annual report to investors - constant...

ANNUAL REPORT TO INVESTORS

HARBOUR EQUITY JV DEVELOPMENT FUND II LP

For the year ended December 31, 2016

FORWARD-LOOKING STATEMENTS

The terms, the “Fund”, “we”, “us” and “our” in the following report refer to Harbour Equity JV Development Fund II Limited

Partnership (the “Fund”). This report may contain forward-looking statements relating to anticipated future events, results,

circumstances, performance or expectations that are not historical facts but instead represent our beliefs regarding future

events. These statements are typically identified by expressions like “believe”, “expects”, “anticipates”, “could”, “may”,

“intends”, “projected”, “in our opinion” and other similar expressions. By their very nature, these forward-looking statements

require us to make assumptions which include, among other things, that (i) the Fund will have sufficient capital under

management to effect its investment strategies, (ii) the investment strategies will produce the results intended by the Fund,

(iii) the markets will react and perform in a manner consistent with the investment strategies and (iv) the Fund is able to invest

in development projects of a quality that will generate returns that meet and/or exceed the Fund’s targeted investment

returns.

Forward-looking statements are subject to inherent risks and uncertainties. There is significant risk that predictions and other

forward-looking statements will prove inaccurate. Readers of this report are cautioned not to place undue reliance on our

forward-looking statements as a number of factors could cause actual future results, conditions, actions or events to differ

materially from the targets, expectations, estimates or intentions expressed or implied in the forward-looking statements for

a variety of reasons, including but not limited to, general market conditions, interest rates, regulatory and statutory

developments, the effects of competition in areas that the Fund may invest in and the risks detailed from time to time in the

Fund’s reports to investors.

Readers are cautioned that the foregoing list of factors is not exhaustive and that when relying on forward-looking statements

to make decisions with respect to investing in the Fund, investors and others should carefully consider these factors, as well

as other uncertainties and potential events. Due to the potential impact of these factors, the Fund and Harbour Equity Capital

Corp. (the “Manager”) do not undertake, and specifically disclaim any intention or obligation to update or revise any

forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable

law.

This report is dated March 20, 2017. Information contained in this report is current to that date, unless otherwise noted.

RESPONSIBILITY OF MANAGEMENT

This report to investors in the Harbour Equity JV Development Fund II Limited Partnership should be read in conjunction with

the audited financial statements for the year ended December 31, 2016. Investment in the Fund is subject to certain risks

and uncertainties described in the Fund’s Offering Memorandum, which should be read in conjunction with this report to

investors. These documents are available upon request to the Manager’s Investor Relations Department. Management is

responsible for the information disclosed in this report to investors. The Fund has in place appropriate procedures, systems

and controls to ensure such information is materially complete and reliable. In addition, the Fund’s Managers have reviewed

and approved this report and the financial statements for the year ended December 31, 2016.

Contents

Fund Overview 1

Manager’s Letter 2

2016 Year-to-date Financial Highlights 2

Portfolio Highlights 2

Commentary and Outlook 4

Financial Portfolio Summary 6

Corporate Directory 7

Audited Financial Statements 8

Appendices

A. Investment Project Updates

B. Project Financial Statements

FUND OVERVIEW

The Fund is a joint venture development fund which was established in 2015 and is in the business of providing equity capital

to developers on a joint venture basis. The Fund invests in development projects selected and determined by the Manager

to be of high quality, and likely to provide above-average returns on a risk-adjusted basis. The development projects are

located in major urban markets across a range of property types and asset classes with investment horizons in the range of

2 to 4 years. The Fund’s share of profit and losses from the joint ventures flow through the Fund to investors.

The fundamental investment objectives of the Fund are to:

Protect capital;

Create capital growth;

Provide investors with superior risk-adjusted returns.

Overview

Unitholders 98

Total capital commitment $ 35,825,000

First closing date February 12, 2015

Second (final) closing date May 1, 2015

Exempt market dealer Belco Private Capital Inc.

As of the date of this report, the Fund was capitalized as follows:

Per $100,000

Total Fund $ 35,825,000 $ 100,000

Limited Partner capital drawn to December 31, 2016 (84.0%) $ 30,093,000 $ 84,000

Limited Partner capital drawn subsequent to year end (0.0%) $ 0 $ 0

Remaining Limited Partner capital to be drawn (16.0%) $ 5,732,000 $ 16,000

Limited Partner Capitalization

Per $100,000

Limited Partner capital drawn to date (84.0%) $ 30,093,000 $ 84,000

Limited Partner capital returned to December 31, 2016 $ (2,328,625) $ (7,738)

Limited Partner capital returned subsequent to year end $ 0 $ 0

Net Limited Partner capital $ 27,764,375 $ 76,262

Capital returned to date as % of capital committed: 6.5%

Capital returned to date as % of capital drawn: 7.7%

1

MANAGER’S LETTER

Dear Investors:

We are pleased to present you with the 2016 year end update of Harbour Equity JV Development Fund II LP (the “Fund”).

The Fund has ten development projects with all Fund capital allocated to these investments. The portfolio includes investments

in Nova Scotia, Ontario, Alberta, and British Columbia.

2016 Year-to-date Financial Highlights

Unitholders advanced capital of $30.09 million, or 84.0%

of total Fund commitments, as of December 31, 2016. The

investment portfolio consists of ten active developments

with total committed capital of $34.36 million. The

Bradford investment, closed in July 2016, represents the

Fund’s final investment. The remaining $1.47 million (4%

of Fund capital) has been and will continue to be used to

finance Fund operations and for project contingency

amounts.

In addition to the Bradford closing during 2016, the Fund

closed on the GTA Student Housing project, the Evolve

condominium project, the DCR Fernbank housing project,

and the Gorsebrook Park condominium project in 2016.

Capital calls totaling $13.61 million, or 38.0% of total

Fund commitments, were called in 2016 to fund these

project closings. A total of $30.09 million, or 84.0% of

total Fund commitments, have been drawn as of the date

of this report. We expect that the majority of remaining

Unitholder capital will be called over the course of the

next 9 months to fund the remaining project commitments.

Based on the current market assumptions, the Fund is

projecting an annualized return of approximately 21%

after all fees and General Partner participation.

Portfolio Highlights

The Morningside condominium project consists of

developing a six-storey condominium building and

stacked townhouse project in Toronto. Our partner has

completed several entry level developments in the

Scarborough market. The co-ownership closed on the

property during the second quarter of 2015 with

zoning already in place. Site plan approvals are

expected by Q2 2017 and will provide for 143

condominium units and a separate building with 18

stacked townhouse units. Sales to agents began in

October 2015, followed by a second sales launch to

investment focused buyers in April 2016. As of the

date of this report, there are 133 firm sales in the

condominium building (93%) and all 18 townhouses

have been sold. With current sales numbers, sufficient

pre-sales are in place to obtain a construction loan.

The developer has received a Term Sheet for

construction financing from RBC. Construction is

scheduled to begin in Q2 2017.

The Danmor condominium project consists of an eight-

storey mid-rise condominium building on Danforth

Avenue in Toronto. The Property has substantial

frontage on a section of Danforth Avenue that has

seen extensive commercial and residential

development take place over the last few years. The

building will be 170 units, including live-work units at

grade. We are pleased to say that the project

received zoning approval by Toronto East York

Community Council on September 9, 2016 and that

applications for Site Plan Approval have been

submitted and are expected to be approved by Q2

2017.

Construction of the sales centre commenced in the

second quarter and was completed in late September.

Sales for the project launched on October 1, 2016

under the name Canvas Condominiums. As of the date

of this report 132 units have sold (129 firm and 3

conditional), representing 78% of the total project

units. Construction of the building is scheduled to start

in summer 2017. The developer has begun discussions

with Scotiabank about a construction loan (Scotiabank

provided the land loan on acquisition).

The Fort Saskatchewan apartment project is

comprised of three residential apartment buildings,

totaling 144 units, on a 3.94 acre parcel of land in

Fort Saskatchewan, AB (northeast of Edmonton) and a

2.57 acre parcel which is approved for an additional

two buildings with 48 residential units each. The

project is comprised of three phases, with construction

of Phase I (Building 1 and 2) completed in early 2016

and Phase II (Building 3) completed in July 2016. As

of the date of this report, the project is 92% leased.

The construction of Phase III (Buildings 4 and 5) on the

recently added 2.57 acres will be dependent on

market conditions.

2

Given the slowdown of the Alberta investment sales

market in 2016, and to take advantage of extremely

competitive interest rates and favourable valuations,

the co-ownership secured take-out financing with RBC

for both Phase I and Phase II buildings. The Phase I

loan was funded in October 2016, at which point the

Fund received $1.024 million of net proceeds. The

Phase II loan was funded in December 2016, and the

Fund received $1.6M of proceeds. The Fund has now

received all of its equity investment in the project.

Despite the relatively challenging investment market,

the co-ownership has kept the project listed for sale

with CBRE during the fourth quarter in order to test the

market and complete a disposition if an acceptable

purchase offer is received.

Townhomes of Canals is an entry level townhouse

project in Airdrie, AB (just north of Calgary). The

project originally envisioned a total of 355 units, of

which 264 were traditional townhouses and 91 were

stacked-townhouse units. In the process of securing the

development permit in Q3 2016, the project changed

slightly in order to appease the Airdrie planning staff.

The project now includes 232 traditional townhouses

and one six-storey condominium building with 123

units. The project received the deep servicing permit

in Q1 2017, and will service the first phase of the site

and build a sales trailer so that marketing of the site

can commence in Q2 2017.

The DCR Rental project comprises the construction of

two rental apartment projects in and around Ottawa.

The Fund provided $1.7 million in preferred equity to

an established developer in the Ottawa market with

a term of 25 months for these developments. The

projects are currently at various stages with the first

one (60 units), in Nepean, almost complete and the

second (52 units) in Orleans having just begun

construction. First occupancy at the first building is

scheduled for Q3 2017.

Evolve is the fourth phase of a master-planned

community located within the City Centre area of

Surrey, British Columbia. The project consists of a 35-

storey high rise tower with 407 condo units as well as

an adjoining three-storey commercial building of

approximately 15,000 square feet. Pre-sales of

condo units are currently at 89%.

The Fund provided the developer with Preferred

Equity of $5,500,000 in April 2016 for a term of 30

months, for the construction and sale of the project.

Laurentian Bank is providing a $64 million construction

loan for the project, with an additional $13.5 million

loan being provided by Kingsett Capital.

Construction is proceeding on schedule and in line with

budget. A five-level underground parking garage has

been completed and an above-grade building permit

was issued in early February 2017.

The GTA Student Housing Project is a development

of two buildings being undertaken by a successful

student housing development team and operator. The

Fund committed $3 million of capital by way of

mezzanine debt to assist with the completion of this

project. The Fund provided the $3 million loan in Q1

2016. Construction of the project commenced in early

2016. As of the end of the fourth quarter, both

buildings have been fully erected with windows and

exterior cladding near completion. Pre-leasing of the

building has commenced and 21% has been leased

to-date. Substantial completion of the project is

expected in the middle of 2017, with occupancy

expected for September 2017.

The DCR Fernbank II project is a 52 lot housing project

located in Kanata, Ontario. The Fund provided

participating debt of $1.476 million to an established

developer in the Ottawa market for a term of 36

months in April 2016. The proceeds of the loan were

used by the developer to acquire 48 of the project’s

52 lots. The remaining $124 thousand was funded in

October 2016 when the new lot widths on the four

remaining lots were approved by the City.

Repayment of the $1.6 million loan, along with a

portion of the developer’s profits, will be provided as

homes are sold and closed. The amount of profit

participation will vary depending on when houses are

closed, with the Fund entitled to $13,500 in profit per

home closed within the first 24 months compared to

profits just under $20,000 for houses closed after 24

months. Harbour provided the developer with

participating debt on a previous phase of the

Fernbank development in the first JV Development

Fund. A total of 27 homes in the development have

been sold to date, with closings scheduled throughout

2017 and into early 2018.

The Gorsebrook Park condominium project consists of

developing two conjoined towers in two phases,

totaling 164 units, in Halifax’s South End. This is the

second project undertaken with this developer in

Halifax, giving the project the advantage of an

established reputation for quality design in the

marketplace. The co-ownership closed on the

property in April 2016 with zoning in place, and

3

submitted a development agreement to finalize the

building design shortly thereafter. The development

agreement was approved by Halifax Community

Council in Q3 2016 and official registration of the

development agreement was completed in Q4 2016.

The Fund is committed to providing $3.13 million of

equity to the project. A total of $2.63 million in equity

was provided in order to close on the land, build the

sales centre, and move forward on the marketing of

the project. Subsequent to year-end, the Fund

advanced an additional $375 thousand to the project.

The project’s Phase I launch was in June 2016. A total

of 37 units have been sold since the launch at prices

above proforma, representing 49% of the 76 units

available in Phase I. The co-ownership expects pre-

sales to near 60% by Q2 2017, at which point

discussions with a construction lender will commence,

with construction scheduled to begin shortly thereafter

in Q3 2017.

The Bradford Towns townhouse project will include

80-90 three-storey traditional townhouses in the

growing community of Bradford, Ontario. The project

is being undertaken by an established GTA low rise

home builder, and represents the Fund Manager’s

third joint venture with this developer (the other two

were low-rise single family development sites in

Brampton). The Fund manager committed to provide

$2.45 million in equity to the project for a 42.5%

interest. The Fund is responsible for 60% of the

committed equity amount ($1.47 million), whereas

Harbour Equity JV Fund III will be providing the

balance of the committed equity amount ($980

thousand).

The site is an assembly of three properties totaling

11.05 acres, with a land cost of $5.84 million. The

land is currently zoned for future development and is

designated for residential use under the Bradford

Official Plan. Zoning, sales, and construction of the

project is expected to take four years. The Bradford

community (approximately 45 minutes from Toronto)

continues to experience rapid growth as buyers who

have been priced out of homes in more southern GTA

communities continue to look north for ground oriented

residential options.

Commentary and Outlook

The Fund has now committed 96% of the Fund’s capital to

ten development projects. The remaining 4% of Fund

capital has been, and will continue to be used to finance

Fund operations and for project contingency amounts. Six

of the investments made by the Fund are with new

development partners, which speaks to the credibility

Harbour Equity has achieved in the market over the last

few years and the relationships we have been able to

build with high-quality development groups across

Canada.

While we continue to remain bullish on residential

opportunities in and around primary markets (both the

for-sale and purpose-built rental markets), we are very

mindful of the many concerns that have been raised from

domestic and international economists about an over-

heated residential real estate market in Canada. In the

last eight months we have seen two notable government

regulations aimed at cooling the housing market, and it is

possible that the government will continue to initiate new

regulations in the future.

The first government regulation was the 15% foreign

buyers’ tax in Metro Vancouver that was introduced by

B.C.’s Provincial government in August 2016. The second

government regulation was the introduction of the new

Canadian Mortgage rules by the Federal government in

October 2016 that was aimed primarily at new home

buyers (in the under $1 million threshold with less than

20% down payment) across Canada.

Approximately 56% of the Fund’s existing and committed

investments are in Ontario, with 16% in British Columbia

and 9% in Nova Scotia. The residential real estate

outlook in all three provinces remains stable and we have

not yet seen any impact on our projects from the new

regulations although we continue to monitor their impact

on the market.

The Fund also has two investments in Alberta, representing

18% of the Fund’s total capital allocation. Despite

challenges in the Alberta market over the last two years,

we have received our initial capital back through

refinancing proceeds in the first investment. This will allow

the Fund the patience to optimally exit that project and

maximize our profit. The second project is also well

positioned in the Calgary suburb of Airdrie which has

continued to see positive absorption in the midst of a very

challenging residential sales market. The last six months

has seen good sales growth in the Calgary market overall,

with Airdrie continuing to be a very strong sub-market,

and we are still expecting to achieve our projected profits

on this development.

We feel very comfortable with these two Alberta

projects, and the fact that our exposure in Alberta now

sits below 12% of the overall Fund.

4

With regard to asset-type, the existing Fund portfolio

includes two Toronto midrise and one Halifax midrise

multi-family condominium projects. The Fund was

attracted to these three deals for the following reasons:

(1) our development partners have extensive experience

with the proposed product type and sub-markets in which

the projects are located; (2) the projects are

approximately 170 units or less, making them a very

manageable size from a construction and sales

perspective; and (3) the land parcels were acquired at

reasonable pricing on a buildable square foot basis that

will allow for a successful project selling condo units at or

below condo pricing in place today at similar locations.

In 2016 we also invested in our first high-rise development

in a preferred equity position on a building that was 73%

pre-sold at the time of our investment. The preferred

position allows the Fund to be repaid on its invested

capital and profit immediately after all lenders are

repaid – before the developer is repaid any of its funds

invested in the project. We view this type of investment

as a safer way to participate in high-rise projects, where

the Fund’s upside is limited to a set amount of profit but

where payment is secure so long as the project creates

proceeds in excess of its cost.

We continue to actively manage the Fund’s development

projects with our various partners. Overall we are

confident about the development opportunities and their

risk-adjusted returns that we are seeing across the

country.

On behalf of the Harbour team, we thank you for your

continued support.

Respectfully submitted,

Harbour Equity Capital Corp.

Ari Silverberg, Alan Winer, Paul Schachter

Principals, Manager of the Fund

5

FINANCIAL PORTFOLIO SUMMARY

Project Name Location DescriptionCapital

Committed% of Fund Projected Profit

Total Projected

Proceeds

Capital Out

(Months)1

Annualized

Return1

Original Est.

Return1

Multiple of

Capital

Estimated

Completion

2 Morningside Toronto, ON Condominium 5,200,000$ 14.5% 3,918,786$ 9,118,786$ 30 30.1% 36.4% 1.75x Q4 2019

3 Danmor Toronto, ON Condominium 6,000,000$ 16.7% 4,433,361$ 10,433,361$ 36 24.6% 27.7% 1.74x Q4 2019

4 Fort Saskatchewan Edmonton, AB Rental Apartments 2,560,000$ 7.1% 3,093,218$ 5,653,218$ 17 85.3% 78.3% 2.21x Q3 2019

5 Townhomes of Canals Airdrie, AB Townhouses 3,900,000$ 10.9% 6,355,285$ 10,255,285$ 62 31.5% 33.6% 2.63x Q2 2021

DCR Rental Ottawa, ON Rental Apartments 2,000,000$ 5.6% 1,100,000$ 3,100,000$ 25 26.4% 30.0% 1.55x Q4 2018

Evolve Surrey, BC Condominium 5,500,000$ 15.4% 3,666,667$ 9,166,667$ 30 26.7% 26.7% 1.67x Q4 2018

GTA Student Housing Toronto, ON Student Housing 3,000,000$ 8.4% 1,771,769$ 4,771,769$ 21 33.7% 33.7% 1.59x Q4 2017

6 Fernbank II Ottawa, ON Detached Houses 1,600,000$ 4.5% 817,000$ 2,417,000$ 22 27.9% 23.5% 1.51x Q2 2019

Gorsebrook Park Halifax, NS Condominium 3,125,000$ 8.7% 3,481,398$ 6,606,398$ 37 36.1% 35.9% 2.11x Q2 2020

Bradford Bradford, ON Townhouses 1,470,000$ 4.1% 2,193,543$ 3,663,543$ 40 44.8% 43.7% 2.49x Q2 2020

Estimated Fund Costs and Reserve 1,470,000$ -$ -$ 82

Total Projects 35,825,000$ 30,831,027$ 65,186,027$ 35 29.2% 1.82x

1

2

3

4

5

6

Projected Returns

Total Projected Proceeds, Fund 65,186,027$

Total Capital Invested (35,825,000)$

Total Additional Costs, Fund (1,389,465)$

Total Projected Profit, Fund 27,971,563$

Investor Preferred Return 8,451,878$

Investor Share of Excess 13,925,372$

Total Investor Profit 80% 22,377,250$

Harbour Share of Excess 20% 5,594,313$

Total Profit projected to be received by Investors 22,377,250$

Total Projected Return to Investors 62.5%

Weighted months, Capital outstanding 35.3

Annualized Projected Return to Investors 21.2%

The annualized return is calculated over the weighted average number of months project capital is outstanding.

The timing for the Project has been increased due to a longer than expected sales cycle.

Profit has been updated to reflect the refinancing proceeds received during the quarter for building 3. The Annualized return is calculated on a weighted capital basis, and would equate to an IRR of 40%.

The timing of capital outstanding has been extended by 12 months as result of market conditions.

The profit and timing for the Project has been updated to reflect actual sales to-date.

The timing for the Project has been updated to reflect actual sales to-date and expected timing of construction.

6

CORPORATE DIRECTORY

MANAGEMENT


Ari Silverberg

Alan Winer

Paul Schachter

ADVISORY COMMITTEE

The Advisory Committee continues to meet quarterly.

CORPORATE ADDRESS

Requests for the Fund’s reports, investment information or other

corporate communications should be directed to:

Ann Hawley

Director, Investor Relations


36 Toronto Street, Suite 500

Toronto ON M5C 2C1

416-361-3315 x243

AUDITORS

MNP LLP

LEGAL COUNSEL

Torkin Manes LLP

WEBSITE

www.harbourequity.com

7

http://www.harbourequity.com/

Harbour Equity JV Development Fund II Limited PartnershipNon-Consolidated Financial Statements

December 31, 2016

8

Independent Auditors’ Report

To the Partners of Harbour Equity JV Development Fund II Limited Partnership:

We have audited the accompanying non-consolidated financial statements of Harbour Equity JV Development Fund II LimitedPartnership, which comprise the non-consolidated balance sheet as at December 31, 2016, and the non-consolidated statements ofearnings, partners’ capital and cash flows for the year then ended, and a summary of significant accounting policies and otherexplanatory information.

Management’s Responsibility for the Non-Consolidated Financial StatementsManagement is responsible for the preparation and fair presentation of these non-consolidated financial statements in accordance withCanadian accounting standards for private enterprises, and for such internal control as management determines is necessary to enablethe preparation of non-consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' ResponsibilityOur responsibility is to express an opinion on these non-consolidated financial statements based on our audit. We conducted our auditin accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirementsand plan and perform the audit to obtain reasonable assurance about whether the non-consolidated financial statements are free frommaterial misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the non-consolidated financialstatements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatementof the non-consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors considerinternal control relevant to the entity’s preparation and fair presentation of the non-consolidated financial statements in order to designaudit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of theentity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness ofaccounting estimates made by management, as well as evaluating the overall presentation of the non-consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the non-consolidated financial statements present fairly, in all material respects, the financial position of Harbour EquityJV Development Fund II Limited Partnership as at December 31, 2016 and the results of its operations and its cash flows for the yearthen ended in accordance with Canadian accounting standards for private enterprises.

Toronto, Ontario Chartered Professional Accountants

March 30, 2017 Licensed Public Accountants

SUITE 300, 111 RICHMOND STREET W, TORONTO ON, M5H 2G41.877.251.2922 T: 416.596.1711 F: 416.596.7894 MNP.ca 9

Harbour Equity JV Development Fund II Limited PartnershipNon-Consolidated Balance Sheet

As at December 31, 2016

2016 2015

Assets

Cash and cash equivalents 434,852 6,839,727Accounts receivable 278,528 459,489Loans receivable (Note 3) 6,700,298 1,950,000Investments (Note 4) 21,210,957 6,319,046

28,624,635 15,568,262

Liabilities

Accounts payables and accrued liabilities 60,283 45,419Loan payable to related party (Note 5) 2,581,552 -

Commitments (Note 6)

Partners' capital 25,982,800 15,522,843

28,624,635 15,568,262

Approved on behalf of the Partners

The accompanying notes are an integral part of these financial statements

110

aaltman

Text Box

Harbour Equity JV Development Fund II Limited PartnershipNon-Consolidated Statement of Earnings


Revenue Interest 674,141 15,246

ExpensesInvestment management fees (Note 5) 537,375 457,234Professional fees 91,091 108,335Other 10,479 85,679

638,945 651,248

Income before the undernoted item 35,196 (636,002)

Share of net loss from investments (860,114) (173,929)

Net loss (824,918) (809,931)


211

aaltman

Text Box

Harbour Equity JV Development Fund II Limited PartnershipNon-Consolidated Statement of Partners' Capital


2015 Contributions Distributions Share of netloss

2016

Limited partners 15,522,844 13,613,500 (2,328,625) (824,910) 25,982,809Harbour Equity JV II Corp., as generalpartner

(1) - - (8) (9)

15,522,843 13,613,500 (2,328,625) (824,918) 25,982,800

2014 Contributions Unit issuancecost

(Note 8)

Share of netloss

2015

Limited partners - 16,479,500 (146,726) (809,930) 15,522,844Harbour Equity JV II Corp., as generalpartner

- - - (1) (1)

- 16,479,500 (146,726) (809,931) 15,522,843


312

aaltman

Text Box

Harbour Equity JV Development Fund II Limited PartnershipNon-Consolidated Statement of Cash Flows


2016 2015

Cash provided by (used for) the following activitiesOperating activities

Net loss (824,918) (809,931)Share of net loss from investments 860,114 173,929

35,196 (636,002)Changes in working capital accounts

Accounts receivables 180,961 (459,489)Accounts payable and accrued liabilities 14,864 45,419

231,021 (1,050,072)

Financing activitiesContributions from limited partners 13,613,500 16,479,500Distributions to limited partners (2,328,625) -Unit issuance costs - (146,726)

11,284,875 16,332,774

Investing activitiesContributions to investments (15,752,025) (6,492,975)Loan payable to related party 2,581,552 -Additions to loans receivable (4,750,298) (1,950,000)

(17,920,771) (8,442,975)

(Decrease) increase in cash and cash equivalents (6,404,875) 6,839,727

Cash and cash equivalents, beginning of year 6,839,727 -

Cash and cash equivalents, end of year 434,852 6,839,727


413

aaltman

Text Box

Harbour Equity JV Development Fund II Limited PartnershipNotes to the Non-Consolidated Financial Statements


1. General

Harbour Equity JV Development Fund II Limited Partnership (the "Partnership") is an unincorporated limited partnershipestablished by Harbour Equity JV II Corp., the general partner, under the laws of the Province of Ontario and became activeon January 1, 2015.

The purpose of the Partnership is to provide equity capital to mid-sized real estate developers on a joint venture basis fornew 'ground-up' developments and for investments in existing properties where a significant redevelopment or valueenhancement opportunity exists.

The Partnership has a committed investment from unitholders for a total of $35,825,000 (7,165 units at $5,000 per unit). Asat December 31, 2016, the remaining committed contributions to be received from unitholders is $5,732,000 (2015 -$19,345,500). The Partnership will only require contributions from its partners when necessary to meet investment financingdemands.

The partners and their respective interests are as follows:

Limited partners 99.999%Harbour Equity JV II Corp., as general partner 0.001%

Pursuant to the limited partnership agreement, the net earnings or loss of the Partnership will be allocated to the partnersbased upon their relative investment percentage. The general partner's income allocation is increased to 20% once thelimited partners' capital is returned and the limited partners have earned a preferred return of 8% per annum.

2. Significant accounting policies

These non-consolidated financial statements have been prepared in accordance with Canadian accounting standards forprivate enterprises and include the following significant accounting policies:

Basis of presentation

These non-consolidated financial statements present the financial position, results of operations and cash flows of thePartnership and accordingly, do not include all the assets, liabilities, revenue and expenses of the partners.

No provision has been made in these non-consolidated financial statements for any income taxes.

Revenue recognition

Revenue from investments represents the Partnership's share of net earning or loss from the underlying investments. Thoseinvestments recognize revenue from the sale of properties once all significant conditions have been met and collection ofthe proceeds from sale is reasonably assured.

Participation fees and interest income are recognized as revenue when earned and collectibility thereof is reasonablyassured.

Cash and cash equivalents

Cash and cash equivalents include balances with banks and short term investments with maturities of three months or less.

Loans receivable

Loans are initially recorded at fair value and subsequently measured at their amortized cost less impairment. Amortized costis calculated as the loans’ principal amount plus unamortized loan participation fees, less any allowance for anticipatedlosses, plus accrued interest.

514

aaltman

Text Box



2. Significant accounting policies (Continued from previous page)

Investments

The Partnership records its investments using the equity method. Under this method, the investments are initially recordedat cost and are subsequently adjusted for the Partnership's share of net earnings/loss, contributions and distributions.

Investments are tested for impairment whenever events or changes in circumstances indicate that their carrying amountmay not be recoverable. An impairment loss is recognized when the carrying amount of the asset exceeds the sum of theundiscounted cash flows resulting from its use and eventual disposition. The impairment loss is measured as the amount bywhich the carrying amount of the long-lived asset exceeds its fair value. Any impairment is included in net earnings/loss forthe year.

Financial instruments

The Partnership recognizes its financial instruments when the Partnership becomes party to the contractual provisions ofthe financial instrument. All financial instruments are initially recorded at their fair value, including financial assets andliabilities originated and issued in a related party transaction with management. Financial assets and liabilities originatedand issued in all other related party transactions are initially measured at their carrying or exchange amount in accordancewith Section 3840 Related Party Transactions.

At initial recognition, the Partnership may irrevocably elect to subsequently measure any financial instrument at fair value.The Partnership has not made such an election during the year. All financial assets and liabilities are subsequentlymeasured at amortized cost.

Transaction costs and financing fees are added to the carrying amount for those financial instruments subsequentlymeasured at cost or amortized cost.

Financial asset impairment

The Partnership assesses impairment of all its financial assets measured at cost or amortized cost. The Partnershipreduces the carrying amount of any impaired financial assets to the highest of: the present value of cash flows expected tobe generated by holding the assets; the amount that could be realized by selling the assets; and the amount expected to berealized by exercising any rights to collateral held against those assets. Any impairment, which is not considered temporary,is included in current year net loss.

The Partnership reverses impairment losses on financial assets when there is a decrease in impairment and the decreasecan be objectively related to an event occurring after the impairment loss was recognized. The amount of the reversal isrecognized in net loss in the year the reversal occurs.

Measurement uncertainty

The preparation of financial statements in conformity with Canadian accounting standards for private enterprises requiresmanagement to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expensesduring the reporting period. Management's significant estimates relates to the valuation of investments and loansreceivable.

These estimates and assumptions are reviewed periodically and, as adjustments become necessary they are reported innet loss in the years in which they become known.

615

aaltman

Text Box



3. Loans receivable

a) On July 17, 2015, the Partnership advanced $1,700,000 to finance a real estate development project. The loan is non-interest bearing for the first 27 months and thereafter bears interest at 15% per annum. The principal is due on maturity onJuly 1, 2018. An exit fee in the amount of $935,000 is payable along with any accrued interest by the borrower on maturityof the loan.

b) On March 14, 2016, the Partnership advanced $3,000,000 to finance a real estate development project. The loan bearsinterest at 27.75% per annum, of which a portion of interest is payable annually on the 15th of January and the remainder ofinterest due is payable with the principal on maturity at March 14, 2020.

c) During 2016 the Partnership advanced $1,600,000 to finance a real estate development project of 52 residential lots. Theloan is non-interest bearing for the first 36 months until April 19, 2019, and thereafter bears interest at 18% per annum untilApril 19, 2020 when any outstanding principal is due. As the residential lots are sold, the borrower is required to repay aspecified amount of principal plus a participation fee, the amount of which varies in accordance with the terms of the loan.The total of the participation fee is in the range of approximately $700,000 to $820,000 depending on the timing of the salesof the lots.

The loans are secured by mortgages on the above noted real estate, which is subordinated to the borrowers' primarylenders, general security agreements over all the assets of the borrowers and an unlimited guarantee from one of theshareholders of the borrowers.

716

aaltman

Text Box



4. Investments

The Partnership invests in real estate development projects that are held through limited partnership and/or co-tenancystructures. The Partnership's investments consist of the following:

• 99.999% interest in Harbour Fort Sask Limited Partnership, which in turn holds a 50% interest in the Windsor Apartment

Fort Sask Co-tenancy;

• 50% interest in Danmor Limited Partnership;

• 99.999% interest in Harbour Morningside Limited Partnership, which in turn holds a 50% interest in the Your Home

Developments (West Hill) Co-tenancy; and

• 38.9996% interest in Townhomes of Canals Limited Partnership;

• 48.908% interest in UV Developments Four Limited Partnership;

• 99.999% interest in Harbour Wellington Limited Partnership, which in turn holds a 50% interest in Gorsebrook Park Co-

tenancy; and

• 60% interest in Harbour Bradford Limited Partnership, which in turn holds a 42.5% interest in Cachet Harbour (Bradford)

Co-tenancy.

The Partnership holds the following investments at carrying value:

2015 Contributions DistributionsShare of net

loss2016

Harbour Fort Sask LP 2,516,897 - - 153,980 2,670,877

Danmor LP 2,000,000 3,000,000 - (487,937) 4,512,063

Harbour Morningside LP 913,240 508,125 - (416,149) 1,005,216

Townhomes of Canals LP 888,909 3,008,900 - (18,304) 3,879,505

UV Developments Four LP - 5,500,000 - - 5,500,000

Harbour Wellington LP - 2,625,000 - (91,704) 2,533,296

Harbour Bradford LP - 1,110,000 - - 1,110,000

6,319,046 15,752,025 - (860,114) 21,210,957

2014 Contributions DistributionsShare of net

loss2015

Harbour Fort Sask LP - 2,560,000 - (43,103) 2,516,897

Danmor LP - 2,000,000 - - 2,000,000

Harbour Morningside LP - 1,041,875 - (128,635) 913,240

Townhomes of Canals LP - 891,100 - (2,191) 888,909

- 6,492,975 - (173,929) 6,319,046

817

aaltman

Text Box



5. Related party transactions and balances

During the year, Harbour Equity Capital Corp., a company related to the general partner of the Partnership through commoncontrol and a partner of the Partnership, charged an investment management fee of 1.5% on the total committedcontributions to the Partnership.

The Partnership and Harbour Equity JV Development Fund III Limited Partnership, an entity related through commoncontrol, comprise the two limited partners in Harbour Bradford Limited Partnership.

Net proceeds from the refinancing of real estate by the Windsor Apartment Fort Sask Co-tenancy, in which Harbour FortSask Limited Partnership is a co-tenant, were advanced to the Partnership and accordingly have been recorded as a loanpayable to related party as at December 31, 2016. The loan is unsecured, non-interest bearing and has no specified termsof repayment.

These transactions occurred in the normal course of operations and have been recorded in these non-consolidated financialstatements at the exchange amount which is the amount of consideration established and agreed to by the related parties.

6. Commitments

The Partnership has committed to advancing further funds to certain investments in its existing portfolio subject to theircontinued compliance with the terms of the investments. As at December 31, 2016, these committments amounted toapproximately $5,810,000.

7. Financial instruments

The Partnership, as part of its operations, carries a number of financial instruments. It is management's opinion that thePartnership is not exposed to significant credit, currency, liquidity or other price risks arising from these financialinstruments except as otherwise disclosed.

Interest rate risk

Interest rate risk is the risk that the value of a financial instrument might be adversely affected by a change in the interestrates. Changes in market interest rates may have an effect on the cash flows associated with some financial assets andliabilities, known as cash flow risk, and on the fair value of other financial assets or liabilities, known as price risk.

The Partnership is exposed to interest rate cash flow risk with respect to investments it has made, which rely on financingsubject to variable interest rates.

8. Unit issuance costs

During the prior year, the Partnership incurred costs of $146,726 for the issuance of partnership units which has beenrecorded as a reduction to partners' capital.

918

aaltman

Text Box

Appendix A

Investment Project Updates

19

SUMMARY

Project Co-ownership/LP: Your Home Developments (West Hill) Inc.

Development Partner: Your Home Developments (‘Your Home’)

Project: A proposed six-storey, 143-unit condominium and 18-unit stacked townhouse development

in Scarborough, Ontario to be rezoned, developed and sold.

Investment Structure: Joint Venture Equity

Original Previous Quarter Current Quarter

Harbour Fund Equity $ 5,200,000 $ 5,200,000 $ 5,200,000

Harbour LP Profit $ 3,918,786 $ 3,918,786 $ 3,918,786

Capital Outstanding (Time) 25 months 30 months1 30 months

Gross Return 75.4% 75.4% 75.4%

Annualized Return 36.3% 30.1%1 30.1%

Funding Date May 2015

Projected Completion Date Q2 2018 Q4 20191 Q4 2019

1 The timing for the project was previously increased due to a longer than expected sales cycle.

PROJECT UPDATE

The project consists of a six-storey midrise condominium building on Kingston Road with 143 units, and 18 stacked-townhouse

units. The project will be built with two levels of underground parking. Typical unit sizes for the condos are 770 sq. ft. and

the townhomes average 1,150 sq. ft. Upon completion, the condo prices are expected to average $320,000 (the average

price of the sold units is $313,000) and the townhomes have sold out at an average price of $471,000.

The Property is located along a city-designated Avenue and is already supported by the existing zoning by-law which

carries a 2003 staff report for development along Kingston Road. The co-ownership made a submission for Site Plan

Approval during the third quarter of 2015 and zoning has been approved.

Sales to agents began in October 2015, followed by a second sales launch to investment focused buyers in April 2016. As

of the date of this report, 133 condo units have been sold (133 firm), representing approximately 93% of total condo units.

As well, as at the date of this report all 18 townhouses have been sold. With the current sales numbers, sufficient pre-sales

are in place to obtain a construction loan and construction is targeted to start in the spring. Your Home Developments has

received a Term Sheet for construction financing from RBC.

PARTNERSHIP CAPITALIZATION

The Fund had advanced $1,550,000 at December 31, 2016. The capitalization of the project is as follows:

Committed Advanced Balance

Your Home, common equity (20%) $ 1,300,000 $ 1,300,000 $ -

The Fund, common equity (20%) $ 1,300,000 $ 1,300,000 $ -

The Fund, disproportionate equity (60%) $ 3,900,000 $ 250,000 $ 3,650,000

Total Capitalization $ 6,500,000 $ 2,850,000 $ 3,650,000

20

PROJECT FINANCING

Your Home negotiated a Vendor Takeback Mortgage in the amount of $1,950,000. Terms of the VTB are as follows:

Lender Vendor

Loan Amount $1,950,000

Term 48 Months

Maturity September 7, 2018

Interest Rate 5% per annum

Payments Interest only, payable quarterly

Prepayment At any time; without notice, bonus or penalty

The co-ownership has received a term sheet for construction financing from RBC. Terms are as follows:

Lender RBC


Maturity September 30, 2019

Interest Rate RBC prime + 1%

The Term Sheet also includes a second segment of the loan which is a $5M non-revolving demand facility which is available

as security (in the form of a Letter of Credit) to the City or other services for obligations of the Project. The interest rate is

1.25% per annum.

PROJECT TIMELINE

The following schedule outlines significant development milestones anticipated for the Project:

Date Milestone Status

Q2 2015 Co-ownership closes on land Complete

Q3 2015 Submit Site Plan applications Complete

Q4 2015 Launch unit sales In Progress

Q2 2016 Zoning Approved Complete

Q3 2016 Development approvals received Complete

Q2 2017 Site servicing to commence

Building Permits and construction financing anticipated

Q3 2017 Construction to commence

Attached in Appendix “B” are the unaudited financial statements for the Co-Ownership as at December 31, 2016.

21

SUMMARY

Project Co-ownership/LP: Danmor Limited Partnership

Development Partner: Marlin Spring Investments Limited (‘Marlin Spring’)

Project: A proposed eight-storey, 170-unit condominium development in Toronto (East York),

Ontario to be rezoned, developed and sold.





Capital Outstanding (Time) 32 months 36 months 36 months

Gross Return 73.9% 73.9% 73.9%

Annualized Return 27.7% 24.6% 24.6%

Funding Date June 2015


PROJECT UPDATE

The project site consists of 0.64 acres across 2 properties at 2301-2315 Danforth Avenue, in the Danforth Village

neighbourhood of Toronto. The design for the project consists of an eight-storey building with 156 condominium units, and

14 rental replacement units. The condo units will average approximately 700 sq. ft. Upon completion, the condo prices are

projected to average $365,000 per unit with additional revenue earned through the sale of parking stalls and storage

lockers.

On September 9, 2016 the Limited Partnership received zoning approval from Toronto East York Community Council for the

Project. Following the zoning approval, applications were submitted for site plan approval and should be satisfied by the

spring of 2017. Demolition and excavation permits are expected by early summer 2017, at which point construction will

commence.

As a result of achieving an approval, sales launched on October 1, 2016 under the name Canvas Condominiums. As of the

date of this report, 132 units have sold (85%) at an average of $601 psf. This is approximately 9% above proforma

($550 psf). As well, 128 lockers and 79 parking stalls have been sold at $2700 per locker and $36,000 per parking stall.


The Fund had advanced $5,000,000 at December 31, 2016, which includes $1,000,000 that was funded on December

15th. The capitalization on the date of this report is as follows:

Committed Drawn to Date Capital to Draw

Marlin Spring, common equity (25%) $ 2,000,000 $ 2,000,000 $ -

The Fund, common equity (25%) $ 2,000,000 $ 2,000,000 $ -

The Fund, disproportionate equity (50%) $ 4,000,000 $ 3,000,000 $ 1,000,000


22

PROJECT FINANCING

The Bank of Nova Scotia has provided the project with a land acquisition loan for 60% of the purchase price. Terms of the

loan are as follows:

Lender Bank of Nova Scotia

Loan Amount $5,000,000 ($4,500,000 toward land acquisition and $500,000 toward project soft costs)

Term 30 Months

Maturity Date December 31, 2017

Interest Rate Prime + 1% per annum

Payments Interest only

Prepayment At any time; without notice, bonus or penalty

Guarantor Corporate guarantee provided by affiliates of Marlin Spring

The land loan will be repaid from proceeds of the construction loan. The construction loan will be with Scotia bank.

PROJECT TIMELINE




Q3 2015 Submit Rezoning and Site Plan applications Complete

Q3 2016 Development approvals projected to be received Complete

Q4 2016 Unit sales to commence In Progress

Q2 2017 Site Plan Approval received, Site servicing to commence

Q3 2017 Building Permits anticipated to be obtained, construction to commence

Q2 2019 Initial unit closings

Q4 2019 Condo registration, balance of unit closings


23

SUMMARY

Project Co-ownership/LP: Windsor Apartments Fort Sask Inc.

Development Partner P.K. Developments Construction Corp.

Project: 6.51acre parcel in Fort Saskatchewan, AB to develop, lease-up, and sell a 5-building

rental apartment complex.





Capital Outstanding (Time) 14 months 19 months 17 months2

Gross Return 91.3% 121.2% 120.8%

Annualized Return 78.3% 76.6% 85.3%3

Funding Date May 2015

Projected Completion Date Q2 2018 Q3 2019

Q3 2019

1 The equity invested in the project has increased as the Partnership acquired an additional 2.57 acres, adjacent to the current site,

with the potential to build an additional two buildings; profit and gross returns have been updated accordingly. 2 The timing has increased as the first two buildings did not sell upon completion and stabilization as originally anticipated. It is

expected that the first three buildings will be sold for $175,000 per unit in Q4 2018.

3 The profit has been updated to reflect the refinancing proceeds received from Building 1&2 in October 2016 and from Building 3

in December 2016.

PROJECT UPDATE

Phase I (Building 1 & 2): The first phase of the project is comprised of two 48 unit (96 units total), four storey, wood-frame

apartment buildings. The two buildings are now complete and as at year-end 75% of the units (72 units) were occupied.

Gross lease rates range between $1,275 and $1,495 per month depending on unit type and floor level. Rental incentives

are monitored on a weekly basis and range from one month free rent to discounts applied to monthly rent for up to the first

three months of the lease term.

Current economic conditions have not supported a sale of the asset therefore term financing of $14,540,000 for Phase I was

secured and funded in October 2016 (see Project Financing below).

Phase II (Building 3): The second phase is a third identical 48 unit, four storey, wood frame apartment building. Occupancy

commenced in August 2016 and 90% of the units (43 units) were leased as at December 31 at the same rates as Phase I.

Term financing of $7,060,000 from RBC was secured and funded in December. Harbour received $1,557,412 of the gross

refinancing proceeds. With the refinancing, Harbour was able to secure all of its disproportionate equity in the deal and

only has $251,000 of common equity that was not repaid with the refinancing.

Phase III (Building 4 & 5): On closing, the Fund acquired an option to purchase an additional 2.57 acres adjacent to the site

where Buildings 1-3 are being constructed. This option was exercised at the end of 2015 based on the attractive cost of

the land ($515,000 per acre). Two more identical buildings, Buildings 4 and 5, can be built on this land. Timing as to when

these two buildings will be constructed will be dependent on the ability to sell the first three buildings as well as market

conditions at the time. Each building will have 48 units comprised of 13 x 1 bedroom and 35 x 2 bedroom units, for a total

of 96 units and an average unit size of 838 sf.

24


A summary of the co-ownership capital at December 31 is as follows:


PK, Common Equity (20%)

The Fund, Common Equity (20%)

$ 640,000

$ 640,000

$ 640,000

$ 640,000

$ -

$ -

The Fund, Disproportionate Equity (60%) $ 1,920,000 $ 1,920,000 $ -

Total Capitalization $ 3,200,000 $ 3,200,000 $ -

As noted above, Buildings 1 and 2 (Phase 1) were re-financed in October 2016 and with the new refinancing proceeds in

place, the capitalization of the co-ownership is revised as follows:

Advanced Repaid Balance

PK, Common Equity (20%) $ 640,000 $ 388,730 $ 251,270

The Fund, Common Equity (20%) $ 640,000 $ 388,730 $ 251,270

The Fund, Disproportionate Equity (60%)4 $ 1,920,000 $ 1,920,000 $ -

Total Capitalization $ 3,200,000 $ 2,697,460 $ 502,540

1 In addition to the repatriation of equity, The Fund received its preferred return to December 2016 ($16,572) on its outstanding

disproportionate equity as well as a coupon on its common equity ($71,954)

PROJECT FINANCING

Phase I – Building 1 and 2

The construction loan was refinanced on October 10, 2016 with Servus Credit Union under the following terms:

Lender Servus Credit Union

Loan balance at Dec.31, 2016 $14,510,000

Interest Rate 3.20%

Debt Service (P&I) $70,345 payable monthly

Guarantees Dave Taylor and P.K. Developments Construction Corp.

Maturity 5 years / October 2021

Phase II – Building 3

Lender RBC

Loan balance Dec.31, 2016 $7,060,000

Interest Rate 2.98%

Debt Service (P&I) $33,338

Guarantees Dave Taylor and P.K. Developments Construction Corp.

Maturity February 1, 2022

25

Phase III – Land for Buildings 4 and 5

Land Loan $910,000

Lender Laurentian Bank of Canada

Loan balance Dec.31, 2016 $910,000

Interest Rate Greater of Prime + 1.25% and 3.95%

Debt Service Interest only

Guarantees Personal guarantee from the Developer principal and corporate

guarantee of 1306778 Alberta Ltd.

Maturity June 1, 2017

PROJECT TIMELINE

The following schedule outlines the significant development milestones achieved and anticipated for the Project:


Q4 2015 Commence construction of Phase II/Building 3 Complete

Q1 2016 Phase I building completion & lease-up Complete

Q4 2016 Refinancing of Phase I (Buildings 1 and 2) Complete

Q4 2016 Phase II/Building 3 substantial completion & lease-up Complete

Q4 2016 Refinancing of Phase II/Building 3 Complete

Q4 2017 Sale of Buildings 1, 2 and 3

Q4 2017 Commence construction of Building 4

Q3 2018 Commence construction of Building 5

Q3 2019 Sale of Buildings 4 and 5

STABILIZED OPERATING INCOME

Occupancy of Phase I commenced in October 2015 and July 2016 for Phase II, therefore, there is no comparable data

from 2015 for the same period. As well, there was no budget for phase II for 2016 leading to large variances between

budget and actual figures.

12 months ended

Dec 2016 Dec 2016 Dec 2015

Budget Actual Actual

Rent Revenue, annual gross $ 1,276,814 $ 1,431,530 N/A

Interest Income $ 396 $ -

Net Revenue $ 1,277,114 $ 1,431,530

Operating Expenses $ (367,053) $ (633,004)

Net Operating Income (NOI) $ 910,061 $ 798,526

Interest on Mortgage $ (490,000) $ (637,491)

Cash Flow before Principal payments $ 420,061 $ 218,758

Principal on Mortgage $ (63,173) $ (63,173)

Cash Flow from Operations $ 356,888 $ 97,862


26

SUMMARY

Project Co-ownership/LP: Townhomes of Canals LP

Development Partner: Slokker Projects Limited Partnership (“Slokker”)

Project: Townhouse development on 13.64 acres in West Airdrie, Alberta to be rezoned,

developed and sold.






Gross Return 138.4% 163.0%2 163.0%

Annualized Return 33.6% 31.5%2 31.5%

Funding Date July 2015


1 The adjusted Fund Equity reflects the reduced investment amount from $4.9 million to $3.9 million, as detailed below. 2 The profit projection and return has been amended to reflect the change in built-form (from stacked townhouse to condo) and the

increase in the capital outstanding (time) as a result in a delay in obtaining a development permit for the site.

PROJECT UPDATE

The site, located just north of Calgary in Airdrie, has been approved as a townhouse and multi-residential development

which will consist of 232 townhouse units and up to 123 condo units.

During the quarter, the partnership received confirmation on approval of its development application. The deep servicing

plan was submitted in Q3 2016 and approval was received subsequent to year-end. The development permit is currently

under review and once obtained, the Limited Partnership will proceed to service the site, build a number of show homes and

initiate a marketing program. The sales trailer for the project is currently under construction and is expected to open by the

end of Q1 2017. The site will be serviced in phases over a 4-5 year period, with timing dependent on the pace of unit sales.


At closing of the Limited Partnership, the Fund committed to advance $4,900,000, or 70% of the total required equity for

the Project. In May 2016, the Developer requested to replace $1,000,000 of the Fund’s equity with its own. The Fund agreed

to the Developer’s proposal, which allows the Fund to maintain an equivalent proportion of Project proceeds while reducing

exposure to the greater Calgary market.

The initial advance was completed in July 2015, and the capitalization of the project as at December 31, 2016 is as follows:


Slokker, common equity $ 3,100,000 $ 3,100,000 $ -

The Fund, common equity $ 3,900,000 $ 3,900,000 $ -


27

PROJECT FINANCING

The Limited Partnership has received a commitment for an acquisition, servicing and initial construction loan with Alberta

Treasury Branch (“ATB”). Loan proceeds would be used to carry the project through its first phase of construction. Details of

the loan are as follows:

Lender ATB

Loan Amount $ 10,503,000

Balance at Dec.31, 2016 $ 3,983,546

Interest Rate Prime + 1.60% (blended)

Debt Service Interest only

Repayment On demand

Guarantors Personal and corporate guarantees from the principals of Slokker.

Maturity Date May 31, 2018

PROJECT TIMELINE



Q2 2015 LP funds firm deposit to land vendor Complete

Q1 2016 Submit Site Plan applications Complete

Q2 2016 Close on land Complete

Q1 2017 Development approvals to be received; Complete

Q1 2017 Site servicing to commence;

building permits anticipated to be obtained; townhouse construction to commence

Q3 2019 Sale of townhouses completed

Q4 2019 Condo building construction to commence

Q2 2021 Construction of condo building completed


28

SUMMARY

Project Co-ownership/LP: N/A

Development Partner DCR/Phoenix Development Corporation Ltd.

Arlington Square Inc.

Project: Development of three rental apartment projects in Ottawa, ON.

Investment Structure: Participating Debt





Gross Return 55.0% 55.0% 55.0%

Annualized Return 30.0% 26.4%1 26.4%1


Substantial Completion Q2 2017

Q4 2017

Q4 2017

1 Timing was extended by three months due to a delay in commencing construction on the Bradley Terrace project.

PROJECT UPDATE

The Fund provided participating debt financing for the development of three rental apartment projects in Ottawa, ON as

follows:

Pointe West: two attached buildings, one 5-storey and one 3-storey, totaling 60 rental units located at 151

Greenbank Road in Nepean, ON.

Bradley Terrace: two 3 storey apartment buildings totaling 52 units (26 units each) located at 152 Whispering Winds

Way in Orleans, ON; and

Fernbank Crossing Rentals: the acquisition of a 25% interest in the development of eight walk-up buildings with 12

units per building in Kanata, ON.

Pointe West

As at December 31st the project was approximately 68% complete with the structural steel installed up to the roof level,

the roof membrane installed, the elevator shaft installed and the corridor wall framing complete up to the fourth floor.

Construction fell behind by two months and substantial completion is now scheduled for Q2 2017 with registration and first

occupancy happening in Q3 2017.

Bradley Terrace

Bradley Terrace will be comprised of two 3-storey, 26-unit apartment building with outdoor parking. The units will have 8.5

foot ceilings, vinyl floors and arborite kitchen tops. As well, each unit will have its own meter for gas and hydro.

City staff approval was obtained in Q3 2016 and the bulk excavation is complete. In terms of servicing, sanitary and storm

sewers, as well as water and electrical, have been brought into the building. The concrete footings and perimeter walls are

complete with insulation having been installed under the footings and the waterproofing membrane installed to the perimeter

walls.

29

Fernbank Crossing Rentals

The building design has changed which has delayed the project by an additional six months in order to get City approval

on the most recent design. We are currently negotiating with DCR in regards to the remaining $300,000 of undrawn capital.

The $300,000 allocated to this project by the Fund will be called when approvals are in place and as required by the

Developer.

CAPITALIZATION


The Fund, Preferred Equity $ 2,000,000 $ 1,700,000 $ 300,000


Note: Only $1,700,000 has been advanced to date the remaining $300,000 earmarked for the Fernbank Crossing

project will be called when and if required by the Developer.

PROJECT FINANCING

Laurentian Bank will be providing the construction financing on the Pointe West and Bradley Terrace projects. Terms of the

construction facilities are as follows:

POINTE WEST BRADLEY TERRACE

Lender Laurentian Bank Laurentian Bank

Loan Amount $ 11,300,000 $ 4,650,000

Balance at Dec.31, 2016 $ 5,719,653 $ -

Term 28 months 18 months

Interest Rate Prime + 1.50% Prime + 1.50%

Guarantor Principal of DCR/Phoenix

DCR/Phoenix Development Corporation

Ltd.

871442 Ontario Inc.

Principal of DCR/Phoenix

DCR/Phoenix Development

Corporation Ltd.

871442 Ontario Inc.

As at December 31, 2016 no construction financing has been advanced from Laurentian for the Bradley Terrace project.

Terms of the participating debt are as follows:

Lender Harbour Equity JV II Corp. Loan Amount (Registered) $2,000,000 loan amount & $1,100,000 of profit participation Term 36 Months Maturity July 2018 Profit Participation / Rate (i) Profit Participation of $1,100,000

(ii) On maturity any unpaid Profit Participation shall be capitalized to the loan and accrue at 15% per annum, calculated and compounded monthly

Repayment From the excess sale and/or refinancing proceeds upon completion of each project Security Second Mortgage for $3,100,000 cross-collateralized across all three projects

30

PROJECT TIMELINE

Pointe West is comprised of 2 attached buildings, as described above. The unit mix is comprised of 37 two bedroom units

and 23 one bedroom units, which range between 780 – 1,100 sf and 530 – 675 sf respectively.


Q4 2014 Demolition and Shoring Complete

Q2 2015 Excavation and Backfill Complete

Q3 2015 Site Servicing Complete

Q4 2015 Concrete Work – Structure Complete

Q3 2016 HVAC and gas line installation (complete to 3rd floor) Complete

Q2 2017 Substantial Completion

Q3 2017 First Occupancy

Q2 2017 Stabilized occupancy

Q2 2017 Refinancing

Bradley Terrace is comprised of two wood frame rental apartment buildings on 1.605 acres of land located in Orleans,

Ontario. Each building will be comprised of 26 units with 8 one bedroom units (615 – 705 sf), 2 one bedroom + den units

(840 sf), and 16 two bedroom units (815 sf). The Developer has decided to build the project in phases, one building at a

time. Given that the project will be built in phases it will take an additional 12 months to complete.


Q2 2016 Commence site grading Complete

Q3 2016 Demolition and Shoring Complete

Q3 2016 Excavation and Backfill In Progress

Q4 2016 Construction Start In Progress

Q1 2017 Framing

Q2 2016 Building Enclosed

Q3 2017 Interior finishes


Q2 2018 Stabilized occupancy

31

SUMMARY

Project Co-ownership/LP: UV Developments Four Limited Partnership

Development Partner WestStone Properties, o/a Urban Village Limited Partnership (“WestStone”)

Project: Construction and sale of a 407-unit condominium tower, as well as an adjoining 3 storey

commercial building of approximately 15,000 square feet, in Surrey, BC.

Investment Structure: Preferred Equity





Gross Return 66.7% 66.7% 66.7%


Funding Date April 2016

Substantial Completion Q4 2018 Q4 2018 Q4 2018

PROJECT UPDATE

The Fund has provided Preferred Equity financing to WestStone for the construction of a 36-storey high-rise tower with 407

condo units as well as an adjoining three-storey commercial building of approximately 15,000 square feet. The Project is

known as “Evolve.” Evolve is the fourth phase of WestStone’s 8-phase master-planned community known as ‘West Village’

in Surrey, BC.

WestStone launched pre-sales for Evolve in April of 2015. As at Q4 2016, a total of 360 units (89% of the project) have

been sold and deposits received from purchasers. This represents approximately $99 million in gross proceeds. Construction

is proceeding on schedule and in line with budget. The project has completed the construction of a five-level underground

parking garage, and concrete is being prepared for the transfer slab, which will be over five feet thick and the base for

the above-grade building. Above-grade building permits were issued in early February 2017.


The Fund has provided capital as Preferred Equity with a term of 30 months (terms described below). The term of the

preferred equity commenced on March 1, 2016.


WestStone, Equity $ 5,500,000 $ 5,500,000 $ -

The Fund, Preferred Equity $ 5,500,000 $ 5,500,000 $ -


Term / Maturity 30 Months / September 2018

Profit Participation / Rate (i) Profit Participation of $3,666,667

(ii) On maturity any unpaid Profit Participation shall be capitalized and the entire

amount will accrue at 15% per annum, calculated and compounded monthly

Repayment From the excess sale proceeds upon completion of the Project

Security The principal amount has been guaranteed by the controlling shareholder of

WestStone.

32

PROJECT FINANCING

Laurentian Bank originally provided a commitment letter to provide a $74 million construction loan to the project. Laurentian

revised its committed loan amount to $63.5 million citing a number of factors, including the recent foreigner tax instituted in

Vancouver and a generally slowing Vancouver market. The difference is being funded by way of additional equity from

WestStone, additional insured purchaser deposits and a mortgage facility from Kingsett Capital to replace the bridge loan

described below. Funding has occurred subsequent to year-end. Terms of the construction facility are as follows:

Lender Laurentian Bank of Canada


Balance at Dec.31, 2016

Term

$ 8,172,833

30 months

Interest Rate Prime + 1.25%

Guarantor Principal of WestStone

The project received a bridge loan from Kingsett Capital to cover costs incurred prior to the first Laurentian construction loan

advance. The bridge loan has been converted to a construction loan concurrent with the first advance of the first mortgage

construction loan from Laurentian. Terms of the loan are as follows:

Lender Kingsett Capital



Term

$ 5,769,849

24 months

Interest Rate 14.00%, paid through an interest reserve of $1,750,000


In addition to the two loan facilities described above, the project has obtained a mezzanine loan from Kingsett Capital in

the amount of $6,000,000, which includes a $1,000,000 interest reserve. $5,000,000 of the loan was drawn concurrently

with the Fund’s advance of preferred equity. Terms of the mezzanine facility are as follows

Lender Kingsett Capital



Term

$ 5,466,891

30 months

Interest Rate 12.50%


PROJECT TIMELINE


Q1 2016 Excavation Complete

Q3 2016 Foundations & underground In Progress

Q4 2017 Concrete Structure Completion In Progress


Q3 2018 Occupancy and registration


33

SUMMARY

Project Co-ownership/LP: The Developer has requested that their identity not be disclosed

Project: Two six-storey student housing rental buildings

Investment Structure: Debt

Original Prior Quarter Current Quarter




Gross Return 59.1% 59.1% 59.1%


Funding Date March 2016


PROJECT UPDATE

The project is a student housing development in the Greater Toronto Area (GTA) that is being undertaken by a successful

development team and operator. The development will feature 486 suite-style apartment units (812 beds), as well as

ground floor retail and modern amenities. All units, which will range from one to three-bedrooms, will include a private

washroom and kitchen. Monthly rent will start from $700/bed for a shared room within a two-bedroom unit. The expected

date of substantial completion is in Q2 2017 and the building is to be operational by Q3 2017.

As of Q4 2016 both buildings have been fully erected, with exterior cladding and windows substantially completed while

insulation, plumbing, electrical and sprinkler system installation in progress. Roofing, drywall installation and interior finishes

commenced this past quarter.

164 units have been pre-leased in the fourth quarter, bringing the total number of leases to 171 or 21% of the two buildings.

There has been particularly strong interest from upper year undergraduate students, which account for over 75% of the

applications received to date. Furthermore, 46% of the applications have been from Canada and the remainder were

international students predominantly from China, India and Nigeria.

Total Units Prior Quarter

Total Leases

Current Quarter

Total Leases

% Leased Units

Available

812 7 171 21% 641

PROJECT CAPITALIZATION

The Fund has advanced $3,000,000. The capitalization of the project as at December 31, 2016 is as follows:

Total Cost to Date Cost to Complete

Total Project Costs $ 94,500,000 $ 56,583,834 $ 37,916,166

Less: Hold Back $ - $ 3,570,564 $ (3,570,564)

Net Project Costs $ 94,500,000 $ 53,013,270 $ 41,486,730

34

Total Advanced Remaining to

Advance

Schedule A Bank Construction Loan $ 70,875,000 $ 25,636,826 $ 45,238,174

Private Lender Mezzanine Loan $ 14,175,000 $ 14,175,000 $ -

Harbour Loan $ 3,000,000 $ 3,000,000 $ -

Developer Equity $ 6,450,000 $ 6,450,000 $ -

Total Sources $ 94,500,000 $ 49,261,826 $ 45,238,174

Add: Next Approved Draw (January) $ - $ 3,751,444 $ (3,672,334)

Total Sources including Next Draw $ 94,500,000 $ 53,013,270 $ 41,486,730

PROJECT FINANCING

The project is being financed through a first mortgage construction loan from a Schedule A Bank and a second mortgage

construction loan from a private lender.

Terms of the First Mortgage Construction Loan are as follows:

Lender Schedule A Bank

Loan Amount Lesser of

1. 65% of the appraised value of the completed project

2. An amount such that projected Debt Service Coverage is at least 1.30x on senior debt

3. Authorized loan amount of $75,000,000

Balance at Dec.31,2016 $ 25,636,826

Term N/A – due upon maturity

Maturity Date June 30, 2018

Interest Rate Prime + 1.25% per annum


Prepayment At any time, without notice, bonus or penalty

Guarantors The Second Mortgage Lender is providing a guarantee on behalf of the developer for 50% of

the Loan

Terms of the Second Mortgage Construction Loan are as follows:

Lender Private Lender


Balance at Dec.31, 2016 $ 14,175,000

Term 24 Months (with two 12-month extension options)

Maturity Date December 31, 2017

Interest Rate 10% per annum, compounded monthly


Prepayment Closed prior to the initial Maturity Date

Guarantors Development team and operator

35

PROJECT TIMELINE

Construction commenced in January 2016 and completion is expected in September 2017. The following schedule outlines

significant development milestones anticipated for the Project:


Q4 2014 Zoning by-law and official plan amendment approval received Complete

Q1 2016 Retail units fully leased Complete

Q1 2016 Municipal approval of ground lease with York University approved Complete

Q1 2016 Site grading and construction commences In Progress

Q3 2016 Marketing and leasing of units commences In Progress

Q4 2016 Buildings enclosed and interior finishes commence In Progress

Q2 2017 Construction substantially complete

Q3 2017 Occupancy commences

Q4 2017 Refinancing and/or sale of buildings

36

SUMMARY

Project Co-ownership/LP: N/A

Development Partner: DCR/Phoenix Development Corporation

Project: Acquisition of 52 serviced single family lots in the subdivision known as Fernbank Crossing,

Kanata, ON.

Investment Structure: Participating Debt


Harbour Fund Equity1 $ 1,600,000 $ 1,600,000 $ 1,600,000

Harbour LP Profit $ 909,000 $ 863,000 $ 817,0002

Capital Outstanding (Time) 29 months 25 months 22 months2

Gross Return 56.8% 53.9% 51.1%2




1 The Fund has provided the Developer with Participating Debt as opposed to traditional equity in this transaction; terms of the debt

are outlined under Project Financing. 2 Projected profits have been updated to reflect actual sales to-date. Closings will occur earlier than initially anticipated, which results

in less absolute profit but a higher annualized return.

PROJECT UPDATE

The site is part of a 160-acre master-planned subdivision designed for a mix of 700 suburban condominiums, townhomes,

bungalows and single-family homes. The participating debt was provided for the acquisition, construction and sale of single

family detached houses in Phase 3 of the Fernbank Crossing development project.

Upon the sale, construction, and closing of each home Harbour shall be entitled to its proportionate share of equity ($30,770

per lot) plus profit participation, which will depend on the timing and number of homes sold and closed as follows:

For the first 24 months Harbour shall earn $13,500 of profit per lot/home

After the 24th month the profit participation will be dependent on the number of homes sold and closed within the

first 24 months as follows:

$20,000 if less than 10 homes sold and closed

$19,750 if 10 – 14 homes are sold and closed

$19,250 if 15 homes or more are sold and closed

Any outstanding principal and profit participation at the end of the 36th month of the term will crystalize and accrue

interest at 18% p.a., calculated and compounded monthly for an additional 12 months.

Based on the current sales schedule, the developer expects to have at least 21 homes sold and closed by the 24 th month of

the term.

37

During the quarter, eight homes were sold and construction has commenced on these sold lots. Subsequent to year-end, an

additional six homes were sold. As of December 31, 2016, a total of 21 homes have been sold, with closings expected to

occur throughout 2017, summarized in the chart below.

Sold and Closed 0

Sold and Under Construction 21

Inventory 31

Total 52

CAPITALIZATION

In Q2 2016, an initial advance of $1,476,960 was completed to close on 48 of the 52 lots. The remaining capital of

$123,040 was advanced to DCR/Phoenix in September 2016 to close on the final four lots.

The capitalization as at December 31, 2016 was as follows:


The Fund, Principal $ 1,600,000 $ 1,600,000 $ -

Total $ 1,600,000 $ 1,600,000 $ -

Profit participation on the 52 lots is currently estimated to be $817,000, or approximately $15,712 per lot. This is subject

to change depending on the timing of sales and closings.

PROJECT FINANCING

A First Mortgage land and acquisition loan was provided by Bank of Montreal. Terms of the mortgage are as follows:

Lender Bank of Montreal

Loan Amount $ 4,705,000 (Registered financing)

Interest Rate BMO Prime + 1.00% - floating

Term 24 Months / April 2018

Debt service Interest-only, paid monthly in arrears

Guarantor 871442 Ontario Inc. and DCR/Phoenix Development Corporation Limited for full loan

amount; Principal of DCR/Phoenix for $2,000,000 of land loan plus guarantee to

accommodate construction financing

Harbour Equity JV Corp., on behalf of the Fund, provided the Developer with participating debt to assist with the acquisition

of the lots. Terms of the debt are as follows:

Lender Harbour Equity JV Corp.


Term / Maturity 36 Months / April 2019

Profit Participation (i) Profit Participation of $909,000 ($13,500 - $19,250 per lot)

(ii) On maturity any unpaid Profit Participation is capitalized to the loan and accrues

interest at 18% p.a., calculated and compounded monthly, for an additional 12 months

Repayment $44,270 - $50,020 upon closing of each lot/home ($30,770 to principal and $13,500

- $19,250 to the Profit Participation; depending on when sale occurs)

Security (i) Collateral Mortgage providing a first fixed charge over the project lands in the

amount of the $4,705,000

(ii) Second charge in favour of a Second Mortgage Lender for a maximum amount of

$1,344,000

Guarantor 871442 Ontario Inc.

38

SUMMARY

Project Co-ownership/LP: Harbour Wellington LP

Development Partner: Urban Capital

Project: A midrise condominium development in Halifax, Nova Scotia to be developed and sold.






Gross Return 110.7% 111.4% 111.3%




PROJECT UPDATE

Located in the South End of Halifax, Gorsebrook Park is a condo project containing approximately 160 units, to be built in

two phases. The building will have 10-storeys on the north side and transition to 8-storeys on the south portion. The

development is on an assembly of four lots totaling 1 acre, each with a single detached dwelling. The site is currently zoned

as residential and allows for the proposed development. The development agreement was officially approved and

registered in Q4 2016.

With the completion of the sales center in June 2016, sale of the first phase is now underway. As of the date of this report,

37 condo units (48.7% of the first phase) have been sold at an average price of $550 psf compared to the proforma price

of $510 psf. In addition, six townhouses from the second phase has been reserved by purchasers. The co-ownership expects

pre-sales to near 60% in the next two quarters and discussions with construction lenders have commenced. Working drawings

for the building commenced during the quarter in order to be aligned with Q3 2017 construction start for the first phase.


The capitalization of the project as at December 31, 2016 is as follows:


The Fund, common equity (50%) $ 3,125,000 $ 2,625,000 $ 500,000

Urban Capital, common equity (50%) $ 3,125,000 $ 2,625,000 $ 500,000


Subsequent to year-end, the Fund advanced an additional $375,000 to the project.

39

PROJECT FINANCING

Land acquisition financing has been secured with CIBC with the following terms:

Lender CIBC


Term Due once first construction financing advance is made

Maturity Date May 2018

Interest Rate Prime + 1.50% per annum

Payments Interest only monthly payment

Guarantors Guarantee provided by Urban Capital (Gorsebrook Park) Inc.

PROJECT TIMELINE

It is expected that 42 to 45 months will be required to complete the project. The Fund has used a 50 month timeframe in the

project proforma. The following schedule outlines significant development milestones anticipated for the Project:


Q1 2015 Amendment to Halifax Municipal Planning Strategy Complete


Q2 2016 Sales centre to launch Complete

Q4 2016 Development Agreement completed Complete

Q3 2017 Begin Phase 1 construction

Q2 2018 Begin Phase 2 construction

Q4 2018 Complete Phase 1 construction

Q2 2019 Complete Phase 2 construction

Q2 2020 Final release of funds and Letters of Credit


40

SUMMARY

Project Co-ownership/LP: Cachet Estate Homes (Bradford) Inc.

Development Partner: Cachet Bradford Limited Partnership (“Cachet”)

Project: An 11.05 acre townhouse development in Bradford, Ontario to be rezoned, developed

and sold.



Harbour Fund Equity1 $ 1,470,000 $ 1,470,000 $ 1,470,000


Investment Horizon 41 months 41 months 40 months

Gross Return 149.2% 149.2% 149.2%




1 This represents 60% of the $2,450,000 committed by the Fund Manager towards the project and the associated projected returns. As

this is the final investment in the Fund, the balance of the committed equity amount is provided by Harbour Equity JV Development

Fund III.

2 The remaining capital to draw has been pushed out by three months.

PROJECT UPDATE

In July 2016, the co-ownership acquired three contiguous properties on an 11.05 acre site in Bradford, Ontario. The

proposed development will consist of approximately 80 to 90 freehold three-storey townhouse units averaging 1,800 sf

(subject to approvals). The projected return is based on the proposed pricing at the time of closing the co-ownership

($530,000 per unit). The launch of sales is expected to occur in Q3 2017.

The site is currently zoned as Future Development and a Zoning By-Law amendment is required for the development to

proceed. The Zoning By-Law Amendment and Subdivision Plan applications were submitted during Q4 2016 and the project

received a formal Notice of Complete from the city subsequent to year-end. The project expects to receive first round of

staff comments in Q1 2017, with final approvals by Q4 2017.


The Fund has advanced $1,110,000 as at December 31, 2016. The capitalization of the project is as follows:


Cachet, common equity (30%) $ 1,050,000 $ 1,050,000 $ -

The Fund, common equity (15%) $ 525,000 $ 525,000 $ -

The Fund, disproportionate equity (27%) $ 945,000 $ 585,000 $ 360,000

JV Fund III (28%) $ 980,000 $ 740,000 $ 240,000


41

PROJECT FINANCING

The two vendors of the properties have provided VTBs on the three lots. Terms of the VTBs are as follows:

VTB #1


Term 36 Months

Maturity Date July 2019

Interest Rate 3% per annum; interest-free for the first two years

Payments Interest only; paid semi-annually

Repayment Repayable at any time

VTB #2


Term 36 Months

Maturity Date July 2019

Interest Rate 3% per annum; interest-free for the first two years

Payments Interest only; paid semi-annually


VTB #3

Loan Amount $770,000

Term 36 Months

Maturity Date August 2019

Interest Rate 4% per annum

Payments Interest only; paid quarterly


PROJECT TIMELINE




Q4 2016 Submit rezoning and Draft Plan applications Complete

Q3 2017 Indication of development approvals received, In Progress

Unit sales to commence

Q4 2017 Development approvals received

Q2 2018 Servicing to commence

Q4 2018 Subdivision registration completed,

Construction to commence

Q2 2019 Initial home closings


42

Appendix B

Project Financial Statements

YOUR HOME DEVELOPMENTS (WEST HILL) CO-TENANCYFinancial Statements

December 31, 2016(Unaudited - see Notice to Reader)

Notice To Reader

On the basis of information provided by management, we have compiled the balance sheet of Your Home Developments (West Hill) Co-

tenancy as at December 31, 2016 and the statements of loss and co-tenants' equity for the year then ended. We have not performed an

audit or a review engagement in respect of these financial statements and, accordingly, we express no assurance thereon. Readers are

cautioned that these statements may not be appropriate for their purposes.



SUITE 300, 111 RICHMOND STREET W, TORONTO ON, M5H 2G41.877.251.2922 T: 416.596.1711 F: 416.596.7894 MNP.ca

YOUR HOME DEVELOPMENTS (WEST HILL) CO-TENANCYBalance Sheet

As at December 31, 2016(Unaudited - see Notice to Reader)

2016 2015

AssetsCash 229,724 154,260Taxes recoverable 81,129 84,538Real estate under development (Note 2) 4,052,173 3,614,455

4,363,026 3,853,253

LiabilitiesAccounts payable and accrued liabilities 585,474 76,773Mortgage payable (Note 3) 1,950,000 1,950,000

2,535,474 2,026,773

Co-tenants' equity 1,827,552 1,826,480

4,363,026 3,853,253

Approved on behalf of the Co-tenancy

Co-tenant Co-tenant

1

YOUR HOME DEVELOPMENTS (WEST HILL) CO-TENANCYStatement of Loss

For the year ended December 31, 2016(Unaudited - see Notice to Reader)

2016 2015

RevenueInterest 132 13

ExpensesSales commissions 622,365 14,071Advertising and promotion 106,159 224,586Office and general 27,087 11,734Administration fees 6,500 3,000Professional fees 3,150 3,150Interest and bank charges 49 742

765,310 257,283

Net loss (765,178) (257,270)

2

YOUR HOME DEVELOPMENTS (WEST HILL) CO-TENANCYStatement of Co-tenants' Equity


2015 Contributions Share of netloss

2016

Harbour Morningside Limited Partnership 913,240 508,125 (416,149) 1,005,216West Hill Developments Inc. 913,240 258,125 (349,029) 822,336

1,826,480 766,250 (765,178) 1,827,552

2014 Contributions Share of netloss

2015

Harbour Morningside Limited Partnership - 1,041,875 (128,635) 913,240West Hill Developments Inc. - 1,041,875 (128,635) 913,240

- 2,083,750 (257,270) 1,826,480

3

YOUR HOME DEVELOPMENTS (WEST HILL) CO-TENANCYNotes to the Financial Statements


1. General

Your Home Developments (West Hill) Co-tenancy (the "Co-tenancy"), is an unincorporated co-tenancy established on April30, 2015. The principal business activities of the Co-tenancy include the acquisition of land, and the development and saleof condominiums and townhouses located in Toronto, Ontario.

The co-tenants and their respective interest are as follows:Harbour Morningside Limited Partnership 50%West Hill Developments Inc. 50%

Earnings are allocated to the co-tenants based on their respective interests adjusted for preferred returns. Losses areallocated to the co-tenants based on their respective cumulative equity contributions made as at December 31, 2016.

These financial statements present the financial position and results of operations of the Co-tenancy and accordingly, donot include all the assets, liabilities, revenue and expenses of the co-tenants. No provision has been made in these financialstatements for any income taxes as income taxes are recorded by each of the co-tenants.

Your Home Developments (West Hill) Inc., the registered owner of the property, is acting only in trust on behalf of the co-tenants and does not hold any beneficial interest in the Co-tenancy.

Readers are cautioned that these financial statements have not been prepared in accordance with Canadian generallyaccepted accounting principles and therefore, do not require note disclosures. The notes contained herein are forsupplemental information purposes only and as such, no inference should be drawn as to their completeness.

4



2. Real estate under development

2016 2015

Real estate under development, beginning of year 3,614,455 -Development costs 244,146 523,754Interest and carrying charges 113,750 24,375Land acquisition costs 79,822 3,066,326

Real estate under development, end of year 4,052,173 3,614,455

3. Mortgages payable

2016 2015

Payable to a private lender, bears interest at 5.0% per annum, interest only payablequarterly, matures July 30, 2019 and secured by the properties located in Toronto,Ontario.

1,950,000 1,950,000

1,950,000 1,950,000

5



4. Reconciliation of accounting income to income for tax purposes

Net loss for accounting purposes $ (765,178)

Net loss for income tax purposes $ (765,178)

Allocation of net loss for income tax purposes to co-tenants

Harbour Morningside Limited Partnership $ (416,149)West Hill Developments Inc. $ (349,029)

$ (765,178)

6

Financial Statements of

DANMOR LIMITEDPARTNERSHIP

Year ended December 31, 2016(Unaudited)

KPMG LLPBay Adelaide Centre333 Bay Street, Suite 4600Toronto ON M5H 2S5CanadaTel 416-777-8500Fax 416-777-8818

REVIEW ENGAGEMENT REPORT

To the Partners of Danmor Limited Partnership

We have reviewed the balance sheet of Danmor Limited Partnership (the "Partnership")as at December 31, 2016 and the statements of operations, partners' capital and cashflows for the year then ended. Our review was made in accordance with Canadiangenerally accepted standards for review engagements and, accordingly, consistedprimarily of enquiry, analytical procedures and discussion related to information suppliedto us by the Partnership.

A review does not constitute an audit and, consequently, we do not express an auditopinion on these financial statements.

Based on our review, nothing has come to our attention that causes us to believe thatthese financial statements are not, in all material respects, in accordance with Canadianaccounting standards for private enterprises.

Chartered Professional Accountants, Licensed Public Accountants

March 28, 2017

Toronto, Canada

KPMG LLP, is a Canadian limited liability partnership and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entityKPMG Canada provides services to KPMG LLP.

DANMOR LIMITED PARTNERSHIPBalance Sheet

December 31, 2016, with comparative information for 2015(Unaudited)

2016 2015

Assets

Cash $ 855,665 $ 473,747Restricted cash (note 2) 2,246,251 -Deposits and others 78,813 26,957Capital assets (note 3) 405,087 -Properties under development (note 4) 10,066,803 8,520,030

$ 13,652,619 $ 9,020,734

Liabilities and Partners' Capital

Liabilities:Accounts payable and accrued liabilities $ 395,651 $ 46,626Purchasers' deposits 2,245,776 -Credit facility (note 5) 4,987,067 4,974,098

7,628,494 5,020,724

Partners' capital 6,024,125 4,000,010

Contingency (note 8)

$ 13,652,619 $ 9,020,734

See accompanying notes to financial statements.

On behalf of the Partnership:

Partner

Partner

1

DANMOR LIMITED PARTNERSHIPStatement of Operations

Year ended December 31, 2016, with comparative information for the period from June 4, 2015(date of formation) to December 31, 2015(Unaudited)

2016 2015

Expenses:Selling and marketing $ 683,345 $ -Amortization of capital assets 231,205 -Office and general 61,335 -

975,885 -

Net loss $ (975,885) $ -


2

DANMOR LIMITED PARTNERSHIPStatement of Partners' Capital


Number ofLP units

outstanding

Partners'capital,

beginningof year

Contributionsby partners Net loss

Partners'capital,

endof year

Limited partners:Harbour Equity

JVDevelopmentFund II 500 $ 2,000,000 $ 3,000,000 $ (487,938) $ 4,512,062

Marlin SpringInvestmentsLimited 375 1,000,000 - (365,953) 634,047

Kubo DanmorInc. 125 1,000,000 - (121,984) 878,016

General partner:Danmor GP

Limited 1 10 - (10) -

$ 4,000,010 $ 3,000,000 $ (975,885) $ 6,024,125

2015 $ - $ 4,000,010 $ - $ 4,000,010


3

DANMOR LIMITED PARTNERSHIPStatement of Cash Flows


2016 2015

Cash provided by (used in):

Operations:Net loss $ (975,885) $ -

Amortization of capital assets, which does not involvecash 231,205 -

Properties under development (1,533,804) (8,512,178)Restricted cash (2,246,251) -Deposits and others (51,856) (26,947)Accounts payable and accrued liabilities 349,025 46,626Purchasers' deposits 2,245,776 -

(1,981,790) (8,492,499)

Financing:Credit facility - 5,000,000Partners' contributions 3,000,000 4,000,000Deferred financing costs - (33,754)

3,000,000 8,966,246

Investing:Capital assets (636,292) -

Increase in cash 381,918 473,747

Cash, beginning of year 473,747 -

Cash, end of year $ 855,665 $ 473,747

Supplemental disclosure of non-cash operating andinvesting activities:Amortization of deferred financing cost has been

capitalized to properties under development $ 12,969 $ 7,852


4

DANMOR LIMITED PARTNERSHIPNotes to Financial Statements


Nature of operations:

Danmor Limited Partnership (the "Partnership") was formed on June 4, 2015 under the LimitedPartnership Act (Ontario) pursuant to a limited partnership agreement. The address of thePartnership's registered office is 2828 Bathurst Street, Suite 300, M6B 3A7, Toronto, Ontario. ThePartnership was formed to develop two pieces of land (the "Properties") and construct condominiumunits and sell. The properties are located at 2301 and 2315 Danforth Avenue, Toronto, Ontario.

1. Significant accounting policies:

These financial statements are prepared in accordance with Canadian accounting standards forprivate enterprises ("ASPE"). The Partnership’s significant accounting policies are as follows:

(a) Basis of presentation:

These financial statements pertain to an unincorporated partnership. Accordingly, they donot include other assets, liabilities, revenue and expenses of the partners and do notprovide for any interest capital or for income taxes of the partners.

In accordance with the limited partnership agreement, the net income earned by thePartnership is allocated and distributed to certain partners in priority order until suchdistributions result in the partners having received a specified internal rate of return asdescribed in note 4. Following the distributions that result in the partners having received aspecified internal rate of return, a portion of the net income is allocated to the partners on apro rata basis in accordance with specified percentages as defined in note 4. Furthermore,in accordance with the limited partnership agreement, any net loss arising from thePartnership shall be allocated to the partners in their respective proportionate share.

(b) Properties under development:

Properties under development are recorded at the lower of cost and net realizable value("NRV"). Cost includes the original cost of the property plus development costs andapplicable carrying costs, including interest less net rental income earned duringdevelopment. Properties under development are reviewed at least annually for impairmentor whenever events or changes in circumstances indicate the carrying value may exceedNRV. An impairment loss is recognized in the statement of income when the carrying valueexceeds its NRV. NRV is the estimated selling price in the ordinary course of the businessat the balance sheet date, less costs to complete and estimated selling costs. In the eventthat previously written down to NRV property recovers in value, the carrying value of theproperty is increased to the extent of the recovery until the write-down is fully recovered.

5

DANMOR LIMITED PARTNERSHIPNotes to Financial Statements (continued)


1. Significant accounting policies (continued):

(c) Revenue recognition:

Revenue from the sale of condominium units is recognized when the purchaser has paidall the amounts due on interim closing, has the right to occupy the unit and has agreed topay or assume a mortgage for the balance due on final closing.

(d) Capital assets:

Capital asset is stated at cost less accumulated amortization. Amortization is provided forover the estimated useful lives of approximately of 1 year using the straight-line method.

(e) Financial instruments:

Financial instruments are recorded at fair value on initial recognition. Freestandingderivative instruments that are not in a qualifying hedging relationship and equityinstruments that are quoted in an active market are subsequently measured at fair value.All other financial instruments are subsequently recorded at cost or amortized cost, unlessmanagement has elected to carry the instruments at fair value.

Transaction costs incurred on the acquisition of financial instruments measuredsubsequently at fair value are expensed as incurred. All other financial instruments areadjusted by transaction costs incurred on acquisition and financing costs, which areamortized using the straight-line method.

Financial assets are assessed for impairment on an annual basis at the end of the fiscalyear if there are indicators of impairment. If there is an indicator of impairment, thePartnership determines if there is a significant adverse change in the expected amount ortiming of future cash flows from the financial asset. If there is a significant adverse changein the expected cash flows, the carrying value of the financial asset is reduced to thehighest of the present value of the expected cash flows, the amount that could be realizedfrom selling the financial asset or the amount the Partnership expects to realize byexercising its right to any collateral. If events and circumstances reverse in a future year,an impairment loss will be reversed to the extent of the improvement, not exceeding theinitial carrying value.

6



1. Significant accounting policies (continued):

(f) Use of estimates:

The preparation of the financial statements in conformity with ASPE requires managementto make estimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenue and expenses during the year. Significantitems subject to such estimates and assumptions include the carrying amounts ofproperties under development. Actual results could differ from those estimates.

2. Restricted cash:

Restricted cash represents funds, which are not available for general corporate purposes. AtDecember 31, 2016, $2,246,251 was held in lawyer's trust account.

3. Capital assets:

2016 2015

CostAccumulatedamortization

Net bookvalue

Net bookvalue

Sales office $ 636,292 $ 231,205 $ 405,087 $ -

4. Properties under development:

The properties under development consist of approximately 0.35 and 0.30 acres of land locatedat 2301 Danforth Avenue and 2315 Danforth Avenue, Toronto, Ontario. The properties wereacquired on June 4, 2015 (date of adjustments).

2016 2015

Land $ 7,698,899 $ 7,698,899Development costs 1,037,894 345,754Carrying costs (note 12 ) 1,330,010 475,377

$ 10,066,803 $ 8,520,030

Properties under development includes capitalized Interest in the amount of $198,476 (2015 -$103,876) included in carrying cost.

7



5. Credit facility:

The Partnership has a non-revolving credit facility of $5,000,000 which bears interest at thebank prime rate plus 1% per annum and is repayable on demand, sale and or refinancing ofthe project, but no later than December 30, 2017. At December 31, 2016, $5,000,000 wasoutstanding.

