CNL Growth Properties, Inc. - FORM 10-Q

CNL Growth Properties, Inc. - FORM 10-Q - May 9, 2016

Attached files

Attached files

CNL Growth Properties, Inc. Reports

file	filename
EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER - CNL Growth Properties, Inc.	d159822dex321.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - CNL Growth Properties, Inc.	d159822dex311.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - CNL Growth Properties, Inc.	d159822dex312.htm

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 March 31, 2016

¨	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 April 29, 2016 was 22,526,171.

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		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		25
Item 4.	Controls and Procedures		25
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		26
Item 1A.	Risk Factors		26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		26
Item 3.	Defaults Upon Senior Securities		26
Item 4.	Mine Safety Disclosures		26
Item 5.	Other Information		26
Item 6.	Exhibits		26
Signatures			27
Exhibits			28

Item 1. Financial Statements

CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	March 31, 2016			December 31, 2015
ASSETS
Real estate assets, net:
Operating real estate assets, net (including VIEs $207,511,336 and $170,258,129, respectively)	$	213,714,473		$	175,359,303
Construction in process, including land (including VIEs $100,956,374 and $114,367,104, respectively)		105,003,842			119,031,154

Total real estate assets, net		318,718,315			294,390,457
Real estate held for sale (including VIEs $95,681,506 and $96,073,012, respectively)		123,579,256			124,092,989
Cash and cash equivalents (including VIEs $8,619,830 and $8,086,954, respectively)		19,565,299			19,016,194
Restricted cash (including VIEs $635,654 and $1,058,010, respectively)		1,060,973			1,369,515
Other assets (including VIEs $874,964 and $1,165,593, respectively)		1,275,149			1,613,635

Total Assets	$	464,198,992		$	440,482,790

LIABILITIES AND EQUITY
Liabilities:
Mortgage and construction notes payable (including VIEs $264,894,436 and $239,298,457, respectively)	$	292,646,650		$	267,025,839
Accrued development costs (including VIEs $18,573,164 and $18,265,802, respectively)		18,573,164			18,265,802
Due to related parties		1,671,793			1,650,788
Accounts payable and other accrued expenses (including VIEs $4,265,103 and $4,436,485, respectively)		4,942,328			4,973,131
Other liabilities (including VIEs $637,766 and $594,221, respectively)		734,247			678,702

Total Liabilities		318,568,182			292,594,262

Commitments and contingencies (Note 8)
Equity:
Stockholders’ equity:
Preferred stock, $0.01 par value per share, authorized and unissued 200,000,000 shares		—			—
Common stock, $0.01 par value per share, 1,120,000,000 shares authorized; 22,702,363 issued and 22,526,171 outstanding		225,262			225,262
Capital in excess of par value		170,792,081			170,792,081
Accumulated earnings		17,290,706			18,895,225
Accumulated cash distributions		(67,578,518	)		(67,578,518	)

Total Stockholders’ Equity		120,729,531			122,334,050
Noncontrolling interests		24,901,279			25,554,478

Total Equity		145,630,810			147,888,528

Total Liabilities and Equity	$	464,198,992		$	440,482,790

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)


	Three Months Ended March 31,
	2016			2015
Revenues:
Rental income from operating leases	$	8,064,713		$	5,917,708
Other property revenues		623,362			470,667

Total revenues		8,688,075			6,388,375

Expenses:
Property operating expenses		4,395,400			3,437,407
General and administrative		1,214,343			1,130,526
Asset management fees, net of amounts capitalized		654,145			490,071
Property management fees		413,828			270,596
Acquisition fees and expenses, net of amounts capitalized		—			6,887
Depreciation		2,054,519			2,657,662

Total expenses		8,732,235			7,993,149

Operating loss		(44,160	)		(1,604,774	)

Other (expense) income:
Fair value adjustments and other (expense) income		(10,741	)		10,200
Interest expense and loan cost amortization, net of amounts capitalized		(1,567,019	)		(1,018,904	)

Total other expense		(1,577,760	)		(1,008,704	)

Income tax expenses		(116,654	)		(32,249	)

Loss from continuing operations		(1,738,574	)		(2,645,727	)
Income from discontinued operations, net of tax (including gain on sale of property of $0 and $27,414,197, respectively)		—			26,065,668

Net (loss) income including noncontrolling interests		(1,738,574	)		23,419,941
Net loss (income) attributable to noncontrolling interest:
Continuing operations		134,055			357,450
Discontinued operations		—			(13,459,486	)

Net loss (income) attributable to noncontrolling interests		134,055			(13,102,036	)

Net (loss) income attributable to common stockholders	$	(1,604,519	)	$	10,317,905

Net (loss) income per share of common stock (basic and diluted):
Continuing operations	$	(0.07	)	$	(0.10	)
Discontinued operations		—			0.56

Net (loss) income per share of common stock (basic and diluted)	$	(0.07	)	$	0.46

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

See accompanying notes to condensed consolidated financial statements.

CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

For the Three Months Ended March 31, 2016 and 2015 (Unaudited)


	Common Stock				Capital in		Accumulated			Accumulated			Total
	Number of Shares		Par Value		Excess of Par Value		Earnings (Deficit)			Cash Distributions			Stockholders’ Equity			Noncontrolling Interests			Total Equity
Balance at December 31, 2014		22,526,171	$	225,262	$	170,792,081	$	(12,007,405	)	$	—		$	159,009,938		$	34,900,995		$	193,910,933
Cash distributions declared and paid ($1.30 per share)		—		—		—		—			(29,284,024	)		(29,284,024	)		—			(29,284,024	)
Contributions from noncontrolling interests		—		—		—		—			—			—			143,922			143,922
Distributions to noncontrolling interests		—		—		—		—			—			—			(15,444,092	)		(15,444,092	)
Net income		—		—		—		10,317,905			—			10,317,905			13,102,036			23,419,941

Balance at March 31, 2015		22,526,171	$	225,262	$	170,792,081	$	(1,689,500	)	$	(29,284,024	)	$	140,043,819		$	32,702,861		$	172,746,680

Balance at December 31, 2015		22,526,171	$	225,262	$	170,792,081	$	18,895,225		$	(67,578,518	)	$	122,334,050		$	25,554,478		$	147,888,528
Distributions to noncontrolling interests		—		—		—		—			—			—			(519,144	)		(519,144	)
Net loss		—		—		—		(1,604,519	)		—			(1,604,519	)		(134,055	)		(1,738,574	)

Balance at March 31, 2016		22,526,171	$	225,262	$	170,792,081	$	17,290,706		$	(67,578,518	)	$	120,729,531		$	24,901,279		$	145,630,810

See accompanying notes to condensed consolidated financial statements.

CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended March 31,
	2016			2015
Operating Activities:
Net (loss) income, including amounts attributable to noncontrolling interests	$	(1,738,574	)	$	23,419,941
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		2,054,519			2,657,662
Amortization of loan costs		163,859			113,535
Loss on extinguishment of debt		—			818,404
Prepayment penalties on loans		—			(282,485	)
Loss on retirement of fixed assets		1,005			—
Gain on sale of real estate held for sale		—			(27,414,197	)
Unrealized loss from change in fair value of interest rate caps		18,785			21,149
Straight-line rent adjustments		(34,775	)		(143,598	)
Changes in operating assets and liabilities:
Other assets		354,476			(139,154	)
Due to related parties		21,005			123,362
Accounts payable and other accrued expenses		(28,843	)		925,981
Other liabilities		55,547			83,602

Net cash provided by operating activities		867,004			184,202

Investing Activities:
Development property costs, including land and capital expenditures		(25,412,395	)		(35,628,361	)
Capital expenditures		(21,447	)		—
Proceeds from sale of property		—			54,434,756
Changes in restricted cash		308,542			(192,856	)

Net cash (used in) provided by investing activities		(25,125,300	)		18,613,539

Financing Activities:
Cash distributions paid on common stock		—			(29,284,024	)
Proceeds from mortgage and construction notes payable		25,326,545			37,005,373
Payments of mortgage and construction notes payable		—			(28,263,006	)
Payment of loan costs		—			(75,001	)
Return of capital to noncontrolling interest		—			(357,300	)
Contributions from noncontrolling interests		—			143,922
Distributions to noncontrolling interests		(519,144	)		(15,086,792	)

Net cash provided by (used in) financing activities		24,807,401			(35,916,828	)

Net Increase (Decrease) in Cash and Cash Equivalents		549,105			(17,119,087	)
Cash and Cash Equivalents at Beginning of Period		19,016,194			47,691,457

Cash and Cash Equivalents at End of Period	$	19,565,299		$	30,572,370

Supplemental Disclosure of Non-Cash Investing and Financing Transactions:
Amounts incurred but not paid:
Development costs	$	18,573,164		$	17,486,708

Loan cost amortization capitalized on development properties	$	130,407		$	224,841

See accompanying notes to condensed consolidated financial statements.

CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED MARCH 31, 2016

(UNAUDITED)

1.	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 an affiliate of CNL Financial Group, LLC, the Company’s sponsor (“CNL” or the “Sponsor”). The Advisor is responsible for managing the Company’s affairs on a day-to-day basis and for identifying and making acquisitions and investments 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.

From October 20, 2009 through April 11, 2014, the Company received aggregate offering proceeds of approximately $208.3 million from its initial and follow-on offering (the “Offerings”). Having taken into consideration the closing of the Company’s Offerings, completion of the acquisition phase in April 2015, and the estimated time needed to complete the development phase and achieve substantial stabilization of the Company’s assets, the Company and its Advisor have begun to explore strategic alternatives available for future stockholder liquidity. During 2015, the Company’s board of directors appointed a special committee comprised of the Company’s independent directors (the “Special Committee”) to oversee the process of exploring strategic alternatives for future stockholder liquidity and engaged CBRE Capital Advisors, Inc. (“CBRE Cap”) to act as exclusive financial advisor to the Company to assist the Company and the Special Committee with this process. During 2015, the Company sold four properties and declared special cash distributions funded partially from the net sales proceeds received from the sale of these properties. As of March 31, 2016, the Company agreed to sell four additional properties as part of the continued focus of exploring strategic alternatives, as described in Note 4. “Real Estate Held for Sale.”

As of March 31, 2016, the Company owned interests in 13 Class A multifamily properties, nine of which were operational and as to which development was substantially complete and four of which were under development, including two of which were partially operational. The Company had a total of 1,614 completed apartment units as of March 31, 2016 (excluding 1,227 units held for sale) and expects to have approximately 2,500 units once construction is completed on its properties under development.

Twelve of the Company’s multifamily properties are owned through joint ventures in which it has co-invested with an affiliate of a national or regional multifamily developer (including three properties held for sale). The Company also wholly owns one property, which is classified as held for sale.

CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED MARCH 31, 2016

(UNAUDITED)

2.	Summary of Significant Accounting Policies

Basis of Presentation – The accompanying condensed unaudited 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 three months ended March 31, 2016 may not be indicative of the results expected for the year ending December 31, 2016. Amounts as of December 31, 2015 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, 2015, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

Consolidation and Variable Interest Entities – The accompanying 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.

