt that matures in 2017 and other debt as it comes due in the ordinary course of business.
Stock Distributions
On September 15, 2014, our board approved the termination of the stock distributions and distribution reinvestment plan, as described above in Item 1, in the “Our Distribution Policy” section.
Special Cash Distributions
Due to the sale of four properties as described above in “Net Sales Proceeds from Sales of Real Estate”, in February and December 2015, our board of directors declared Special Cash Distributions in the amount of $1.30 and $1.70, respectively, per share of common stock. The Special Cash Distributions totaling approximately $67.6 million were paid in cash and were funded from the proceeds of refinancings and the 2015 sales of four properties. See Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities – Special Cash Distributions”. No special cash distributions were declared during 2014.
Liquidating Distributions
Subsequent to obtaining stockholder approval to our Plan of Dissolution, in August 2016 and December 2016, our board of directors declared Liquidating Distributions in the amounts of $2.35 and $2.30, respectively, per share of common stock. The Liquidating Distributions totaling approximately $104.7 million were paid in cash and were funded from the proceeds of asset sales, including the sales of six properties in 2016. See Item 5. “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities – Liquidating Distributions”.
Stock Issuance and Offering Costs
Since inception and through the close of our Offerings of shares of common stock on April 11, 2014, we received aggregate offering proceeds of approximately $208.3 million, of which $65.4 million were received during the year ended December 31, 2014. Under the terms of our offerings, certain affiliates were entitled to receive selling commissions and a marketing support fee of up to 7% and 3%, respectively, of gross offering proceeds on shares sold through the close of our Offerings on April 11, 2014. In addition, affiliates were entitled to reimbursement of actual expenses incurred in connection with our offerings, such as filing fees, legal, accounting, printing, and due diligence expense reimbursements, which were recorded as stock issuance and offering costs and deducted from stockholders’ equity. In accordance with our articles of incorporation, the total amount of selling commissions, marketing support fees, and other organizational and offering costs paid by us did not exceed 15% of the aggregate gross offering proceeds. Offering costs were generally funded by our Advisor and subsequently reimbursed by us subject to this limitation. During the year ended December 31, 2014, we paid approximately $9.6 million in stock issuance and offering costs. No such costs were incurred or paid subsequent to the close of our Offerings on April 11, 2014.
Distributions to Noncontrolling Interests
The terms of each joint venture structure are generally market driven and consider the assumption of certain risks by our joint venture partners, including; entitlements, permitting, exposure to costs in excess of the project budget, interest rates, and lender guarantees. In accordance with preferred return provisions in the respective joint venture agreements, upon a sale of the joint venture’s property, the joint venture partner may be entitled to a disproportionately higher share of proceeds than their member interest if certain threshold returns are met. Each structure is individually negotiated and terms of the waterfall

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structure can be influenced by market size and attractiveness of the investment fundamentals, leverage assumptions, and equity contributions from our joint venture partners.
Prior to adopting Liquidation Basis of Accounting, during the seven months ended July 31, 2016 and the years ended December 31, 2015 and 2014, our consolidated joint ventures paid distributions of approximately $27.1 million, $62.6 million and $2.1 million, respectively, to our co-venture partners representing their pro rata share of positive operating cash flows, plus a disproportionate share of proceeds from capital events, which included approximately $25.8 million in net sales proceeds from the sales of the properties during the seven months ended July 31, 2016 and $58.4 million during the year ended December 31, 2015 in accordance with the terms of our joint venture agreements. Additionally, capital events during 2015 also included payment to our co-venture partners for proceeds received in connection with modifying our indebtedness related to two properties. During 2014, in accordance with the terms of the Oxford Square Property joint venture agreement, once the Oxford Square Joint Venture obtained a construction loan in June 2014, our ownership interest in the joint venture increased to 95% with an additional capital contribution by us and a return of capital to our joint venture partner.
Purchase of Noncontrolling Interests
During the year ended December 31, 2014, we used $5.5 million of the excess proceeds received from the refinancing of the construction loan by the Whitehall Joint Venture to acquire our joint venture partner’s 5% interest in the Whitehall Joint Venture and as a result we owned 100% of the interests in the Whitehall Joint Venture. We sold the Whitehall Property during 2016.
In addition, in accordance with the terms of the Oxford Square Property joint venture agreement, once the Oxford Square Joint Venture obtained a construction loan in June 2014, our ownership interest in the joint venture increased to 95% with an additional capital contribution by us and a $1.5 million return of capital to our joint venture partner.
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and the notes thereto.

