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FINANCIAL REPORT

Year Ended September 30, 2017

MCDIRMIT Ill DA VIS

CERTIFIED PUBLIC ACCOUNTANTS AND ADVISORS

REUNION EAST COMMUNITY DEVELOPMENT DISTRICT

TABLE OF CONTENTS

Year Ended September 30, 2017

I. Financial Section:	Page		
			
Independent Auditor's Report	1		
Management Discussion and Analysis	3		
Financial Statements:			
Government-Wide Financial Statements:			
Statement of Net Position	7		
Statement of Activities	8		
Fund Financial Statements:			
Balance Sheet - Governmental Funds	9		
Statement of Revenues, Expenditures and Changes in Fund Balances -			
Governmental Funds	10		
Reconciliation of the Statement of Revenues, Expenditures and			
Changes in Fund Balances of Governmental Funds			
to the Statement of Activities	11		
Statement of Revenues, Expenditures and Changes in Fund Balance -			
Budget and Actual - General Fund	12		
Notes to Financial Statements	13		
II. Compliance Section:			
Independent Auditor's Report on Internal Control over Financial Reporting and on			
Compliance and Other Matters Based on an Audit of Financial Statements			
Performed in Accordance with Government Auditing Standards	31		
Management Comments	33		
Independent Auditor's Report on Compliance with the Requirements			
of Section 218.415, Florida Statutes	37		
Response to the Management Comments	38		

MCDIRMIT Ill DA VIS
CERTIFIED PUBLIC ACCOUNTANTS AND ADVISORS

INDEPENDENT AUDITOR'S REPORT

To the Board of Supervisors

Reunion East Community Development District

We have audited the accompanying financial statements of the governmental activities and each major fund of the Reunion East Community Development District (the “District”), as of and for the year ended September 30, 2017, and the related notes to the financial statements, which collectively comprise the District’s basic financial statements as listed in the table of contents.

Management’s Responsibility for the Financial Statements

The District's management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

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

MCDIRMIT DAVIS & COMPANY, LLC

934 NORTH MAGNOLIA AVENUE, SUITE 100 ORLANDO, FLORIDA 32803 TELEPHONE: 407-843-5406 FAX: 407-649-9339 EMAIL: INFO@MCDIRMITDAVIS.COM

MEMBERS: PRIVATE COMPANIES PRACTICE SECTION AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS FLORIDA INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS

1

Opinions

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the governmental activities, and each major fund of the District as of September 30, 2017, and the respective changes in financial position thereof and the respective budgetary comparison for the General Fund for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Other Matters

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis starting on page 3, be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Other Information

As discussed in Note 7 to the financial statements, the Prior Developer had not paid certain special assessments in prior years. As a result, the District was unable to make all of the debt service payments due in the current and prior years. The District filed for foreclosure on the special assessment lien on the Prior Developer’s property within the District. The foreclosure resulted in a judgement for operations and maintenance assessments only. A Special Purpose Entity (“SPE”) was formed and took title to land by tax deed. The land was sold in a previous year and the SPE was voluntarily dissolved. The Series 2002A and 2005 Bonds continue to be delinquent due to unpaid assessments from the Prior Developer.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued a report dated March 28, 2018, on our consideration of the District’s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District’s internal control over financial reporting and compliance.

March 28, 2018

Orlando, Florida

2

MANAGEMENT’S DISCUSSION AND ANALYSIS

Our discussion and analysis of the Reunion East Community Development District, Osceola County, Florida’s (the “District”) financial accomplishments provide an overview of the District’s financial activities for the year ended September 30, 2017. Please read it in conjunction with the District’s Independent Auditor’s Report, financial statements and accompanying notes.

This information is being presented to provide additional information regarding the activities of the District and to meet the disclosure requirements of Government Accounting Standards Board Statement (GASB) No. 34, Basic Financial Statements - and Management’s Discussion and Analysis - for State and Local Governments issued June 1999.

Financial Highlights

•	The liabilities of the District exceeded its assets at September 30, 2017 by $12,393,794, an increase in the net deficit of $907,310 in comparison with the prior year.

•	At September 30, 2017, the District’s governmental funds reported a combined deficit fund balances of $27,052, a decrease of $1,307,951 in comparison with the prior year.

Overview of the Financial Statements

This discussion and analysis are intended to serve as an introduction to the Reunion East Community Development District’s financial statements. The District’s financial statements are comprised of three components: 1) government-wide financial statements, 2) fund financial statements and 3) notes to the financial statements.

Government-Wide Financial Statements

The government-wide financial statements are designed to provide readers with a broad overview of the District’s finances, in a manner similar to a private-sector business.

The statement of net position presents information on all of the District’s assets and liabilities, with the difference between the two reported as net position. Over time, increases or decreases in net position may serve as a useful indicator of whether the financial position of the District is improving or deteriorating.

The statement of activities presents information showing how the government’s net position changed during the most recent fiscal year. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of related cash flows. Thus, revenues and expenses are reported in this statement for some items that will result in cash flows in future fiscal periods.

The government-wide financial statements include all governmental activities that are principally supported by special assessment revenues. The District does not have any business-type activities. The governmental activities of the District include general government, physical environment, culture and recreation, public safety and roads and streets related functions.

3

MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)

Fund Financial Statements

A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The District, like other state and local governments, uses fund accounting to ensure and demonstrate compliance with finance -related legal requirements. The District has one fund category: Governmental Funds.

Governmental Funds - Governmental funds are used to account for essentially the same functions reported as governmental activities in the government- wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating a District’s near-term financing requirements.

Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities.

The District maintains three individual governmental funds. Information is presented separately in the governmental fund balance sheet and the governmental fund statement of revenues, expenditures and changes in fund balances for the general fund, debt service fund, and capital projects fund, all of which are considered to be major funds.

The District adopts an annual appropriated budget for its general fund. A budgetary comparison schedule has been provided for the general fund to demonstrate compliance with the budget.

Notes to Financial Statements

The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements.

Government-Wide Financial Analysis

Statement of Net Position - The District’s net position was $(12,393,794) at September 30, 2017. The analysis that follows compares the net position of the District’s governmental activities at September 30, 2017 and September 30, 2016.

4

MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)

Government-Wide Financial Analysis (Continued):

Reunion East Community Development District

Statement of Net Position

	September 30,		September 30,		
		2017			2016		
Assets, excluding capital assets	$	7,136,208		$	6,710,039		
Capital Assets Net of Depreciation		44,549,692			46,790,897		
Total assets		51,685,900			53,500,936		
Liabilities, excluding long-term liabilities		8,480,558			6,804,450		
Long-term Liabilities		55,599,136			58,182,970		
Total liabilities		64,079,694			64,987,420		
Net Position:		(14,739,444)			(14,237,073)		
Net Investment in capital assets							
Restricted for capital projects		9			9		
Unrestricted		2,345,641			2,750,580		
Total net position	$	(12,393,794)	$	(11,486,484)		

The following is a summary of the District’s governmental activities for the fiscal years ended September 30, 2017 and 2016.

Changes in Net Position

Year ended September 30,

Revenues:		2017			2016		
							
Program revenues	$	6,430,199			6,685,465		
General revenues		119,737			102,709		
Total revenues		6,549,936			6,788,174		
Expenses:							
General government		206,871			244,624		
Physical environment		3,031,349			2,944,742		
Culture and recreation		668,163			669,877		
Public safety		88,200			98,000		
Roads and streets		41,305			39,996		
Interest on long-term debt		3,421,358			3,314,561		
Total expenses		7,457,246			7,311,800		
Change in net position		(907,310)			(523,626)		
Net position - beginning		(11,486,484)			(10,962,858)		
Net position - ending	$	(12,393,794)	$	(11,486,484)		

5

MANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)

Government-Wide Financial Analysis (Continued):

As noted above and in the statement of activities, the cost of all governmental activities during the year ended September 30, 2017 was $7,457,246. The majority of these costs are interest on long-term debt and physical environment expenses.

Financial Analysis of the Government’s Funds

The District uses fund accounting to ensure and demonstrate compliance with finance related legal requirements. The focus of the District’s governmental funds is to provide information on near-term inflows, outflows and balances of spendable resources. Such information is useful in assessing the District’s financing requirements. In particular, unassigned fund balance may serve as a useful measure of a government’s net resources available for spending at the end of the fiscal year. At September 30, 2017, the District’s governmental funds reported combined ending deficit fund balances of $27,052. Of this total, $9 is restricted, $43,367 is nonspendable and the remainder of $(70,428) is an unassigned deficit balance.

The fund balance of the general fund increased $411,890 due to assessment revenue exceeding expenditures. The debt service fund decreased $1,719,841 due to higher debt service payments compared to assessment revenue. The capital projects fund balance did not change.

General Fund Budgetary Highlights

An operating budget was adopted and maintained by the governing board for the District pursuant to the requirements of Florida Statutes. The budget is adopted using the same basis of accounting that is used in preparation of the fund financial statements. There were no budget amendments to the September 30, 2017 general fund budget. The legal level of budgetary control is at the fund level.

Capital Asset and Debt Administration

Capital Assets - At September 30, 2017, the District had $44,549,692 invested in capital assets, net of accumulated depreciation. More detailed information about the District’s capital assets is presented in the notes to the financial statements.

Capital Debt - At September 30, 2017, the District had $59,150,000 in bonds outstanding, including $3,690,000 in matured bonds payable. More detailed information about the District’s capital debt is presented in the notes to the financial statements.

Requests for Information

If you have questions about this report or need additional financial information, contact the

Reunion East Community Development District’s Finance Department at Governmental Management Services - CF, LLC, 135 W. Central Blvd, Suite 320, Orlando FL 32801.

6

FINANCIAL STATEMENTS

REUNION EAST COMMUNITY DEVELOPMENT DISTRICT				
STATEMENT OF NET POSITION				
September 30, 2017				
	Governmental		
Assets:		Activities		
				
Cash	$	1,186,575		
Investments		2,997,598		
Due from Reunion West		98,341		
Assessments receivable		20,962		
Other receivables		83,169		
Prepaid costs		43,367		
Restricted assets:				
Temporarily restricted investments		2,706,196		
Capital assets:				
Capital assets not being depreciated		3,620,313		
Capital assets being depreciated, net		40,929,379		
Total assets		51,685,900		
Liabilities:				
Accounts payable and accrued expenses		157,560		
Matured bonds payable		3,690,000		
Matured interest payable		3,315,700		
Accrued interest payable		1,317,298		
Noncurrent liabilities:				
Due within one year		2,700,000		
Due in more than one year		52,899,136		
Total liabilities		64,079,694		
Net Position:				
Net Investment in capital assets		(14,739,444)		
Restricted for capital projects		9		
Unrestricted		2,345,641		
Total net position	$	(12,393,794)		

The accompanying Notes to Financial Statements are an integral part of this statement. 7