Real Estate Held For Sale – The Company presents the assets of any properties which have been sold, or otherwise qualify as held for sale, separately in the consolidated balance sheets. In addition, the results of operations for those assets that meet the definition of discontinued operations are presented as such in the Company’s consolidated statements of operations. Held for sale and discontinued operations classifications are provided in both the current and prior periods presented. Real estate assets held for sale are measured at the lower of the carrying amount or the fair value less costs to sell. Subsequent to classification of an asset as held for sale, no further depreciation relating to the asset are recorded. The Company classifies assets held for sale as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on the Company’s operations and financial results. For those assets qualifying for classification as discontinued operations, the specific components of net income (loss) are presented as discontinued operations include operating income (loss) and interest expense directly attributable to the property held for sale, net. In addition, the net gain or loss (including any impairment loss) on the eventual disposal of assets held for sale that qualify as discontinued operations will be presented as discontinued operations when recognized.

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

CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED MARCH 31, 2016

(UNAUDITED)

2.	Summary of Significant Accounting Policies (continued)

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 analysis of real estate impairments. Actual results could differ from those estimates.

Reclassifications — Certain amounts in the prior year’s condensed consolidated financial statements have been reclassified to conform to current year presentation with no effect on previously reported net loss or equity. See Note 4. “Real Estate Held for Sale” for additional information.

Income Taxes – The Company has elected and qualified as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, and related regulations beginning with the year ended December 31, 2010. As a REIT, the Company generally is subject to federal corporate income taxes and may be subject to excise tax on undistributed taxable income. The Company and its subsidiaries may be subject to certain state and local taxes on is income and property.

Adopted Accounting Pronouncements – In February 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2015-02, “Amendments to the Consolidation Analysis,” which requires amendments to both the variable interest entity and voting models. The amendments (i) modify the identification of variable interests (fees paid to a decision maker or service provider), the VIE characteristics for a limited partnership or similar entity and primary beneficiary determination under the VIE model, and (ii) eliminate the presumption within the current voting model that a general partner controls a limited partnership or similar entity. The new guidance is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2015 with early adoption permitted. The amendments may be applied using either a modified retrospective or full retrospective approach. The Company adopted ASU 2015-02 on January 1, 2016. The adoption of this ASU did not result in any changes to conclusions about whether the Company’s twelve joint ventures were VIEs or whether the Company was the primary beneficiary for each of its joint ventures.

In April 2015, the FASB issued ASU 2015-03, “Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs,” which requires that loan costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts or premiums. The new guidance is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2015 with early adoption permitted. The ASU is to be applied retrospectively for each period presented. Upon adoption, an entity is required to comply with the applicable disclosures for a change in an accounting principle. The Company adopted ASU 2015-03 on January 1, 2016; the adoption of which impacted the Company’s presentation of its consolidated financial position but did not have a material impact on the Company’s consolidated results of operations or cash flows. Accordingly, the Company has retrospectively adjusted the presentation of loan costs for all periods presented. The following table provides additional details by financial statement line item of the adjusted presentation in the Company’s condensed consolidated balance sheet as of December 31, 2015:


	As Filed December 31, 2015		Adjustments			Adjusted December 31, 2015
Loan costs, net	$	2,183,777	$	(2,183,777	)	$	—
Mortgages and other notes payable, net	$	269,209,616	$	(2,183,777	)	$	267,025,839

CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED MARCH 31, 2016

(UNAUDITED)

3.	Real Estate Assets, net

As of March 31, 2016 and December 31, 2015, real estate assets consisted of the following:


	March 31, 2016			December 31, 2015
Operating real estate assets, net:
Land and land improvements	$	49,475,239		$	43,162,156
Buildings and improvements		155,171,341			117,650,493
Furniture, fixtures and equipment		14,549,679			18,506,603
Less: accumulated depreciation		(5,481,786	)		(3,959,949	)

Total operating real estate assets, net		213,714,473			175,359,303
Construction in process, including land		105,003,842			119,031,154

Total real estate, net	$	318,718,315		$	294,390,457

For the three months ended March 31, 2016 and 2015, depreciation expense on the Company’s real estate assets was approximately $2.1 million and $2.7 million, respectively.

4.	Real Estate Held for Sale

In 2012 and 2013, the Company acquired and began developing the Whitehall, Aura Castle Hills, Aura Grand and REALM Patterson Place properties. Construction of these Class A multifamily properties was completed between 2013 and 2014. In January and February 2016, the three joint ventures owning three of these properties each decided to pursue a potential sale of its respective property and the Company decided to pursue the sale of its wholly owned property, and as of such time, the Company classified the properties as held for sale.

As of March 31, 2016 and December 31, 2015, real estate held for sale consisted of the following:


	March 31, 2016			December 31, 2015
Land and land improvements	$	24,178,446		$	24,161,315
Buildings and improvements		101,121,049			101,121,049
Furniture, fixtures and equipment		8,721,661			8,722,188
Less: accumulated depreciation		(10,441,900	)		(9,911,563	)

Total real estate held for sale	$	123,579,256		$	124,092,989

The Company accounted for the revenues and expenses related to the four properties classified as held for sale as income from continuing operations because the disposition of these four properties on an individual basis would neither cause a strategic shift in the Company nor were they considered to have a major impact on the Company’s business. Therefore, they did not qualify as discontinued operations under ASU 2014-08, which became effective on January 1, 2015. However, the proposed dispositions of the four properties represent individually significant components. The Company recorded net income (loss) from continuing operations related to the four properties held for sale of approximately $0.9 million for the three months ended March 31, 2016, of which approximately $0.7 million is attributable to common stockholders.

CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED MARCH 31, 2016

(UNAUDITED)

4.	Real Estate Held for Sale (continued)

During 2014, prior to the effective date of ASU 2014-08, the Company entered into a contract to sell the Long Point Property. As a result, the financial statements reflect the reclassifications of rental income, interest expense and other categories relating to the Long Point Property from loss from continuing operations to income from discontinued operations for all periods presented. In January 2015, the Company sold the Long Point Property, received sales proceeds net of closing costs of approximately $54.4 million, resulting in a gain of approximately $27.4 million for financial reporting purposes, which were included in income from discontinued operations for the applicable three months ended March 31, 2015 in the accompanying condensed consolidated statements of operations.