Results of Operations
As a result of our stockholders' approval of our Plan of Dissolution and our adoption of Liquidation Basis of Accounting as of August 1, 2016, the results of operations for the current year periods are not comparable to the prior year periods. Our remaining assets which had completed construction and reached stabilization in prior periods continue to perform in a manner that is relatively consistent with prior reporting periods and we have experienced no significant changes in leased percentages or rental rates at these properties. Our remaining assets which had not completed construction or reached stabilization in prior periods have continued to place additional units into service and increase overall leased percentages. See Item 2. "Properties" for additional the leased percentage for each property as of December 31, 2016.
Due to the adoption of the Plan of Dissolution we are no longer reporting funds from operations as we no longer consider this to be a key performance measure.
Changes in Net Assets in Liquidation
Period from August 1, 2016 through December 31, 2016
Net assets in liquidation decreased by approximately $100.3 million during the period August 1, 2016 through December 31, 2016. The decline in net assets was primarily due to Liquidating Distributions to stockholders totaling approximately $104.7 million, or $4.65 per common share, in August and December 2016. The decline in net assets in liquidation was partially offset by a net increase in estimated net sales proceeds from the sales of real estate excluding amounts allocable to noncontrolling interests.
Comparison of the fiscal year ended December 31, 2015 to the fiscal year ended December 31, 2014
Analysis of Revenues and Expenses from Continuing Operations:
Revenues. Rental income from operating leases from continuing operations and other property revenues are derived from base rent, garage and storage income, application fees, lease cancellation fees, and miscellaneous administrative fees. Revenues were approximately $32.9 million and $15.3 million for the years ended December 31, 2015 and 2014, respectively (of which $8.6 million and $4.8 million, respectively, related to the properties sold from September – December 2015). Rental income from continuing operations and other property revenues increased primarily due to the increased stabilization of several properties (either fully operational or partially operational).
Property Operating Expenses. Property operating expenses from continuing operations for the years ended December 31, 2015 and 2014 were $16.5 million and $8.5 million, respectively (of which $3.8 million and $2.7 million,

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respectively, related to the properties sold from September – December 2015). Property operating expenses increased primarily due to the additional properties becoming either fully operational or partially operational. Property operating expenses also increased in 2015 due to pre-leasing and marketing activities at our properties under development with partial operations.
General and Administrative Expenses. General and administrative expenses from continuing operations for the years ended December 31, 2015 and 2014 were approximately $3.2 million and $2.9 million, respectively. General and administrative expenses were comprised primarily of reimbursable personnel expenses of affiliates of our Advisor, directors’ and officers’ insurance, accounting and legal fees, NAV fees and board of directors’ fees. The increase in general and administrative expenses for the year ended December 31, 2015 was primarily the result of the additional legal, accounting and other professional services necessary to account and report on our growing portfolio of assets.
Asset Management Fees. We incurred approximately $3.3 million and $2.1 million in asset management fees from continuing operations payable to our Advisor during the years ended December 31, 2015 and 2014, respectively, (of which approximately $1.0 million and $1.0 million, respectively, were capitalized as part of the cost of our properties that were under development). We incur asset management fees at an annual rate of 1% of our real estate assets under management as defined in the advisory agreement (which generally equals our acquisition and development capitalized costs and excludes pro rata portions attributable to our joint venture partners); therefore, asset management fees increased for the year ended December 31, 2015 as compared to the prior year period as a result of several multifamily projects becoming operational. Asset management fees incurred during development were capitalized as part of the cost of development.
Property Management Fees. We incurred approximately $1.3 million and $0.8 million in property management fees from continuing operations during the years ended December 31, 2015 and 2014, respectively. Property management fees from third party property managers generally range from 2.25% to 4% of property revenues, subject to minimum monthly fees during initial lease-up periods. Property management fees increased during 2015 primarily as a result of increased property revenues.
Acquisition Fees and Expenses. We incurred approximately $1.1 million and $3.5 million in acquisition fees and expenses, including closing costs, during the years ended December 31, 2015 and 2014, respectively, of which approximately $1.1 million and $3.4 million, respectively, were capitalized as part of the costs of our properties under development. The decrease in acquisition fees and expenses in 2015 was due to the fact that we had one acquisition during the year ended December 31, 2015, as compared to five acquisitions during the year ended December 31, 2014. We incurred acquisition fees and expenses, consisting primarily of investment services fees and other acquisition expenses, through April 2015 with the purchase of our last property and capitalized most of these fees and expenses as part of the cost of the development.
Depreciation. Depreciation from continuing operations for the years ended December 31, 2015 and 2014 was approximately $10.4 million and $5.9 million, respectively. Depreciation expense increased primarily due to more properties being fully operational in 2015, as compared to the same period in 2014.
Interest Expense and Loan Cost Amortization, Net of Amounts Capitalized. During the years ended December 31, 2015 and 2014, we incurred approximately $8.9 million and $5.5 million, respectively, of interest expense and loan cost amortization from continuing operations relating to debt outstanding on our properties, $3.8 million and $4.0 million, respectively, of which was capitalized as development costs relating to our properties under development. Interest costs incurred during the year ended December 31, 2015, increased as a result of an increase in our average debt outstanding during the year ended December 31, 2015 to $261.9 million from approximately $186.0 million during 2014, resulting in an increase of approximately $3.4 million in interest cost and loan cost amortization. Interest expense also increased as a result of less interest expense being eligible for capitalization due to the completion of construction activity on several properties that became operational during the year ended December 31, 2015.
Loss on Extinguishment of Debt. Loss on extinguishment of debt from continuing operations was approximately $0.09 million and $0.06 million for the years ended December 31, 2015 and 2014, respectively, related to the early repayment of construction loans due to the sales of properties in 2015 and in 2014 due to refinancings. Loss on extinguishment of debt included the write-off of unamortized loan costs.
Income Tax Expense. Income tax expense was approximately $0.09 million and $0.04 million for the years ended December 31, 2015 and 2014, respectively.
Gain on Sale of Real Estate, Net of Tax. Gain from sale of real estate, net of tax from continuing operations was approximately $61.2 million for the year ended December 31, 2015 relating to the sale of the properties, of which $23.6 million was allocable to common stockholders. There was no gain on sale of real estate from continuing operations in 2014.
Gain on Sale of Easement. During the year ended December 31, 2015, we recorded a gain on the sale of a property easement of $0.6 million. There was no gain on sale of easement during 2014.

