Item 9.01 Financial Statements and Exhibits
.
(a)
Financial Statements of Real Estate Acquired.
(b)
Pro Forma Financial Information.
Reven Housing Texas, LLC
(A wholly owned subsidiary of Reven Housing
REIT, Inc.)
BALANCE SHEET AND
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
January 31, 2014
Reven Housing Texas, LLC
(A wholly owned subsidiary of Reven Housing
REIT, Inc.)
TABLE OF CONTENTS
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Page
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Report of Independent Registered Public Accounting Firm
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3
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Balance Sheet
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4
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Notes to the Balance Sheet
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5
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Pro Forma Statement of Operations (Unaudited)
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8
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REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Member
Reven Housing Texas, LLC
(A wholly-owned subsidiary of Reven Housing REIT, Inc.)
We
have audited the accompanying balance sheet and the related notes of Reven Housing Texas, LLC (the “Company”), a wholly-owned
subsidiary of Reven Housing REIT, Inc. (the “Registrant”), as of January 31, 2014. Reven Housing Texas, LLC’s
management is responsible for the financial statement. Our responsibility is to express an opinion on the financial statement based
on our audit.
We
conducted our audit 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 statement is free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statement, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In
our opinion, the financial statement referred to above presents fairly, in all material respects, the financial position of Reven
Housing Texas, LLC as of January 31, 2014, in conformity with accounting principles generally accepted in the United States of
America.
San Diego, California
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/s/ PKF
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April 11, 2014
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PKF
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Certified Public Accountants
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A Professional Corporation
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Reven Housing Texas, LLC
(A wholly owned subsidiary of Reven Housing
REIT, Inc.)
Balance Sheet
January 31, 2014
ASSETS
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Residential homes, net of accumulated depreciation of $87,000
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$
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10,755,281
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Land
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2,713,859
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Rents and other receivables
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7,349
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Escrow deposits and prepaid expenses
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158,558
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Total Assets
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$
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13,635,047
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LIABILITIES AND MEMBER'S EQUITY
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Accounts payable and accrued expenses
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$
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88,254
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Security deposits
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173,955
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Total Liabilities
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262,209
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Commitment (Note 6)
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Member's Equity
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13,372,838
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Total Liabilities and Member's Equity
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$
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13,635,047
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See Notes to the
Balance Sheet
Reven Housing Texas, LLC
(A wholly owned subsidiary of Reven Housing
REIT, Inc.)
NOTES TO THE BALANCE SHEET
January 31, 2014
NOTE 1 – ORGANIZATION
Reven Housing Texas, LLC (the “Company”)
is a Delaware single member limited liability company that engages in the acquisition and ownership of residential real estate
properties throughout the state of Texas. The Company was formed on October 9, 2013 as a single member limited liability company.
On October 31, 2013, Reven Housing Texas, LLC, a wholly-owned subsidiary of Reven Housing REIT, Inc. (the “Registrant”),
completed the acquisition of 150 residential homes (the “Homes”), pursuant to a Purchase and Sale Agreement (“PSA”),
dated October 4, 2013. The Homes were purchased from Red Door Housing, LLC and WFI Funding, Inc. Total consideration for the acquisition
was approximately $11,972,000, including closing costs, which have been funded primarily by cash contributed from the Registrant.
On January 31, 2014, the Company closed
on an additional 18 single family homes as part of the October 31, 2013 purchase, located in the Houston, Texas metropolitan area.
Investment in the 18 homes, including acquisition and closing costs, totaled $1,584,343.
NOTE 2 – BASIS OF ACCOUNTING
The accompanying balance sheet is presented
in conformity with accounting principles generally accepted in the United States of America ("GAAP") and in accordance
with the applicable rules and regulations of the Securities and Exchange Commission for real estate properties acquired.
An audited balance sheet is being presented
as of the acquisition date of the additional 18 homes, January 31, 2014, for the purposes of showing all homes purchased by the
Company as of January 31, 2014. A statement of operations outlining the operations for the homes acquired is not presented because
management was unable to obtain separate results of operations relating to the properties acquired from Red Door Housing, LLC.