There were no discontinued operations for the three months ended March 31, 2016. The following is a summary of income from discontinued operations for the three months ended March 31, 2015:


	2015
Revenues	$	190,068
Expenses		(184,920	)
Depreciation and amortization		—

Operating income		5,148

Fair value adjustments and other expense		1
Interest expense and loan cost amortization, net of amounts capitalized		(44,274	)
Loss on extinguishment of debt		(818,404	)
Gain on sale of property		27,414,197

Total other income		26,551,520

State income tax expense		(491,000	)

Income from discontinued operations	$	26,065,668

5.	Indebtedness

During the three months ended March 31, 2016, the Company borrowed approximately $25.3 million in connection with its multifamily development projects.

The Company, through joint ventures formed to make investments, generally has borrowed and expects to continue to borrow on a non-recourse basis to fund construction. The use of non-recourse financing allows the Company to limit its exposure on any investment to the amount invested. Non-recourse indebtedness means the indebtedness of the borrower or its subsidiaries is collateralized only by the assets to which such indebtedness relates, without recourse to the Company or any of its subsidiaries.

CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED MARCH 31, 2016

(UNAUDITED)

5.	Indebtedness (continued)

The estimated fair market value and carrying value (before loan costs) of the Company’s debt were approximately $294.9 million and $294.5 million, respectively, as of March 31, 2016. 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 March 31, 2016 because of the relatively short maturities of the obligations.

6.	Related Party Arrangements

During the three months ended March 31, 2016 and 2015, the Company incurred the following fees and reimbursable expenses due to related parties, the Advisor, its affiliates and other related parties:


	2016		2015
Reimbursable expenses:
Investor administrative service fees⁽¹⁾	$	33,750	$	33,750
Other operating and acquisition expenses⁽²⁾		245,693		249,619

		279,443		283,369

Investment Service Fee		21,919		—
Asset management fees⁽³⁾		849,566		771,912
Property management fees		16,388		13,234

	$	1,167,316	$	1,068,515

FOOTNOTES:

⁽¹⁾	Investor administrative service fees of $0.034 million are included in general and administrative expenses for each period presented.

⁽²⁾	All other operating and acquisition expenses are included in general and administrative expenses for the three months ended March 31, 2015.

⁽³⁾

For the three months ended March 31, 2016 and 2015, approximately $0.2 million, respectively, of the asset management fees incurred by the Company above were capitalized as part of the cost of development properties. Asset management fees, net of amounts capitalized, are included in asset management fees for the periods presented.

CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED MARCH 31, 2016

(UNAUDITED)

6.	Related Party Arrangements (continued)

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


	March 31, 2016		December 31, 2015
Due to Property Manager:
Property management fees	$	16,388	$	16,326

Due to the Advisor and its affiliates:
Reimbursable operating expenses		1,655,405		1,634,462

	$	1,671,793	$	1,650,788

Transactions with Other Related Parties – The Company’s chief executive officer and president serves on the board of directors of Crescent Communities, LLC (“Crescent”), a joint venture partner of the Company in one of its multifamily development projects (and three projects which were sold during the last half of 2015). 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. During the three months ended March 31, 2016 and 2015, approximately $0.04 million and $0.3 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.

7.	Stockholder’s Equity

Special Cash Distributions – In February 2015, the Company’s board of directors declared a special cash distribution of $29.3 million representing $1.30 per share of common stock (the “Special Distribution”). No special cash distributions were declared during the quarter ended March 31, 2016.

8.	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 multifamily development properties under construction as of March 31, 2016, the Company has committed to fund approximately $31.3 million in remaining development and other costs as of March 31, 2016. The remaining development costs are expected to be funded primarily by the 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 March 31, 2016 and December 31, 2015, and for the three months ended March 31, 2016 and 2015. Amounts as of December 31, 2015 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, 2015. 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 quarterly period ended March 31, 2016 (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 qualify for and 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

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

On October 20, 2009, we commenced our initial public offering which closed on April 7, 2013 and on August 19, 2013, we commenced a follow-on offering which terminated on April 11, 2014 (collectively, the “Offerings”). Through the close of our Offerings, we received aggregate offering proceeds of approximately $208.3 million.

We completed our acquisition phase and invested part of our uninvested available cash in one final multifamily development property during April 2015. We will continue to focus on completing the development of our properties, operations, and evaluating potential exit strategies for our stockholders.

Our Advisor and Property Manager

We are externally advised by CNL Global Growth Advisors, LLC (the “Advisor”) and our property manager is CNL Global Growth Managers, LLC (the “Property Manager”), each of which is an affiliate of CNL Financial Group, LLC, our sponsor (“CNL” or the “Sponsor”), a 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 (through the completion of our acquisition stage in April 2015) and dispositions on our behalf pursuant to an advisory agreement.

Substantially all of our acquisition (through the completion of our acquisition stage in April 2015), 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.

Exit Strategy

Due to the completion of our Offerings in April 2014, the completion of our acquisition phase in April 2015 and the estimated time needed to complete our development phase and have our assets substantially stabilize, our Advisor began to explore strategic alternatives in accordance with our investment objectives. In August 2015, our board of directors appointed a special committee comprised of our independent board members (the “Special Committee”) to oversee the process of exploring strategic alternatives for future stockholder liquidity, including opportunities to merge with another company, the listing of our common stock on a national securities exchange, our sale or the sale of all of our assets. In September 2015, we engaged CBRE Capital Advisors, Inc. (“CBRE Cap”) to act as our exclusive financial advisor and assist us and the Special Committee with this evaluation process. In the ordinary course of CBRE Cap’s business, CBRE Cap, its affiliates, directors and officers, may trade or otherwise structure and effect transactions in our shares or assets for its own account or for the accounts of its customers and accordingly, may at any time hold a long or short position, finance positions, or otherwise structure and effect transactions in our shares or assets. CBRE Cap is an affiliate of CBRE Group, Inc. (“CBRE”), the parent holding company of affiliated companies that are engaged in the ordinary course of business in many areas related to commercial real estate and related services. Through CBRE’s affiliates, CBRE may have in the past, and may from time to time in the future, perform one or more roles in our transactions. Refer to “Our Real Estate Portfolio” below for a discussion on properties sold during 2015 and properties identified for potential sale during 2016.