39




Analysis of Discontinued Operations
We had income from discontinued operations of approximately $26.6 million and $2.4 million for the years ended December 31, 2015 and 2014, respectively. During 2014 and 2013, we entered into contracts to sell the Long Point Property and Gwinnett Center, respectively. As a result, we accounted for the revenues and expenses associated with the Long Point Property and Gwinnett Center as discontinued operations for all periods presented in accordance with GAAP. In January 2015 and March 2014, we sold the Long Point Property and Gwinnett Center, respectively, to unrelated parties and recorded a gain of approximately $27.4 million (of which $13.9 million was allocable to common stockholders) and $1.2 million, respectively, for financial reporting purposes. Income from discontinued operations was partially offset by a loss on extinguishment of debt of approximately $0.8 million and $0.03 million related to the repayment of the indebtedness of the Long Point Property and Gwinnett Center, respectively, for unamortized loan costs and a prepayment penalty on the Long Point Property due to the sales of these properties.
Net (Income) Loss Attributable to Noncontrolling Interests
In accordance with the provisions of each joint venture agreement, we allocate (income) loss from operations to our co-venture partners based on their percentage ownership in each joint venture. To the extent we have a capital event, such as a sale of a property, the gain is allocated to first provide minimum gain allocations to each joint venture partner, and thereafter, our co-venture partner will receive a disproportionately higher gain allocation, as set forth in each joint venture agreement.
During the years ended December 31, 2015 and 2014, net income (loss) from continuing and discontinued operations attributable to our co-venture partners was approximately $51.4 million and $(0.9) million, respectively. Net income attributable to noncontrolling interests during the year ended December 31, 2015, included pro rata share of income from operations attributable to noncontrolling interests of approximately $0.3 million and a disproportionate share of gains from the sales of properties, in accordance with the gain allocation provisions for capital events, of approximately $51.1 million. All of the net loss attributable to noncontrolling interests for the year ended December 31, 2014, was a result of pro rata share of loss from operations.
As disclosed above, we plan to execute under our Plan of Dissolution, which will include the sale of our remaining properties, the satisfaction of obligations, the payment of liquidating distributions and the dissolution of the Company. We are not aware of any other material trends or uncertainties, favorable or unfavorable, that may be reasonably anticipated to have a material impact on either capital resources or the revenues or income to be derived from the operation and disposition of properties, other than those described above, risk factors, if any, identified in Part II, Item 1A of this report and the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2016.
2%/25% Limitation
We incur operating expenses which, in general, are expenses relating to our administration on an ongoing basis. Pursuant to the advisory agreement, the Advisor will reimburse us the amount by which the total operating expenses paid or incurred by us exceed, in any four consecutive fiscal quarters (the “Expense Year”) commencing with the Expense Year ended December 31, 2012, the greater of 2% of average invested assets or 25% of net income (as defined in the advisory agreement) (the “Limitation”), unless a majority of our independent directors determines that such excess expenses are justified based on unusual and non-recurring factors.
During the years ended December 31, 2016, 2015 and 2014, total operating expenses did not exceed the Limitation.
Off Balance Sheet Arrangements
As of December 31, 2016, we had no off balance sheet arrangements.
Contractual Obligations
As of December 31, 2016, we were subject to contractual payment obligations as described in the table below.
 