NOTE 3 – SIGNIFICANT ACCOUNTING POLICIES
Property Acquisitions
The Company accounts for its acquisitions
of real estate in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
805,
Business Combinations, Goodwill, and Other Intangible Assets
, which requires the purchase price of acquired properties
be allocated to the acquired tangible assets and liabilities, consisting of land, building, and identified intangible assets, consisting
of the value of above-market and below-market leases, the value of in-place leases, unamortized lease origination costs and security
deposits, based in each case on their fair values and ASC 970,
Real Estate Project Costs
, which requires that pre-acquisition
costs relating to the acquisition of property incurred before the property is acquired and are otherwise capitalizable should be
capitalized.
Reven Housing Texas, LLC
(A wholly owned subsidiary of Reven Housing
REIT, Inc.)
NOTES TO THE BALANCE SHEET
January 31, 2014
NOTE 3 – SIGNIFICANT ACCOUNTING
POLICIES
(Continued)
Property Acquisitions
(Continued)
The Company allocates the purchase price
to tangible assets of an acquired property (which includes land and building) based on the estimated fair values of those tangible
assets, assuming the property was vacant. Fair value for land and building is based on the purchase price for these properties.
The Company also considers information obtained about each property as a result of its pre-acquisition due diligence, marketing
and leasing activities in estimating the fair values of the tangible and intangible assets and liabilities acquired.
The total value allocable to intangible
assets acquired, which consists of unamortized lease origination costs and in-place leases (including an above-market or below-market
component of an acquired in-place lease), are allocated based on management’s evaluation of the specific characteristics
of each tenant’s lease and the Company’s overall relationship with that respective tenant. Characteristics considered
by management in allocating these values include the nature and extent of the existing business relationships with the tenant,
growth prospects for developing new business with the tenant, the remaining term of the lease and the tenant’s credit quality,
among other factors. As of January 31, 2014, management has determined that no value is required to be allocated to intangible
assets, as the values are insignificant.
Residential Homes
Residential homes purchased by the Company
are recorded at cost. The Homes are depreciated over the estimated useful lives using the straight-line method for financial reporting
purposes. The estimated useful life for the residential homes is estimated to be 27.5 years.
Security Deposits
Security deposits represent amounts deposited
by tenants at the inception of the lease. These amounts have been allocated from the purchase price of the Homes based on the signed
lease agreements.
Use of Estimates
The preparation of financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
at the balance sheet date. Significant estimates include the allocation of the purchase price of property acquisitions. Actual
results could differ from those estimates.
Reven Housing Texas, LLC
(A wholly owned subsidiary of Reven Housing
REIT, Inc.)
NOTES TO THE BALANCE SHEET
January 31, 2014
NOTE 4 – PURCHASE PRICE ALLOCATION
In accordance with ASC 805, the Company
allocated the purchase price of the individual properties based on estimated values in accordance with the due diligence and the
specific agreed upon contract values. Additional closing costs have been allocated proportionally based on these values.
Of the 18 homes purchased in January 2014,
16 were leased to tenants upon acquisition. These leases are for terms no longer than twelve months at inception and expire through
January 31, 2015. As of January 31, 2014, 146 of the 150 homes purchased in October 2013 were leased to tenants under leases expiring
within the next 12 months.
The fair values of the assets acquired
are allocated as follows:
Asset
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October 2013
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January 2014
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Allocation
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Acquisition
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Acquisition
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Total
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Residential Homes
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$
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9,577,438
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$
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1,264,843
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$
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10,842,281
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Land
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2,394,359
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319,500
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2,713,859
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11,971,797
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1,584,343
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13,556,140
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Accumulated Depreciation
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(87,000
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-
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(87,000
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$
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11,884,797
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$
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1,584,343
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$
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13,469,140
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NOTE 5 – MEMBER’S EQUITY
In January 2014, the Company received additional
capital contributions from the Registrant of approximately $1,708,000 in order to fund the January 31, 2014 acquisition.
NOTE 6 – COMMITMENT
The Company has entered a property management
agreement with Red Door Housing, LLC, one of the sellers, in which the Company will pay seven percent of gross rental receipts.
Reven Housing Texas, LLC
(A wholly owned subsidiary of Reven Housing
REIT, Inc.)
