Thistle Community Housing and Subsidiaries dba Thistle Communities

Transcription

1 dba Thistle Communities Consolidated Financial Statements and Supplemental Information with Independent Auditors Report

2 Contents Page Independent Auditors Report... 1 Consolidated financial statements: Statements of financial position... 3 Statements of activities and changes in net assets... 5 Statements of cash flows... 7 Notes to financial statements... 9 Supplemental Information: Statements of functional expenses... 35

3 Certified Public Accountants (a professional corporation) 1221 West Mineral Ave, Ste. 202 Littleton, Colorado (303) Fax (303) INDEPENDENT AUDITORS' REPORT The Board of Directors Thistle Community Housing and Subsidiaries dba Thistle Communities Boulder, Colorado We have audited the accompanying consolidated financial statements of Thistle Community Housing and Subsidiaries dba Thistle Communities (the Organization), which comprise the consolidated statements of financial position as of September 30, 2016 and 2015, and the related consolidated statements of activities and changes in net assets and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. An Association of Independent Accounting Firms 873 North Cleveland Avenue Loveland, Colorado (303) West Printers Row Salt Lake City, Utah (801) West Broadway, Suite 600 Salt Lake City, Utah (801) South Fashion Pointe Dr., Suite 120 South Ogden, UT (801)

4 Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Organization as of September 30, 2016 and 2015, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note 3 to the consolidated financial statements, the Organization recognized a change in estimate resulting in a recovery of $926,153 on the previous impairment of the Blue Vista Project. Also as discussed in Note 3 to the consolidated financial statements, the Organization recognized a change in estimate resulting in grant modification expense of $413,395. Our opinion is not modified with respect to those matters. Report on Supplementary Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The supplementary information identified on the contents page is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our reports dated January 25, 2017, on our consideration of Thistle Community Housing and internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Thistle Community Housing and Subsidiaries internal control over financial reporting and compliance. Littleton, Colorado January 25, 2017

5 dba Thistle Communiites Consolidated Statements of Financial Position ASSETS September Property and equipment: Construction in progress (Note 6) $ 131,293 $ 1,002,054 Land and land improvements 15,281,482 15,757,482 Buildings 49,481,247 44,312,197 Loan fees 1,043,769 1,028,515 Furniture, fixtures and equipment 1,155,431 1,117,702 Less: accumulated depreciation and amortization (18,178,287) (17,010,834) Total property and equipment 48,914,935 46,207,116 Restricted/ designated use assets: Tenant security deposit trust 287, ,065 Reserve for replacement trust (Note 4) 829, ,602 Operating reserve trust (Note 4) 544, ,870 Other reserve trust (Note 4) 327, ,790 Repairs & cash-out proceed reserves (Note 4) 64, ,316 Tax, Insurance and other escrows 238, ,709 Development funds (Note 5) 329, ,826 Internally designated operating reserves 709, ,408 Total restricted/designated use assets 3,331,063 3,684,586 Other assets: Cash and cash equivalents 975, ,324 Receivables: Grants - capital 4, ,098 Notes receivable - other - 1,488 Tenant receivables 19,707 6,103 Prepaid expenses 76,647 50,852 Total other assets 1,075,717 1,873,865 Total assets $ 53,321,715 $ 51,765,567 (continued) 3

6 dba Thistle Communiites Consolidated Statements of Financial Position (continued) LIABILITIES AND NET ASSETS September Liabilities: Accounts payable $ 303,345 $ 158,647 Prepaid rent 24,322 24,034 Accrued property taxes 133, ,766 Accrued interest payable 369, ,290 Accrued payroll and payroll taxes 22,619 22,619 Accrued vacation 20,432 20,432 Accrued expense 55, ,524 Tenant security deposits 348, ,547 Notes and bonds payable (Notes 8) 31,088,769 29,481,937 Contingent repayment of grants (Notes 3 & 9) 70, ,153 Deposit for future development 228, ,208 Total Liabilities 32,663,885 31,780,157 Non-controlling interest in net assets 3,750,688 4,219,354 Net assets: Unrestricted (including designated operating reserves) 13,874,863 11,637,962 Temporarily restricted 4, ,098 Permanently restricted (Note 13) 3,027,996 3,167,996 Total net assets 16,907,142 15,766,056 Total liabilities and net assets $ 53,321,715 $ 51,765,567 The accompanying notes are an integral part of these financial statements 4

7 dba Thistle Communiites Consolidated Statements of Activities and Changes in Net Assets Year Ended September 30, 2016 Unrestricted Public support and other revenue: Grants and contributions: Operating 218,104 Temporarily Restricted Permanently Restricted $ $ - $ - $ 218,104 Capital ,000 60,000 Net assets released from restriction (Note 13) 1,155,815 (955,815) (200,000) - Total public support 1,373,919 (955,815) (140,000) 278,104 Other revenue: Rental income 5,849, ,849,716 Tenant charges 335, ,374 Management and other fees 135, ,470 Development fees 785, ,551 Miscellaneous income (expense) 42, ,765 Interest income 1, ,174 Gain (loss) on sale and disposal (Note 12) (58,651) - - (58,651) Total other revenue 7,091, ,091,399 Total public support and revenue 8,465,318 (955,815) (140,000) 7,369,503 Expenses: Program Services: Property & asset management 6,902, ,902,819 Community Land Trust 28, ,598 Development 221, ,153 7,152, ,152,570 Management and general 392, ,804 Fundraising 41, ,088 Impairment (recovery) of long-lived assets (Note 3) (926,153) - - (926,153) Total costs and expenses 6,660, ,660,309 Total Increase (decrease) in net assets 1,805,009 (955,815) (140,000) 709,194 Share of subsidiary net loss attributable to noncontrolling interest 431, ,891 Increase (decrease) in net assets attributable to Thistle Community Housing 2,236,900 (955,815) (140,000) 1,141,085 Net assets, beginning of year 11,637, ,098 3,167,996 15,766,056 Net assets, end of year $ 13,874,862 $ 4,283 $ 3,027,996 $ 16,907,141 (Continued) 5