40




 
 
Payments Due by Period
 
 
Less than
1 year
 
Years
1 - 3
 
Years
3 - 5
 
More
than 5
years
 
Total
Development contracts on development properties(1)
 
$
6,472,830

 
$

 
$

 
$

 
$
6,472,830

Construction notes payable (principal and interest)(2)
 
101,099,947

 
83,661,339

 

 

 
184,761,286

 
 
$
107,572,777

 
$
83,661,339

 
$

 
$

 
$
191,234,116

FOOTNOTES:
(1)
The amounts presented above represent accrued development costs incurred as of December 31, 2016 and development costs not yet incurred of the aggregate budgeted development costs in accordance with the development agreements, and the expected timing of such costs.
(2)
For purposes of this table, management has assumed the mortgage and construction notes payable are repaid as of the initial maturity dates and are not extended beyond such dates as allowed pursuant to the loan agreements. Additionally, management has calculated estimated interest payments based on interest rates of our mortgage note payables as of December 31, 2016.
Related Party Arrangements
We have entered into agreements with our Advisor and its affiliates, whereby we agree to pay certain fees to, or reimburse certain expenses of, our Advisor or its affiliates for acquisition and advisory services, organization and offering costs, selling commissions, marketing support fees, asset and property management fees and reimbursement of operating costs. See Note 12, “Related Party Arrangements” within Item 8, “Financial Statements and Supplementary Data” and Item 13, “Certain Relationships and Related Transactions, and Director Independence” for a discussion of the various related party transactions, agreements and fees.
Critical Accounting Policies and Estimates
Below is a discussion of the accounting policies that management believes are critical to our operations. We consider these policies critical because they involve difficult management judgments and assumptions, require estimates about matters that are inherently uncertain and because they are important for understanding and evaluating our reported financial results. These judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses. Prior to the adoption of the Liquidation Basis of Accounting, our most sensitive estimates involved the determination of whether an entity should be consolidated, and the capitalization of costs associated with our development properties.
Subsequent to the adoption of the Liquidation Basis of Accounting, we are required to estimate all costs and income we expect to incur and earn through the end of liquidation including the estimated amount of cash we expect to collect on the disposal of our assets and the estimated costs to dispose of our assets.

Basis of Presentation (Post Plan of Dissolution)
As a result of the approval of the Plan of Dissolution by the stockholders in August 2016, our financial position and results of operations for the year ended December 31, 2016 is presented using two different presentations. The Company adopted the Liquidation Basis of Accounting as of August 1, 2016 and for the periods subsequent to August 1, 2016. As a result, a new statement of financial position (Statement of Net Assets) is presented, which represents the estimated amount of cash that the Company will collect on disposal of assets as it carries out its Plan of Dissolution. In addition, a new statement of operations (Statement of Changes in Net Assets) will reflect changes in net assets from the original estimated values as of August 1, 2016 through the most recent period presented, as further described below.
As a result of adopting the Liquidation Basis of Accounting, on August 1, 2016 assets were adjusted to their estimated liquidation value, which represents the estimated gross amount of cash that we will collect on disposal of assets as we carry out our Plan of Dissolution. The liquidation value of our operating properties are presented on an undiscounted basis. Estimated costs to dispose of assets have been presented separately from the related assets. Liabilities are carried at their contractual amounts due or estimated settlement amounts.