Although we have engaged CBRE Cap to assist us and our board of directors with the evaluation and execution of strategic alternatives, we are not obligated to enter into any particular transaction. Further, although we have begun the process of exploring strategic alternatives, there is no specific date by which we must have a liquidity event, and there is no assurance we will have a liquidity event in the near term or that, in the event of a transaction, that the process will result in stockholder liquidity, that we will be able to meet our investment objectives, or provide a return to stockholders that equals or exceeds the price per share stockholders paid for shares of our common stock.

Our Real Estate Portfolio

Our Advisor has and continues to evaluate opportunities in multifamily development and as part of this process, has and continues to evaluate provisions within the individual joint venture agreements to consider specific asset sales. As described above in “Our Exit Strategy”, during 2015, we formed a Special Committee and in September 2015, we engaged CBRE Cap to assist us with the process of evaluating strategic alternatives for future stockholder liquidity. During 2015, we, through our consolidated joint ventures, sold four real estate properties that were operational. In addition, as part of exploring strategic alternatives, in January and February 2016, we decided to pursue a potential sale of four properties, as further described below in “Liquidity and Capital Resources – Real Estate Held for Sale”.

As of March 31, 2016, we owned interests in 13 Class A multifamily properties in the southeastern and sunbelt regions of the United States, nine of which had substantially completed development and were operational. The remaining four properties were under development, including two of which were partially operational, with completion expected in phases by the fourth 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 1,614 completed apartment units as of March 31, 2016, (excluding 1,227 units relating to the four real estate held for sale properties) and expect to have more than 2,500 units once construction is completed on our remaining properties under development.

Our multifamily properties are typically owned through a joint venture in which we have co-invested with an affiliate of a national or regional multifamily developer. As of March 31, 2016, excluding the Whitehall Property that we wholly own, we had co-invested in 12 separate joint ventures with eight separate developers or affiliates thereof. Our joint ventures are structured such that we serve as the managing member and own a majority interest. Under the terms of the limited liability company agreements of each joint venture, operating cash flow is generally distributed to the members of the joint venture on a pro rata basis. Generally, in a capital event, such as a sale or refinancing of the joint venture’s property, net proceeds will be distributed pro rata to each member until each member’s invested capital is returned and a minimum return on capital is achieved, and thereafter our joint venture

partner will receive a disproportionately higher share of any proceeds at varying levels based on our having received certain minimum threshold returns. We have determined that all of the joint ventures in which we have co-invested as of March 31, 2016 are variable interest entities in which we are the primary beneficiary. As such, the transactions and accounts of the joint ventures are consolidated in our accompanying condensed financial statements.

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 gain. Therefore, as with other REITs, we must obtain debt and/or equity capital in order to fund our growth. Our primary sources of capital are proceeds from debt financings and refinancing, and to some extent, net sales proceeds from sales of properties.

Our ongoing principal demands for funds are expected to be for funding development costs, operating fees and expenses and the payment of debt service.

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. We have generated positive cash flows from operations since 2013 and generally expect to continue to do so as our remaining properties become operational in phases and stabilize.

We have borrowed in connection with the development of our properties. Although, in general, our articles of incorporation allow us to borrow up to 300% of our net assets and our board of directors has adopted a policy to permit 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. We had an aggregate debt leverage ratio of approximately 63% of the aggregate carrying value of our consolidated assets as of March 31, 2016. Our aggregate debt leverage may increase or decrease over time due to a variety of factors, such as the use of additional construction financing to fund the development of our development properties. We generally have obtained construction financing to fund up to approximately 65% to 75% of the development budget of our development properties.

We, along with our joint venture partners, have and may extend and refinance the construction loans on our development properties with longer term debt as our properties’ operations stabilize. However, our ability to continue to obtain indebtedness could be adversely affected if our joint venture partners do not agree to the extension or by credit market conditions, which result in lenders reducing or limiting funds available for loans, including loans collateralized by real estate.

Potential future sources of cash to meet our capital needs include proceeds from collateralized or uncollateralized financings, including extensions and refinancing 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 unused offering proceeds in the event of unforeseen significant capital expenditures or other corporate purposes.

Sources of Liquidity and Capital Resources

As of March 31, 2016, our cash totaled $19.6 million and consisted primarily of cash provided by operating activities and cash from offering or sale proceeds. We may retain a portion of our cash on hand or use debt and/or equity proceeds for capital needs and any other corporate purposes deemed appropriate.

Borrowings

As described above, we utilize construction financing on our multifamily development projects equal to approximately 65% to 75% of the development budgets. During the three months ended March 31, 2016, we borrowed $25.3 million under our various construction loans to pay for development costs relating to several of our properties owned.

We, through joint ventures formed to make investments, generally have borrowed and expect to continue to borrow on a non-recourse basis. The use of non-recourse financing allows us to limit our exposure on any investment to the amount invested. Non-recourse indebtedness means the indebtedness of the borrower or its subsidiaries is collateralized only by the assets to which such indebtedness relates, without recourse to the Company or any of its subsidiaries.

For additional information on our borrowings, see Note 5, “Indebtedness” to our condensed consolidated financial statements in Item 1. “Financial Statements.”