PRO FORMA STATEMENT OF OPERATIONS (Unaudited)
For the Year Ending December 31, 2014
On October 31, 2013, Reven Housing Texas,
LLC (the “Company”) (a wholly owned subsidiary of Reven Housing REIT, Inc.) (the “Registrant”) completed
the acquisition of 150 residential homes, pursuant to a Purchase and Sale Agreement (“PSA”), dated October 4, 2013.
Total consideration for the acquisition was approximately $11,972,000 including closing costs which was paid in cash.
On January 31, 2014, the Company closed
on an additional 18 single family homes as part of the October 31, 2013 purchase. Investment in the 18 homes, including acquisition
and closing costs, was approximately $1,584,000.
The entire portfolio of homes are located
in the Houston metro area in Texas and are approximately 95% occupied with leases expiring on various dates through January 31,
2015.
Reven Housing Texas, LLC is a Delaware
single member limited liability company that engages in the acquisition and ownership of residential real estate properties throughout
the state of Texas.
The following unaudited pro forma statement
of operations for the year ending December 31, 2014 has been prepared showing the actual results for the original 150 homes as
of January 31, 2014, and to give effect to the acquisition of the 18 additional homes as if the acquisition occurred on January 1,
2014. The following unaudited pro forma financial information is provided for informational purposes only. The unaudited pro forma
financial information does not purport to project the future financial position or operating results of the Company. The pro forma
financial statement contains the assumptions described below.
Reven Housing Texas, LLC
(A wholly owned subsidiary of Reven Housing
REIT, Inc.)
PRO FORMA STATEMENT OF OPERATIONS (Unaudited)
For the Year Ending December 31, 2014
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Original 150
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Original 150 Homes
Proforma
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Proforma
18 Home
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Combined
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Homes
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February 1,
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Acquisition
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Proforma
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Actual
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2014 thru
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Year ending
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Year ending
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January 31, 2014
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December 31, 2014
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December 31, 2014
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December 31, 2014
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Revenues:
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Rental income and other
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$
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147,408
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$
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1,598,592
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$
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237,200
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$
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1,983,200
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{a}
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Less: Vacancy and credit losses
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(5,165
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(143,535
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(20,200
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(168,900
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{b}
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Net revenues
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142,243
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1,455,057
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217,000
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1,814,300
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Operating Expenses:
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Repairs and maintenance
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5,639
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134,361
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19,000
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159,000
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{c}
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Property and liability insurance
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6,264
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91,236
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13,500
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111,000
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{d}
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Property management fees
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10,171
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101,829
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16,600
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128,600
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{e}
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Property taxes
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18,404
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191,596
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30,000
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240,000
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{f}
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Leasing and turnover costs
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6,174
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104,326
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13,900
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124,400
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{g}
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HOA and other
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3,992
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13,508
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2,400
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19,900
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Total operating expenses
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50,644
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636,856
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95,400
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782,900
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Net operating income
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91,599
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818,201
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121,600
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1,031,400
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Depreciation expense
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29,000
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319,270
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46,000
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394,270
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{h}
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Net operating income after depreciation
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$
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62,599
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$
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498,931
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$
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75,600
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$
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637,130
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Assumptions:
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{a}
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Rental income consists primarily of base rent from existing
rental agreements. Base rent is recognized on a straight-line basis beginning on the pro forma acquisition date of January 1,
2014.
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{b}
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Vacancy and credit loss is estimated based on the national
average of vacancy percentage (8.5%) of rental homes multiplied by management’s estimated length of vacancy.
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{c}
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Repairs and maintenance expense is estimated based on
8% of gross rental income.
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{d}
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Property and liability insurance expense is based on
actual premiums paid per home in 2013 which was approximately $650 per property.
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{e}
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Property management fees are calculated based on a 7%
property management fee per the property management agreement.
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{f}
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Property tax expense is based on property tax assessments
for the 2013 tax year.
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{g}
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Leasing and turnover costs include estimated leasing
commissions and move out repairs based on approximately 33% of the homes being released during the year.
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{h}
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Depreciation expense is calculated using the straight-line
method based on the purchase price allocated to each residential home over an estimated 27.5 year life.
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