41




We accrue costs and income that we expect to incur and earn through the end of liquidation to the extent we have a reasonable basis for estimation. These amounts are classified as a liability for estimated costs in excess of estimated receipts during liquidation on the Consolidated Statement of Net Assets. Actual costs and income may differ from amounts reflected in the financial statements because of inherent uncertainty in estimating future events. These differences may be material. See Note 5, "Liability for Estimated Costs in Excess of Estimated Receipts During Liquidation" in Item 8, “Financial Statements and Supplementary Data” for further discussion. Actual costs incurred but unpaid as of December 31, 2016 are included in accrued development costs, accounts payable and other accrued expenses, due to related parties and other liabilities on the Consolidated Statement of Net Assets.
Net assets in liquidation represents the estimated liquidation value available to stockholders upon liquidation. Due to the uncertainty in the timing of the anticipated sale dates and the estimated cash flows, actual operating results and sale proceeds may differ materially from the amounts estimated.
Non-controlling Interests – Liquidation Basis of Accounting (Post Plan of Dissolution)
 In liquidation, the presentation for joint ventures historically consolidated under going concern accounting will be determined based on our planned exit strategy. We intend to sell all of our properties, rather than selling our interests in our properties, and therefore the properties will be presented on a gross basis with a liability to the non-controlling interest holders. Amounts expected to be due to non-controlling interests in connection with the disposition of consolidated joint ventures have been accrued and are recorded as liability for non-controlling interests.
Basis of Presentation (Pre Plan of Dissolution)
All financial results and disclosures up through July 31, 2016, prior to adopting the Liquidation Basis, are presented based on a going concern basis (“Going Concern Basis”), which contemplates the realization of assets and liabilities in the normal course of business. As a result, the balance sheets as of December 31, 2015 and 2014, the statements of operations and the statements of cash flows for the seven months ended July 31, 2016 and the comparative years ended December 31, 2015 and 2014 used the Going Concern Basis presentation.
Principles of Consolidation (Pre Plan of Dissolution)
Under the going concern basis of accounting, our consolidated financial statements included our accounts, the accounts of our wholly owned subsidiaries or subsidiaries for which we had a controlling interest, the accounts of variable interest entities in which we were the primary beneficiary, and the accounts of other subsidiaries over which we had control. All intercompany accounts and transactions were eliminated in consolidation. The determination of whether we were the primary beneficiary was based on a combination of qualitative and quantitative factors which required management in some cases to estimate future cash flows or likely courses of action.
Real Estate
Prior to the adoption of the Liquidation Basis of Accounting, buildings and improvements were depreciated on the straight-line method over their estimated useful lives, which generally were 39 and 15 years, respectively. Expenditures for maintenance and repairs were charged to operations as incurred. Significant renovations and replacements, which improved or extended the life of the asset, were capitalized.
As of August 1, 2016, real estate assets were adjusted to their estimated liquidation value, to reflect the change to the Liquidation Basis of Accounting. The liquidation value represents the estimated gross amount of cash that we will collect on disposal of assets as we carry out our Plan of Dissolution. The liquidation value of our operating properties are presented on an undiscounted basis. Estimated costs to dispose of assets have been presented separately from the related assets.
As of December 31, 2016, we estimated the liquidation value of our real estate based on purchase and sale agreements when available or property appraisals from CBRE Valuation Advisory Services Group. For valuation methodologies used in preparing the property appraisals, refer to the "Valuation Methodologies" section of Item 5, "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities."
Real Estate Under Development
Prior to the adoption of the Liquidation Basis of Accounting, we recorded acquisition and development costs of properties under development at cost, including acquisition fees and expenses incurred. The cost of real estate under development included direct and indirect costs of development, including interest and miscellaneous costs incurred during the development

42




period until the project was substantially complete and available for occupancy. In addition, during active development, all operating expenses related to the project, including property expenses such as real estate taxes, were capitalized rather than expensed and incidental revenue were recorded as a reduction of capitalized project (i.e., construction) costs. Preleasing costs were expensed as incurred. Assets were placed into service once certificates of occupancy were issued.
Capitalized Interest
Prior to the adoption of the Liquidation Basis of Accounting, we capitalized interest and the amortization of loan costs as a cost of development using the weighted average interest rate of our total outstanding indebtedness and based on our weighted average expenditures for our development properties for the period. Capitalization of interest for a particular development project began when expenses related to the project had been made, activities necessary to get the project ready for its intended use were in progress and when interest costs had been incurred. Capitalization of interest ceased when the project was substantially complete and ready for occupancy.
Impairment of Real Estate Assets
Prior to the adoption of the Liquidation Basis of Accounting, real estate assets were reviewed on an ongoing basis to determine whether there were any indicators, including property operating performance and general market conditions, that the value of the real estate properties (including any related amortizable intangible assets or liabilities) had been impaired. To assess if a property value was potentially impaired, management compared the estimated current and projected undiscounted cash flows, including estimated net sales proceeds, of the property over its remaining useful life to the net carrying value of the property. Such cash flow projections considered factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition, and other factors. In the event that the carrying value exceeded the undiscounted operating cash flows, we recognized an impairment provision to adjust the carrying value of the asset to the estimated fair value of the property.
Income Taxes
We have elected and qualified as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, and related regulations beginning with the year ended December 31, 2010. As a REIT, we generally are not subject to federal corporate income taxes on distributed taxable income and may be subject to excise tax on undistributed taxable income. We or our subsidiaries may be subject to certain state and local taxes on our income and/or property.
If we fail to qualify as a REIT for any reason in a taxable year and applicable relief provisions do not apply, then we will be subject to tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates. We also will be disqualified for the four taxable years following the year during which qualification was lost unless we are entitled to relief under specific statutory provisions. It is not possible to state whether we would be entitled to this statutory relief.
Recent Accounting Pronouncements
See Item 8. “Financial Statements and Supplementary Data” for information about the impact of recent accounting pronouncements.
Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to interest rate changes primarily as a result of long-term debt used to acquire and develop properties. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. With regard to variable rate financing, we assessed interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. As of December 31, 2016, we had entered into a LIBOR based interest rate cap agreement to hedge against increases in the interest rate on one construction loan.
The following is a schedule of our variable rate debt maturities for each of the next five years, and thereafter, assuming the terms of the loans are not extended (principal maturities only):
 