REUNION EAST COMMUNITY DEVELOPMENT DISTRICT

STATEMENT OF ACTIVITIES

Year Ended September 30, 2017

											Net (Expense)	
											Revenue and	
											Changes in Net	
					Program Revenue				Position	
							Operating Grants					
				Charges for			and			Governmental	
Functions/Programs		Expenses		Services			Contributions				Activities	
Governmental activities:													
General government	$	206,871		$	110,203	$	-	$	(96,668)	
Physical environment		3,031,349			1,505,449			-				(1,525,900)	
Culture and recreation		668,163			355,941			-				(312,222)	
Public safety		88,200			46,986			-				(41,214)	
Roads and streets		41,305			22,004			-				(19,301)	
Interest on long-term debt		3,421,358			4,381,435			8,181				968,258	
Total governmental activities	$	7,457,246		$	6,422,018		$	8,181				(1,027,047)	
				General Revenues:						
					Investment income				28,088	
					Rent and Miscellaneous revenue				91,649	
					Total general revenues				119,737	
					Change in net position				(907,310)	
				Net Position - beginning				(11,486,484)	
				Net Position - ending	$	(12,393,794)	

The accompanying Notes to Financial Statements are an integral part of this statement. 8

REUNION EAST COMMUNITY DEVELOPMENT DISTRICT

BALANCE SHEET

GOVERNMENTAL FUNDS

September 30, 2017

													Total		
								Capital				Governmental		
Assets:		General			Debt Service		Projects					Funds		
															
Cash	$	1,186,575	$	-	$	-	$	1,186,575		
Investments		2,997,598				2,706,187			9				5,703,794		
Due from Reunion West		98,341				-			-				98,341		
Assessments receivable		6,215				14,747			-				20,962		
Other receivables		83,169				-			-				83,169		
Due from general fund		-				5,000			-				5,000		
Prepaid costs		43,367				-			-				43,367		
Total assets	$	4,415,265	$	2,725,934	$	9	$	7,141,208		
Liabilities and Fund Balances:															
															
Liabilities:															
Accounts payable and accrued expenses	$	157,560	$	-	$	-	$	157,560		
Due to debt service fund		5,000				-			-				5,000		
Matured bonds payable		-				3,690,000			-				3,690,000		
Matured interest payable		-				3,315,700			-				3,315,700		
Total liabilities		162,560				7,005,700			-				7,168,260		
Fund balances:															
Nonspendable		43,367				-			-				43,367		
Restricted:															
Capital projects		-				-			9				9		
Unassigned		4,209,338				(4,279,766)			-				(70,428)		
Total fund balances		4,252,705				(4,279,766)			9				(27,052)		
Total liabilities and fund balances	$	4,415,265	$	2,725,934	$	9						

Amounts reported for governmental activities in the statement of net position are different because:

Capital assets used in governmental activities are not financial resources and therefore are not		
reported in the funds.					44,549,692	
Liabilities not due and payable from current available resources are not reported in the governmental		
fund statements. All liabilities, both current and long-term, are reported in the government-wide		
statements.						
Accrued interest payable	(1,317,298)					
Bonds payable	(55,599,136)				(56,916,434)	
Net Position of Governmental Activities	$	(12,393,794)	

The accompanying Notes to Financial Statements are an integral part of this statement. 9

REUNION EAST COMMUNITY DEVELOPMENT DISTRICT

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES

GOVERNMENTAL FUNDS

Year Ended September 30, 2017

												Total		
								Capital			Governmental		
Revenues:		General		Debt Service			Projects				Funds		
														
Special assessments	$	2,040,583	$	4,381,435	$	-	$	6,422,018		
Rental income		86,281			-				-			86,281		
Investment income		28,088			8,181				-			36,269		
Miscellaneous revenue		5,368			-				-			5,368		
Total revenues		2,160,320			4,389,616				-			6,549,936		
Expenditures:														
Current:														
General government		160,618			46,253				-			206,871		
Physical environment		1,351,843			-				-			1,351,843		
Public safety		88,200			-				-			88,200		
Culture and recreation		106,464			-				-			106,464		
Roads and streets		41,305			-				-			41,305		
Debt Service:														
Interest		-			3,488,204				-			3,488,204		
Principal		-			2,575,000				-			2,575,000		
Total expenditures		1,748,430			6,109,457				-			7,857,887		
Excess (Deficit) of Revenues Over														
Expenditures		411,890			(1,719,841)				-			(1,307,951)		
Net change in fund balances		411,890			(1,719,841)				-			(1,307,951)		
Fund Balances - beginning of year		3,840,815			(2,559,925)				9			1,280,899		
Fund Balances - end of year	$	4,252,705	$	(4,279,766)	$	9	$	(27,052)		

The accompanying Notes to Financial Statements are an integral part of this statement. 10

REUNION EAST COMMUNITY DEVELOPMENT DISTRICT

RECONCILIATION OF THE STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES

Year Ended September 30, 2017

Amounts reported for Governmental Activities in the Statement of Activities are different because:

Net change in fund balances - total governmental funds (page 10)	$	(1,307,951)		
Depreciation on capital assets is not recognized in the governmental fund statement, however it is	(2,241,205)		
reported as an expense in the statement of activities.						
Repayments of long-term liabilities are reported as expenditures in governmental funds, while			
repayments reduce long-term liabilities in the statement of net assets.						
Repayment of bonds payable				2,575,000		
Some expenses reported in the statement of activities do not require the use of current financial			
resources and, therefore, are not reported as expenditures in governmental funds.						
Change in accrued interest	58,012					
Amortization of bond premium		8,834			66,846		
Change in Net Position of Governmental Activities (page 8)	$	(907,310)		