This credit facility has general security in the form of a demand debenture in the amount of$45,000,000 secured by a first charge over the properties under development and constructionfor sale, corporate guarantee by Lindifrim Inc. and Betovan Construction Limited. and a generalsecurity agreement.

2016 2015 Credit facility $ 5,000,000 $ 5,000,000Less deferred financing costs, net of accumulated

amortization of $20,821 (2015 -$7,852) (12,933) (25,902)

$ 4,987,067 $ 4,974,098

The Partnership is subject to certain financial and non-financial covenants.

6. Partners' capital:

2016 2015

Type of LPunits

Number of LPunits

outstanding

Number of LPunits

outstanding Limited partners:

Marlin Spring Investments Limited Class A 375 375Harbour Equity JV Development Fund II Class B 500 500Kubo Danmor Inc. Class C 125 125

General partner:Danmor GP Limited GP unit 1 1

8



6. Partners' capital (continued):

Pursuant to the Section 8.1 of the Limited Partnership Agreement, distributions to the LimitedPartners will be made by the Partnership in the following order of priority:

(a) first, to the Limited Partners, until they have been paid a cumulative preferred return equalto 8% per annum on excess capital;

(b) second, to the Limited Partners, in accordance with their respective proportionate shares,an amount equal to the excess capital as defined in the limited partnership agreement;

(c) third, to Harbour, a cumulative preferred return equal to 8% per annum calculated andcompounded annually on the amount of the disproportionate capital as defined in thelimited partnership agreement, calculated from the date on which each contribution ofdisproportionate capital was made to the Partnership to the date on which suchcontribution of disproportionate capital is repaid to Harbour;

(d) fourth, to Harbour, an amount equal to the disproportionate capital; and

(e) thereafter, 50% to Harbour and 50% to Marlin Spring and Kubo as specified the order ofpriority further defined in limited partnership agreement.

7. Related party transactions:

The Partnership entered into a Development Management Services Agreement with MarlinSpring Management Limited and Nojak Inc., which are entities over which two of the limitedpartners have the ability to exercise significant influence or control. The agreement governsdevelopment of the property and vests the responsibilities of the day-to-day operations inconnection with the development of the properties. The following transactions and balanceswere incurred in relation to this agreement along with other related party transactions during theperiod:

2016 2015 Development management fee capitalized in

carrying cost $ 322,050 $ 183,915Guarantee fee capitalized in carrying cost - 75,000Bookkeeping fee capitalized in carrying cost - 13,733Bookkeeping fee expensed 33,000 -Reimbursable costs 28,701 9,775Accounts payable and accrued liabilities 60,608 1,726

9



8. Contingency:

Purchaser deposits released from a lawyer's trust account, to a maximum of $5,201,000, and abond issued to Tarion Warranty Corporation, to a maximum of $3,120,000, are secured by asecond collateral mortgage of $9,000,000 on the subject project and property. At December 31,2016, no amount has been released from the lawyer's trust account under the Tarion bond.

9. Risk management:

(a) Market risk:

The Partnership’s revenue is primarily derived from the sale of property, which is affectedby general economic trends. A decline in economic conditions could impact thePartnership's operations negatively.

(b) Liquidity risk:

Liquidity risk is the risk that the Partnership will be unable to fulfill its obligations on a timelybasis or at a reasonable cost. The Partnership manages its liquidity risk by monitoring itsoperating requirements. The Partnership prepares budget and cash forecasts to ensure ithas sufficient funds to fulfill its obligations.

(c) Interest rate risk:

The Partnership’s long-term debt has a variable interest rate based on the bank prime rateplus 1%. As a result, the Partnership is exposed to interest rate risk due to fluctuations inthe bank prime rate.

10. Capital risk management:

The Partnership considers its capital to be the partners' capital. As at December 31, 2016, thePartnership's capital was determined to be $7,000,010. The Partnership's objectives inmanaging capital are to safeguard its ability to meet any debt service obligations and capitalexpenditure requirements, and to safeguard the Partnership's ability to continue as a goingconcern so that it can provide returns to its partners. The Partnership considers its capitalstructure on an ongoing basis and adjusts its capital structure in response to cash flowconsiderations, potential business opportunities and general economic conditions.

11. Comparative information:

The financial statements have been reclassified, where applicable, to conform to thepresentation used in the current year. The changes do not affect prior year earnings.

10

DANMOR LIMITED PARTNERSHIPNote 12- Carrying Costs

Year ended December 31, 2016, with comparative information for 2015(Unaudited)

2016 2015 Balance, beginning of year $ 475,377 $ -

Development management fee 322,050 183,915Loan interest 185,507 96,024Guarantee fee - 75,000Professional fee 115,546 54,819Realty taxes 92,422 54,060Bookkeeping fee - 13,733General 17,800 8,615Insurance 19,168 8,557Amortization of deferred financing costs 12,969 7,852Utilities 9,513 995Bank charges 533 277Interest earned (501) (650)Rent and miscellaneous revenue (12,486) (27,820)Commissions 92,112 -

854,633 475,377

Balance, end of year $ 1,330,010 $ 475,377

11

WINDSOR APARTMENTS FORT SASK CO-TENANCYFinancial Statements

December 31, 2016(Unaudited - see Notice to Reader)

Notice To Reader

On the basis of information provided by management, we have compiled the balance sheet of Windsor Apartments Fort Sask Co-

tenancy as at December 31, 2016 and the statements of earnings and co-tenants' equity for the year then ended. We have not

performed an audit or a review engagement in respect of these financial statements and, accordingly, we express no assurance thereon.

Readers are cautioned that these statements may not be appropriate for their purposes.




WINDSOR APARTMENTS FORT SASK CO-TENANCYBalance Sheet

As at December 31, 2016(Unaudited - see Notice to Reader)

2016 2015

AssetsCash 96,891 88,169Accounts receivable 7,345 -Tenant deposits in trust 136,954 -Prepaid expenses and deposits 170,056 275,185Taxes recoverable 4,241 227,714Real estate under development (Note 2) 1,435,945 10,801,025Real estate held for sale (Note 3) 20,690,011 4,535,771Deferred financing costs 268,467 357,956

22,809,910 16,285,820

LiabilitiesAccounts payable and accrued liabilities 41,861 1,429,661Holdbacks payable 33,413 129,929Tenant deposits 139,159 -Loans payable (Note 4) 22,416,827 11,717,752

22,631,260 13,277,342

Co-tenants' equity 178,650 3,008,478

22,809,910 16,285,820


Co-tenant Co-tenant

1

WINDSOR APARTMENTS FORT SASK CO-TENANCYStatement of Earnings


2016 2015

RevenueRental 1,431,530 117,259Interest - 258

1,431,530 117,517Expenses

Property taxes 114,512 -Professional fees 102,932 6,515Utilities 92,812 8,978Office and general 59,018 36,535Salaries and benefits 52,999 12,065Repairs and maintenance 49,456 -Insurance 37,550 -Advertising and promotion 16,986 7,256Adminstration fees 13,350 4,894Interest and bank charges 3,674 3,307Security 227 -

543,516 79,550

Income before the undernoted items 888,014 37,967

Interest on loan payable 637,491 -Amortization on deferred financing costs 89,489 89,489

Net earnings (loss) 161,034 (51,522)

2

WINDSOR APARTMENTS FORT SASK CO-TENANCYStatement of Co-tenants' Equity


2015 Contributions Distributions Share of netearnings

2016

Harbour Fort Sask Limited Partnership 2,516,897 - (2,581,552) 153,980 89,325P.K. Developments Construction Corp. 491,581 200,000 (609,310) 7,054 89,325

3,008,478 200,000 (3,190,862) 161,034 178,650

2014 Contributions Distributions Share of netloss

2015

Harbour Fort Sask Limited Partnership - 2,560,000 - (43,103) 2,516,897P.K. Developments Construction Corp. - 500,000 - (8,419) 491,581

- 3,060,000 - (51,522) 3,008,478

3

WINDSOR APARTMENTS FORT SASK CO-TENANCYNotes to the Financial Statements


1. General

Windsor Apartment Fort Sask Co-tenancy (the "Co-tenancy"), is an unincorporated co-tenancy established on June 16,2015. The principal business activities of the Co-tenancy include the acquisition, construction and sale of apartmentbuildings located in Fort Saskatchewan, Alberta.

The co-tenants and their respective interest are as follows:Harbour Fort Sask Limited Partnership 50%P.K. Developments Construction Corp. 50%

Earnings are allocated to the co-tenants based on their respective interests adjusted for preferred returns. Losses areallocated to the co-tenants based on their respective cumulative equity contributions made as at December 31, 2016.

These financial statements present the financial position and results of operations of the Co-tenancy and accordingly, donot include all the assets, liabilities, revenue and expenses of the co-tenants. No provision has been made in these financialstatements for income taxes as income taxes are recorded by each of the co-tenant.

Windsor Apartments Fort Sask. Inc., the registered owner of the property, is acting only in trust on behalf of the co-tenantsand does not hold any beneficial interest in the Co-tenancy.

Readers are cautioned that these financial statements have not been prepared in accordance with Canadian generallyaccepted accounting principles and therefore, do not require note disclosures. The notes contained herein are forsupplemental information purposes only and as such, no inference should be drawn as to their completeness.

4




2016 2015

Real estate under development, beginning of year 10,801,025 -Land acquisition costs 1,400,000 3,408,834Development costs 5,353,215 11,574,834Interest and carrying charges 35,945 353,128Real estate transferred to real estate held for sale (16,154,240) (4,535,771)


3. Real estate held for sale

2016 2015

Land 2,105,000 749,325Building 18,585,011 3,786,446

20,690,011 4,535,771

4. Loans payable

2016 2015

As at December 31, 2016 the Co-tenancy had available credit facilities totalling$22,480,000 as follows:

Payable to Severus Credit Union

$14,510,000 demand loan facility, principal and interest payable monthly at 3.2% perannum, matures October 1, 2021.

This facility is secured, inter alia, as follows:

1. A first charge mortgage on phase one of the project lands in the amount of$14,520,000;

2. General security agreement over all property of phase one of the borrower;

3. Guarantee and postponement of claims by a private individual and corporation; and

4. Property and liability insurance of not less than $2,000,000.

14,446,827 11,717,752

5



4. Loans payable (Continued from previous page)

2016 2015

Payable to the Royal Bank of Canada

$7,060,000 loan facility, principal and interest payable monthly at 2.98% per annum,matures January 1, 2020.

This loan is secured, inter alia, as follows:

1. A first charge mortgage on phase two of the project lands in the amount of $7,060,000;

2. General security agreement over all property of phase two of the borrower;

3. First assignments of rents and leases from phase two of the project lands; and

4. Joint and several unconditional guarantees from a priviate individual and corporation.

7,060,000 -

Payable to the Laurentian Bank of Canada

$910,000 land loan facility, interest payable monthly at the greater of the Prime rate plus1.25% per annum or 3.95% per annum; principal payable upon maturity on June 1, 2017.

$5,300,000 construction loan facility, interest only payable monthly at great of the Primerate plus 1.0% per annum or 3.7% per annum; repaid in full during the year.

These facilities are secured, inter alia, as follows:

1. A first charge mortgage on phase three of the project lands in the amount of$6,210,000;

2. General security agreement over all property of phase three of the borrower;

3. First assignments of rents and leases from phase three of the project lands; and

4. Joint and several unconditional guarantees from a priviate individual and corporation.

910,000 -

Payable to Canada ICI

Bore interest at the greater of 5.45% per annum or Prime plus 2.75% per annum, interestonly payable monthly, guaranteed by a principal of P.K. Developments Construction Corp.,and secured by the property located in Fort Saskatchewan, Alberta. The loan was repaidin full during 2016.

- 11,717,752

22,416,827 23,435,504

6




Net income for accounting purposes $ 161,034

Net income for income tax purposes $ 161,034

Allocation of net income for income tax purposes to co-tenants

Harbour Fort Sask Limited Partnership $ 153,980P.K. Developments Construction Corp. $ 7,054

$ 161,034

7

TOWNHOMES OF CANALS LIMITED PARTNERSHIP Financial Statements

December 31, 2016 (Unaudited - see Notice to Reader)

Notice To Reader

On the basis of information provided by management, we have compiled the balance sheet of Townhomes of Canals Limited Partnership

as at December 31, 2016 and the statements of loss and partners' equity for the year then ended. We have not performed an audit or a

review engagement in respect of these financial statements and, accordingly, we express no assurance thereon. Readers are cautioned

that these statements may not be appropriate for their purposes.




1

TOWNHOMES OF CANALS LIMITED PARTNERSHIP Balance Sheet

As at December 31, 2016 (Unaudited - see Notice to Reader)

2016 2015

Assets Cash 21,809 137,125 Accounts receivable 100 100 Taxes recoverable 15,005 5,710 Security deposits 1,575 - Real estate under development (Note 2) 11,107,289 1,141,876

11,145,778 1,284,811

LiabilitiesAccounts payable and accrued liabilities 130,087 6,761 Loans payable (Note 3) 4,051,595 -

4,181,682 6,761

Partners' equity 6,964,096 1,278,050

11,145,778 1,284,811

Approved on behalf of the Partnership

Partner Partner

2

TOWNHOMES OF CANALS LIMITED PARTNERSHIP Statement of Loss

For the year ended December 31, 2016 (Unaudited - see Notice to Reader)

2016 2015

Expenses Advertising and promotion 27,989 - Professional fees 3,690 3,150 Interest and bank charges 883 - Office and general 292 -

Net loss (32,854) (3,150)

TOWNHOMES OF CANALS LIMITED PARTNERSHIP Statement of Partners' Equity


3

2015 Contributions Share of net loss

2016

Harbour Equity JV Development Fund II Limited Partnership

888,909 3,008,900 (18,304) 3,879,505

SCW Canals LP 389,141 2,710,000 (14,550) 3,084,591Slokker Projects GP Inc. - - - - Townhomes of Canals GP Ltd., as the general partner - - - -

1,278,050 5,718,900 (32,854) 6,964,096

2014 Contributions Share of net loss

2015

Harbour Equity JV Development Fund II Limited Partnership

- 891,100 (2,191) 888,909

SCW Canals LP - 390,100 (959) 389,141 Slokker Projects GP Inc. - - - - Townhomes of Canals GP Ltd., as the general partner - - - -

- 1,281,200 (3,150) 1,278,050

4

TOWNHOMES OF CANALS LIMITED PARTNERSHIP Notes to the Financial Statements


1. General

Townhomes of Canals Limited Partnership (the "Partnership") was formed on July 15, 2015 as a Limited Partnership under the laws of Alberta, Canada. The principal business activities of the Partnership include the acquisition of land, and the development and sale of townhouses located in Airdrie, Alberta.

As a result of an amendment to the limited partnership agreement effective April 15, 2016, the partners and their respective interest have been amended and are as follows:

Harbour Equity JV Development Fund II Limited Partnership 38.9996% SCW Canals LP 30.9997% Slokker Projects GP Inc. 29.9997% Townhomes of Canals GP Ltd., as the general partner 0.0010%

Earnings are allocated to the partners based on their respective interests adjusted for preferred returns. Losses are allocated to the partners based on their respective cumulative equity contributions made as at December 31, 2016.

These financial statements present the financial position and results of operations of the Partnership and accordingly, do not include all the assets, liabilities, revenue and expenses of the partners. No provision has been made in these financial statements for any income taxes as income taxes are recorded by each of the partners.

Townhomes of Canals GP Ltd., the registered owner of the property, is acting only in trust on behalf of the Partnership and does not have any beneficial interest in the Partnership.

Readers are cautioned that these financial statements have not been prepared in accordance with Canadian generally accepted accounting principles and therefore, do not require note disclosures. The notes contained herein are for supplemental information purposes only and as such, no inference should be drawn as to their completeness.

TOWNHOMES OF CANALS LIMITED PARTNERSHIP Notes to the Financial Statements


5


2016 2015

Real estate under development, beginning of year 1,141,876 - Land acquisition costs 9,127,000 1,023,000 Development costs 502,997 118,876 Interest and carrying charges 335,416 -


3. Loans payable

2016 2015

Payable to Alberta Treasury Branches

As at December 31, 2016, the Partnership had available credit facilities totaling $11,053,000 as follows:

Facility #1: $3,750,000 non-revolving demand loan facility, payable in full on demand by lender; interest is payable monthly at a rate of Prime plus 2.0% per annum.

3,750,000 -

Facility #2: $2,753,000 non-revolving demand loan facility, payable in full on demand by lender; interest is payable monthly at a rate of Prime plus 1.5% per annum.

301,595 -

Facility #3: $4,000,000 line of credit facility, payable in full on demand by lender; interest is payable monthly at a rate of Prime plus 1.25% per annum.

- -

Facility #4: $550,000 letter of credit facility, payable in full on demand by lender; interest is payable monthly at a rate of Prime plus 1.5% per annum.

The facilities are secured, inter alia, as follows:

1. General security interest in all personal property of the borrower;

2. Mortgage from the Partnership in the amount of $15,000,000 constituting a first fixed charge on the Townhomes of Canals (the "Project Lands");

3. General assignment of construction contracts and sales agreements; and

4. Postponement and assignment of claims by the limited partners.

- -

4,051,595 -

Financial Statements of

UV DEVELOPMENTS FOURLIMITED PARTNERSHIP

Year ended December 31, 2016(Unaudited - see Notice to Reader)

KPMG LLP3rd Floor - 8506 200th StreetLangley BC V2Y 0M1CanadaTel (604) 455-4000Fax (604) 881-4988

NOTICE TO READER

On the basis of information provided by management, we have compiled the

balance sheet of UV Developments Four Limited Partnership as at December 31, 2016

and the statements of earnings and partners' equity for the year then ended. We have

not performed an audit or a review engagement in respect of these financial statements

and, accordingly, we express no assurance thereon. Readers are cautioned that these

financial statements may not be appropriate for their purposes.

KPMG LLP

Chartered Professional Accountants

March 30, 2017

Langley, Canada

KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP.

UV DEVELOPMENTS FOUR LIMITED PARTNERSHIPBalance Sheet

December 31, 2016, with comparative information for 2015(Unaudited - see Notice to Reader)

2016 2015

Assets

Current assets:Cash $ 2,249,058 $ -Government agencies receivable 140,730 144,675Funds held in trust - 184,837Deposit 10,000 20,000Mortgage interest reserve 2,263,260 261,591Recoverable costs 818,313 41,609Work in progress 34,422,417 14,552,966

39,903,778 15,205,678

Deposits held in trust 12,665,653 -Due from partners (note 1) 10 10Leasehold improvements (note 2) 1,266,674 1,266,674

$ 53,836,115 $ 16,472,362

Liabilities and Partners' Equity (Deficiency)

Current liabilities:Bank indebtedness $ - $ 23,894Accounts payable and accrued liabilities 7,449,549 570,708Management fee payable 1,810,683 1,810,683

9,260,232 2,405,285

Deposits held in trust 12,665,653 -Due to Urban Village Limited Partnership 3,892,836 7,829,057Long term debt 22,519,374 6,240,000

39,077,863 14,069,057

48,338,095 16,474,342

Partners' equity (deficiency) 5,498,020 (1,980)

$ 53,836,115 $ 16,472,362


1

UV DEVELOPMENTS FOUR LIMITED PARTNERSHIPStatement of Earnings

Year ended December 31, 2016, with comparative information for 2015(Unaudited - see Notice to Reader)

2016 2015

Revenue $ - $ -

Expenses - -

Net earnings $ - $ -


2

UV DEVELOPMENTS FOUR LIMITED PARTNERSHIPStatement of Partners' Equity

Year ended December 31, 2016, with comparative information for 2015(Unaudited - see Notice to Reader)

Balance,beginning

of year Contributions Drawings Net earnings

Balance,end

of year

0948394B.C. Ltd. $ (1,990) $ - $ - $ - $ (1,990)

Urban VillageLimitedPartnership 10 - - - 10

Harbour Equity - 5,500,000 - - 5,500,000

$ (1,980) $ 5,500,000 $ - $ - $ 5,498,020

2015 $ (1,980) $ - $ - $ - $ (1,980)


3

UV DEVELOPMENTS FOUR LIMITED PARTNERSHIPNotes to Financial Statements

Year ended December 31, 2016(Unaudited - see Notice to Reader)

Basic of presentation:

The recognition, measurement, presentation and disclosure principles in these financial statements

may not be in accordance with the requirements of any of the financial reporting frameworks in the

CPA Canada Handbook – Accounting.

1. Due from partners :

2016 2015

0948394 B.C. Ltd. $ 10 $ 10

2. Leasehold improvements:

2016 2015

CostAccumulatedamortization

Net bookvalue

Net bookvalue

Building $ 1,266,674 $ - $ 1,266,674 $ 1,266,674

4

Gorsebrook Park Co-tenancyFinancial Statements

December 31, 2016(Unaudited)

Review Engagement Report

To the Co-tenants of Gorsebrook Park Co-tenancy:

We have reviewed the balance sheet of Gorsebrook Park Co-tenancy as at December 31, 2016 and the statements of loss, co-tenants'

equity and cash flows for the period from establishment on April 25, 2016 to December 31, 2016. Our review was made in accordance

with Canadian generally accepted standards for review engagements and, accordingly, consisted primarily of inquiry, analytical

procedures and discussion related to information supplied to us by the Co-tenancy.

A review does not constitute an audit and, consequently, we do not express an audit opinion on these financial statements.

Based on our review, nothing has come to our attention that causes us to believe that these financial statements are not, in all material

respects, in accordance with Canadian accounting standards for private enterprises.




Gorsebrook Park Co-tenancyBalance Sheet

As at December 31, 2016(Unaudited)

2016

AssetsCash 98,482Taxes recoverable 77,392Deposits in trust 4,113Real estate under development (Note 3) 9,039,755

9,219,742

LiabilitiesAccounts payable and accrued liabilities 3,150Loan payable (Note 4) 4,150,000

4,153,150Commitments (Note 6)

Co-tenants' equity 5,066,592

9,219,742


Co-tenant Co-tenant


1

Gorsebrook Park Co-tenancyStatement of Loss

For the period from establishment on April 25, 2016 to December 31, 2016(Unaudited)

2016

RevenueInterest 1,079

ExpensesAdvertising and promotion 144,151Professional fees 26,922Office and general 13,414

184,487

Net loss (183,408)


2

Gorsebrook Park Co-tenancyStatement of Co-tenants' Equity


Contributions Share of netloss

2016

Harbour Wellington Limited Partnership 2,625,000 (91,704) 2,533,296Urban Capital (Gorsebrook Park) Inc. 2,625,000 (91,704) 2,533,296

5,250,000 (183,408) 5,066,592


3

Gorsebrook Park Co-tenancyStatement of Cash Flows


2016

Cash provided by (used for) the following activitiesOperating activities

Net loss (183,408)

(183,408)Changes in working capital accounts

Accounts receivable (77,392)Deposits in trust (4,113)Accounts payable and accrued liabilities 3,150

(261,763)

Financing activitiesAdvances of loan payable 4,150,000Contributions from co-tenants 5,250,000

9,400,000

Investing activitiesReal estate under development (9,039,755)

Increase in cash 98,482

Cash, beginning of period -

Cash, end of period 98,482


4

Gorsebrook Park Co-tenancyNotes to the Financial Statements


1. General

Gorsebrook Park Co-tenancy (the "Co-tenancy") is an unincorporated co-tenancy that was established on April 25, 2016.The principal business activities of the Co-tenancy include the acquisition of land and development and sale ofcondominium units in Halifax, Nova Scotia (the "Project").

The co-tenants and their respective interests are as follows: Harbour Wellington Limited Partnership 50%Urban Capital (Gorsebrook Park) Inc. 50%

Earnings are allocated to the co-tenants in accordance with distributions received. Losses are allocated to the co-tenantsbased on their respective cumulative equity contributions made as at December 31, 2016.

Distributions are paid as a 10% preferred return prior to the return of common equity. The balance of distributions, if any,will be distributed to the co-tenants on a pari passu basis as follows:

Harbour Wellington Limited Partnership 35%Urban Capital (Gorsebrook Park) Inc. 65%

Gorsebrook Park Inc., the registered owner of the property, is acting only in trust on behalf of the co-tenants and does nothave any beneficial interest in the Co-tenancy.

2. Significant accounting policies

The financial statements have been prepared in accordance with Canadian accounting standards for private enterprisesand include the following significant accounting policies:

Basis of presentation

These financial statements present the financial position and the results of operations of the Co-tenancy and accordingly,do not include all the assets, liabilities, revenue and expenses of the co-tenants. No provision has been made in thesefinancial statements for any income taxes as income taxes are recorded by each of the co-tenants.

Real estate under development

Real estate under development comprises of land, development costs and capitalized interest and carrying charges. Realestate under development is recorded at the lower of cost and net realizable value. Selling, general and administration costssuch as marketing sales staff and adminstration overhead are expensed.

Revenue recognition

Revenue from the sale of real estate properties is recognized once all significant conditions have been met and collection ofthe proceeds from sale is reasonably assured.

Financial instruments

The Co-tenancy recognizes its financial instruments when the Co-tenancy becomes party to the contractual provisions ofthe financial instrument. All financial instruments are initially recorded at their fair value, including financial assets andliabilities originated and issued in a related party transaction with management. Financial assets and liabilities originatedand issued in all other related party transactions are initially measured at their carrying or exchange amount in accordancewith Section 3840 Related Party Transactions.

At initial recognition, the Co-tenancy may irrevocably elect to subsequently measure any financial instrument at fair value.The Co-tenancy has not made such an election during the period. All financial assets are subsequently measured atamortized cost.

Transaction costs and financing fees are added to the carrying amount for those financial instruments subsequentlymeasured at cost or amortized cost.

5



2. Significant accounting policies (Continued from previous page)

Financial asset impairment:

The Co-tenancy assesses impairment of all its financial assets measured at cost or amortized cost. The Co-tenancyreduces the carrying amount of any impaired financial assets to the highest of: the present value of cash flows expected tobe generated by holding the assets; the amount that could be realized by selling the assets; and the amount expected to berealized by exercising any rights to collateral held against those assets. Any impairment, which is not considered temporary,is included in current period net loss.

The Co-tenancy reverses impairment losses on financial assets when there is a decrease in impairment and the decreasecan be objectively related to an event occurring after the impairment loss was recognized. The amount of the reversal isrecognized in net loss in the period the reversal occurs.

Measurement uncertainty

The preparation of financial statements in conformity with Canadian accounting standards for private enterprises requiresmanagement to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expensesduring the reporting period. Management's significant estimates relates to the valuation of real estate under development.

These estimates and assumptions are reviewed periodically and, as adjustments become necessary they are reported innet loss in the year in which they become known.


2016

Land acquisition costs 8,300,000Development costs 429,609Interest and carrying charges 310,146

9,039,755

4. Loan payable

2016

Payable to the Canadian Imperial Bank of Commerce

$4,150,000 demand loan facility, matures on April 28, 2018; interest is payable monthly atthe Prime rate plus 1.5% per annum.

The loan is secured, inter alia, as follows:

1. A first ranking mortgage in the amount of $4,150,000 over the Project Lands located inHalifax, Nova Scotia;

2. A general security agreement over all property of the borrower; and

3. Guarantees from Urban Capital (Gorsebrook Park) Inc., DMW Developments Inc., andtwo additional private corporations for the aggregate amount of $8,305,000.

4,150,000

4,150,000

6



5. Financial instruments

The Co-tenancy, as part of its operations, carries a number of financial instruments. It is management's opinion that the Co-tenancy is not exposed to significant interest, currency, credit, liquidity or other price risks arising from these financialinstruments except as otherwise disclosed.

Liquidity risk

Liquidity risk is the risk that the Co-tenancy will encounter difficulty in meeting obligations associated with financial liabilities.The Co-tenancy is exposed to liquidity risk arising from accounts payable and accrued liabilities and loan payable. Theco-tenancy manages this risk by closely monitoring its budgeted and projected operating results and cash requirements.

Interest rate risk

Interest rate risk is the risk that the value of a financial instrument might be adversely affected by a change in the interestrates. Changes in market interest rates may have an effect on the cash flows associated with some financial assets andliabilities, known as cash flow risk, and on the fair value of other financial assets or liabilities, known as price risk.

The Co-tenancy is exposed to interest rate cash flow risk with respect to its loan payable, which carries a floating interestrate.

6. Related party transactions and commitments

The Co-tenancy has entered into a Development Management Agreement with DMW Developments Inc. (the "Manager")for development and property management services. The Co-tenants are committed to pay a development management feein the amount of 2.5% of gross revenue to a maximum of $1,394,000 upon the sale of condominium units.

DMW Developments Inc. is related to Urban Capital (Gorsebrook Park) Inc. through common control.

The Co-tenancy has entered into negotiations with Marco Maritime Limited for construction management services.

7




Net loss for accounting purposes $ (183,408)

Net loss for income tax purposes $ (183,408)

Allocation of net loss for income tax purposes to co-tenants

Harbour Wellington Limited Partnership $ (91,704)Urban Capital (Gorsebrook Park) Inc. $ (91,704)

$ (183,408)

8

annual report to investors - constant...

Documents