2017
 
2018
 
2019
 
2020
 
2021
 
There-after
 
Total
 
Approximate Fair Value
Variable rate debt
$
96,616,221

 
$
82,519,149

 
$

 
$

 
$

 
$

 
$
179,135,370

 
$
178,300,000

Average interest rate(1)
3.14
%
 
3.09
%
 
%
 
%
 
%
 
%
 
3.12
%
 
 

43



FOOTNOTE:
(1)
As of December 31, 2016 we were paying the interest rate floor on certain of our variable rate debts.
Management estimates that a hypothetical one-percentage point increase in LIBOR compared to the LIBOR rate as of December 31, 2016, would increase annual interest expense by approximately $1.5 million on our variable rate debt. This sensitivity analysis contains certain simplifying assumptions, and although it gives an indication of our exposure to changes in interest rates, it is not intended to predict future results and our actual results will likely vary.


44




Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES
 
 
 
Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


45



Report of Independent Registered Certified Public Accounting Firm
To the Board of Directors and Stockholders of
CNL Growth Properties, Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheet (going concern basis) of CNL Growth Properties, Inc. and its subsidiaries as of December 31, 2015, and the related consolidated statements of operations (going concern basis), equity (going concern basis) and cash flows (going concern basis) for each of the two years in the period ended December 31, 2015 and for the period from January 1, 2016 to July 31, 2016. In addition, we have audited the consolidated statement of net assets (liquidation basis) as of December 31, 2016, and the related consolidated statement of changes in net assets (liquidation basis) for the period from August 1, 2016 to December 31, 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Notes 2 and 3 to the consolidated financial statements, the stockholders of CNL Growth Properties, Inc. approved a plan of liquidation on August 4, 2016, and the Company determined liquidation is imminent. As a result, the Company changed its basis of accounting on August 1, 2016 from the going concern basis to a liquidation basis.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CNL Growth Properties, Inc. and its subsidiaries as of December 31, 2015, the results of their operations and their cash flows for each of the two years in the period ended December 31, 2015 and for the period from January 1, 2016 to July 31, 2016, their net assets in liquidation as of December 31, 2016, and the changes in their net assets in liquidation for the period from August 1, 2016 to December 31, 2016, in conformity with accounting principles generally accepted in the United States of America applied on the bases described in the preceding paragraph. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

As discussed in Note 9 to the consolidated financial statements, the Company changed the criteria for reporting discontinued operations in 2015.


/s/ PricewaterhouseCoopers LLP
Orlando, Florida
March 17, 2017


46


CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF NET ASSETS
(Liquidation Basis)


 
 
December 31, 2016

ASSETS
 
 
Real estate assets, net
 
$
331,970,000

Cash and cash equivalents
 
17,926,602

Restricted cash
 
405,255

Other assets
 
257,989

Total Assets
 
350,559,846

LIABILITIES
 
 
Mortgage and construction notes payable
 
179,135,370

Liability for non-controlling interests
 
35,080,687

Liability for estimated costs in excess of estimated receipts during liquidation
 
11,306,997

Accrued development costs
 
2,944,380

Accounts payable and other accrued expenses
 
4,379,230

Due to related parties
 
1,812,609

Other liabilities
 
850,990

Total Liabilities
 
235,510,263

Commitments and contingencies (Note 14)
 

Net assets in liquidation
 
$
115,049,583


See accompanying notes to consolidated financial statements.


47


CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Going Concern Basis)


 
 
December 31, 2015
ASSETS
 
 
Real estate assets, net:
 
 
Operating real estate assets, net (including VIEs $170,258,129)
 
$
175,359,303

Construction in process, including land (including VIEs $114,367,104)
 
119,031,154

Total real estate assets, net
 
294,390,457

Real estate held for sale (including VIEs $96,073,012)
 
124,092,989

Cash and cash equivalents (including VIEs $8,086,954)
 
19,016,194

Restricted cash (including VIEs $1,058,010)
 
1,369,515

Other assets (including VIEs $1,165,593)
 
1,613,635

Total Assets
 
$
440,482,790

LIABILITIES AND EQUITY
 
 
Liabilities:
 