Real Estate Held for Sale

During 2015, we sold the Long Point, Crescent Alexander Village, Crescent Crosstown and Crescent Cool Springs properties. In connection with these transactions, the joint ventures received aggregate net sales proceeds net of closing costs of approximately $223.0 million, and through our consolidated joint venture, we used the net sales proceeds from the sale of these properties to repay the mortgage and construction notes payable collateralized by the properties. As a result of evaluating strategic alternatives for future stockholder liquidity with our financial advisor (see “Exit Strategy” above), we also used a portion of the net sales proceeds to pay two special cash distributions which totaled $3.00 per share. During January and February 2016, as a result of evaluation of strategic alternatives, we decided to pursue a potential sale of four additional properties. We anticipate that the net sales proceeds from these properties will exceed their net carrying values.

Net Cash Provided by Operating Activities

Our net cash flows provided by operating activities was approximately $0.9 million and $0.2 million for the three months ended March 31, 2016 and 2015, respectively. Cash flows from operating activities improved during the three months ended March 31, 2016, primarily as a result of more properties and units being operational during 2016 than 2015 and an increase in occupancy as the units become operational and leased. The increase was partially offset by the sale of four operational properties in 2015.

Uses of Liquidity and Capital Resources

Development of Properties

In connection with our development projects, we funded approximately $25.4 million in development costs during the three months ended March 31, 2016. Pursuant to the development agreements for the properties under development, as of March 31, 2016 we had commitments to fund approximately $31.3 million in additional development and other costs. We expect to fund the remaining development costs primarily from the construction loans on each property.

Distributions to Noncontrolling Interests

During the three months ended March 31, 2016 our consolidated joint ventures paid distributions of approximately $0.5 million to our co-venture partners representing their pro rata share of positive operating cash flows.

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 March 31, 2016, we owned interests in 13 Class A multifamily properties, nine of which were operational and as to which development was substantially complete and four 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 during the three months ended March 31, 2016 and 2015:


	Start Date of Operations	Completion Date	Units Expected Upon Completion		Completed Apartment Units as of March 31,				% Leased as of March 31, ⁽¹⁾						Three Months Ended March 31,
					2016		2015		2016			2015			2016		2015
Revenues:
Whitehall Property ⁽²⁾	Q4 2012	Q2 2013		298		298		298		98	%		95	%	$	1,059,966	$	981,800
Aura Castle Hills Property ⁽²⁾	Q3 2013	Q2 2014		316		316		316		97	%		97	%		1,147,653		1,105,050
Aura Grand Property ⁽²⁾	Q4 2013	Q2 2014		291		291		291		96	%		96	%		1,068,306		1,029,335
REALM Patterson Place Property⁽²⁾	Q2 2014	Q4 2014		322		322		322		96	%		55	%		1,158,804		518,525
Fairfield Ranch Property	Q3 2014	Q1 2015		294		294		294		95	%		60	%		1,082,943		560,920
Premier at Spring Town Center Property	Q4 2014	Q3 2015		396		396		178		84	%		32	%		1,097,689		158,801
City Walk Property	Q2 2015	Q3 2015		320		320		—		95	%		—			1,328,588		6,202
Oxford Square Property	Q3 2015	Q4 2015		248		248		—		63	%		—			492,256		—
Aura at the Rim Property	Q4 2015	Q1 2016		308		308		—		34	%		—			225,692		—
Aura on Broadway Property	Q1 2016	Est. Q3 2016		194		24		—		3	%		—			4,244		—
Bainbridge 3200 Property ⁽³⁾	Q1 2016	Est. Q4 2016		228		24		—		5	%		—			141		—
Other						—		—								21,793		—

Subtotal						2,841		1,699								8,688,075		4,360,633
Sold Properties ⁽⁴⁾						—		860								—		2,027,742

Total revenues						2,841		2,559							$	8,688,075	$	6,388,375

Property operating expenses:
Whitehall Property ⁽²⁾															$	391,912	$	334,800
Aura Castle Hills Property ⁽²⁾																493,150		441,300
Aura Grand Property ⁽²⁾																580,420		446,331
REALM Patterson Place Property ⁽²⁾																360,723		389,492
Fairfield Ranch Property																447,090		481,788
Premier at Spring Town Center Property																631,795		238,621
City Walk Property																453,941		80,548
Oxford Square Property																386,966		1,823
Aura at the Rim Property																352,116		—
Aura on Broadway Property																107,696		—
Bainbridge 3200 Property ⁽³⁾																14,688		—
Crescent Gateway Property ⁽⁵⁾																101,479		1,092
Other ⁽⁵⁾																73,424		5,529

Subtotal																4,395,400		2,421,324
Sold Properties ⁽⁴⁾																—		1,016,083

Total property operating expenses															$	4,395,400	$	3,437,407

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⁾	Property is classified as held for sale as of March 31, 2016.

⁽³⁾	Property formerly known as Hampton Roads.

⁽⁴⁾	During the third and fourth quarters of 2015, the Company sold the Crescent Alexander Village, Crescent Crosstown and Crescent Cool Springs properties.

⁽⁵⁾	Expenses incurred for these properties primarily relate to pre-leasing and marketing activities.

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 to be partially offset by decreases in revenues and expenses from the disposition of properties. Four properties became fully operational and two properties became partially operational from April 1, 2015 to March 31, 2016. We have classified the Long Point Property revenues and expenses as discontinued operations for all periods, as described below.

Comparison of the three months ended March 31, 2016 to the three months ended March 31, 2015

Analysis of Revenues and Expenses from Continuing Operations:

Revenues. Rental income from operating leases from continuing operations and other property revenues was approximately $8.7 million and $6.4 million for the three months ended March 31, 2016 and 2015, respectively. Rental income from continuing operations and other property revenues increased approximately $2.3 million over 2015 primarily due to the increased stabilization of several properties (either fully operational or partially operational, as described above), offset by the loss of revenues related to three properties sold during the third and fourth quarters of 2015. We expect additional increases in revenue as additional units are completed, leased and our properties become more fully operational and as additional portions of our properties under development become operational. We expect that these increases will be partially offset by decreases in revenues from the disposition of additional properties during 2016, as described in “Liquidity and Capital Resources – Real Estate Held for Sale”.

Property Operating Expenses. Property operating expenses from continuing operations for the three months ended March 31, 2016 and 2015 were $4.4 million and $3.4 million, respectively. Property operating expenses increased approximately $1.0 million due to the additional properties becoming either fully operational or partially operational, offset by the sale of three properties in 2015, as described above. Property operating expenses also increased in 2016 due to pre-leasing and marketing activities at our properties under development with partial operations. Property operating expenses are expected to increase as additional units are completed and our properties become fully operational, and as additional portions of our other properties under development become operational. We expect that these increases will be partially offset by decreases in property expenses from the disposition of additional properties during 2016, as described in “Liquidity and Capital Resources – Real Estate Held for Sale”.

General and Administrative Expenses. General and administrative expenses from continuing operations for the three months ended March 31, 2016 and 2015 were approximately $1.2 million and $1.1 million, respectively. General and administrative expenses were comprised primarily of reimbursable personnel expenses of affiliates of our Advisor, directors’ and officers’ insurance, accounting and legal fees, and board of directors’ fees. The increase in general and administrative expenses is primarily the result of the additional legal, accounting and other professional services necessary to account and report on our portfolio of assets. Although we anticipate general and administrative expenses will increase as 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 $0.9 million and $0.7 million in asset management fees from continuing operations payable to our Advisor during the three months ended March 31, 2016 and 2015, respectively, (of which approximately $0.2 million and $0.2 million, respectively, were capitalized as part of the cost of our properties that were under development). We incur asset management fees at an annual rate of 1% of our real estate assets under management as defined in the advisory agreement (which generally equals our acquisition and development capitalized costs and excludes pro rata portions attributable to our joint venture partners). Asset management fees increased for the three month period ended March 31, 2016 as compared to the prior year’s period as a result of the increase in our real estate assets under management subsequent to March 31, 2015 and as a result of several multifamily projects becoming operational. Asset management fees incurred during development are capitalized as part of the cost of development and 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. We expect increases in asset management fees in the future as our multifamily projects become fully developed and we invest in additional properties. However, this increase will be partially offset by decreases in our real estate assets under management as a result of the anticipated disposition of properties during 2016.

Property Management Fees. We incurred approximately $0.4 million and $0.3 million in property management fees from continuing operations during the three months ended March 31, 2016 and 2015, respectively. Property management fees generally range from 2.25% to 4% of property revenues, subject to minimum monthly fees from third party property managers during initial lease-up periods. Property management fees increased during 2016 primarily as a result of increased property revenues. We expect that additional increases in these fees as property revenues increase as more of our development properties become operational will be partially offset by decreases in property revenues due to the disposition of properties, as described further in “Liquidity and Capital Resources – Real Estate Held for Sale”.

Depreciation. Depreciation from continuing operations for the three months ended March 31, 2016 and 2015 was approximately $2.1 million and $2.7 million, respectively. Depreciation expense decreased primarily due to the sale of the three Crescent Properties that sold during 2015 and the discontinuation of depreciation for the four properties classified as held for sale during the three months ended March 31, 2016, as described further in “Liquidity and Capital Resources – Real Estate Held for Sale”. We expect increases in depreciation in the future as additional phases of other properties become fully operational and other development properties become operational.

Interest Expense and Loan Cost Amortization. During the three months ended March 31, 2016 and 2015, we incurred approximately $2.4 million and $2.0 million, respectively, of interest expense and loan cost amortization from continuing operations relating to debt outstanding on our properties, $0.8 million and $1.0 million, respectively, of which was capitalized as development costs relating to our properties under development.

Interest costs incurred during the three months ended March 31, 2016, increased as a result of an increase in LIBOR and an increase in our average debt outstanding during the three months ended March 31, 2016 to $281.9 million from $258.9 million during 2015, resulting in an approximately $0.6 million increase in interest cost and loan cost amortization. Interest expense also increased as a result of less interest expense being eligible for capitalization due to the completion of construction activity on several properties that became operational during the year.

We expect interest cost to continue to increase over the next year as we continue to borrow under our construction loans to fund construction costs and as we complete construction on buildings that become operational. However, as we dispose of certain properties, as further described in “Liquidity and Capital Resources – Real Estate Held for Sale,” we will repay the related indebtedness on those properties, which will result in a partial decrease in interest expense. 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 being capitalized.

As of March 31, 2016, even though all of our loans were variable rate, we had purchased interest rate caps relating to four of our loans to reduce our exposure to future increases in LIBOR rate. Any increases to LIBOR rates will result in increased interest expense, but the interest rate caps will partially offset the full impact of an increase in the LIBOR rate. See Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” for an estimate of how a 1% change in LIBOR would impact our annual interest expense incurred.

Income Tax Expense. Income tax expense was approximately $0.1 million and $0.03 million for the three months ended March 31, 2016 and 2015, respectively.

Analysis of Discontinued Operations

We had income from discontinued operations of approximately $26.1 million for the three months ended March 31, 2015. During 2014, we entered into a contract to sell the Long Point Property. As a result, we accounted for the revenues and expenses associated with the Long Point Property as discontinued operations for all periods presented in accordance with GAAP. In January 2015 we sold the Long Point Property to an unrelated party and recorded a gain on sale of approximately $27.4 million for financial reporting purposes. Income from discontinued operations was partially offset by (i) a loss on extinguishment of debt of approximately $0.8 million related to the Long Point Property for unamortized loan costs and a prepayment penalty on the Long Point Property relating to the repayment of the related indebtedness due to the sale of this property and (ii) an income tax expense of $0.5 million related to the sale of the Long Point Property. We did not have any results from discontinued operations during the three months ended March 31, 2016.