8 dba Thistle Communiites Consolidated Statements of Activities and Changes in Net Assets Year Ended September 30, 2015 Unrestricted Public support and other revenue: Grants and contributions: Operating 210,870 Temporarily Restricted Permanently Restricted $ $ - $ - $ 210,870 Capital ,000 95,000 Net assets released from restriction (Note 13) 1,046,683 (1,046,683) - - Total public support 1,257,553 (1,046,683) 95, ,870 Other revenue: Rental income 5,309, ,309,010 Tenant charges 368, ,986 Management and other fees 121, ,086 Development fees 170, ,341 Miscellaneous income (expense) 9, ,594 Interest income 3, ,089 Gain (loss) on sale and disposal (Note 12) (365,458) - - (365,458) Total other revenue 5,616, ,616,648 Total public support and revenue 6,874,201 (1,046,683) 95,000 5,922,518 Expenses: Program Services: Property & asset management 6,278, ,278,566 Community Land Trust 177, ,501 Development 213, ,095 6,669, ,669,162 Management and general 327, ,325 Fundraising 39, ,210 Impairment (recovery) of long-lived assets (Note 3) Total costs and expenses 7,035, ,035,697 Total Increase (decrease) in net assets (161,496) (1,046,683) 95,000 (1,113,179) Share of subsidiary net loss attributable to noncontrolling interest 483, ,249 Increase (decrease) in net assets attributable to Thistle Community Housing 321,753 (1,046,683) 95,000 (629,930) Net assets, beginning of year 11,316,209 2,006,781 3,072,996 16,395,986 Net assets, end of year $ 11,637,962 $ 960,098 $ 3,167,996 $ 15,766,056 The accompanying notes are an integral part of the financial statements 6

9 dba Thistle Communiites Consolidated Statements of Cash Flows Year ended September 30, Cash flows from operating activities: Grants and contributions, operations $ 631,495 $ 223,370 Tenant payments 6,173,213 5,659,387 Management and development fees 135, ,427 Interest received 1,174 3,089 Costs and expenses (4,722,640) (3,948,763) Interest paid (1,187,031) (1,400,909) Change in net assets - non-controlling interest (36,825) - Net cash provided (used) by operating activities 994, ,601 Cash flows from investing activities: Purchase of property and equipment: Operating properties (3,552,999) (2,638,036) Proceeds from sale of fixed assets- Developed properties 73,830 - Net (increase) decrease in deposits - 5,775 Net (increase) decrease in restricted use assets 353, ,066 Net cash provided (used) by investing activities (3,125,646) (1,966,195) Cash flows from financing activities: Change in security deposit liabilities 56,547 46,559 Contributions and grants for capital expenditures 602,420 1,141,683 Loan fees (15,252) - Capital contributions - 578,856 Proceeds of notes and bonds, operating properties 2,394,523 4,983,924 Payments on notes and bonds, operating properties (787,691) (5,134,471) Net cash provided (used) by financing activities 2,250,547 1,616,551 Net increase in cash 119, ,957 Beginning cash and cash equivalents 855, ,367 Ending cash and cash equivalents $ 975,081 $ 855,324 (continued) 7

10 dba Thistle Communiites Consolidated Statements of Cash Flows (continued) Year ended September 30, Increase (decrease) in net assets $ 709,194 $ (1,113,179) Adjustments to reconcile increase (decrease) in net assets provided (used) by operating activities: Depreciation, amortization and abandonments 1,673,556 1,663,641 Contributions and grants for investing and financing activities (60,000) (95,000) Grant modification expense 413,395 - Recovery long-lived assets (926,153) - Development fee income receivable (785,551) - (Gain) loss on sale and other 58, ,458 Change in net assets attributable to non-controlling interest (36,825) - Change in operating assets and liabilities: Accounts receivable (12,115) 3,696 Grants receivable, operations - 12,500 Prepaid expenses (18,961) 21,131 Accounts payable, accrued expenses and deposit (46,643) 2,416 Prepaid rent 288 (22,305) Accrued interest payable 26,022 (10,757) Net cash provided (used) by operating activities $ 994,856 $ 827,601 The accompanying notes are an integral part of these financial statements 8