 
Mortgage and construction notes payable (including VIEs $239,298,457)
 
$
267,025,839

Accrued development costs (including VIEs $18,265,802)
 
18,265,802

Due to related parties
 
1,650,788

Accounts payable and other accrued expenses (including VIEs $4,436,485)
 
4,973,131

Other liabilities (including VIEs $594,221)
 
678,702

Total Liabilities
 
292,594,262

Commitments and contingencies (Note 14)
 

Equity:
 
 
Stockholders’ equity:
 
 
Preferred stock, $0.01 par value per share, authorized and unissued 200,000,000 shares
 

Common stock, $0.01 par value per share, 1,120,000,000 shares authorized; 22,702,363 issued and 22,526,171 outstanding
 
225,262

Capital in excess of par value
 
170,792,081

Accumulated income
 
18,895,225

Accumulated cash distributions
 
(67,578,518
)
Total Stockholders’ Equity
 
122,334,050

Noncontrolling interests
 
25,554,478

Total Equity
 
147,888,528

Total Liabilities and Equity
 
$
440,482,790

The abbreviation VIEs above means Variable Interest Entities.
See accompanying notes to consolidated financial statements.


48


CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
(Liquidation Basis)


 
 
Period from August 1, 2016 through December 31, 2016
Net assets in liquidation, beginning of period (Note 4)
 
$
215,361,554

Changes in net assets in liquidation:
 
 
Change in liquidation value of investments in real estate
 
4,412,000

Remeasurement of assets and liabilities
 
6,766,593

Remeasurement of noncontrolling interests
 
(6,743,864
)
Net increase in liquidation value
 
4,434,729

Liquidating distributions to stockholders
 
(104,746,700
)
Changes in net assets in liquidation
 
(100,311,971
)
Net assets in liquidation, end of period
 
$
115,049,583


See accompanying notes to consolidated financial statements.


49


CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Going Concern Basis) 


 
 
Seven Months Ended July 31,
 
Year Ended December 31,
 
 
2016
 
2015
 
2014
Revenues:
 
 
 
 
 
 
Rental income from operating leases
 
$
19,199,105

 
$
30,473,600

 
$
14,080,893

Other property revenues
 
2,003,701

 
2,473,481

 
1,228,725

Total revenues
 
21,202,806

 
32,947,081

 
15,309,618

Expenses:
 
 
 
 
 
 
Property operating expenses
 
11,653,617

 
16,462,866

 
8,488,871

General and administrative
 
2,775,540

 
3,210,332

 
2,850,632

Asset management fees, net of amounts capitalized
 
1,604,305

 
2,348,250

 
1,070,864

Property management fees
 
965,979

 
1,262,453

 
763,681

Acquisition fees and expenses, net of amounts capitalized
 

 
16,462

 
76,046

Depreciation
 
5,355,949

 
10,433,749

 
5,946,416

Total operating expenses
 
22,355,390

 
33,734,112

 
19,196,510

Operating loss
 
(1,152,584
)
 
(787,031
)
 
(3,886,892
)
Other income (expense):
 
 
 
 
 
 
Fair value adjustments and other income (expense)
 
73,120

 
(16,476
)
 
55,165

Interest expense and loan cost amortization, net of amounts capitalized
 
(4,197,031
)
 
(5,127,058
)
 
(1,485,912
)
Loss on extinguishment of debt
 
(27,454
)
 
(87,047
)
 
(59,573
)
Total other expense
 
(4,151,365
)
 
(5,230,581
)
 
(1,490,320
)
Income tax expense
 
(151,217
)
 
(89,192
)
 
(42,696
)
Loss from continuing operations
 
(5,455,166
)
 
(6,106,804
)
 
(5,419,908
)
Income from discontinued operations, net of tax
 

 
26,556,668

 
2,378,499

Net (loss) income before gains on sale of real estate and easement
 
(5,455,166
)
 
20,449,864

 
(3,041,409
)
Gain on sale of real estate, net of tax
 
40,917,543

 
61,208,195

 

Gain on sale of easement
 

 
603,400

 

Net income (loss) including noncontrolling interests
 
35,462,377

 
82,261,459

 
(3,041,409
)
Net (income) loss attributable to noncontrolling interests:
 
 
 
 
 
 
Continuing operations
 
(21,931,862
)
 
(37,899,343
)
 
897,670

Discontinued operations
 

 
(13,459,486
)
 
(45,265
)
Net (income) loss attributable to non-controlling interests
 
(21,931,862
)
 
(51,358,829
)
 
852,405

Net income (loss) attributable to common stockholders
 
$
13,530,515

 
$
30,902,630

 
$
(2,189,004
)
Net income (loss) per share of common stock (basic and diluted):
 
 
 
 
 
 
Continuing operations
 
$
0.60

 
$
0.79

 
$
(0.21
)
Discontinued operations
 

 
0.58

 
0.11

Net income (loss) per share of common stock (basic and diluted)
 
$
0.60

 
$
1.37

 
$
(0.10
)
Weighted average number of shares of common stock outstanding (basic and diluted)
 
22,526,171

 
22,526,171

 
21,361,725

See accompanying notes to consolidated financial statements.