Net (Income) Loss Attributable to Noncontrolling Interests

In accordance with the provisions of each joint venture agreement, we allocate (income) loss from operations to our co-venture partners based on their percentage ownership in each joint venture. To the extent we have a capital event, such as a sale of a property, the gain is allocated to first provide minimum gain allocations to each joint venture partner, and thereafter, our co-venture partner will receive a disproportionately higher gain allocation, as set forth in each joint venture agreement.

During the three months ended March 31, 2016 and 2015, net (income) loss from continuing and discontinued operations attributable to our co-venture partners was approximately $0.1 million and ($13.1) million, respectively. All of the net loss attributable to noncontrolling interests for the three months ended March 31, 2016, was a result of pro rata share of loss from operations. Net income attributable to noncontrolling interests during the three months ended March 31, 2015, included pro rata share of loss from operations attributable to noncontrolling interests of approximately $0.8 million and a disproportionate share of gain from the sale of the Long Point Property in accordance with the gain allocation provisions for capital events, of approximately $13.9 million.

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, 2015.

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 (“FFO”), 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 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 funded 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 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, 2016 and 2015, our MFFO represents FFO, excluding acquisition fees and expenses, straight-line rent adjustments, 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. The loss on early extinguishment of debt includes prepayment penalties.

•

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 and MFFO 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 SEC, 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 three months ended March 31:


	2016			2015
Net income (loss) attributable to common stockholders	$	(1,604,519	)	$	10,317,905
Adjustments:
Loss (gain) on retirement and sale of property:
Continuing operations		1,005			—
Discontinued operations		—			(13,923,477	)
Depreciation and amortization:
Continuing operations		1,711,845			2,028,641

FFO attributable to common stockholders		108,331			(1,576,931	)
Acquisition fees and expenses⁽¹⁾:
Continuing operations		—			6,887
Straight-line rent adjustments⁽²⁾:
Continuing operations		(14,666	)		(129,145	)
Loss on extinguishment of debt⁽³⁾:
Discontinued operations		—			788,886
Unrealized loss related to changes in fair value of derivatives⁽⁴⁾:
Continuing operations		16,918			20,327

MFFO attributable to common stockholders	$	110,583		$	(889,976	)

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

Net income per share (basic and diluted)		(0.07	)		0.46

FFO per share (basic and diluted)		0.00			(0.07	)

MFFO per share (basic and diluted)		0.00			(0.04	)

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, 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.

⁽³⁾

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. The loss on extinguishment of debt includes prepayment penalties.

⁽⁴⁾

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, asset and property management fees and reimbursement of operating costs. In addition, our chief executive officer and president serves on the board of directors of Crescent Communities, LLC, an affiliate of three joint venture partners for four of our multifamily development projects as of March 31, 2016. See Note 6. “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, 2015 for a discussion of the various related party transactions, agreements and fees.

OFF BALANCE SHEET ARRANGEMENTS

As of March 31, 2016, we had no off balance sheet arrangements.

CONTRACTUAL OBLIGATIONS

As of March 31, 2016, we were subject to contractual payment obligations as described in the table below.


	Payments Due by Period
	2016		2017-2018		2019-2020		More than 5 years		Total
Development contracts on development properties ⁽¹⁾	$	47,615,966	$	2,280,590	$	—	$	—	$	49,896,556
Mortgage notes payable (principal and interest) ⁽²⁾		892,009		2,661,645		2,661,645		25,385,876		31,601,175
Construction notes payable (principal and interest) ⁽²⁾		128,546,545		146,685,535		—		—		275,232,080

	$	177,054,520	$	151,627,770	$	2,661,645	$	25,385,876	$	356,729,811

FOOTNOTES:

⁽¹⁾	The amounts presented above represent accrued development costs as of March 31, 2016 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 March 31, 2016.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

See Item 1. “Financial Statements” and our Annual Report on Form 10-K for the year ended December 31, 2015 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):


	2016			2017			2018			2019			2020			Thereafter			Total			Approximate Fair Value
Variable rate debt	$	123,616,624		$	91,613,005		$	52,787,805		$	686,084		$	703,156		$	25,129,488		$	294,536,162		$	294,900,000

Average interest rate⁽¹⁾		3.01	%		2.75	%		2.89	%		2.74	%		2.74	%		2.74	%		2.88	%

FOOTNOTE

⁽¹⁾	As of March 31, 2016, we were paying the interest rate floor on certain of our variable rate debts.

Management estimates that a hypothetical one-percentage point increase in LIBOR compared to the LIBOR rate as of March 31, 2016, would increase interest expense by approximately $0.6 million on our variable rate debt for the three months ended March 31, 2016. 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.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Pursuant to Rule 13a-15(b) under 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) 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 to provide reasonable assurance that material information required to be included in our periodic SEC reports is recorded, processed, summarized and reported within the time periods specified in the relevant SEC rules and forms.

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.

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 9th day of May, 2016.


CNL GROWTH PROPERTIES, INC.

By:		/s/ Thomas K. Sittema
		THOMAS K. SITTEMA
		Chief Executive Officer and President
		(Principal Executive Officer)

By:		/s/ Tammy J. Tipton
		TAMMY J. TIPTON
		Chief Financial Officer and Treasurer
		(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 three months ended March 31, 2016, formatted in XBRL (Extensible Business Reporting Language); (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to the Condensed Consolidated Financial Statements.

Large accelerated filer

Accelerated filer

Non-accelerated filer

x (Do not check if a smaller reporting company)

Smaller reporting company