11 DBA Thistle Communities Notes to Consolidated Financial Statements 1. Organization and Basis of Presentation Thistle Community Housing (Thistle) was incorporated in 1985 as a non-profit organization whose purpose is to provide housing facilities for persons of low and moderate income in Boulder County and surrounding areas. Thistle was formerly known as Boulder s Best, Inc. and currently does business as Thistle Communities. Currently, Thistle operates a rental housing program, a homeownership program which includes a Community Land Trust (the properties), and a Real Estate Development program. Income Sources Thistle generates operating revenue from three primarily sources: income from owning and managing properties, developer fees, and grants and contributions. Thistle has historically been dependent on public support in the form of grants and contributions, although the dependence on grants and contributions for operations has steadily decreased in the past ten years. See Note 7. Because the nature of affordable, income restricted housing limits cash flow, Thistle is dependent upon grants for major capital improvements to its owned property. See Note 11 for concentrations of grants received from NeighborWorks of America and City of Boulder. Sage Court (19 Homes) Developed and constructed in in partnership with the Center for People with Disabilities (CPWD), Sage Court provides housing for handicapped persons of low and moderate income. The financing for the property was provided in part by the Colorado Housing and Finance Authority (CHFA), the Boulder Housing Partners, and CPWD. Thistle provides management services for the property. CPWD provides a referral service. This property was transferred to My Back Yard, LLC in June Valmont Square (36 Homes) Purchased in April 1992, Valmont Square provides housing for persons of low and moderate income. The financing for the property was provided in part by CHFA and the City of Boulder. Thistle provides management services for the property. This property was transferred into MBY Development, LLC in September, Buena Vista (57 Homes) Buena Vista land was purchased in October 1993 for the purpose of developing a community land trust, creating home ownership opportunities for low- to moderate-income families who live and work in Boulder. The financing for the property was provided in part by various grants from the City of Boulder, a HOME grant, State Division of Housing, Federal Home Loan Bank, and various foundations. The construction loan was funded by a local bank. Construction of the property was completed by September 30, 2001, and all 57 homes were sold. Thistle has retained the land in its Community Land Trust. 9

12 DBA Thistle Communities 1. Organization and Basis of Presentation (continued) Spruce Street (4 Homes) Purchased in July 1994, Spruce Street provides housing for persons of low and moderate income. The financing for this property was provided in part by a HOME grant, awarded in 1993 from the City of Boulder. Thistle provides management services for this property. Laguna (8 Homes) Purchased in May 1996, Laguna provides housing for persons of low and moderate income. The financing for the property was provided in part by a grant from the City of Boulder s Community Housing Assistance Program (CHAP). Thistle provides management services for the property. This property was transferred to My Back Yard, LLC in June Terry Street (24 Homes) Purchased in August 1997, Terry Street provides housing for persons of low and moderate income in Longmont, Colorado. The property was financed in part by the City of Longmont, and the remaining funds were loaned by a local bank. Thistle provides management services for this property. This property was transferred to My Back Yard, LLC in June Chester Street (2 Homes) Purchased in 1997, Chester Street originally had one home on it with the land retained in their Community Land Trust. Thistle repurchased the house in August 2002, tore it down and built two homes on the land. Both these homes were sold as of September 30, 2004 with the land retained in their Community Land Trust. Community Land Trust The Community Land Trust (CLT) is a program of Thistle which originated in to facilitate home ownership opportunities for low- to moderate-income home buyers in Boulder County and surrounding areas. The CLT utilizes a land lease to enable the homeowner to purchase the unit at an affordable price. The land is owned by Thistle and is leased to the homeowner for the duration of ownership or 99 years, whichever is first. The homeowner may only sell their interest to another income-qualified buyer. The resale price is determined by a calculation included in the land lease agreement. Parkville (76 Homes) Parkville was purchased in June 1999 for the purpose of providing 76-unit/75 rental housing for low and moderate income people in Longmont, Colorado. The property was financed in part by multifamily housing revenue bonds, issued by Boulder County, Colorado. The remaining amount was financed through a grant from the State of Colorado and a loan from the City of Longmont. Thistle provides management services for this property. This property was transferred to My Back Yard, LLC in June

13 DBA Thistle Communities 1. Organization and Basis of Presentation (continued) Folsom Street A commercial building at 1845 Folsom Street in Boulder, Colorado was purchased in November 1999 for the purpose of providing office space for Thistle operations. The purchase was financed by a grant from the City of Boulder, private donations and loans from a local bank. The building was renovated for office use. In 2016, the Thistle s operations were centralized and its offices moved to 6000 Spine Road in Boulder. Thistle s intention is to work with the original grantor to accept alternative uses of the Folsom Street location, including the possibility of leasing the facility or otherwise amending the grant restrictions for Thistle office use. English Village (32 Homes) This property was purchased in July 2000 to provide housing for persons of low and moderate income in Longmont, Colorado. The financing for this property was provided by grants from the State of Colorado Division of Housing, the City of Longmont and the Federal Home Loan Bank s Affordable Housing Program, as well as loans from Funding Partners for Housing Solutions, the City of Longmont and a local bank. Thistle provides management services for this property. This property was transferred into MBY Development, LLC 1 in September, Pinewood (23 Homes) This property was purchased in January 2001 to provide 23 units of affordable housing for persons living in Boulder, Colorado. The financing for this property was provided by grants from City of Boulder HOME funds and State of Colorado HOME funds. The remaining funds were loaned by Funding Partners for Housing Solutions and a local bank. Additionally, Brian and Wendy Underhill, local Boulder residents, helped make the acquisition of Pinewood Apartments possible with a $60,000 donation from the proceeds of the sale of their home. Thistle provides management services for this property. This property was transferred into MBY Development, LLC in September, Correll (21 Homes) Purchased in September 2001, this property provides 21 units of housing for persons of low and moderate income in Boulder, Colorado. The financing for this property was provided by City of Boulder HOME, CDBG and Affordable Housing Program grants. The remaining funds were loaned by a local bank. Thistle provides management services for the property which was transferred into MBY Development, LLC in September, Parkside Village, LLC On October 30, 2013, Thistle created a single-member, non-profit subsidiary, Parkside Village, LLC, a Colorado limited liability company, formed to refinance and perform certain repairs on the affordable housing project previously owned by Parkside Village, Ltd. Financing for this project was obtained through a HUD insured loan under Section 207 pursuant to 223(f) of the National Housing Act. The property is subject to a Low Income Housing Tax Credit Land Use Restriction Agreement and subject to regulations and restrictions under a Regulatory Agreement with HUD. 11

14 DBA Thistle Communities 1. Organization and Basis of Presentation (continued) MBY Development, LLC 1 In September 2002, Thistle created a single-member, non-profit subsidiary, MBY Development, LLC 1, a Colorado limited liability company, formed to refinance affordable housing for persons living in Boulder County, Colorado. Financing for this project was obtained through issuance of bank qualified tax exempt revenue bonds. The bonds are secured by a first deed of trust on the properties. Four rental properties, Correll, English Village, Pinewood and Valmont Square, were transferred into MBY Development, LLC 1 as of September 30, My Back Yard, LLC In June 2004, Thistle created a single-member, non-profit subsidiary, My Back Yard, LLC, a Colorado limited liability company with Thistle as its sole member. My Back Yard, LLC was formed in connection with a refinancing of tax exempt bonds issued to assist with affordable housing for persons living in Boulder County, Colorado. Four rental properties, Laguna, Parkville, Sage Court and Terry Street were transferred into My Back Yard, LLC in June Investment Management Beneficiary, LLC (IMBY) and ( Blue Vista ) The Myers/Quail property was purchased in December 2000 for the eventual purpose of building a development to create home ownership opportunities. Financing for this property was provided by a loan from a local bank. The property also received a $120,000 grant from Affordable Housing Partners to fund development costs which were originally capitalized. In November 2002, Thistle purchased acres of land ( Serlis,) adjacent to the Meyers/Quail property in Longmont, Colorado. The Serlis purchase was partially financed by loans from Bank One and First National Bank of Colorado. In addition, Thistle received a grants totaling approximately $1,325,000 (SHOP grants), a $70,000 grant from the City of Longmont, and a forgivable loan from the State Division of Housing. In December 2001, Thistle created a single-member, non-profit subsidiary, Investment Management Beneficiary, LLC, a Colorado limited liability company, formed to create home ownership opportunities for low to moderate-income persons residing in Longmont, Colorado. The Meyers/Quail and Serlis properties were transferred to IMBY as of September 30, This development was renamed Blue Vista. Thirty three of the planned 100 affordable homes were constructed, but plans to complete the remaining 67 affordable homes were terminated in fiscal The construction was financed through Colorado Development Revenue bonds, a revolving bank loan, and a note with the City of Longmont. Guaranty Bank, who purchased those bonds, initiated foreclosure proceedings in fiscal The property was transferred to a receiver in December 2012 in settlement on the defaulted bonds. See Note 8 for the City of Longmont note. Thistle had continuing compliance commitments associated with the above mentioned grants. See Note 3. 12

15 DBA Thistle Communities 1. Organization and Basis of Presentation (continued) Mapleton, LLC (130 homes) On December 9, 2004, Mapleton, LLC acquired the mobile home park development known as Mapleton Mobile Home Park, consisting of the facilities, including real property and structures for $2.9 million. Mapleton LLC, a single-member, non-profit subsidiary, a Colorado limited liability company, was formed to provide affordable housing for persons living in Boulder County, Colorado. The acquisition was financed with AHP grant funds passed through FHLB of Topeka, HOME funds passed through both the City of Boulder and State of Colorado, and a grant from the City of Boulder. The balance of the acquisition and rehabilitation of the property is financed with Revenue Bonds Mapleton Mobile Home Park Project Series 2004A issued by The Housing Authority of The City of Boulder, Colorado, d/b/a Boulder Housing Partners. Thistle is rehabilitating the property and operates it in accordance with the various restrictions imposed by the grant and loan agreements including the Tax Regulatory Agreement with Boulder Housing Partners. To this end, Thistle entered into a 99 year land lease agreement with the Mapleton Home Association (MHA) on terms that would provide for continuing affordability for low and moderate income households, while giving the MHA or its approved assignees oversight of the management of the Park. Uptown in Your Back Yard, LLC and Uptown Boulder LLLP (32 units) In August 2005, Thistle created Uptown in Your Back Yard, LLC, whose purpose was to become the managing member in Uptown Boulder LLLP (Uptown), a limited partnership formed to develop a low-income housing facility in Boulder County. Thistle received grants from the City of Boulder and the State of Colorado Division of Housing and a contribution of a portion of purchase price by the seller. Long-term financing was provided by the CHFA.. In August 2005 Uptown in Your Backyard LLC closed on the first 16 units of the Uptown Broadway apartments. In October 2005, closing on the second 16 units occurred. Uptown received an allocation of Low-Income Housing Tax Credits which were used to attract Uptown s limited partner investor. Fairways IMBY LLC, Fairways Office LLC and Fairways in My Backyard, LLLP (70 units) On March 23, 2006, Thistle created two new subsidiaries, Fairways IMBY LLC and Fairways Office LLC, both Colorado limited liability companies, wholly-owned by Thistle. Upon formation, Fairways IMBY LLC acquired a 71 unit rental property in Boulder, Colorado. Thistle received grants and loans from the City of Boulder, the State of Colorado Division of Housing and the St. John s Foundation. The balance of the acquisition was financed with bank debt. In July 2007 Fairways IMBY LLC became the managing member of Fairways in My Backyard, LLLP ( Fairways LLLP ), a limited partnership formed, with an investor partner, to operate a low-income housing facility in Boulder County as a Low Income Tax Credit entity. Upon transfer of the property to Fairways LLLP, Thistle repaid the related bank debt and secured a permanent loan funded by CHFA. 13