50


CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(Going Concern Basis)


 
 
Common Stock
 
Capital in
Excess of Par
Value
 
Accumulated
(Deficit) Income
 
Accumulated
Cash
Distributions
 
Total
Stockholders’
Equity
 
Noncontrolling
Interests
 
Total Equity
Number of
Shares
 
Par Value
 
Balance at December 31, 2013
 
15,393,316

 
$
153,933

 
$
120,627,485

 
$
(9,818,401
)
 
$

 
$
110,963,017

 
$
23,415,094

 
$
134,378,111

Subscriptions received for common stock through public offering
 
5,985,914

 
59,859

 
65,336,467

 

 

 
65,396,326

 

 
65,396,326

Redemptions of common stock
 
(40,447
)
 
(404
)
 
(399,781
)
 

 

 
(400,185
)
 

 
(400,185
)
Stock issuance and offering costs
 

 

 
(9,490,715
)
 

 

 
(9,490,715
)
 

 
(9,490,715
)
Stock distributions
 
1,187,388

 
11,874

 
(11,874
)
 

 

 

 

 

Purchase of noncontrolling interest
 

 

 
(5,269,501
)
 

 

 
(5,269,501
)
 
(256,324
)
 
(5,525,825
)
Contributions from non-controlling interests
 

 

 

 

 

 

 
14,744,367

 
14,744,367

Distributions to noncontrolling interests
 

 

 

 

 

 

 
(2,149,737
)
 
(2,149,737
)
Net loss
 

 

 

 
(2,189,004
)
 

 
(2,189,004
)
 
(852,405
)
 
(3,041,409
)
December 31, 2014
 
22,526,171

 
$
225,262

 
$
170,792,081

 
$
(12,007,405
)
 
$

 
$
159,009,938

 
$
34,900,995

 
$
193,910,933

Cash distributions, declared and paid ($3.00 per share)
 

 

 

 

 
(67,578,518
)
 
(67,578,518
)
 

 
(67,578,518
)
Contributions from non-controlling interests
 

 

 

 

 

 

 
1,942,204

 
1,942,204

Distributions to noncontrolling interests
 

 

 

 

 

 

 
(62,647,550
)
 
(62,647,550
)
Net income
 

 

 

 
30,902,630

 

 
30,902,630

 
51,358,829

 
82,261,459

December 31, 2015
 
22,526,171

 
$
225,262

 
$
170,792,081

 
$
18,895,225

 
$
(67,578,518
)
 
$
122,334,050

 
$
25,554,478

 
$
147,888,528

Distributions to noncontrolling interests
 

 

 

 

 

 

 
(27,107,808
)
 
(27,107,808
)
Net income
 

 

 

 
13,530,515

 
$

 
13,530,515

 
21,931,862

 
35,462,377

July 31, 2016
 
22,526,171

 
$
225,262

 
$
170,792,081

 
$
32,425,740

 
$
(67,578,518
)
 
$
135,864,565

 
$
20,378,532

 
$
156,243,097

See accompanying notes to consolidated financial statements.

51


CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Going Concern Basis)


 
 
Seven Months Ended July 31,
 
Year Ended December 31,
 
 
2016
 
2015
 
2014
Operating Activities:
 
 
 
 
 
 
Net income (loss), including amounts attributable to noncontrolling interests
 
$
35,462,377

 
$
82,261,459

 
$
(3,041,409
)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
 
 
 
 
 
 
Depreciation and amortization
 
5,355,949

 
10,433,749

 
6,811,281

Amortization of loan costs
 
441,510

 
557,379

 
212,182

Loss on extinguishment of debt
 
27,454

 
905,451

 
92,361

Prepayment penalties on loans
 

 
(282,485
)
 

Loss on retirement of fixed assets
 
1,005

 

 

Gain on sale of real estate held for sale
 
(41,017,124
)
 
(89,847,236
)
 
(1,219,693
)
Gain on sale of easement
 

 
(603,400
)
 

Unrealized loss from change in fair value of interest rate caps
 
23,342

 
75,712

 
243,045

Straight line rent adjustments
 
(413,223
)
 
(72,649
)
 
(374,359
)
Changes in operating assets and liabilities: