CNL Growth Properties, Inc. - FORM 10-Q

CNL Growth Properties, Inc. - FORM 10-Q - August 6, 2014

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 000-54686

CNL Growth Properties, Inc.

(Exact name of registrant as specified in its charter)


Maryland		26-3859644
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

CNL Center at City Commons 450 South Orange Avenue Orlando, Florida		32801
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (407) 650-1000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares of common stock of the registrant outstanding as of August 1, 2014 was 22,084,482.

CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES

INDEX


			Page
PART I. FINANCIAL INFORMATION

	Item 1.	Condensed Consolidated Financial Statements (unaudited):
		Condensed Consolidated Balance Sheets		1
		Condensed Consolidated Statements of Operations		2
		Condensed Consolidated Statements of Equity		3
		Condensed Consolidated Statements of Cash Flows		4
		Notes to Condensed Consolidated Financial Statements		6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk		34
	Item 4.	Controls and Procedures		35

PART II. OTHER INFORMATION

	Item 1.	Legal Proceedings		35
	Item 1A.	Risk Factors		35
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		35
	Item 3.	Defaults Upon Senior Securities		36
	Item 4.	Mine Safety Disclosures		36
	Item 5.	Other Information		36
	Item 6.	Exhibits		36

Signatures				37
Exhibits				38

Item 1.

Financial Statements

CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30, 2014			December 31, 2013
ASSETS
Real estate assets, net:
Operating real estate assets, net (including VIEs $130,490,436 and $110,168,517, respectively)	$	161,060,103		$	112,390,592
Construction in process, including land (including VIEs $158,137,176 and $98,722,670, respectively)		164,905,128			103,828,508

Total real estate assets, net		325,965,231			216,219,100
Real estate held for sale		—			13,640,148
Cash and cash equivalents (including VIEs $6,001,207 and $3,192,616 respectively)		66,440,010			35,827,614
Restricted cash (including VIEs $1,972,009 and $2,155,352, respectively)		2,286,124			2,155,352
Loan costs, net (including VIEs $2,992,969 and $2,249,698, respectively)		3,878,332			2,560,176
Other assets (including VIEs $417,231 and $1,968,385, respectively)		740,643			2,090,003

Total Assets	$	399,310,340		$	272,492,393

LIABILITIES AND EQUITY
Liabilities:
Mortgage and construction notes payable (including VIEs $149,448,574 and $109,382,967, respectively)	$	177,663,575		$	117,360,210
Accrued development costs (including VIEs $22,645,498 and $15,805,117, respectively)		22,645,498			15,805,117
Due to related parties		1,436,966			1,380,341
Accounts payable and other accrued expenses (including VIEs $1,778,445 and $857,280, respectively)		2,545,149			1,262,222
Other liabilities (including VIEs $1,800,766 and $1,732,951, respectively)		2,134,329			2,306,392

Total Liabilities		206,425,517			138,114,282

Commitments and contingencies (Note 9)

Equity:
Stockholders’ equity:
Preferred stock, $0.01 par value per share, authorized and unissued 200,000,000 shares		—			—
Common stock, $0.01 par value per share, 1,120,000,000 shares authorized; 22,260,674 and 15,529,061 shares issued and 22,084,482 and 15,393,316 outstanding, respectively		220,845			153,933
Capital in excess of par value		170,796,498			120,627,485
Accumulated deficit		(10,377,179	)		(9,818,401	)

Total Stockholders’ Equity		160,640,164			110,963,017
Noncontrolling interests		32,244,659			23,415,094

Total Equity		192,884,823			134,378,111

Total Liabilities and Equity	$	399,310,340		$	272,492,393

The abbreviation VIEs above means Variable Interest Entities.

See accompanying notes to condensed consolidated financial statements.

CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Quarter Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Revenues:
Rental income from operating leases	$	4,420,852		$	1,638,432		$	7,793,068		$	2,878,597

Total revenues		4,420,852			1,638,432			7,793,068			2,878,597

Expenses:
Property operating expenses		2,269,699			961,640			4,300,995			1,515,323
General and administrative		666,029			560,652			1,558,619			1,140,204
Asset management fees, net of amounts capitalized		310,335			126,489			554,413			213,407
Property management fees		197,523			73,860			334,488			141,900
Acquisition fees and expenses, net of amounts capitalized		(18,193	)		4,378			28,900			19,115
Depreciation		1,437,347			622,949			2,718,921			1,082,725

Total expenses		4,862,740			2,349,968			9,496,336			4,112,674

Operating loss		(441,888	)		(711,536	)		(1,703,268	)		(1,234,077	)

Other income (expense):
Fair value adjustments and other income (expense)		(74,342	)		48,559			(118,842	)		48,945
Interest expense and loan cost amortization, net of amounts capitalized		(308,107	)		(180,099	)		(535,643	)		(224,595	)

Total other income (expense)		(382,449	)		(131,540	)		(654,485	)		(175,650	)

Loss from continuing operations		(824,337	)		(843,076	)		(2,357,753	)		(1,409,727	)

Income (loss) from discontinued operations		—			(10,942	)		1,310,557			(118,860	)

Net loss including noncontrolling interests		(824,337	)		(854,018	)		(1,047,196	)		(1,528,587	)

Net loss from continuing operations attributable to noncontrolling interests		168,828			96,356			488,418			115,131

Net loss attributable to common stockholders	$	(655,509	)	$	(757,662	)	$	(558,778	)	$	(1,413,456	)

Net loss per share of common stock (basic and diluted):
Continuing operations	$	(0.03	)	$	(0.06	)	$	(0.10	)	$	(0.12	)
Discontinued operations		—			—			0.07			(0.01	)

Net loss per share of common stock (basic and diluted)	$	(0.03	)	$	(0.06	)	$	(0.03	)	$	(0.13	)

Weighted average number of shares of common stock outstanding (basic and diluted)		21,851,089			11,672,523			19,736,290			11,202,678

See accompanying notes to condensed consolidated financial statements.

CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

Six Months Ended June 30, 2014 (Unaudited) and the Year Ended December 31, 2013


	Common Stock						Capital in Excess of Par Value			Accumulated Deficit			Total Stockholders’ Equity			Noncontrolling Interests			Total Equity
	Number of Shares			Par Value			Capital in Excess of Par Value			Accumulated Deficit			Total Stockholders’ Equity			Noncontrolling Interests			Total Equity
Balance at December 31, 2012		7,456,989		$	74,570		$	57,058,592		$	(6,536,182	)	$	50,596,980		$	9,849,660		$	60,446,640
Subscriptions received for common stock through public offering		7,190,074			71,900			75,323,160			—			75,395,060			—			75,395,060
Redemptions of common stock		(70,699	)		(707	)		(686,901	)		—			(687,608	)		—			(687,608	)
Stock issuance and offering costs		—			—			(11,059,196	)		—			(11,059,196	)		—			(11,059,196	)
Stock distributions		816,952			8,170			(8,170	)		—			—			—			—
Contributions from noncontrolling interests		—			—			—			—			—			14,644,810			14,644,810
Distributions to noncontrolling interests		—			—			—			—			—			(463,363	)		(463,363	)
Net loss		—			—			—			(3,282,219	)		(3,282,219	)		(616,013	)		(3,898,232	)

Balance at December 31, 2013		15,393,316			153,933			120,627,485			(9,818,401	)		110,963,017			23,415,094			134,378,111
Subscriptions received for common stock through public offering		5,985,914			59,859			65,336,467			—			65,396,326			—			65,396,326
Redemptions of common stock		(40,447	)		(404	)		(399,781	)		—			(400,185	)		—			(400,185	)
Stock issuance and offering costs		—			—			(9,490,715	)		—			(9,490,715	)		—			(9,490,715	)
Stock distributions		745,699			7,457			(7,457	)		—			—			—			—
Purchase of noncontrolling interest		—			—			(5,269,501	)		—			(5,269,501	)		(256,324	)		(5,525,825	)
Contributions from noncontrolling interests		—			—			—			—			—			11,419,696			11,419,696
Return of capital to noncontrolling interests		—			—			—			—			—			(1,488,162	)		(1,488,162	)
Distributions to noncontrolling interests		—			—			—			—			—			(357,227	)		(357,227	)
Net loss		—			—			—			(558,778	)		(558,778	)		(488,418	)		(1,047,196	)

Balance at June 30, 2014		22,084,482		$	220,845		$	170,796,498		$	(10,377,179	)	$	160,640,164		$	32,244,659		$	192,884,823

See accompanying notes to condensed consolidated financial statements.

CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,
	2014			2013
Operating Activities:
Net loss, including amounts attributable to noncontrolling interests	$	(1,047,196	)	$	(1,528,587	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		2,718,921			1,440,615
Amortization of above- and below-market leases		—			17,983
Amortization of loan costs		67,303			—
Amortization of lease costs		—			23,474
Loss on extinguishment of debt		92,361			69,276
Gain on sale of real estate held for sale		(1,219,693	)		—
Unrealized loss (gain) from change in fair value of interest rate caps		179,034			(48,158	)
Straight-line rent adjustments		(94,995	)		(113,779	)
Changes in operating assets and liabilities:
Other assets		31,146			(17,095	)
Due to related parties		153,151			108,664
Accounts payable and other accrued expenses		1,028,033			784,956
Other liabilities		(77,122	)		51,651

Net cash provided by operating activities		1,830,943			789,000

Investing Activities:
Development property costs, including land and capital expenditures		(103,714,986	)		(50,882,022	)
Collection of advance to municipality utility district		1,313,975			—
Capital expenditures on real estate held for sale		(126,492	)		(242,953	)
Payment of lease costs		—			(107,171	)
Proceeds from sale of property		14,986,333			—
Changes in restricted cash		(130,772	)		(302,548	)

Net cash used in investing activities		(87,671,942	)		(51,534,694	)

Financing Activities:
Subscriptions received for common stock through public offering		65,396,326			26,651,310
Payment of stock issuance and offering costs		(9,587,241	)		(3,986,555	)
Redemptions of common stock		(495,127	)		(598,547	)
Proceeds from mortgage and construction notes payable		96,729,582			54,045,145
Payments of mortgage and construction notes payable		(36,426,217	)		(21,244,077	)
Payment of loan costs		(1,929,598	)		(981,983	)
Purchase of interest rate cap		(79,800	)		(145,980	)
Purchase of noncontrolling interest		(5,525,825	)		—
Advance from affiliate of noncontrolling interest		461,000			—
Repayment of advance from affiliate of noncontrolling interest		(1,164,012	)		—
Return of capital to noncontrolling interest		(1,488,162	)		—
Contributions from noncontrolling interests		10,919,696			6,837,857
Distributions to noncontrolling interests		(357,227	)		(364,792	)

Net cash provided by financing activities		116,453,395			60,212,378

Net Increase in Cash and Cash Equivalents		30,612,396			9,466,684
Cash and Cash Equivalents at Beginning of Period		35,827,614			14,996,307

Cash and Cash Equivalents at End of Period	$	66,440,010		$	24,462,991

See accompanying notes to condensed consolidated financial statements.

CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(Unaudited)


	Six Months Ended June 30,
	2014		2013
Supplemental Disclosure of Non-Cash Investing and Financing Transactions:
Amounts incurred but not paid:
Development costs	$	22,645,498	$	11,075,333

Loan costs	$	86,970	$	70,670

Investment services fees	$	—	$	986,672

Redemptions of common stock	$	272,263	$	—

Loan cost amortization capitalized on development properties	$	537,654	$	276,407

Noncontrolling interests non-cash contributions	$	500,000	$	—

Noncontrolling interests construction advance	$	703,012	$	—

Stock distributions declared (at par)	$	7,457	$	3,587

See accompanying notes to condensed consolidated financial statements.

CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

Business and Organization

CNL Growth Properties, Inc. was organized in Maryland on December 12, 2008. The term “Company” includes, unless the context otherwise requires, CNL Growth Properties, Inc., Global Growth, LP, a Delaware limited partnership (the “Operating Partnership”), Global Growth GP, LLC and other subsidiaries (including variable interest entities) of CNL Growth Properties, Inc. The Company operates, and has elected to be taxed, as a real estate investment trust (“REIT”) for U.S. federal income tax purposes commencing with its taxable year ended December 31, 2010.

The Company is externally advised by CNL Global Growth Advisors, LLC (the “Advisor”) and its property manager is CNL Global Growth Managers, LLC (the “Property Manager”), each of which is a Delaware limited liability company and a wholly owned affiliate of CNL Financial Group, LLC, the Company’s sponsor. CNL Financial Group, LLC is an affiliate of CNL Financial Group, Inc. (“CNL”). The Advisor is responsible for managing the Company’s affairs on a day-to-day basis and for identifying, recommending and executing acquisitions and dispositions on behalf of the Company pursuant to an advisory agreement among the Company, the Operating Partnership and the Advisor.

Substantially all of the Company’s acquisition, operating, administrative and certain property management services are provided by sub-advisors to the Advisor and sub-property managers to the Property Manager. In addition, certain sub-property managers have been engaged by the Company to provide certain property management services.

On October 20, 2009, the Company commenced its initial public offering of up to $1.5 billion of shares of common stock (150 million shares of common stock at $10.00 per share) (the “Initial Offering”) pursuant to a registration statement on Form S-11 under the Securities Act of 1933, as amended. The Initial Offering closed on April 7, 2013, with the Company having received aggregate proceeds of approximately $94.2 million since inception. On August 19, 2013, the Company commenced a follow-on offering of up to $200 million of shares of common stock (at a price of $10.84 per share through January 15, 2014 and $11.00 per share thereafter) (the “Follow-On Offering”). The Follow-On Offering closed on April 11, 2014, with the Company having received aggregate proceeds of approximately $114.1 million from such offering.

As of June 30, 2014, the Company owned interests in 14 Class A multifamily properties, five of which were operational and as to which development was substantially complete and nine of which were under development, including two that were partially operational. Thirteen of the properties owned as of June 30, 2014 were owned through a joint venture in which the Company has co-invested with an affiliate of a national or regional multifamily developer, and one property was wholly owned by the Company. The Company had a total of 1,553 completed apartment units as of June 30, 2014 and expects to have more than 4,200 units once construction is completed on its properties owned and under development as of June 30, 2014.

As of December 31, 2013, the Company also owned a multi-tenant, three building office complex that was held for sale and subsequently sold in March 2014.

With the completion of the Company’s Follow-On Offering, the Advisor has begun to explore strategic alternatives for providing liquidity to investors. Possible strategic alternatives for liquidity may include the sale of either the Company or some or all of its assets, potential merger opportunities, the listing of the Company’s common shares on a national exchange, or a combination of various alternatives. The financial statements have been prepared under the assumption that the Company has no immediate plans that would indicate a need to evaluate a potential adjustment to the carrying value of its reported assets and liabilities or that affect the anticipated ability of the Company to meet its contractual obligations as they become due.

CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

Summary of Significant Accounting Policies

Basis of Presentation – The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles of the United States (“GAAP”). The unaudited condensed consolidated financial statements reflect all normal recurring adjustments, which are, in the opinion of management, necessary for the fair presentation of the Company’s results for the interim periods presented. Operating results for the quarter and six months ended June 30, 2014 may not be indicative of the results expected for the year ending December 31, 2014. Amounts as of December 31, 2013 included in the unaudited condensed consolidated financial statements have been derived from the audited consolidated financial statements as of that date but do not include all disclosures required by GAAP. These accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto as of December 31, 2013, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

Consolidation and Variable Interest Entities – The accompanying condensed consolidated financial statements include the accounts of the Company and its subsidiaries over which it has control. All intercompany accounts have been eliminated in consolidation. In accordance with the guidance for the consolidation of a variable interest entity (“VIE”), the Company analyzes its variable interests, including loans, leases, guarantees, and equity investments, to determine if the entity in which it has a variable interest is a VIE. The Company’s analysis includes both quantitative and qualitative reviews. The Company bases its quantitative analysis on the forecasted cash flows of the entity, and its qualitative analysis on its review of the design of the entity, its organizational structure including decision-making ability and financial agreements. The Company also uses its quantitative and qualitative analyses to determine if it is the primary beneficiary of the VIE, and if such determination is made, it includes the accounts of the VIE in its consolidated financial statements. In accordance with the guidance for noncontrolling interests in consolidated financial statements, references in this report to net income (loss) attributable to common stockholders do not include noncontrolling interests in the Company’s VIEs, which the Company reports separately.

Advance from Noncontrolling Interest – In March 2014, the Company acquired an ownership interest in a consolidated joint venture that acquired a parcel of land on which it plans to develop a multifamily community located in Hanover, Maryland (the “Oxford Square Property”). During the six months ended June 30, 2014, the Company’s co-venture partner temporarily advanced approximately $1.2 million of construction and development costs relating to the Oxford Square Property pending the joint venture obtaining a construction loan for the development of the property. The advance was repaid to the Company’s co-venture partner upon the closing of the construction loan in June 2014.

Other Comprehensive Income (Loss) – The Company has no items of other comprehensive income (loss) in the periods presented; therefore, it has not included other comprehensive income (loss) or total comprehensive income (loss) in the accompanying condensed consolidated financial statements.

Use of Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, the reported amounts of revenues and expenses during the reporting periods, and the disclosures of contingent liabilities. For example, significant estimates and assumptions are made in connection with the capitalization of costs during development and the analysis of real estate impairments. Actual results could differ from those estimates.

CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

Summary of Significant Accounting Policies (continued)

Adopted Accounting Pronouncements - In April 2013, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2013-07, “Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting.” ASU 2013-07 requires entities to prepare financial statements using the liquidation basis of accounting when liquidation is imminent. For applicable entities, this ASU requires financial statements be prepared using the liquidation basis of accounting to present relevant information about an entity’s expected resources in liquidation by measuring and presenting assets at the amount of the expected cash proceeds from liquidation. The entity should include in its presentation of assets any items it had not previously recognized under U.S. GAAP but that it expects to either sell in liquidation or use in settling liabilities (for example, trademarks). Effective January 1, 2014, the Company adopted this ASU. The adoption of this update did not have a material impact on the Company’s financial position, results of operations or cash flows.

Recent Accounting Pronouncements – In April 2014, the FASB issued ASU 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360)” which changes the requirements for reporting discontinued operations. ASU 2014-08 changes the threshold for disclosing discontinued operations and the related disclosure requirements. Pursuant to ASU 2014-08, only disposals representing a strategic shift, such as a major line of business, a major geographical area or majority equity investment, should be presented as a discontinued operation. If the disposal does qualify as a discontinued operation under ASU 2014-08, the entity will be required to provide expanded disclosures. The guidance will be applied prospectively to new disposals and new classifications of disposal groups held for sale after the effective date. ASU 2014-08 is effective for annual periods beginning on or after December 15, 2014 with early adoption permitted but only for disposals or classifications as held for sale which have not been reported in financial statements previously issued or available for issuance. The Company is currently evaluating ASU 2014-08; however, once adopted, this ASU is expected to impact the Company’s determinations of which future property disposals, if any, qualify as discontinued operations, as well as require additional disclosures about discontinued operations.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” which changes revenue recognition requirements. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. For public entities, ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, and early adoption is not permitted. The Company is currently evaluating the impact of ASU 2014-09 on the Company’s consolidated financial position, results of operations and cash flows.

CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

Acquisitions

During the six months ended June 30, 2014, the Company acquired ownership interests in the following three consolidated joint ventures, which are developing Class A, multifamily projects at the following locations:


Property Name and Location	Date Acquired		Operator/Developer	Ownership Interest ⁽¹⁾			Consolidated Contract Purchase Price (in millions)
Crescent Gateway Altamonte Springs, FL (the “Crescent Gateway Property”)		01/31/14	Crescent Communities, LLC ⁽²⁾		60	%	$	4.5
Aura at The Rim San Antonio, TX (the “Aura at The Rim Property”)		02/18/14	Trinsic Residential Group LP ⁽²⁾		54	%		5.8
Oxford Square Hanover, MD (the “Oxford Square Property”)		03/07/14	Woodfield Investments, LLC ⁽²⁾		95	%⁽³⁾		9.9

Total							$	20.2

FOOTNOTES:

⁽¹⁾

The properties were acquired through joint ventures with third parties, each of which is affiliated with at least one other multifamily project owned by the Company. In each of the joint venture arrangements, the Company is the managing member. Generally, distributions of operating cash flow will be distributed pro rata based on each member’s ownership interest. In addition, proceeds from a capital event, such as a sale of the property or refinancing of the debt, generally will be distributed pro rata until the members of the joint venture receive the return of their invested capital and a specified minimum return thereon, and thereafter, the respective co-venture partner will receive a disproportionately higher share of any remaining proceeds at varying levels based on the Company having received certain minimum threshold returns.

⁽²⁾

This property is owned through a joint venture in which this entity or one of its affiliates (i) is the Company’s joint venture partner, (ii) serves as developer, and in some cases, the general contractor of the project, and (iii) provides any lender required guarantees on the loan. In addition, an affiliate of this entity may serve as property manager of the property once operations commence.

⁽³⁾

As of the date of acquisition, the Company’s initial ownership interest in the Oxford Square Property was 60%. However, in accordance with the terms of the joint venture agreement, once the joint venture obtained a construction loan in June 2014, the Company’s ownership interest in the joint venture increased to 95% with an additional capital contribution by the Company and a partial return of capital to the Company’s joint venture partner.

CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

Variable Interest Entities

During the six months ended June 30, 2014, the Company entered into separate joint venture arrangements in connection with the development and ownership of the three multifamily properties described in Note 3, “Acquisitions.” The Company determined that each of the joint ventures in which it has invested is a VIE generally because there is insufficient equity at risk due to the development nature of each venture. As a result of rights held under each of the respective agreements, the Company has determined that it is the primary beneficiary of these VIEs and holds a controlling financial interest in the ventures due to the Company’s authority to direct the activities that most significantly impact the economic performance of the entities, as well as its obligation to absorb the losses or its right to receive benefits from the ventures that could potentially be significant to the entity.

In making a determination of the primary beneficiary of the Oxford Square Property, the Company also considered its right to sell its entire interest if an acceptable loan was not entered into and closed by June 30, 2014. In connection therewith, the Company determined that over the life of the joint venture it is expected to direct the activities that most significantly impact the economic performance of the entity and have the obligation to absorb losses or the right to receive benefits that could be significant to the entity. As such, the transactions and accounts of the three new joint ventures are included in the accompanying consolidated financial statements. The creditors of the VIEs do not have general recourse to the Company.

In April 2014, the Company’s consolidated subsidiary that owns the Whitehall Property in Charlotte, North Carolina (the “Whitehall Joint Venture”) refinanced its original construction loan. In connection therewith, the Company received a return of a portion of its equity investment in the Whitehall Joint Venture, of which, it used approximately $5.5 million to purchase its joint venture partner’s 5% interest in the Whitehall Joint Venture. As of June 30, 2014, the Company owned a 100% interest in Whitehall Joint Venture. Since the Company controlled the Whitehall Joint Venture prior to the purchase of its joint venture partner’s interest, there was no change in control of the Whitehall Joint Venture and the purchase, including related transaction costs, has been accounted for as a reclassification of equity. The Company’s acquisition of the noncontrolling interest was deemed a reconsideration event and the Company determined that this now wholly-owned entity was no longer a variable interest entity.

CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

Real Estate Assets, net

As of June 30, 2014 and December 31, 2013, real estate assets consisted of the following:


	June 30, 2014			December 31, 2013
Operating real estate assets, net:
Land and land improvements	$	31,686,431		$	24,645,854
Buildings and improvements		122,837,724			81,239,465
Furniture, fixtures and equipment		12,898,473			10,148,877
Less: accumulated depreciation		(6,362,525	)		(3,643,604	)

Total operating real estate assets, net		161,060,103			112,390,592
Construction in process, including land		164,905,128			103,828,508

Total real estate, net	$	325,965,231		$	216,219,100

For the six months ended June 30, 2014 and 2013, depreciation expense on the Company’s real estate assets was approximately $2.7 million and $1.1 million, respectively, including approximately $1.4 million and $0.6 million for the quarters ended June 30, 2014 and 2013, respectively.

Real Estate Held for Sale

In 2011, the Company acquired the Gwinnett Center, a three building office complex that was a lender owned, or “REO,” property with the investment objective of increasing net operating income through the lease-up of existing vacancies and repositioning of the property. During the quarter ended June 30, 2013, due to continuing trends and favorable market conditions in multifamily development and the Company’s increased focus on multifamily development, the Company decided to pursue a potential sale of the Gwinnett Center. In March 2014, the Company sold the Gwinnett Center and received net sales proceeds of approximately $15.0 million, resulting in a gain of approximately $1.2 million for financial reporting purposes, which is included in income (loss) from discontinued operations for the six months ended June 30, 2014 in the accompanying condensed consolidated statements of operations. Gwinnett Center qualified and was treated as a discontinued operation in the accompanying condensed consolidated financial statements.

CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

Real Estate Held for Sale (continued)

As of December 31, 2013, real estate held for sale consisted of the following:


	December 31, 2013
Land and land improvements	$	3,034,189
Buildings and improvements		7,996,278
Tenant improvements		841,599
Furniture, fixtures and equipment		292,050
Less: accumulated depreciation		(537,055	)

Operating real estate held for sale		11,627,061
Lease intangibles, net		1,690,231
Deferred rent		359,068
Other liabilities		(36,212	)

Total real estate held for sale	$	13,640,148

The following is a summary of income (loss) from discontinued operations for the quarters and six months ended:


	Quarter Ended June 30,					Six Months Ended June 30,
	2014		2013			2014			2013
Revenues	$	—	$	521,499		$	534,086		$	1,049,424
Expenses		—		(375,056	)		(374,082	)		(735,205	)
Depreciation and amortization		—		(90,355	)		—			(357,890	)

Operating income (loss)		—		56,088			160,004			(43,671	)
Interest expense, net of amounts capitalized		—		(67,030	)		(69,140	)		(75,189	)
Gain on sale of property		—		—			1,219,693			—

Income (loss) from discontinued operations	$	—	$	(10,942	)	$	1,310,557		$	(118,860	)

CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

Indebtedness

During the six months ended June 30, 2014, the Company entered into the following loan agreements which were still outstanding as of June 30, 2014:


Property and Related Loan	Outstanding Principal Balance as of June 30, 2014 (in millions)		Interest Rate	Payment Terms	Maturity Date	Total Loan Capacity Amount (in millions)
Crescent Gateway Property Construction Loan ⁽³⁾	$	—	LIBOR⁽¹⁾ plus 2.40%, adjusted monthly	Monthly interest only payments throughout the initial term. If extended, then monthly interest payments, plus principal payments of $31,000.	July 31, 2017 (plus additional 18-month extension)	$	28.5
Whitehall Property Mortgage Loan ⁽²⁾	$	28.2	LIBOR⁽¹⁾ plus 2.31%, adjusted monthly	Monthly interest only payments through May 2016, then principal and interest monthly installments calculated based on a 30-year amortization.	May 1, 2021	$	28.2
Aura at The Rim Property Construction Loan ⁽³⁾	$	—	LIBOR⁽¹⁾ plus 2.25%, adjusted monthly	Monthly interest only payments through April 2017. If extended, then monthly and principal payments of $29,200.	April 17, 2017 (plus an additional 2-year extension)	$	27.7
Oxford Square Property Construction Loan ⁽³⁾⁽⁴⁾	$	—	LIBOR⁽¹⁾ plus 2.50%, adjusted monthly	Monthly interest only payments through June 2017, then principal and interest monthly installments calculated based on a 30-year amortization.	June 26, 2018 (plus additional 1-year extension)	$	35.9

FOOTNOTES:

⁽¹⁾	As of June 30, 2014, LIBOR was 0.16%.

⁽²⁾

In April 2014, the Whitehall Joint Venture refinanced its original construction loan which had an outstanding amount of $22.3 million, and entered into a new $28.2 million variable rate seven year loan. In connection with obtaining the Whitehall Mortgage Loan, the Company purchased an interest rate cap with a $28.2 million notional principal amount, pursuant to which LIBOR is capped at 3.94% for an initial term expiring in April 2017. The loan is collateralized by the Whitehall Property.

⁽³⁾	This loan will be used to fund the majority of development and construction costs related to the multifamily property. Additionally, the construction loan is collateralized by its respective property and all improvements constructed thereon.

⁽⁴⁾	At the time of acquisition of the Oxford Square Property, the Company obtained a $4.9 million temporary loan. In June 2014, the Oxford Square Joint Venture repaid the $4.9 million, and entered into a new construction loan with a total capacity amount of $35.9 million.

CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

Indebtedness (continued)

During the six months ended June 30, 2014, the Company borrowed approximately $63.6 million in connection with its multifamily development projects and repaid approximately $36.4 million of the outstanding loans, including approximately $22.3 million related to refinancing Whitehall Joint Venture’s original construction loan, $4.9 million related to Oxford Square Joint Venture’s temporary loan pending it obtaining a construction loan, and approximately $8.0 million related to Gwinnett Center as a result of the sale of the property.

Maturities of indebtedness for the remainder of 2014 and the next four years and thereafter, in aggregate, assuming the terms of the loans are not extended, were the following as of June 30, 2014:


2014	$	236,995
2015		82,816,115
2016		39,371,894
2017		931,586
2018		907,994
Thereafter		53,398,991

	$	177,663,575

Certain of the Company’s loan documents contain customary affirmative, negative and financial covenants, including, debt service coverage ratio, interest coverage ratio, loan to value ratio and liquidation compliance. These covenant requirements are generally effective after the respective property is operational. As of June 30, 2014, the Company was in compliance with all applicable debt covenants.

The estimated fair market value and carrying value of the Company’s debt were approximately $179.0 million and $177.7 million, respectively, as of June 30, 2014. The estimated fair market value of the Company’s debt was determined based upon then-current rates and spreads the Company would expect to obtain for similar borrowings. Because this methodology includes inputs that are less observable by the public and are not necessarily reflected in active markets, the measurement of the estimated fair values related to the Company’s mortgage and construction notes payable are categorized as Level 3 on the three-level valuation hierarchy used for GAAP. The estimated fair values of accounts payable and accrued expenses approximated the carrying values as of June 30, 2014 because of the relatively short maturities of the obligations.

CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

Related Party Arrangements

During the quarters and six months ended June 30, 2014 and 2013, the Company incurred the following fees and reimbursable expenses due to related parties, including the managing dealer of the Company’s offerings, which is an affiliate of the Company’s Advisor, the Advisor, its affiliates and other related parties:


	Quarter Ended June 30,				Six Months Ended June 30,
	2014		2013		2014		2013
Offering fees:
Selling commissions ⁽¹⁾	$	1,530,057	$	642,662	$	4,332,800	$	1,749,876
Marketing support fees ⁽¹⁾		668,083		303,565		1,869,583		784,712

		2,198,140		946,227		6,202,383		2,534,588

Reimbursable expenses:
Offering costs ⁽¹⁾		1,191,370		524,562		3,279,232		1,337,037
Investor administrative service fees ⁽²⁾		38,640		14,622		67,500		27,998
Other operating and acquisition expenses ⁽³⁾⁽⁶⁾		284,819		251,894		576,417		480,077

		1,514,829		791,078		3,923,149		1,845,112

Investment services fees ⁽⁴⁾		—		989,497		1,582,359		989,497
Asset management fees ⁽⁴⁾		535,168		236,539		981,129		438,937
Property management fees ⁽⁵⁾		7,870		17,602		33,355		34,591
Financing coordination fees ⁽⁷⁾		282,150		285,000		282,150		285,000

	$	4,538,157	$	3,265,943	$	13,004,525	$	6,127,725

FOOTNOTES:

⁽¹⁾	Selling commissions, marketing support fees, and offering costs are included in stock issuance and offering costs in the condensed consolidated statement of equity for each period presented.

⁽²⁾

Investor administrative service fees of $0.058 million and $0.025 million for the six months ended June 30, 2014 and 2013, respectively, including $0.040 million and $0.014 million for the quarters ended June 30, 2014 and 2013, respectively, are included in general and administrative expenses in the accompanying condensed consolidated statements of operations. The remaining investor administrative service fees are included in stock issuance and offering costs in the condensed consolidated statement of equity for each period presented.

⁽³⁾

Other operating and acquisition expenses of $0.55 million and $0.46 million are included in general and administrative expenses for the six months ended June 30, 2014 and 2013, respectively, including $0.28 million and $0.24 million for the quarters ended June 30, 2014 and 2013, respectively. The remaining other operating and acquisition expenses are recorded in acquisition fees and expenses, net of amounts capitalized, for the periods presented.

⁽⁴⁾

Investment services fees incurred during the periods presented were capitalized as part of the cost of development properties. In addition, during the six months ended June 30, 2014 and 2013, approximately $0.4 million and $0.2 million, respectively, of asset management fees (including approximately $0.2 million and $0.1 million for the quarters then ended, respectively) incurred by the Company were capitalized as part of the cost of development properties. Asset management fees related to Gwinnett Center, included in the amounts above, are included in income (loss) from discontinued operations for each period presented. The remaining amounts of asset management fees are included in asset management fees, net of amounts capitalized.

CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

Related Party Arrangements (continued)

⁽⁵⁾	Property management fees included in the amounts above related to Gwinnett Center are included in income (loss) from discontinued operations for each period presented.

⁽⁶⁾

Includes $0.02 million for reimbursable expenses to the Advisor for services provided to the Company by its executive officers during each of the six months ended June 30, 2014 and 2013, including $0.01 million and $0.02 million for the quarters ended June 30, 2014 and 2013, respectively. The reimbursable expenses include components of salaries, benefits and other overhead charges.

⁽⁷⁾	Financing coordination fees are included in loan costs, net in the condensed consolidated balance sheets.

Amounts due to related parties for fees and reimbursable costs and expenses were as follows as of:


	June 30, 2014		December 31, 2013
Due to Managing Dealer:
Selling commissions	$	—	$	12,246
Marketing support fees		—		30,688

		—		42,934

Due to Property Manager:
Property management fees		7,870		29,634

Due to the Advisor and its affiliates:
Reimbursable offering costs		—		53,592
Reimbursable operating expenses		1,429,096		1,254,181

		1,429,096		1,307,773

	$	1,436,966	$	1,380,341

Organizational and offering costs become a liability to the Company only to the extent selling commissions, marketing support fees and other organizational and offering costs do not exceed 15% of the gross proceeds of the Company’s offerings. The Advisor incurred an additional $3.3 million of costs on behalf of the Company in connection with the offerings (exceeding the 15% limitation on expenses) as of June 30, 2014. Although the Company’s board of directors could determine to pursue an additional equity offering in the future and further determine that certain costs previously incurred benefit such future offering, generally, the costs incurred in excess of the 15% limitation remain the responsibility of the Advisor following the close of the Company’s Follow-On Offering on April 11, 2014.

Transactions with Other Related Parties – During the six months ended June 30, 2013, an executive officer of CNL joined the board of directors of Crescent Communities, LLC, formerly Crescent Resources, LLC (“Crescent”), a joint venture partner of the Company with four of its multifamily development projects. In connection with the development of such projects, each consolidated joint venture has agreed to pay Crescent or its affiliates development fees based on a percent of the development costs of the applicable projects. In January 2014, the Crescent Gateway Joint Venture purchased the land located in Altamonte Springs, Florida for approximately $4.5 million from Crescent. In addition, during the six months ended June 30, 2014 and 2013, approximately $1.3 million and $0.6 million, respectively, in development fees payable to Crescent or its affiliates were incurred and are included the Company’s condensed consolidated financial statements as part of the cost of the applicable development projects.

CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SIX MONTHS ENDED JUNE 30, 2014

(UNAUDITED)

Commitments and Contingencies

In the ordinary course of business, the Company may become subject to litigation or claims. There are no material legal proceedings pending or known to be contemplated against the Company.

Pursuant to the development agreements for the Company’s nine multifamily development properties under construction as of June 30, 2014, the Company has committed to fund approximately $197 million in remaining development and other costs as of June 30, 2014. The remaining development costs are expected to be funded primarily by existing construction loans relating to such properties. The Company’s joint venture partners and certain of their affiliates have committed to fund any cost overruns related to the development projects.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

The following discussion is based on the unaudited condensed consolidated financial statements as of June 30, 2014 and December 31, 2013, and for the quarters and six months ended June 30, 2014 and 2013. Amounts as of December 31, 2013 included in the unaudited condensed consolidated financial statements have been derived from the audited consolidated financial statements as of that date. This information should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the notes thereto, as well as, the audited consolidated financial statements, notes and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2013. Capitalized terms used in this Item 2 have the same meaning as in the accompanying condensed consolidated financial statements in Item 1 unless otherwise defined herein.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Statements contained under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q for the quarter and six months ended June 30, 2014 (this “Quarterly Report”) that are not statements of historical or current fact may constitute “forward-looking statements” within the meaning of the Federal Private Securities Litigation Reform Act of 1995. The Company intends that such forward-looking statements be subject to the safe harbor created by Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are statements that do not relate strictly to historical or current facts, but reflect management’s current understandings, intentions, beliefs, plans, expectations, assumptions and/or predictions regarding the future of the Company’s business and its performance, the economy, and other future conditions and forecasts of future events, and circumstances. Forward-looking statements are typically identified by words such as “believes,” “expects,” “anticipates,” “intends,” “estimates,” “plans,” “continues,” “pro forma,” “may,” “will,” “seeks,” “should” and “could,” and words and terms of similar substance in connection with discussions of future operating or financial performance, business strategy and portfolios, projected growth prospects, cash flows, costs and financing needs, legal proceedings, amount and timing of anticipated future distributions, estimated per share net asset value of the Company’s common stock, and/or other matters. The Company’s forward-looking statements are not guarantees of future performance. While the Company’s management believes its forward-looking statements are reasonable, such statements are inherently susceptible to uncertainty and changes in circumstances. As with any projection or forecast, forward-looking statements are necessarily dependent on assumptions, data and/or methods that may be incorrect or imprecise, and may not be realized. The Company’s forward-looking statements are based on management’s current expectations and a variety of risks, uncertainties and other factors, many of which are beyond the Company’s ability to control or accurately predict. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, the Company’s actual results could differ materially from those set forth in the forward-looking statements due to a variety of risks, uncertainties and other factors. Given these uncertainties, the Company cautions you not to place undue reliance on such statements.

Important factors that could cause the Company’s actual results to vary materially from those expressed or implied in its forward-looking statements include, but are not limited to, government regulation, economic, strategic, political and social conditions, and the following: risks associated with the Company’s investment strategy, including its concentration in the multifamily sector and geographic concentration of properties; a worsening economic environment in the U.S. or globally, including financial market fluctuations; risks associated with real estate markets, including declining real estate values; risks associated with the limited number of investments made; risks associated with the Company’s limited capital resources, including the risk of the Company’s failure to obtain, renew or extend necessary financing or to access the debt or equity markets; the use of debt to finance the Company’s business activities, including refinancing and interest rate risk and the Company’s failure to comply with debt covenants; failure to successfully manage growth; the Company’s inability to make necessary improvements to properties on a timely or cost-efficient basis; risks related to development projects, including construction delays, construction cost overruns, the Company’s inability to obtain necessary permits, and/or public opposition to these activities; competition for tenants; defaults on or non-renewal of leases by tenants; failure to lease properties on favorable terms or at all; the impact of current and future environmental, zoning and other governmental regulations affecting the Company’s properties; the impact of changes in accounting rules; the impact of regulations requiring periodic valuation of the Company on a per share basis; inaccuracies of the Company’s accounting estimates;

unknown liabilities of acquired properties or liabilities caused by property managers or operators; material adverse actions or omissions by any joint venture partners; consequences of the Company’s net operating losses; increases in operating costs and other expenses; uninsured losses or losses in excess of the Company’s insurance coverage; the impact of outstanding and/or potential litigation; risks associated with the Company’s tax structuring; failure to maintain the Company’s qualification as a REIT for federal income tax purposes; and the Company’s inability to protect its intellectual property and the value of its brand.

For further information regarding risks and uncertainties associated with the Company’s business, and other important factors that could cause the Company’s actual results to vary materially from those expressed or implied in its forward-looking statements, please refer to the factors listed and described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the “Risk Factors” sections of the Company’s documents filed from time to time with the U.S. Securities and Exchange Commission, including, but not limited to, the Company’s quarterly reports on Form 10-Q and the Company’s annual report on Form 10-K, copies of which may be obtained from the Company’s website at www.cnlgrowthproperties.com.

All written and oral forward-looking statements attributable to the Company or persons acting on its behalf are qualified in their entirety by this cautionary note. Forward-looking statements speak only as of the date on which they are made, and the Company undertakes no obligation to, and expressly disclaims any obligation to, publicly release the results of any revisions to its forward-looking statements to reflect new information, changed assumptions, the occurrence of unanticipated subsequent events or circumstances, or changes to future operating results over time, except as otherwise required by law.

OVERVIEW

Overview

CNL Growth Properties, Inc. was organized as a Maryland corporation on December 12, 2008 and has elected to be taxed, and currently qualifies as a real estate investment trust (“REIT”) for federal income tax purposes. The terms “us,” “we,” “our,” “our Company” and “CNL Growth Properties, Inc.” include CNL Growth Properties, Inc. and each of its subsidiaries.

Our Advisor and Property Manager

Our Advisor and Property Manager are each wholly owned affiliates of our Sponsor, which is an affiliate of CNL, a leading private investment management firm providing global real estate and alternative investments. The Advisor is responsible for managing our affairs on a day-to-day basis and for identifying, recommending and executing acquisitions and dispositions on our behalf pursuant to an advisory agreement.

Substantially all of our acquisition, operating, administrative and property management services are provided by sub-advisors to the Advisor and by sub-property managers to the Property Manager. In addition, certain unrelated sub-property managers have been engaged to provide certain property management services.

Our Common Stock Offerings

In order to raise capital for investment in growth-oriented properties, on October 20, 2009, we commenced our Initial Offering of up to $1.5 billion of shares of common stock (150 million shares of common stock of $10.00 per share). The Initial Offering closed on April 7, 2013, and through such date, we received aggregate proceeds of approximately $94.2 million since inception.

Due to the continued opportunities we had identified for investment in the multifamily sector, on August 19, 2013, we commenced our Follow-On Offering of up to $200 million of shares of common stock to raise capital to invest in multifamily development properties. Our Follow-On Offering terminated on April 11, 2014, and through the close of the Follow-On Offering, we received proceeds of approximately $114.1 million in connection therewith.

We expect to invest the substantial majority of our uninvested available cash as of June 30, 2014 in additional multifamily development properties. We believe there are attractive acquisition development opportunities available, and as we continue to invest our remaining offering proceeds, we expect to concentrate on completing the development of our properties, operations, and evaluating potential exit strategies for our stockholders. Although we currently have no plans to have an additional equity offering, our board of directors may determine to seek additional capital in the future.

Our Real Estate Portfolio

As of June 30, 2014, we owned interests in 14 Class A multifamily properties primarily in the southeastern and sunbelt regions of the United States, five of which had substantially completed development and were operational. The remaining nine properties were under development with completion expected in phases by the third quarter of 2016. Generally, the development period for our properties is up to 24 months with the properties becoming partially operational as buildings within the project are completed and certificates of occupancy obtained. We generally expect our multifamily properties to reach stabilization within 24 months after completion.

We had a total of 1,553 completed apartment units as of June 30, 2014, and expect to have more than 4,200 units once construction is completed on our remaining properties under development.

In March 2014, we sold our three-building office complex located in Duluth, Georgia (“Gwinnett Center”) to an unrelated third party and received net sales proceeds of approximately $15.0 million, resulting in a gain of approximately $1.2 million for financial reporting purposes. As a result of this property being treated as “held for sale” in our accompanying financial statements, the operating results and gain on sale have been treated as discontinued operations. We used approximately $8.0 million of the net proceeds from the sale of this property to repay the outstanding balance of mortgage loan on the property. We currently expect to use the remaining net sales proceeds to invest in additional multifamily development properties.

Exit Strategy

In accordance with our investment objectives, our board of directors will consider strategic alternatives for future stockholder liquidity, including opportunities to merge with another company, the listing of our common stock on a national securities exchange, our sale or the sale of all of our assets. Although our board of directors is not required to recommend any such exit event by any certain date, due to our Follow-On Offering having closed in April 2014 and the estimated time needed to complete our acquisition phase and have our assets substantially stabilize, our Advisor has begun to explore strategic alternatives for providing liquidity to investors. We do not know at this time what circumstances will exist in the future and therefore we do not know what factors our board of directors will consider in determining whether to pursue an exit event in the future and the board of directors has not established any pre-determined criteria. A liquidation of our Company, or all of our assets, would generally require the approval of our stockholders in accordance with our governing documents.

LIQUIDITY AND CAPITAL RESOURCES

General

As a REIT, we are required to distribute at least 90% of our taxable income without regard to net capital gains. Therefore, as with other REITs, we must obtain debt and/or equity capital in order to fund our growth. Our primary sources of capital have been proceeds from our Initial Offering, our Follow-On Offering and debt financing. Although we currently have no plans to have an additional equity offering, our board of directors may determine to seek additional capital in the future.

We expect to invest the majority of our uninvested net proceeds from our Follow-On Offering in additional multifamily development properties. Thereafter, our ongoing principal demands for funds are expected to be for operating fees and expenses, the payment of debt service and, if we elect or are required to pay cash distributions instead of stock distributions, the payment of distributions.

To date, we have met and expect to continue to meet cash needs for acquisitions and acquisition-related expenses from net proceeds from our equity offerings and financings. Generally, we expect to meet cash needs for our operating expenses and debt service from our cash flow from operations once our properties are operating and stabilized. However, to date and until such time as we are fully invested and our investments have stabilized, we have and may continue to use a portion of our remaining uninvested offering proceeds to pay a substantial portion of our operating expenses and debt service. We generated positive cash flows from operations during the six months ended June 30, 2014 and generally expect to do so as our remaining properties become operational in phases and stabilize.

Commencing in June 2010, our board of directors determined to issue stock distributions in order to preserve cash as we develop our properties and achieve stabilization upon completion of construction. Currently, our board of directors has authorized a monthly stock distribution equal to 0.006666667 of a share of common stock on each outstanding share of common stock (which is equal to an annualized distribution rate of 0.08 of a share based on a calendar year), payable to all common stockholders of record as of the close of business on the first day of each month and continuing until terminated or amended by our board of directors. The shares issued pursuant to this policy will be issued on or before the last business day of the applicable calendar quarter.

The following table presents total stock distributions declared and issued and FFO for each of the quarters in the six months ended June 30, 2014 and 2013:


Periods	Share Distribution Declared per Share Held		Stock Distributions Declared (Shares) ^{(1) (2)}		Stock Distributions Declared ⁽³⁾		FFO Attributable to Common Stockholders ⁽⁴⁾
2014 Quarter
First		0.006666667 per month		325,315	$	3,220,619	$	(97,142	)
Second		0.006666667 per month		420,384		4,161,802		500,648

Total				745,699	$	7,382,421	$	403,506

2013 Quarter
First		0.006666667 per month		157,859	$	1,578,590	$	48,528
Second		0.006666667 per month		200,810		2,008,100		(90,408	)

Total				358,669	$	3,586,690	$	(41,880	)

FOOTNOTES:

⁽¹⁾	Represents amount of shares declared and distributed.

⁽²⁾	The distribution of new common shares is non-taxable to the recipients when issued.

⁽³⁾

The amount of stock distributions declared presented in the table above includes periods prior to our determination of an estimated net asset value per share. Therefore, for purposes of this table, we have calculated the dollar amount of stock distributions declared using (i) our Initial Offering price of $10 per share for shares issued during periods prior to July 1, 2013 since we did not determine an estimated net asset value during such time and (ii) our December 2013 NAV of $9.90 per share for shares issued after December 31, 2013.

⁽⁴⁾	See reconciliation of net income (loss) attributable to common stockholders to funds from operations in “Funds from Operations and Modified Funds from Operations” below.

Stock distributions are non-taxable to stockholders at the time of distribution and are disregarded in determining priority returns on invested capital for the purpose of the Advisor’s entitlement to subordinated disposition fees. During our offering period, stock distributions served to provide early investors with additional shares as compared to later investors for the same initial cash investment and thereby allocating to such early investors greater percentages of any accretion in the value of our early property developments and in any sales proceeds or liquidating distributions upon the sale of such properties or occurrence of an exit event. We believe our stock distribution policy has aligned the age of our shareholder base with the long term appreciation in the value of our assets. As more of our properties become operational, we expect our cash from operations to increase over time. Accordingly, our board of directors will continue to periodically review our distribution policy.

If, and when, our board of directors elects to pay cash distributions, we may pay some or all of such amounts from sources other than our operations, such as from cash flows generated from financing activities, a component of which may include the proceeds of our equity offerings and borrowings, whether collateralized by our assets or

uncollateralized. In addition, our Advisor, its affiliates or other related parties may also advance cash to us or waive or defer asset management fees or other fees in order to increase cash available to pay distributions to stockholders or to pay expenses, but are not required to do so.

We have borrowed and expect to continue to borrow in connection with the acquisition and development of our properties. Although, in general, our articles of incorporation allow us to borrow up to 300% of our net assets, our board of directors has adopted a policy to limit our aggregate borrowings to approximately 75% of the aggregate value of our assets. However, if needed, our articles of incorporation and the borrowing policy limitation adopted by our board of directors permit borrowings in certain circumstances in excess of such levels if approved by a majority of our independent directors. As of June 30, 2014, we had an aggregate debt leverage ratio of approximately 44% of the aggregate book value of our consolidated assets. However, due to the fact that we generally have obtained construction financing to fund up to approximately 65% to 75% of the development budget of our development properties, we expect this ratio to increase as we incur additional development costs as our properties under development are completed and we use construction financing to fund such development.

Potential future sources of cash to meet our capital needs include proceeds from collateralized or uncollateralized financings, including refinancings of existing debt, from banks or other lenders and proceeds from the sale of properties or other assets. If necessary, we may use financings or uninvested offering proceeds in the event of unforeseen significant capital expenditures or other corporate purposes.

Sources of Liquidity and Capital Resources

Common Stock Offering

Since inception, one of our main sources of capital has been proceeds of our public offerings. For the six months ended June 30, 2014 and 2013, we received aggregate offering proceeds of approximately $65.4 million and $26.7 million, respectively.

As of June 30, 2014, our cash totaled $66.4 million and consisted primarily of unused offering proceeds from our Follow-On Offering and net sales proceeds from the sale of Gwinnett Center. We expect to use a portion of this to fund our remaining capital commitments to our joint ventures, which will be used to pay certain development costs of our joint ventures. In addition, we expect to use available uncommitted cash on hand as of June 30, 2014, as well as, debt financing to invest in additional multifamily development properties through joint venture arrangements with multifamily developers and/or operators. Our Follow-On Offering terminated on April 11, 2014, and we currently have no plans for an additional equity offering at this time. Therefore, we expect to acquire a limited number of additional properties at this time. However, our board of directors may determine to seek additional capital in the future.

Borrowings

As described above, we have and expect to continue to obtain construction financing on our multifamily development projects equal to approximately 65% to 75% of the development budgets. As described in Note 7, “Indebtedness” in the accompanying consolidated financial statements, during the six months ended June 30, 2014, in connection with our acquisitions, we obtained construction loan financing with an aggregate total capacity of approximately $92.1 million and paid $1.9 million in related loan financing costs. In connection with these loans, as well as our construction loans obtained as of December 31, 2013, during the six months ended June 30, 2014, we borrowed $63.6 million to pay for development costs relating to our development projects.

In April 2014, Whitehall Joint Venture, our consolidated joint venture which developed the Whitehall Property completed in April 2013, refinanced its original development and construction loan which had an outstanding principal balance of $22.3 million and entered into a new $28.2 million variable rate, seven-year loan. We were able to increase the level of indebtedness on the Whitehall Property based on an appraised value that exceeded our original cost.

In March 2014, as part of acquiring the Oxford Square Property, we obtained $4.9 million in temporary financing through our Oxford Square Joint Venture in the form of a temporary loan and our joint venture partner advanced approximately $1.2 million for development costs. In June 2014, we used unused proceeds from our offering to repay the $4.9 million and entered into a new construction loan that matures in June 2018 as described in Note 7, “Indebtedness.”

During the six months ended June 30, 2013, we borrowed approximately $25.5 million under our construction loans to pay development costs related to our properties under development during such period, as well as $28.5 million in connection with refinancing the original development and construction loan related to our Long Point Property.

Certain of our loan documents contain customary affirmative, negative and financial covenants, agreements, representations, warranties and borrowing conditions, as well as customary events of default and cure provisions, and escrows, all as set forth in the loan documents. As of June 30, 2014, we were in compliance with all applicable debt covenants.

Capital Contributions from Noncontrolling Interests

During the six months ended June 30, 2014 and 2013, our co-venture partners made cash capital contributions to our consolidated joint ventures aggregating to approximately $10.9 million and $6.8 million, respectively. In addition, in accordance with the terms of the Oxford Square Property joint venture agreement, once the Oxford Square Joint Venture obtained a construction loan in June 2014, our ownership interest in the joint venture increased to 95% with an additional capital contribution by us and a $1.5 million return of capital to our joint venture partner.

In accordance with the terms of our joint venture agreements relating to the multifamily development properties, our co-venture partners have commitments to fund additional capital contributions aggregating approximately $2.2 million as of June 30, 2014. These amounts, as well as amounts previously funded, will be or have been used to fund part of the land acquisition and initial development costs of the development projects. In connection with any additional multifamily development properties we acquire, we expect to enter into joint venture arrangements with terms similar to the ones in place as of June 30, 2014, whereby our co-venture partner is responsible for their pro rata share of the equity investment in the property.

Real Estate Held for Sale

In 2011, we acquired the Gwinnett Center, a three building office complex that was a lender owned, or “REO” property, with the investment objective of increasing net operating income through the lease-up of existing vacancies and repositioning of the property. During the quarter ended June 30, 2013, due to continuing trends and favorable market conditions in multifamily development, and our increased focus on multifamily development, we decided to pursue a potential sale of the property. In March 2014, we sold Gwinnett Center to an unrelated third party and received net sales proceeds of approximately $15.0 million, resulting in a gain on sale for accounting purposes of approximately $1.2 million. A portion of the net sales proceeds were used for the repayment of debt of approximately $8.0 million. We currently expect to reinvest the remaining net sales proceeds received in additional multifamily development properties.

Net Cash Provided by Operating Activities

During the six months ended June 30, 2014 and 2013, we generated approximately $1.8 million and $0.8 million, respectively, in cash from operating activities. Cash flows from operating activities improved primarily as a result of increased revenues due to more properties and units being operational during the six months ended June 30, 2014, as compared to the same period in 2013, as described in “Results of Operations” further below. Due to the fact that the majority of our properties are under development and not yet stabilized, net operating income from our properties may not be sufficient to fund all of our operating expenses. Therefore, we may continue to fund all or a portion of our expenses from other sources, including our unused offering proceeds.

Uses of Liquidity and Capital Resources

Acquisition and Development of Properties

During the six months ended June 30, 2014, we used approximately $103.7 million to acquire three multifamily development properties through consolidated joint ventures and to fund development costs for development projects owned during such period, as compared to approximately $50.9 million to fund development costs during the six months ended June 30, 2013. Pursuant to the development agreements for the nine properties under development as

of June 30, 2014, we had commitments to fund approximately $197 million in additional development and other costs. We expect to fund the remaining development costs primarily from construction loans on each property, and to a lesser extent, from additional equity contributions from noncontrolling interests and cash on hand.

We expect to continue acquiring multifamily development properties during the remainder of 2014 to the extent of our uncommitted net proceeds from our Follow-On Offering and to the extent we can obtain favorable debt financing. In addition, we may consider the acquisition of the interests of our joint venture partners based on factors such as, but not limited to, local market conditions, availability of funds, and/or the administrative efficiencies gained by streamlining operations of the properties that have achieved their development goals and are stabilized.

Debt Service

As described in Note 7. “Indebtedness” in the accompanying condensed consolidated financial statements, during the six months ended June 30, 2014, we repaid approximately $36.4 million of outstanding loans, including approximately $22.3 million related to refinancing Whitehall Joint Venture’s original construction loan, $4.9 million related to Oxford Square Joint Venture’s temporary loan pending it obtaining a construction loan, and approximately $8.0 million related to Gwinnett Center as the result of the sale of the property.

During the six months ended June 30, 2013, we used approximately $21 million in refinancing proceeds from a new $28.5 million loan to repay the outstanding balance of the original development and construction loan related to our Long Point Property.

Stock Issuance and Offering Costs

Under the terms of our offerings, certain affiliates were entitled to receive selling commissions and a marketing support fee of up to 7% and 3%, respectively, of gross offering proceeds on shares sold. In addition, affiliates are entitled to reimbursement of actual expenses incurred in connection with our offerings, such as filing fees, legal, accounting, printing, and due diligence expense reimbursements, which are recorded as stock issuance and offering costs and deducted from stockholders’ equity. In accordance with our articles of incorporation, the total amount of selling commissions, marketing support fees, and other organizational and offering costs paid by us may not exceed 15% of the aggregate gross offering proceeds. Offering costs were generally funded by our Advisor and subsequently reimbursed by us subject to this limitation.

During the six months ended June 30, 2014 and 2013, we paid approximately $9.6 million and $4.0 million, respectively, in stock issuance and offering costs. As of June 30, 2014, the Advisor had incurred on our behalf approximately $3.3 million of additional costs in connection with our offerings exceeding the 15% limitation on expenses. Although our board of directors could determine to pursue an additional equity offering in the future and further determine that certain costs previously incurred benefit such future offering, generally, the costs incurred in excess of the 15% limitation remain the responsibility of our Advisor following the close of our Follow-On Offering.

Purchase of Noncontrolling Interests and Distributions to Noncontrolling Interests

During the six months ended June 30, 2014, we used $5.5 million of the excess proceeds received from the refinancing of the construction loan by the Whitehall Joint Venture to acquire our joint venture partner’s 5% interest in the Whitehall Joint Venture. As of June 30, 2014, we owned 100% of the interests in the Whitehall Joint Venture.

During each of the six months ended June 30, 2014 and 2013, our consolidated joint ventures paid distributions of approximately $0.4 million to our co-venture partners representing their pro rata share of positive operating cash flows and proceeds received in connection with debt refinancings in accordance with the terms of our joint venture agreements.

The following discussion and analysis should be read in conjunction with the accompanying condensed consolidated financial statements and the notes thereto.

RESULTS OF OPERATIONS

As of June 30, 2014, we owned interests in 14 Class A multifamily properties, five of which were operational and as to which development was substantially complete and nine of which were under development, including two which were partially operational.

The following table presents the number of completed apartment units, percent leased, as well as, revenues and property operating expenses for each of our properties with operations as of and during the quarters and six months ended June 30, 2014 and 2013:


	Start Date of Opera- tions	Comple- tion Date	Units Expected Upon Completion		Completed Apartment Units as of June 30,				% Leased⁽¹⁾ as of June 30,						Quarter Ended June 30,				Six Months Ended June 30,
					2014		2013		2014			2013			2014		2013		2014		2013
Revenues:
Long Point Property	Q2 2012	Q4 2012		258		258		258		99	%		99	%	$	1,204,414	$	1,101,277	$	2,320,730	$	2,174,926
Whitehall Property	Q4 2012	Q2 2013		298		298		298		97	%		82	%		1,000,199		523,149		1,936,914		688,265
Crescent Crosstown Property	Q2 2013	Q3 2013		344		344		132		89	%		23	%		1,011,085		14,006		1,775,100		15,406
Aura Castle Hills Property	Q3 2013	Q2 2014		316		316		—		75	%		—			631,413		—		940,753		—
Aura Grand Property	Q4 2013	Q2 2014		291		291		—		76	%		—			567,341		—		813,171		—
Crescent Alexander Village Property	Q2 2014	Est. Q3 2014		320		24		—		2	%		—			5,574		—		5,574		—
REALM Patterson Place Property	Q2 2014	Est. Q1 2015		322		22		—		11	%		—			826		—		826		—

Total						1,553		688							$	4,420,852	$	1,638,432	$	7,793,068	$	2,878,597

Property operating expenses:
Long Point Property															$	462,222	$	395,595	$	881,963	$	801,435
Whitehall Property																344,473		376,693		656,098		494,928
Crescent Crosstown Property																425,494		189,352		791,373		218,960
Aura Castle Hills Property																358,492		—		733,322		—
Aura Grand Property																293,463		—		678,187		—
Crescent Alexander Village Property⁽²⁾																52,349		—		171,380		—
REALM Patterson Place Property⁽²⁾																143,574		—		143,574		—
Crescent Cool Springs Property⁽²⁾																71,357		—		71,357		—
Crescent Gateway Property⁽²⁾																53,116		—		98,883		—
Other⁽²⁾																65,159		—		74,858		—

Total															$	2,269,699	$	961,640	$	4,300,995	$	1,515,323

FOOTNOTES:

⁽¹⁾	The percentage leased presented in the table above represents the number of units leased as of the end of the applicable period as a percentage of the total number of expected units of the property, whether or not currently available for lease.

⁽²⁾	Expenses incurred for these properties for the quarter and six months ended June 30, 2014 primarily relate to pre-leasing and marketing activities.

We had a total of 1,553 and 688 completed apartment units as of June 30, 2014 and 2013, respectively, and expect to have more than 4,200 units once all of our properties owned as of June 30, 2014 are fully developed.

Our results of operations for the respective periods presented reflect increases in most categories due to the growth of our multifamily portfolio. Management expects increases in revenues and operating expenses as our existing multifamily development properties become operational. We also owned the Gwinnett Center during each of the six month periods presented, which was sold in March 2014 and was classified as held for sale with the corresponding revenues and expenses treated as discontinued operations for the periods presented, as described below.

Comparison of the quarter and six months ended June 30, 2014 to the quarter and six months ended June 30, 2013

Analysis of Revenues and Expenses from Continuing Operations:

Revenues. Rental income from operating leases from continuing operations was approximately $4.4 million and $7.8 million for the quarter and six months ended June 30, 2014, respectively, as compared to $1.6 million and $2.9 million for the quarter and six months ended June 30, 2013, respectively. Rental income from continuing operations increased approximately $4.9 million over 2013 primarily due to (i) the Whitehall Property being fully operational and stabilized for the full period in 2014, as compared to being stabilized only a portion of the same period in 2013, (ii) the Crescent Crosstown Property being fully operational in 2014, and (iii) the Aura Castle Hills Property and Aura Grand Property being partially operational in 2014.

Additionally, rental income for the Long Point Property increased year over year primarily due to an 8% increase in average base rent per unit as compared to an average base rent per unit increase in the same market for comparable properties of 5%. While it was not fully operational for all periods presented, rental income for the Whitehall Property also increased year over year as a result of a 6% increase in average base rent per unit.

We expect additional increases in revenue as the Crescent Crosstown Property, Aura Castle Hills Property, Aura Grand Property, Crescent Alexander Village Property and REALM Patterson Place Property are leased up and future phases of our other properties currently under development become operational and reach stabilization.

Property Operating Expenses. Property operating expenses from continuing operations for the quarter and six months ended June 30, 2014 were $2.3 million and $4.3 million, respectively, as compared to $1.0 million and $1.5 million, respectively, for the comparable periods in 2013. Property operating expenses increased approximately $2.8 million as a result of the Whitehall Property and Crescent Crosstown Property being fully operational in 2014, and portions of the Aura Castle Hills, Aura Grand and Crescent Alexander Village properties being partially operational in 2014. Property operating expenses also increased in 2014 due to pre-leasing and marketing activities at our properties under development. Property operating expenses are expected to increase during the remainder of 2014 as additional units are completed and our properties become more fully operational, and as portions of our other properties under development become operational.

General and Administrative Expenses. General and administrative expenses from continuing operations for the quarter and six months ended June 30, 2014 were approximately $0.7 million and $1.6 million, respectively, as compared to $0.6 million and $1.1 million, respectively, for the comparable periods in 2013. General and administrative expenses were comprised primarily of reimbursable personnel expenses of affiliates of our Advisor, directors’ and officers’ insurance, accounting and legal fees, and board of directors’ fees. For the six months ended June 30, 2014 as compared to 2013, general and administrative expenses increased 37% primarily as a result of the additional legal, accounting and other professional services necessary to account and report on our growing portfolio of assets. However, as a percentage of revenues, our general and administrative expenses decreased from approximately 40% for the six months ended June 30, 2013 to approximately 20% for the six months ended June 30, 2014. Although we anticipate general and administrative expenses will increase as we acquire additional properties

and more properties become operational, due to the relatively fixed nature of the majority of these expenses we believe the increase will be relatively small in relation to the growth in our revenues and the ratio of general and administrative expenses to revenues will continue to decrease.

Asset Management Fees. We incurred approximately $0.5 million and $1.0 million in asset management fees from continuing operations payable to our Advisor during the quarter and six months ended June 30, 2014, respectively (of which approximately $0.2 million and $0.4 million, respectively, were capitalized as part of the cost of our properties that were under development), as compared to approximately $0.2 million and $0.4 million, respectively, for comparable periods in 2013 (of which approximately $0.1 million and $0.2 million, respectively, were capitalized).

We incur asset management fees at an annual rate of 1% of our “real estate asset value” as defined in the advisory agreement (which generally equals our acquisition and development capitalized costs and excludes pro rata portions attributable to our joint venture partners); therefore, asset management fees increased over 2013 as a result of the increase in our real estate assets under management subsequent to June 30, 2013. Asset management fees relating to development are capitalized as part of the cost of development. Accordingly, we expect increases in asset management fees in the future as our multifamily projects become fully developed and we invest in additional properties. However, we expect certain asset management fees incurred on properties under development to continue to be capitalized as part of the cost of the development until such time as the applicable property becomes operational.

Property Management Fees. We incurred approximately $0.2 million and $0.3 million in property management fees from continuing operations during the quarter and six months ended June 30, 2014, respectively, as compared to approximately $0.07 million and $0.1 million, respectively, for the comparable periods in 2013. Property management fees generally range from 2.25% to 3.50% of property revenues, subject to minimum monthly fees from third party property managers during initial lease-up periods. Property management fees increased during 2014 primarily as a result of increased property revenues. We expect additional increases in these fees during the remainder of 2014 and future periods as property revenues increase as more of our development properties become operational.

Acquisition Fees and Expenses. We incurred approximately $2.1 million in acquisition fees and expenses, including closing costs, during the six months ended June 30, 2014, as compared to $1.4 million during the six months ended June 30, 2103, of which substantially all were capitalized as part of the costs of our properties under development. Acquisition fees and expenses increased primarily as a result of three property acquisitions during the six months ended June 30, 2014 as compared to two acquisitions during the six months ended June 30, 2013. We expect to continue to incur acquisition fees and expenses, consisting primarily of investment services fees and other acquisition expenses, in the future as we purchase additional properties. However, we expect acquisition fees and expenses incurred on properties under development to continue to be capitalized as part of the cost of the development.

Depreciation. Depreciation expense from continuing operations for the quarter and six months ended June 30, 2014 was approximately $1.4 million and $2.7 million, respectively, as compared to approximately $0.6 million and $1.1 million, respectively, for the comparable periods in 2013. Depreciation expense increased primarily due to the Whitehall Property and Crescent Crosstown Property being fully operational in 2014, as compared to only partially operational for the same period in 2013, and the Aura Castle Hills Property and Aura Grand Property being partially operationally in 2014. We expect increases in depreciation for the remainder of 2014 as additional phases of the Crescent Alexander Village Property and REALM Patterson Place Property become fully operational and other development properties become operational.

Fair Value Adjustments and Other Income (Expense). During the quarter and six months ended June 30, 2014, we incurred an expense of approximately $0.07 million and $0.1 million, respectively, of fair value adjustments and other income (expense) from continuing operations primarily as a result of decreases in the fair value of our interest rate caps. This compares to income of approximately $0.05 million during each of the quarter and six months ended June 30, 2013 due to increases in the fair value of our interest rate caps. We expect the fair value of our interest rate caps to continue to decline unless there is an increase in the consensus expectation for interest rates during the capped period.

Interest Expense and Loan Cost Amortization, Net of Amounts Capitalized. During the quarter and six months ended June 30, 2014, we incurred approximately $1.4 million and $2.5 million, respectively, of interest expense and loan cost amortization from continuing operations relating to debt outstanding on our properties, $1.1 million and $2.0 million, respectively, of which was capitalized as development costs relating to our properties under development. This compares to approximately $0.5 million and $0.9 million of such expenses during the quarter and six months ended June 30, 2013, respectively, of which $0.4 million and $0.7 million, respectively, was capitalized as development costs.

Interest costs incurred during the quarter and six months ended June 30, 2014 increased primarily due to increased levels of indebtedness as a result of development and construction of our properties. We expect interest expense to continue to increase over the next 24 to 30 months as we continue to borrow under our construction loans to fund our existing development costs for our existing multifamily development properties. In addition, to the extent we acquire additional properties, we expect to fund such acquisitions and development projects with approximately 65% to 75% leverage. We expect to continue to capitalize interest expense and loan cost amortization incurred as costs relating to our development properties. As our development properties become operational, we expect that these expenses will be recognized in our consolidated statement of operations, as opposed to capitalized.

As of June 30, 2014, all of our loans were variable rate and although we had interest rate caps relating to several of our loans as of such date, any increases to LIBOR rates will result in increased interest expense for us. See Item 3. “Quantitative and Qualitative Disclosures About Market Risk” for an estimate of how a 1% change in LIBOR would impact our annual interest expense incurred.

Analysis of Discontinued Operations:

During the quarter ended June 30, 2013, we established our intent to sell Gwinnett Center and, in March 2014 we sold the property to an unrelated party and received net sales proceeds of approximately $15.0 million, resulting in a gain on sale of approximately $1.2 million for financial reporting purposes. We had income from discontinued operations of approximately $1.3 million for the six months ended June 30, 2014, as compared to a loss from discontinued operations of $0.1 million for the six months ended June 30, 2013. The improvement in the results from discontinued operations from the Gwinnett Center was primarily the result of (i) amounts for 2014 including a gain on sale of approximately $1.2 million and (ii) our discontinuing the recognition of depreciation and amortization expense beginning in the second quarter of 2013 upon the determination of recording this property as real estate held for sale. See Note 6. “Real Estate Held for Sale” in the accompanying condensed consolidated financial statements for additional information on the income (loss) from discontinued operations for Gwinnett Center, including the revenues and expenses related to this property.

We are not aware of any material trends or uncertainties, favorable or unfavorable, that may be reasonably anticipated to have a material impact on either capital resources or the revenues or income to be derived from the acquisition and operation of properties, loans and other permitted investments, other than those described above, risk factors, if any, identified in Part II, Item 1A of this report and the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2013.

FUNDS FROM OPERATIONS AND MODIFIED FUNDS FROM OPERATIONS

Due to certain unique operating characteristics of real estate companies, as discussed below, the National Association of Real Estate Investment Trusts (“NAREIT”) promulgated a measure known as funds from operations, which we believe to be an appropriate supplemental measure to reflect the operating performance of a real estate investment trust, or REIT. The use of funds from operations (“FFO”) is recommended by the REIT industry as a supplemental performance measure. FFO is not equivalent to net income or loss as determined under GAAP.

We define FFO, a non-GAAP measure, consistent with the standards established by the White Paper on FFO approved by the Board of Governors of NAREIT, as revised in February 2004 (“White Paper”). The White Paper defines FFO as net income or loss computed in accordance with GAAP, excluding gains or losses from sales of property, real estate asset impairment write-downs, depreciation and amortization on real estate assets, and after adjustments for unconsolidated partnerships and joint ventures. Our FFO calculation complies with NAREIT’s policy described above.

We may, in the future, make other adjustments to net loss in arriving at FFO as identified above at the time that any such other adjustments become applicable to our results of operations. FFO, for example, may exclude impairment charges of real estate-related investments. Because GAAP impairments represent non-cash charges that are not allowed to be reversed if the underlying fair values improve or because the timing of impairment charges may lag the onset of certain operating consequences, we believe FFO provides useful supplemental information related to current consequences, benefits and sustainability related to rental rates, occupancy and other core operating fundamentals. Investors should note, however, that determinations of whether impairment charges have been incurred are based partly on anticipated operating performance. While impairment charges may be excluded from the calculation of FFO as described above, investors are cautioned that due to the fact that impairments are recorded based on estimated future undiscounted cash flows and the relatively limited term of our operations, it could be difficult to recover any impairment charges. In addition, FFO is not a useful measure in evaluating net asset value because impairments are taken into account in determining net asset value but not in determining FFO.

Notwithstanding the widespread reporting of FFO, changes in accounting and reporting rules under GAAP that were adopted after NAREIT’s definition of FFO have prompted a significant increase in the magnitude of non-operating items included in FFO. For example, acquisition fees and expenses, which we intend to fund from the proceeds of our offerings and which we do not view as an operating expense of a property, are now deducted as expenses in the determination of GAAP net income for non-development projects. As a result, the Investment Program Association (“IPA”), an industry trade group, has standardized a measure known as modified FFO (“MFFO”), which the IPA has recommended as a supplemental measure for publicly registered, non-traded REITs and which we believe to be another additional supplemental measure to reflect the operating performance of a non-traded REIT. Under the IPA Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITS: MFFO, issued in November 2010 (the “IPA Guideline”), MFFO excludes from FFO additional non-cash or non-recurring items, including the following:

•

acquisition fees and expenses from business combinations that are not capitalized as part of the cost of the development property, which have been deducted as expenses in the determination of GAAP net income;

•

non-cash amounts related to straight-line rent;

•

amortization of above or below market intangible lease assets and liabilities;

•

accretion of discounts and amortization of premiums on debt investments;

•

impairments of loans receivable, and equity and debt investments;

•

realized gains or losses from the early extinguishment of debt;

•

realized gains or losses on the extinguishment or sales of hedges, foreign exchange, securities and other derivatives holdings except where the trading of such instruments is a fundamental attribute of our operations;

•

unrealized gains or losses related to fair value adjustments for derivatives for which we did not elect or qualify for hedge accounting, including interest rate and foreign exchange derivatives;

•

unrealized gains or losses related to consolidation from, or deconsolidation to, equity accounting;

•

adjustments related to contingent purchase price obligations where such adjustments have been included in the derivation of GAAP net income; and

•

adjustments related to the above items for unconsolidated entities in the application of equity accounting.

We consider MFFO as a supplemental measure when assessing our operating performance. We have calculated MFFO in accordance with the IPA Guideline. For the three months ended March 31, 2014 and 2013, our MFFO represents FFO, excluding acquisition fees and expenses, the amortization of above- and below-market leases, straight-line rent adjustments, loss on write-off of lease related costs, loss on early extinguishment of debt and unrealized gains or losses related to fair value adjustments for derivatives, which we believe is helpful in evaluating our results of operations for the reasons discussed below.

•

Acquisition fees and expenses. In evaluating investments in real estate, management’s investment models and analyses differentiate between costs to acquire the investment and the operating results derived from the investment. Acquisition fees and expenses have been and are expected to continue to be funded from the proceeds of our offerings and other financing sources and not from operations. We believe by excluding acquisition fees and expenses from business combinations that are not capitalized as part of the cost of the development properties and have been expensed for GAAP purposes, MFFO provides useful supplemental information that is comparable between differing reporting periods for our real estate investments and is more indicative of future operating results from our investments as consistent with management’s analysis of the investing and operating performance of our properties. If earnings from the operations of our properties or net sales proceeds from the future disposition of our properties are not sufficient enough to overcome the acquisition costs and fees incurred, then such fees and expenses will have a dilutive impact on our returns.

•

Amortization of above- and below-market leases. Under GAAP, certain intangibles are assumed to diminish predictably in value over time and are amortized, similar to depreciation and amortization of other real estate-related assets that are excluded from FFO. However, because real estate values and market lease rates historically rise or fall with market conditions, we believe that by excluding charges relating to amortization of these intangibles, MFFO provides useful supplemental information on the performance of the real estate.

•

Straight-line rent adjustments. Under GAAP, rental receipts are allocated to periods using various methodologies. This may result in income recognition that is significantly different than underlying contract terms. By adjusting for these items (to restate such payments from a GAAP accrual basis to a cash basis), MFFO provides useful supplemental information on the realized economic impact of lease terms, providing insight on the contractual cash flows of such lease terms, and aligns results with management’s analysis of operating performance.

•

Loss on early extinguishment of debt. These losses are non-cash adjustments related primarily to the accelerated write off of unamortized loan costs in conjunction with early repayment on a loan or related to a refinancing. We believe adding back non-cash losses from the acceleration of amortization of loan costs should resemble the add-back for normal amortization during the period.

•

Unrealized gains or losses related to fair value adjustments for derivatives. These unrealized gains or losses relate to fair value adjustments for derivatives for which we did not elect or qualify for hedge accounting, including interest rate caps. We believe excluding non-cash unrealized gains or losses related to changes in fair values of our interest rate caps, for which we did not elect hedge accounting, should be excluded.

We may, in the future, make other adjustments to FFO as identified above at the time that any such other adjustments become applicable to our results of operations. MFFO, for example would exclude adjustments related to contingent purchase price obligations. We believe MFFO provides useful supplemental information related to current consequences, benefits and sustainability related to rental rates, occupancy and other core operating fundamentals.

We believe that MFFO is helpful in assisting management to assess the sustainability of our distribution and operating performance in future periods, particularly after our offering and acquisition stages are complete, because MFFO excludes acquisition fees and expenses that have been expensed for GAAP purposes that affect property operations only in the period in which a property is acquired; however, MFFO should only be used by investors to assess the sustainability of our operating performance after our offering stage has been completed and properties have been acquired. Acquisition fees and expenses that have been expensed for GAAP purposes have a negative effect on our cash flows from operating activities during the periods in which properties are acquired.

Presentation of MFFO also is intended to provide useful information to investors as they compare the operating performance of different non-traded REITs, although it should be noted that not all REITs calculate MFFO the same

way, so comparisons with other REITs may not be meaningful. Neither the U.S. Securities and Exchange Commission (the “Commission”), NAREIT nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate MFFO. Furthermore, FFO and MFFO are not necessarily indicative of cash flows available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs including our ability to make cash distributions, if any, to our stockholders. FFO and MFFO should not be construed as historic performance measures or as more relevant or accurate than the current GAAP methodology in calculating net income (loss) and its applicability in evaluating our operating performance.

The following table presents a reconciliation of net loss attributable to common stockholders to FFO and MFFO for the quarters and six months ended:


	Quarter Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Net income (loss) attributable to common stockholders	$	(655,509	)	$	(757,662	)	$	(558,778	)	$	(1,413,456	)
Adjustments:
Gain on sale of property:
Discontinued operations		—			—			(1,219,693	)		—
Depreciation and amortization:
Continuing operations		1,156,157			576,899			2,181,977			1,013,686
Discontinued operations		—			90,355			—			357,890

FFO attributable to common stockholders		500,648			(90,408	)		403,506			(41,880	)
Acquisition fees and expenses⁽¹⁾:
Continuing operations		(16,177	)		4,492			28,892			19,088
Amortization of above- and below- market lease intangible assets⁽²⁾:
Discontinued operations		—			4,496			—			17,983
Straight-line rent adjustments⁽³⁾:
Continuing operations		(93,878	)		(4,039	)		(56,745	)		(31,577	)
Discontinued operations		—			(35,982	)		—			(117,143	)
Loss on extinguishment of debt⁽⁴⁾:
Continuing operations		56,739			65,812			56,739			65,812
Discontinued operations		—			—			32,787			—
Unrealized loss (gain) related to changes in fair value of derivatives⁽⁵⁾:
Continuing operations		117,058			(47,158	)		171,824			(47,158	)

MFFO attributable to common stockholders	$	564,390		$	(102,787	)	$	637,003		$	(134,875	)

Weighted average number of shares of common stock outstanding (basic and diluted)		21,851,089			11,672,523			19,736,290			11,202,678

Net loss per share (basic and diluted)	$	(0.03	)	$	(0.06	)	$	(0.03	)	$	(0.13	)

FFO per share (basic and diluted)	$	0.02		$	(0.01	)	$	0.02		$	(0.00	)

MFFO per share (basic and diluted)	$	0.03		$	(0.01	)	$	0.03		$	(0.01	)

FOOTNOTES:

⁽¹⁾

In evaluating investments in real estate, management differentiates the costs to acquire the investment from the operations derived from the investment. Such information would be comparable only for non-traded REITs that have completed their acquisition activity and have other similar operating characteristics. By excluding expensed acquisition costs from business combinations that are not capitalized as part of the cost of the development properties and are expensed for GAAP purposes, management believes MFFO provides useful supplemental information that is

comparable for real estate investments and is consistent with management’s analysis of the investing and operating performance of our properties. These acquisition fees and expenses include payments to our Advisor or third parties. Acquisition fees and expenses under GAAP are considered operating expenses and as expenses included in the determination of net income and income from continuing operations, both of which are performance measures under GAAP. Acquisition fees and expenses will have negative effects on returns to investors, the potential for future cash distributions, if any, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to the property.

⁽²⁾

Under GAAP, certain intangibles are accounted for at cost and reviewed at least annually for impairment, and certain intangibles are assumed to diminish predictably in value over time and are amortized, similar to depreciation and amortization of other real estate-related assets that are excluded from FFO. However, because real estate values and market lease rates historically rise or fall with market conditions, management believes that by excluding charges relating to amortization of these intangibles, MFFO provides useful supplemental information on the performance of the real estate.

⁽³⁾

Under GAAP, rental receipts are allocated to periods using various methodologies. This may result in income recognition that is significantly different than underlying contract terms. By adjusting for these items (to restate such payments from a GAAP accrual basis to a cash basis), MFFO provides useful supplemental information on the realized economic impact of lease terms, providing insight on the contractual cash flows of such lease terms, and aligns results with management’s analysis of operating performance.

⁽⁴⁾

Management believes that adjusting for the realized loss on the early extinguishment of debt is appropriate because the write-off of unamortized loan costs are non-cash adjustments that are not reflective of our ongoing operating performance and aligns results with management’s analysis of operating performance.

⁽⁵⁾

These items relate to fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions and specific performance of the holding, because these items may not be directly attributable to our current operating performance. As these gains or losses relate to underlying long-term assets and liabilities, where we are not speculating or trading assets, management believes MFFO provides useful supplemental information by focusing on the changes in our core operating fundamentals rather than changes that may reflect anticipated gains or losses.

RELATED PARTY ARRANGEMENTS

We have entered into agreements with our Advisor and its affiliates, whereby we agree to pay certain fees to, or reimburse certain expenses of, our Advisor or its affiliates for acquisition and advisory services, organization and offering costs, selling commissions, marketing support fees, asset and property management fees and reimbursement of operating costs. In addition, an executive officer of CNL serves on the board of directors of Crescent Communities, LLC, an affiliate of four joint venture partners for four of our multifamily development projects as of June 30, 2014. See Note 8, “Related Party Arrangements” in the accompanying condensed consolidated financial statements and “Item 13. Certain Relationships and Related Transactions, and Director Independence” in our Form 10-K for the year ended December 31, 2013 for a discussion of the various related party transactions, agreements and fees.

OFF BALANCE SHEET ARRANGEMENTS

As of June 30, 2014, we had no off balance sheet arrangements.

CONTRACTUAL OBLIGATIONS

As of June 30, 2014, we were subject to contractual payment obligations as described in the table below.


	Payments Due by Period
	2014		2015 - 2016		2017 - 2018		More than 5 years		Total
Development contracts on development properties ⁽¹⁾	$	82,841,239	$	136,802,404	$	—	$	—	$	219,643,643
Mortgage notes payable (principal and interest) ⁽²⁾		944,687		4,441,185		5,940,727		60,023,467		71,350,066
Construction notes payable (principal and interest) ⁽²⁾		1,681,026		124,578,241		1,022		—		126,260,289

	$	85,466,952	$	265,821,830	$	5,941,749	$	60,023,467	$	417,253,998

FOOTNOTES:

⁽¹⁾	The amounts presented above represent accrued development costs as of June 30, 2014 and development costs, including start-up costs, not yet incurred of the aggregate budgeted development costs in accordance with the development agreements, and the expected timing of such costs.

⁽²⁾

For purposes of this table, management has assumed the mortgage and construction notes payable are repaid as of the initial maturity dates and are not extended beyond such dates as allowed pursuant to the loan agreements. Additionally, management has calculated estimated interest payments based on interest rates of our mortgage and construction notes payables as of June 30, 2014.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

See Item 1. “Financial Statements” and our Annual Report on Form 10-K for the year ended December 31, 2013 for a summary of our Critical Accounting Policies and Estimates.

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

See Item 1. “Financial Statements” for a summary of the impact of recent accounting pronouncements.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

We may be exposed to interest rate changes primarily as a result of long-term debt used to acquire and develop properties and to make loans and other permitted investments, if any. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve our objectives, we expect to borrow primarily at fixed rates or variable rates with the lowest margins available, and in some cases, with the ability to convert variable rates to fixed rates. With regard to variable rate financing, we will assess interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities.

The following is a schedule of our variable rate debt maturities for each of the next five years, and thereafter, assuming the terms of the loans are not extended (principal maturities only):


	2014			2015			2016			2017			2018			Thereafter			Total			Approximate Fair Value
Variable rate debt	$	236,995		$	82,816,115		$	39,371,894		$	931,586		$	907,994		$	53,398,991		$	177,663,575		$	179,000,000

Average interest rate⁽¹⁾		2.49	%		2.74	%		2.87	%		2.48	%		2.48	%		2.48	%		2.69	%

FOOTNOTE

⁽¹⁾	As of June 30, 2014, we were paying the interest rate floor on certain of our variable rate debts.

Management estimates that a hypothetical one-percentage point increase in LIBOR compared to the LIBOR rate as of June 30, 2014, would increase interest expense by approximately $0.4 million and $0.8 million on our variable rate debt for the quarter and six months ended June 30, 2014, respectively. This sensitivity analysis contains certain simplifying assumptions, and although it gives an indication of our exposure to changes in interest rates, it is not intended to predict future results and our actual results will likely vary given that our sensitivity analysis on the effects of changes in LIBOR does not factor in a potential change in variable rate debt levels or any offsetting gains on interest rate cap contracts.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, our management, including our principal executive officer and principal financial officer, concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

During the most recent fiscal quarter, there was no change in our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings – None.

Item 1A.

Risk Factors – None.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

During the period covered by this Quarterly Report, we did not sell any equity securities that were not registered under the Securities Act of 1933.

Use of Proceeds from Registered Securities

As of December 31, 2013, all offering proceeds from our Initial Offering had been deployed.

Redemption of Shares and Issuer Purchases of Equity Securities

Pursuant to our stock redemption plan, any stockholder who has held shares for not less than one year may present all or any portion equal to at least 25% of their shares to us for redemption. Subject to certain restrictions, we may redeem shares, including fractional shares, from time to time, at an amount equal to our then current estimated net asset value per share, as published from time to time in our Annual Report on Form 10-K, Quarterly Report on Form 10-Q and/or Current Report on Form 8-K filed with the Commission. The price for the repurchase of shares shall not exceed an amount (the “Redemption Cap”) equal to the lesser of (i) the then current public offering price for our shares (other than the price at which shares are sold under our distribution reinvestment plan) during the period of any on-going public offering; and (ii) the purchase price paid per share by the stockholder.

Under the redemption plan, we can, at our discretion, use proceeds, if any, from our distribution reinvestment plan, and up to $100,000 per calendar quarter of the proceeds from any public offering of our common stock for redemptions. However, at no time during a 12-month period may we redeem more than 5% of the weighted average number of our outstanding common stock during such 12-month period.

For the quarter ended June 30, 2014, we redeemed the following shares with proceeds from our Follow-On Offering as provided by the stock redemption plan:


Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publically Announced Plan		Maximum Number of Shares That May Yet be Purchased Under the Plan ⁽¹⁾
April 1, 2014 through April 30, 2014		—		—		—		—	⁽¹⁾
Mary 1, 2014 through May 31, 2014		—		—		—		—	⁽¹⁾
June 1, 2014 through June 30, 2014		27,516	$	9.89		27,516		—	⁽¹⁾

Total		27,516				27,516

FOOTNOTE:

(1)

During the quarter ended June 30, 2014, we had funds available to redeem approximately 0.02 million shares pursuant to our redemption plan, and we redeemed such shares by June 30, 2014. As of June 30, 2014, we had outstanding redemption requests for an additional 0.02 million shares relating to our shares of common stock which we currently do not plan to redeem, as they exceed the funds set aside to do so under the redemption plan.

Item 3.

Defaults Upon Senior Securities - None

Item 4.

Mine Safety Disclosures - Not applicable

Item 5.

Other Information - None

Item 6.

Exhibits

The exhibits required by this item are set forth in the Exhibit Index attached hereto and are filed or incorporated as part of this report.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, on the 6th day of August, 2014.


CNL GROWTH PROPERTIES, INC.

By:		/s/ Andrew A. Hyltin
		ANDREW A. HYLTIN
		Chief Executive Officer and President
		(Principal Executive Officer)

By:		/s/ Rosemary Q. Mills
		ROSEMARY Q. MILLS
		Chief Financial Officer
		(Principal Financial Officer)

EXHIBIT INDEX

The following documents are filed or incorporated as part of this report.


31.1		Certification of Chief Executive Officer of CNL Growth Properties, Inc., Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)

31.2		Certification of Chief Financial Officer of CNL Growth Properties, Inc., Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)

32.1		Certification of Chief Executive Officer and Chief Financial Officer of CNL Growth Properties, Inc., Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)

101		The following materials from CNL Growth Properties, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013, (ii) Condensed Consolidated Statements of Operations for the quarters and six months ended June 30, 2014 and 2013, (iii) Condensed Consolidated Statements of Equity for the six months ended June 30, 2014 and the year ended December 31, 2013, (iv) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013, and (v) Notes to the Condensed Consolidated Financial Statements.

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