The accompanying Notes to Financial Statements are an integral part of this statement. 11

REUNION EAST COMMUNITY DEVELOPMENT DISTRICT

STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE

BUDGET AND ACTUAL - GENERAL FUND

Year Ended September 30, 2017

										Variance with		
										Final Budget		
								Actual			Positive		
		Budgeted Amounts			Amounts			(Negative)		
Revenues:		Original			Final								
													
Special Assessments	$	2,024,762	$	2,024,762	$	2,040,583	$	15,821		
Rental Income		90,263			90,263			86,281			(3,982)		
Investment Income		5,250			5,250			28,088			22,838		
Miscellaneous Revenue		5,964			5,964			5,368			(596)		
Total revenues		2,126,239			2,126,239			2,160,320			34,081		
Expenditures:													
Current:													
General government		165,678			165,678			160,618			5,060		
Physical environment		1,676,149			1,676,149			1,351,843			324,306		
Public safety		98,000			98,000			88,200			9,800		
Culture and recreation		178,950			178,950			106,464			72,486		
Roads and streets		54,880			54,880			41,305			13,575		
Total expenditures		2,173,657			2,173,657			1,748,430			425,227		
Net change in fund balance		(47,418)			(47,418)			411,890			459,308		
Fund Balance - beginning		3,840,815			3,840,815			3,840,815			-		
Fund Balance - ending	$	3,793,397	$	3,793,397	$	4,252,705	$	459,308		

The accompanying Notes to Financial Statements are an integral part of this statement. 12

NOTES TO FINANCIAL STATEMENTS

REUNION EAST COMMUNITY DEVELOPMENT DISTRICT

NOTES TO FINANCIAL STATEMENTS

Year Ended September 30, 2017

Note 1 - Summary of Significant Accounting Policies:

Reporting Entity

The Reunion East Community Development District, (the “District”) was established on September 24, 2001 by County Ordinance 01-31, pursuant to the Uniform Community Development District Act of 1980, otherwise known as Chapter 190, Florida Statutes. The Act provides, among other things, the power to manage basic services for community development, the power to borrow money and issue bonds, and the power to levy and assess non-ad valorem assessments for the financing and delivery of capital infrastructure. The District was established for the purpose of financing and managing the acquisition, construction, maintenance and operation of a portion of the infrastructure necessary for community development within the District.

The District is governed by the Board of Supervisors (the “Board”), which is composed of five members. The Supervisors are elected on an at large basis by the owners of the property within the District. The Board of Supervisors of the District exercises all powers granted to the District pursuant to Chapter 190, Florida Statutes. At September 30, 2017, none of the Board members were associated with Ginn-LA Orlando Ltd., LLP (“prior Developer”), three of the Board members are affiliated with EHOF Acquisitions II, LLC (“current Developer”). In a prior year, the District initiated foreclosure proceedings against the prior Developer. The Trustee, on behalf of the bondholders, is funding the costs associated with the foreclosure litigation (see Note 7). The District is economically dependent on the current Developer.

The Board has final responsibility for:

1.	Assessing and levying assessments.

2.	Approving budgets.

3.	Exercising control over facilities and properties.

4.	Controlling the use of funds generated by the District.

5.	Approving the hiring and firing of key personnel.

6.	Financing improvements.

The financial statements were prepared in accordance with Governmental Accounting Standards Board (“GASB”) Statements 14, 39 and 61. Under the provisions of those standards, the financial reporting entity consists of the primary government, organizations for which the District Board of Supervisors is considered to be financially accountable, and other organizations for which the nature and significance of their relationship with the District are such that, if excluded, the financial statements of the District would be considered incomplete or misleading. There are no entities considered to be component units of the District; therefore, the financial statements include only the operations of the District.

13

REUNION EAST COMMUNITY DEVELOPMENT DISTRICT

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Year Ended September 30, 2017

Note 1 - Summary of Significant Accounting Policies (Continued):

Government-Wide and Fund Financial Statements

The financial statements include both government-wide and fund financial statements.

The government-wide financial statements (i.e., the statement of net position and the statement of activities) report information on all of the non-fiduciary activities of the primary government. For the most part, the effect of interfund activity has been removed from these statements.

The statement of activities demonstrates the degree to which the direct expenses of a given function or segment is offset by program revenues. Direct expenses are those that are clearly identifiable with a specific function or segment. Program revenues include 1) charges to customers who purchase, use, or directly benefit from goods, services, or privileges provided by a given function or segment, 2) grants, contributions and investment earnings that are restricted to meeting the operational or capital requirements of a particular function or segment and 3) operating-type special assessments that are treated as charges for services (including assessments for maintenance and debt service). Other items not included among program revenues are reported instead as general revenues.

Measurement Focus, Basis of Accounting and Financial Statement Presentation

The government-wide financial statements are reported using the economic resources measurement focus and the accrual basis of accounting. Revenues are recorded when earned and expenses are recorded when a liability is incurred, regardless of the timing of related cash flows. Assessments are recognized as revenues in the year for which they are levied. Grants and similar items are recognized as revenues as soon as all eligibility requirements imposed by the provider have been met.

Governmental fund financial statements are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Revenues are recognized as soon as they are both measurable and available. Revenues are considered to be available when they are collectible within the current period or soon enough thereafter to pay liabilities of the current period. For this purpose, the District considers revenues to be available if they are collected within 60 days of the end of the current fiscal period, except for Developer receivables for retainage, which are collected from the Developer when the amount is due to the contractor. Expenditures are recorded when a liability is incurred, as under accrual accounting. However, debt service expenditures are recorded only when payment is due.

Assessments, including debt service assessments and operation and maintenance assessments, are non-ad valorem assessments imposed on all lands located within the District and benefited by the District’s activities. Operation and maintenance special assessments are levied by the District prior to the start of the fiscal year which begins October 1st and ends on September 30th. These assessments are imposed upon all benefited lands located in the District. Debt service special assessments are imposed upon certain lots and lands as described in each resolution imposing the special assessment for each series of bonds issued by the District. Certain debt service assessments are collected upon the closing of those lots subject to short term debt and are used to prepay a portion of the bonds outstanding.

14

REUNION EAST COMMUNITY DEVELOPMENT DISTRICT

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Year Ended September 30, 2017

Note 1 - Summary of Significant Accounting Policies (Continued):

Measurement Focus, Basis of Accounting and Financial Statement Presentation (Continued):

Assessments and interest associated with the current fiscal period are all considered to be susceptible to accrual and so have been recognized as revenues of the current fiscal period. Only the portion of assessments receivable due within the current fiscal period is considered to be susceptible to accrual as revenue of the current period. All other revenue items are considered to be measurable and available only when cash is received by the District.

The District reports the following major governmental funds:

General Fund - is the District’s primary operating fund. It accounts for all financial resources of the general government, except those required to be accounted for in another fund.

Debt Service Fund - accounts for the accumulation of resources for the annual payment of principal and interest on long-term debt.

Capital Projects Fund - accounts for the financial resources to be used for the acquisition or construction of major infrastructure within the District.

As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. When both restricted and unrestricted resources are available for use, it is the District’s policy to use restricted resources first, then unrestricted resources as they are needed.

Assets, Liabilities, Deferred Outflows/Inflows of Resources and Net Position/Fund

Balance

Restricted Assets - These assets represent cash and investments set aside pursuant to bond covenants.

Deposits and Investments - The District’s cash and cash equivalents are considered to be cash on hand and demand deposits.

Investments of the District are reported at fair value and are categorized within the fair value hierarchy established in accordance with GASB Statement No. 72, Fair Value Measurement and Application. The District’s investments consist of investments authorized in accordance with Section 218.415, Florida Statutes.

Prepaid Items - Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items in both government-wide and fund financial statements.

15

REUNION EAST COMMUNITY DEVELOPMENT DISTRICT

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Year Ended September 30, 2017

Note 1 - Summary of Significant Accounting Policies (Continued):

Assets, Liabilities, Deferred Outflows/Inflows of Resources and Net Position/Fund Balance (Continued):

Capital Assets - Capital assets, which include property, plant, equipment and infrastructure assets (e.g., roads, sidewalks and similar items), are reported in the applicable governmental activities column in the government-wide financial statements. Capital assets are defined by the government as assets with an initial, individual cost of more than $5,000 and an estimated useful life in excess of two years. Such assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are recorded at acquisition value at the date of donation.

The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets lives are not capitalized.

Major outlays for capital assets and improvements are capitalized as projects are constructed. Property, plant and equipment of the District are depreciated using the straight-line method over the following estimated useful lives:

Assets		Years	
Stormwater Management, Roadways		30	
Electrical, Communications and Lighting	20	
Landscaping and Irrigation	15	
Recreational Facilities and Amenities	20	

Long Term Obligations - In the government-wide financial statements, long-term debt and other long-term obligations are reported as liabilities in the statement of net position. Bond premiums and discounts are deferred and amortized over the life of the bonds using the straight-line method. Bonds payable are reported net of premiums or discounts. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as an expense.

In the fund financial statements, governmental fund types recognize bond premiums and discounts, as well as bond issuance costs, during the current period. The face amount of debt issued is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts on debt issuances are reported as other financing uses. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as expenditures.

Deferred Outflows/Inflows of Resources - In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net position that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/expenditure) until then. The District does not have any item that qualifies for reporting in this category for the year ended September 30, 2017.

16

REUNION EAST COMMUNITY DEVELOPMENT DISTRICT

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Year Ended September 30, 2017

Note 1 - Summary of Significant Accounting Policies (Continued):

Assets, Liabilities, Deferred Outflows/Inflows of Resources and Net Position/Fund Balance (Continued):

Deferred Outflows/Inflows of Resources (Continued) - In addition to liabilities, the statement of financial position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of resources (revenue) until that time. The District does not have any item that qualifies for reporting in this category for the year ended September 30, 2017.

Net Position Flow Assumption - Sometimes the District will fund outlays for a particular purpose from both restricted and unrestricted resources. In order to calculate the amounts to report as restricted - net position and unrestricted - net position in the government-wide financial statements, a flow assumption must be made about the order in which the resources are considered to be applied. It is the District’s policy to consider restricted - net position to have been depleted before unrestricted-net position is applied.

Fund Balance Flow Assumptions - Sometimes the District will fund outlays for a particular purpose from both restricted and unrestricted resources (total of committed, assigned, and unassigned fund balance). In order to calculate the amounts to report as restricted, committed, assigned, and unassigned fund balance in the governmental fund financial statements a flow assumption must be made about the order in which the resources are considered to be applied. It is the District’s policy to consider restricted fund balance to have been depleted before using any of the components of unrestricted fund balance. Further, when the components of unrestricted fund balance can be used for the same purpose, committed fund balance is depleted first, followed by assigned fund balance. Unassigned fund balance is applied last.

Fund Balance Policies - Fund balance of governmental funds is reported in various categories based on the nature of any limitations requiring the use of resources for specific purposes. The District itself can establish limitations on the use of resources through either commitment (committed fund balance) or an assignment (assigned fund balance).

The committed fund balance classification includes fund balance amounts that can be used only for the specific purposes determined by a formal action of the government’s highest level of decision-making authority. The Board of Supervisors is the highest level of decision-making authority for the government that can, by adoption of an ordinance or resolution prior to the end of the fiscal year, commit fund balance. Once adopted, the limitation imposed by the ordinance or resolution remains in place until a similar action is taken to remove or revise the limitation.

17

REUNION EAST COMMUNITY DEVELOPMENT DISTRICT

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Year Ended September 30, 2017

Note 1 - Summary of Significant Accounting Policies (Continued):

Assets, Liabilities, Deferred Outflows/Inflows of Resources and Net Position/Fund Balance (Continued):

Fund Balance Policies (Continued) - Amounts in the assigned fund balance classification are intended to be used by the government for specific purposes but do not meet the criteria to be classified as committed. The Board of Supervisors has authorized the District Manager to assign amounts for specific purposes. The Board of Supervisors may also assign fund balance as it does when appropriating fund balance to cover a gap between estimated revenue and appropriations in the subsequent year’s appropriated budget. Unlike commitments, assignments generally only exist temporarily. In other words, an additional action does not normally have to be taken for the removal of an assignment. Conversely, as discussed above and additional action is essential to either remove or revise a commitment.

Other Disclosures

Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from those estimates.

Note 2 - Stewardship, Compliance and Accountability:

Budgetary Information

The District is required to establish a budgetary system and an approved annual budget for the General Fund. Annual budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America. All annual appropriations lapse at the fiscal year end. The legal level of budgetary control is at the fund level. Any budget amendments that increase the aggregate budgeted appropriations, at the fund level, must be approved by the Board of Supervisors.

The District follows these procedures in establishing the budgetary data reflected in the financial statements.

1.	Each year the District Manager submits to the District Board a proposed operating budget for the fiscal year commencing the following October 1.

2.	Public hearings are conducted to obtain taxpayer comments.

3.	Prior to October 1, the budget is legally adopted by the District Board.

4.	All budget changes must be approved by the District Board.

5.	The budgets are adopted on a basis consistent with accounting principles generally accepted in the United States of America.

18

REUNION EAST COMMUNITY DEVELOPMENT DISTRICT

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Year Ended September 30, 2017

Note 2 - Stewardship, Compliance and Accountability (Continued):

Deficit Fund Balance

At September 30, 2017, the debt service fund had a deficit fund balance of $4,279,766.

Note 3 - Deposits and Investments:

Deposits

The District’s cash balances were entirely covered by federal depository insurance or by a collateral pool pledged to the State Treasurer. Florida Statutes Chapter 280, “Florida Security for Public Deposits Act”, requires all qualified depositories to deposit with the Treasurer or another banking institution eligible collateral equal to various percentages of the average daily balance for each month of all public deposits in excess of any applicable deposit insurance held. The percentage of eligible collateral (generally, U.S. Governmental and agency securities, state or local government debt, or corporate bonds) to public deposits is dependent upon the depository’s financial history and its compliance with Chapter 280. In the event of a failure of a qualified public depository, the remaining public depositories would be responsible for covering any resulting losses.

Investments

The District categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The fair value is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The hierarchy is based on the valuation inputs used to measure the fair value of the asset.

Under GASB 72, assets or liabilities are classified into one of three levels. Level 1 is the most reliable and is based on quoted price for identical assets, or liabilities, in an active market. Level 2 uses significant other observable inputs when obtaining quoted prices for identical or similar assets, or liabilities, in markets that are not active. Level 3 is the least reliable, and uses significant unobservable inputs that uses the best information available under the circumstances, which includes the District’s own data in measuring unobservable inputs.

The District has the following recurring fair value measurements as of September 30, 2017:

•	Money market mutual funds of $3,166,686 are valued using Level 2 inputs.

19

REUNION EAST COMMUNITY DEVELOPMENT DISTRICT

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Year Ended September 30, 2017

Note 3 - Deposits and Investments (Continued):

Investments (Continued):

The District’s investment policy is governed by State Statutes and District Trust Indenture. The District investment policy allows investments in any financial institution that is a qualified public depository of the State of Florida as identified by the State Treasurer, in accordance with Chapter 280 of the Florida Statutes. Authorized District investments include, but are not limited to:

1.	The Local Government Surplus Funds Trust Fund (SBA);

2.	Securities and Exchange Commission Registered Money Market Funds with the highest credit quality rating from a nationally recognized rating agency;

3.	Interest-bearing time deposits or savings accounts in qualified public depositories;

4.	Direct obligations of the U.S. Treasury;

The SBA is not a registrant with the Securities and Exchange Commission (SEC); however, the Board has adopted operating procedures consistent with the requirements for a 2a-7- like fund for the Florida Prime Fund. Therefore, the pool account balance can be used as fair value for financial reporting.

Investments made by the District at September 30, 2017 are summarized below. In accordance with GASB 31, investments are reported at fair value.

							Weighted	
					Credit		Average	
Investment Type			Fair Value		Rating		Maturity	
First American Prime Obligation Fund Y		$	2,357,567		AAAm		23 days	
Local Government Surplus Trust Fund			2,537,108		AAAm		51 days	
Fidelity Government Portfolio Class III			348,629		AAAm		27 days	
US Bank Money Market Account			460,490		NA		NA	
		$	5,703,794					

20

REUNION EAST COMMUNITY DEVELOPMENT DISTRICT

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Year Ended September 30, 2017

Note 3 - Deposits and Investments (Continued):

Investments (Continued):

Credit Risk:

The District’s investment policy limits credit risk by restricting authorized investments to those described. Investments in U.S. Government securities and agencies must be backed by the full faith and credit of the United States Government. Short term bond funds shall be rated by a nationally recognized ratings agency and shall maintain the highest credit quality rating.

Custodial Credit Risk:

In the case of deposits, this is the risk that, in the event of a bank failure, the District’s deposits may not be returned to it. The District’s investment policy requires that bank deposits be secured as provided by Chapter 280, Florida Statutes. This law requires local governments to deposit funds only in financial institutions designated as qualified public depositories by the Chief Financial Officer of the State of Florida, and creates the Public Deposits Trust Fund, a multiple financial institution pool with the ability to assess its member financial institutions for collateral shortfalls if a default or insolvency has occurred. At September 30, 2017, all of the District’s bank deposits were in qualified public depositories.

For an investment, this is the risk that, in the event of the failure of the counterparty, the government will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. At September 30, 2017, none of the investments listed are exposed to custodial credit risk because their existence is not evidenced by securities that exist in physical or book entry form.

Concentration of Credit Risk:

The District’s investment policy does not specify limits on the amount the District may invest in any one issuer.

21

REUNION EAST COMMUNITY DEVELOPMENT DISTRICT

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Year Ended September 30, 2017

Note 3 - Deposits and Investments (Continued):

Investments (Continued):

Interest Rate Risk:

The District’s investment policy does not specifically address interest rate risk; however, the general investment policy is to apply the prudent-person rule: Investments are made as a prudent person would be expected to act, with discretion and intelligence, to seek reasonable income, preserve capital, and in general, avoid speculative investments. The District manages its exposure to declines in fair values by investing primarily in pooled investments that have a weighted average maturity of less than three months.

Note 4 - Interfund Receivables, Payables and Transfers:

At September 30, 2017, the general fund owed the debt service fund $5,000 for assessments collected and not transferred.

22

REUNION EAST COMMUNITY DEVELOPMENT DISTRICT

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Year Ended September 30, 2017

Note 5 - Capital Assets:

Capital asset activity for the year ended September 30, 2017 was as follows:

		Beginning											
		Balance				Additions		Reductions		Ending Balance	
Governmental Activities:													
Capital Assets Not Being Depreciated:													
Land	$	3,620,313	$	-	$	-	$	3,620,313	
Total capital assets not being depreciated		3,620,313				-			-			3,620,313	
Capital Assets Being Depreciated:													
Roadways		33,402,056				-			-			33,402,056	
Stormwater management		10,048,423				-			-			10,048,423	
Recreational facility and amenities		11,233,986				-			-			11,233,986	
Electrical, communications and lighting		4,326,847				-			-			4,326,847	
Landscaping and irrigation		222,229				-			-			222,229	
Total capital assets being depreciated		59,233,541				-			-			59,233,541	
Less Accumulated Depreciation for:													
Roadways		(7,793,512)				(1,113,402)			-			(8,906,914)	
Stormwater management		(2,654,438)				(334,947)			-			(2,989,385)	
Recreational facility and amenities		(3,769,396)				(561,699)			-			(4,331,095)	
Electrical, communications and lighting		(1,714,500)				(216,342)			-			(1,930,842)	
Landscaping and irrigation		(131,111)				(14,815)			-			(145,926)	
Total Accumulated Depreciation		(16,062,957)				(2,241,205)			-			(18,304,162)	
Total capital assets being depreciated, net		43,170,584				(2,241,205)			-			40,929,379	
Governmental activities capital assets, net	$	46,790,897	$	(2,241,205)	$	-	$	44,549,692	

The estimated costs to complete the District improvements are approximately $3 million. Although the District has agreements binding the Developer to complete District improvements, it may become the District’s responsibility to complete the District in the event the Developer defaults on its obligations and agreements with the District.

Depreciation expense for 2017 was charged in the amounts of $1,679,506 and $561,699 to physical environment and culture and recreation, respectively.

23

REUNION EAST COMMUNITY DEVELOPMENT DISTRICT

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Year Ended September 30, 2017

Note 6 - Long-Term Liabilities:

Series 2002 Special Assessment Revenue Bonds:

On August 8, 2002, the District issued $73,620,000 of Special Assessment Revenue Bonds Series 2002 consisting of $20,190,000 Term Bonds Series 2002A due on May 1, 2022 with a fixed interest rate of 7.20%, $33,955,000 Term Bonds Series 2002A due on May 1, 2033 with a fixed interest rate of 7.375% and $19,475,000 Term Bonds Series 2002B due on May 1, 2008 a fixed interest rate of 5.9%. These Bonds were issued to pay-off the Bond Anticipation Notes issued on December 28, 2001 for $10,000,000 and to finance the acquisition and construction of certain improvements for the benefit of the District. Interest is due semiannually on each May 1 and November 1. Principal on the Series 2002A Bonds is due annually commencing May 1, 2005 through May 1, 2033. Principal on the 2002B Bonds was due in one lump sum on November 1, 2008 and was paid in full. During a previous fiscal year, the Series 2002A Bonds were Trifurcated into three (3) separate Bond Series (see below).