16 DBA Thistle Communities 1. Organization and Basis of Presentation (continued) Fairways IMBY LLC, Fairways Office LLC and Fairways in My Backyard, LLLP (70 units) (continued) Fairways Office LLC was formed to acquire a related office building for $1,230,000, in order to obtain the adjacent affordable housing project described above. Bank borrowings financed the office building acquisition. Thistle sold the office building in fiscal year 2008 for $1,280,000 and paid off $920,000 of debt. Management services for the Fairways Office were provided by WWR Real Estate Services, LLC ( WWR ) employed by Thistle to rent, lease, operate and manage the office building in exchange for 3% of its gross receipts. The Cannery, LLC and The Cannery, LLLP (94 units) On February 23, 2007, Thistle created a new subsidiary, the Cannery, LLC, a Colorado limited liability company, wholly-owned by Thistle. The Cannery, LLC, formed to provide affordable housing, acquired a 94 unit rental property in Longmont, Colorado for $5,740,000. One of the three acquired buildings is historically designated. The acquisition was financed with loans from a bank, Mile High Housing Fund, Inc., the City of Longmont, and a grant from NeighborWorks of America. In May, 2008 the Cannery, LLC transferred the Cannery apartments to The Cannery, LLLP and became the.01% managing member of The Cannery, LLLP, a limited liability limited partnership, which was formed, with an investor partner, to operate the Cannery apartments as a Low Income Housing Tax Credit entity. Long-term financing was provided by the CHFA Rosewood LLC (18 Homes) On April 13, 2010, Thistle and Allison Management, LLC created a new entity, 1000 Rosewood, LLC, a Colorado limited liability company, owned 50% by Thistle and 50% by Allison Management, LLC Rosewood, LLC acquired property known as 1000 Rosewood for the purpose of developing an 18 single home mixed-income community. In August 2010, the City of Boulder allocated $240,000 Affordable Housing grant funds to assist in the acquisition. Approximately $180,000 of NeighborWorks of America funds were also used to acquire the property. The project was built with funds from a capital loan obtained in September The property was developed jointly by Thistle Communities and Boulder developer Allison Management. At September 30, 2014, all of the units were sold Yarmouth LLC On August 10, 2010, Thistle and Allison Management, LLC created a new entity, 4655 Yarmouth LLC, a Colorado limited liability company, owned 50% by Thistle and 50% by Allison Management, LLC Yarmouth LLC, acquired property known as 1655 Yarmouth in Boulder, Colorado for the purpose of developing a 25-home, mixed-income community. The property was developed jointly by Thistle and Boulder developer Allison Management. In 2012 the property was completed and sold. 14

17 DBA Thistle Communities 1. Organization and Basis of Presentation (continued) Thistle 29th Street, LLC Thistle 29 th Street, LLC was organized in August 2013 for the purpose of investing in.005% membership interest in Boulder 29 th Street LLC. Boulder 29 th Street, LLC developed a 61 unit affordable housing project under the Low Income Housing Tax Credit Program. Thistle has entered into a management agreement and tenants in common lease agreement to lease and manage the property upon its completion which occurred in July Thistle earns 5% of gross receipts for managing this property. Thistle has agreed to certain ongoing affordability restrictions for the developed property. Thistle 28th Street, LLC Thistle 28 th Street LLC was organized in August 2013 for the purpose of investing in a membership interest in Boulder 28 th Street LLC. Boulder 28 th Street, LLC developed a 69 unit affordable housing project under the Low Income Housing Tax Credit Program. Thistle has also entered into a management agreement and tenants in common lease agreement to lease and manage the property. Thistle earns 5% of gross receipts for managing this property. Thistle has agreed to certain ongoing affordability restrictions for the developed property. 820 Lee Hill Road, LLC On January 30, 2014, Thistle and Allison Management, LLC created a new entity, 820 Lee Hill Road LLC, a Colorado limited liability company, owned 40% by Thistle and 60% by Allison Management, LLC. 820 Lee Hill Road, LLC acquired property known as Lee Hill in Boulder, Colorado with the intention of developing a mixed income community. Thistle was the beneficial owner because it assigned its membership interest to the lender funding the acquisition and potential development for up to a total of $5.8 million. The property was sold prior to development in May 2014 and all outstanding debt was retired. Thistle Kimbark LLC and 1200 Kimbark, LLC (48 units) In December 2014 Thistle created a new subsidiary, Thistle Kimbark LLC, a Colorado limited liability company, wholly-owned by Thistle. Thistle Kimbark, LLC acquired a 48 unit rental property in Longmont, Colorado, financed with a loan from NeighborWorks Capital Corporation. In August 2015 Thistle Kimbark LLC became the managing member of 1200 Kimbark, LLC ( Kimbark ), a Colorado limited liability company formed, with an investor partner, to operate a low-income housing facility in Boulder County, Colorado. Kimbark entered into a loan agreement for up to $6 million for the purpose of repaying the NeighborWorks loan and financing rehabilitation of the property. In September 2016 the rehabilitation was completed and the costs are in the process of being certified. The loan was granted by the Colorado Housing Finance Authority and financed by the purchase of a related bond by a commercial bank. The property is subject to a Low Income Housing Tax Credit Land Use Restriction Agreement and subject to regulations and restrictions under a Regulatory Agreement with HUD. 15

18 DBA Thistle Communities 1. Organization and Basis of Presentation (continued) Thistle BBS, LLC In April 2016 Thistle created a new subsidiary, Thistle BBS LLC, a Colorado limited liability company, wholly-owned by Thistle. Thistle BBS, LLC owns a 33% membership interest in 4871 BBS, LLC which acquired property for future redevelopment of low income housing. The acquisition was financed by 4871 BBS, LLC with a $3 million loan guaranteed by Thistle. Allison Holdings, LLC is the managing member of 4871 BBS LLC. 2. Summary of Significant Accounting Policies Income tax status Thistle is exempt from federal and state income taxes by application of Section 501(c) (3) of the Internal Revenue Code. It is not classified as a private foundation. Its single-member LLCs, IMBY, MBY Development LLC 1, My Back Yard, LLC, Village by the Park, LLC, Van Artist LLC, Mapleton LLC, Uptown in Your Back Yard, LLC, Fairways IMBY, LLC, Fairways Office, LLC, The Cannery, LLC, Thistle MZ, LLC, Thistle 29 th Street, LLC and Thistle 28 th Street, LLC, Parkside Village Apartments, LLC, Thistle Kimbark LLC and Thistle BBS, LLC are treated as disregarded entities for income tax purposes. Certain activities of Thistle are conducted through LLCs that are treated as partnerships including the investments in The Cannery, LLLP, Fairways in My Backyard, LLLP, Uptown Boulder, LLLP, 1000 Rosewood, LLC, 4655 Yarmouth LLC, 820 Lee Hill Road, LLC and 4871 BBS, LLC. Management believes these activities related to its charitable purpose and are, therefore, not unrelated business income. Thistle s for-profit subsidiary, Thistle Parkside Corporation, files separate corporate income tax returns. To date, these reported activities have not been significant..management does not currently believe Thistle has any material uncertain tax positions requiring evaluation. The tax returns for the years ended September 30, 2013 through 2016 remain open and available for audit by the taxing authorities. Principles of consolidation The consolidating financial statements include Thistle Community Housing (a non-profit corporation) and its wholly-owned subsidiaries: Thistle Parkside Corporation (a for-profit corporation), Investment Management Beneficiary, LLC known as IMBY, LLC, MBY Development, LLC 1, My Back Yard, LLC, Village by the Park LLC, Van Artist LLC, MapletonLLC, Uptown in Your Back Yard, LLC, Fairways IMBY, LLC, Fairways Office LLC, The Cannery, LLC, Thistle MZ, LLC, Thistle 29th Street, LLC, Thistle 28th Street, LLC, Parkside Village, LLC, Thistle Kimbark, LLC and Thistle BBS, LLC all of which are Colorado limited liability companies with Thistle as the sole member. The consolidated financial statements also include The Cannery, LLLP, Fairways in My Backyard, LLLP, Uptown Boulder, LLLP, 1000 Rosewood, LLC, 4655 Yarmouth LLC, 1200 Kimbark, LLC, and 820 Lee Hill Road, LLC, which meet the definition of variable interest entities which Thistle substantially, supports and controls. All material inter-company accounts and transactions have been eliminated in consolidation. 16

19 DBA Thistle Communities 2. Summary of Significant Accounting Policies (continued) Basis of presentation The financial statements of Thistle and its subsidiaries and consolidated variable interest entities are presented on the accrual basis of accounting. Inter-property transactions are eliminated in the combining financial statements to arrive at the combined total for Thistle. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reports amounts and disclosures. Accordingly, actual results could differ from those estimates. See Notes 3 and 14. Land, buildings and equipment Land, buildings and equipment are stated at cost. During the years ended September 30, 2016 and 2015 interest of $179,074 and $33,093 was capitalized. Buildings are depreciated using the straight-line method over their estimated useful lives of thirty to forty years. Equipment is depreciated using the straight-line method over their estimated useful lives of three to twenty years. All additions with estimated useful lives greater than one year are capitalized. Loan fees, which reflect the cost of obtaining the building loans, are amortized, using the straight-line method over the life of their respective loans. Expenditures for maintenance, repairs and other renewals of items are charged to expense. Upon disposal of depreciable property, the appropriate property accounts are reduced by the related costs and accumulated depreciation. The resulting gains and losses are reflected in the statement of operations. Revenue recognition Thistle records leases with tenants using the operating method. Leases do not extend beyond one year. Rental income is recognized as rents become due. Tenant receivables are stated at unpaid balances. Management writes off accounts receivable based on their judgments in evaluating the aging of the related receivable and the current status of the tenant. Management fees are earned, and generally received, on a monthly basis as services are performed. Development fees are recognized in revenues as earned based on milestones contained the development agreement. Cash and cash equivalents Cash equivalents are short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they represent insignificant risk of changes in value because of changes in interest rates. It does not include funded reserves which have been restricted for other uses. Tenant security deposits Tenant security deposits consist of damage deposits held in separate trust accounts. Interest is accrued at approximately.01% to.04% per year for the properties located in Boulder, Colorado, in accordance with city law. 17

20 DBA Thistle Communities 2. Summary of Significant Accounting Policies (continued) Expense allocation Directly identifiable expenses are charged to programs and supporting services. Expenses related to more than one function are charged to programs and supporting services on the basis of periodic time and expense studies. These are charged to the properties as property management expenses. Management and general expenses include those expenses that are not directly identifiable with any other specific function but provide for the overall support and direction of Thistle. Advertising costs Advertising costs, which consist primarily of print media, are expensed in the year incurred. Real estate activities Costs associated with the acquisition (including pre-acquisition costs to acquire property), development and construction of real estate projects are capitalized. Capitalized costs include property taxes and interest during development and construction phases. For site development, common infrastructure costs are allocated pro-rata to home sites for developed land. Costs for construction homes are attributed to individual units. Selling costs are expensed as incurred. Profit on sale of real estate is deferred until profit is determinable and the earnings process is virtually complete. Factors considered in the culmination of the earnings process include the extent of Thistle s continuing involvement, providing subordinated financing and the substance of transferring the usual risk and rewards of ownership. Sales of real estate consummated prior to meeting this criteria are recorded using the cost recovery method. Under the cost recovery method, any sales proceeds reduce the carrying amount of the related real estate. Sales of real estate for which profit is determinable and the earnings process is virtually complete are recorded under the full accrual method. Donated materials, equipment and services Donated materials and equipment are reflected as contributions at their estimated values at date of receipt. During the years ended September 30, 2016 and 2015, the value of contributed services, meeting the requirements for recognition in the financial statements was $17,824 and $27,378, respectively, and is included as contributions revenue in the statement of activities. In 2016 and 2015 all services were for general and administrative services. In addition, individuals, including board members, volunteer their time and perform a variety of tasks that assist the Organization in various ways. No amounts have been recognized in the accompanying statement of activities because the criteria for recognition of such volunteer efforts have not been satisfied. For the years ended September 30, 2016 and 2015, the Organization estimates that in-kind services performed by board members totaled approximately 175 hours valued at $35,

21 DBA Thistle Communities 3. Change in Accounting Estimates Grant Modification Expense Thistle was awarded and recognized grants from the City of Boulder through AHF and CDBG programs during fiscal 2014 for the capital needs on the Pinewood property. After the awards, the scope changed and the parties determined it was best not to use these funds, but to use a modified approach combining future refinancing and grants to accomplish the full measure of extensive capital needs at Pinewood. While some of the grant allocations were received, $166,502 (AHF) and $256,077 (CDBG) of unspent funds were recaptured by the grantor. A change in estimate totaling $413,395 was recognized in fiscal 2016 to reflect these modifications, which are included in property and asset management expense in the statement of activities. Impairment (recovery) of long-lived assets Blue Vista impairment and settlement agreement In fiscal 2011, management determined the Blue Vista Project could not continue to be developed under its project plan and previously expected sales and funding projections and recorded a $5.7 million impairment on the Blue Vista Project. Effective September 28, 2012, Guaranty Bank entered into a settlement agreement with Thistle and IMBY, LLC. The settlement agreement released Thistle from its guarantee and formally recognized the foreclosure proceedings against IMBY, LLC. The foreclosure auction was held in December Thistle retains obligations, if any, as builder and developer on the site and is responsible for any claims brought against Thistle or IMBY, LLC related to the development role or CLT role which last through the normal statute of limitations, for example warranty claims. Thistle maintains insurance on the property to mitigate all such risks and believes the liability for these matters is remote. The settlement agreement is between Thistle, IMBY and Guaranty Bank. A forgivable loan from the City of Longmont with a balance of $907,188 remained outstanding at foreclosure. In fiscal 2014, the note to City of Longmont was reduced to $826,040 as a result of recognizing a release in escrow described below. Thistle had also received grants totaling $1,325,433 related to this project which had continuing compliance commitments. Therefore, Thistle could be required to repay the grants since the project was not developed in accordance with the grant terms. It is possible the granting agencies may allow Thistle to shift the affordability requirements to other properties owned by Thistle. In connection with recording the gain on settlement, potential repayments of $1,325,433 were accrued at September 2012 to limit the gain, since repayment of these grants was reasonably possible. Subsequently, as a result of information provided to the grantor and continuing settlement negotiation with the grantor, management and its counsel believe realization of a reduction in this liability is assured. As a result, the balance has decreased to $70,000 (the City of Longmont grant) at September 30, 2016 from $996,153 at September 30,

22 dba Thistle Communiites 4. External Reserves September My Back Yard, LLC Bonds Replacement Reserve: $ 31,716 $ 31,834 Debt Service 70,198 68,591 Escrows 33,245 32,122 $ 135,159 $ 132,547 MBY Development LLC I Bonds Replacement Reserve $ 167,657 $ 137,632 Revenue fund 217, ,330 Escrows 45,027 47,224 $ 430,355 $ 402,186 Mapleton, LLC Bonds Replacement Reserve $ 258,123 $ 229,693 Debt Service Fund 37,584 37,574 Escrows 25,102 29,294 $ 320,809 $ 296,561 Uptown Boulder, LLLP Replacement Reserve $ 130,617 $ 192,118 Escrows 35,113 32,343 Debt Service Fund 2,295 2,295 $ 168,025 $ 226,756 Fairways in My Backyard, LLLP Replacement Reserve $ 103,801 $ 128,931 Escrows 24,625 30,643 $ 128,426 $ 159,574 The Cannery, LLLP Replacement Reserve $ 78,022 $ 65,332 $ 78,022 $ 65,332 20

23 dba Thistle Communiites 4. External Reserves (continued) Parkside Village, LLC Replacement Reserve $ 59,876 $ 48,062 Non-Critical Deferred Repairs 64, ,249 Cash-out Proceeds Reserved - 531,067 Other escrow 28,408 35,833 $ 152,560 $ 831,211 Other ecrows: Thistle Kimbark, LLC & 1200 Kimbark, LLC $ 28,359 $ 24,430 CLT 12,474 10,480 Spruce Street 5,899 5,340 $ 18,373 $ 15,820 Arbor Commercial Mortgage, LLC withheld loan proceeds from Parkside Village, LLC under the Escrow Agreement for Non-Critical Deferred Repairs. The Agreement required an initial reserve of $669,602 to complete all repairs and improvements required by HUD, which included the estimated cost of non-critical repairs of $558,002 and an additional amount of $111,600, representing 20% of the non-critical repairs. The repairs were substantially completed by November The balance remaining in the cash-out proceeds reserved was distributed to Thistle in 2016 and added to internally designated operating reserves some of which was used subsequent to year end to pay down notes payable. Parkside Village, LLC entered into a Regulatory Agreement with HUD whereby Surplus Cash, as defined, can be distributed to Thistle semi-annually. Surplus cash will be based on calculation as of March 31 and September

24 dba Thistle Communiites 5. Development Funds Development funds are comprised of funds from restricted grants or construction checking accounts. The funds from grants are to be used as replacements or improvements on existing operating properties or make funds available as loans for initiating development of new properties. Development funds are comprised of the as following: September Development funds available for other properties $ 310,879 $ 308,735 Kimbark - 83,500 Rosewood 14,809 23,094 Yarmouth 3,847 4,497 $ 329,535 $ 419, Property and Equipment Construction in progress represented the following: September Kimbark $ - 645,543 Sage Court - 356,511 Other properties 131,293 - $ 131,293 $ 1,002, Grants and Contributions September Public support, operating $ 208,104 $ 210,870 Public support, capital 70,000 95,000 $ 278,104 $ 305,870 Included in the statement of activities as follows: Unrestricted grants and contributions $ 218,104 $ 210,870 Permanently restricted grants 60,000 95,000 $ 278,104 $ 305,870 22

25 dba Thistle Communiites 8. Notes and bonds payable September 30, Final By project and obligation: Maturity Rate a) My Back Yard, LLC Bonds A Bonds 07/15/ % $ 4,341,000 4,487,000 b) Parkville: Parkville note, City of Longmont 05/01/ % 42,622 45,283 c) Sage Court: Sage Court note, Boulder Housing Partners 07/15/ % 443, ,562 d) Terry Street: Terry Street note, City of Longmont 01/31/ % 165, ,000 e) Thistle Communities: LOC, Bank of the West 08/06/ % - 198,883 Thistle Communities note, Colorado Business Bank 05/06/ % 49,975 - f) MBY Development, LLC I Bonds - Series 2002 Bonds 10/01/ % 4,780,000 4,955,000 g) Mapleton LLC Bonds - Housing Authority City of Boulder 08/01/ % 3,038,000 3,127,000 h) Investment Management Beneficiary, LLC (Blue Vista): Investment Management Beneficiary, LLC, note, City of Longmont See note % 826, ,040 i) Investment Management Beneficiary, LLC (English Village): Investment Management Beneficiary, LLC, City of Longmont 10/01/ % 35,000 40,000 j) Van Artist (Goss) Thistle note, individual 10/15/44 prime 100, ,000 k) Parkside Village: Parkside Village LLC loan, Arbor Lending (HUD insured) 07/01/ % 3,666,695 3,720,194 l) Fairways Apartments: Fairways in My Back Yard LLC loan, Colorado Housing and Finance Authority 06/01/ % 2,463,029 2,492,200 m) The Cannery : The Cannery LLC loan, Chase 12/01/ % 3,875,415 3,936,507 The Cannery LLC loan, City of Longmont 12/31/ % 151, ,866 n) Uptown Boulder: Uptown Boulder LLC loan, Home state Bank 03/26/ % 1,341,141 1,366,167 o) Kimbark -Construction loan, Colorado Housing and Finance Authority 02/28/ % 5,769,783 3,425,235 $ 31,088,769 $ 29,481,937 23