On January 1, 2012, the Series 2002A Bonds were Trifurcated into three (3) separate Bond Series. As a result of the Trifurcation, $30,000 of the bonds were called. The remaining outstanding Series 2002 Bonds with a principal balance of $49,110,00 exchanged for; $34,000,000 in principal amount of the District’s Series 2002A-1, $15,070,000 in principal amount of the District’s Series 2002A-2, and $40,000 in principal amount of the District’s Series 2002A-3 (collectively, the “Series 2002A Bonds”). The Series 2002A Bond maturity and interest rates are unchanged.

The Series 2002A Bonds are subject to redemption at the option of the District prior to their maturity and extraordinary mandatory redemption prior to their maturity in the manner determined by the Bond Indenture.

The Bond Indenture requires that the District maintain adequate funds in a reserve account to meet the debt service reserve requirement as defined in the Indenture. The requirement was not met at September 30, 2017.

The Bond Indenture has certain restrictions and requirements relating principally to the use of proceeds to pay for the infrastructure improvements and the procedures to be followed by the District on assessments to property owners. The District agreed to levy special assessments in annual amounts adequate to provide payment of debt service and to meet the reserve requirements. The principal and interest on the Series 2002 Special Assessment Revenue Bonds issued under the Indenture are secured by all revenues received by the District from Series 2002A assessments levied and collected on the District lands benefited by the 2002 Project. The District is not in compliance with certain of the requirements of the Bond Indenture.

As of September 30, 2017, total principal and interest remaining on the Series 2002A Bonds totaled $9,600,480, which includes $2,100,000 matured principal payable and $1,927,180 matured interest payable on the Series 2002A-2 Bonds. For the year ended September 30, 2017, principal and interest of $873,984 was recorded as an expenditure and no special assessment revenue was pledged.

24

REUNION EAST COMMUNITY DEVELOPMENT DISTRICT

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Year Ended September 30, 2017

Note 6 - Long-Term Liabilities (Continued):

Series 2005 Special Assessment Revenue Bonds:

On March 1, 2005, the District issued $18,880,000 of Special Assessment Revenue Bonds Series 2005 due on May 1, 2036 with a fixed interest rate of 5.8%. Interest is due semiannually on each May 1 and November 1. The Bonds were issued to finance the acquisition and construction of certain improvements for the benefit of the District. Principal on the Series 2005 Bonds is due annually commencing May 1, 2008 through May 1, 2036.

The Series 2005 Bonds are subject to redemption at the option of the District prior to their maturity and extraordinary mandatory redemption prior to their maturity in the manner determined by the Bond Indenture.

The Bond Indenture requires that the District maintain adequate funds in a reserve account to meet the debt service reserve requirement as defined in the Indenture. The requirement was not met at September 30, 2017.

The Bond Indenture has certain restrictions and requirements relating principally to the use of proceeds to pay for the infrastructure improvements and the procedures to be followed by the District on assessments to property owners. The District agreed to levy special assessments in annual amounts adequate to provide payment of debt service and to meet the reserve requirements. The principal and interest on the Series 2005 Special Assessment Revenue Bonds issued under the Indenture are secured by all revenues received by the District from Series 2005 assessments levied and collected on the District lands benefited by the 2005 Project. The District is not in compliance with certain of the requirements of the Bond Indenture.

As of September 30, 2017, total principal and interest remaining on the Series 2005 Bonds totaled $9,267,210. This amount includes $1,590,000 of matured bonds payable and $1,388,520 in matured interest payable that was due, but was not paid. For the year ended September 30, 2017, $803,520 was recorded as an expenditure and no special assessment revenue was pledged.

Bond Exchange - Series 2015 Restructured Bonds:

In June 2015, $8,795,000 of the Series 2002A-2 Bonds and $10,440,000 of the Series 2005 Bonds were exchanged for $7,245,000 Series 2015-1 Bonds, due May 1, 2033 with a fixed interest rate of 6.6%, $8,475,000 Series 2015-2 Bonds, due May 1, 2036 with a fixed interest rate of 6.6% and $3,515,000 Series 2015-3 Bonds, due May 1, 2033 with and fixed interest rate of 6.6%. The Bond maturity and interest rates are unchanged for the unexchanged 2002A-2 and 2005 Bonds. Following the exchange, $6,275,000 of the Series 2002A-2 Bonds and $6,440,000 of the Series 2005 Bonds remained outstanding.

The Series 2015 Restructured Bonds are subject to redemption at the option of the District prior to their maturity and extraordinary mandatory redemption prior to their maturity in the manner determined by the Bond Indenture.

25

REUNION EAST COMMUNITY DEVELOPMENT DISTRICT

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Year Ended September 30, 2017

Note 6 - Long-Term Liabilities (Continued):

Bond Exchange - Series 2015 Restructured Bonds (Continued):

The Bond Indenture requires that the District maintain adequate funds in a reserve account to meet the debt service reserve requirement as defined in the Indenture. The requirement was met at September 30, 2017.

As of September 30, 2017, total principal and interest remaining on the Series 2015 Restructured Bonds totaled $30,882,230. For the year ended September 30, 2017, $1,781,775 principal or interest was paid. Special assessment revenue pledged for the year ended September 30, 2017 was $1,755,919.

Series 2015A Special Assessment Refunding Bonds:

In June 2015, the District issued $30,710,000 of Special Assessment Refunding Bonds Series 2015A consisting of $6,090,000 Term Bonds due May 1, 2020 with a fixed interest rate of 4.0%, $7,640,000 Term Bonds due May 1, 2025 with an interest rate of 4.5% and $16,980,000 Term Bonds due May 1, 2033 with an interest rate of 5.07%. Interest is due semiannually on each May 1 and November 1. The Bonds were issued to refund the Series 2002A-1 Bonds. Principal on the Series 2015A Bonds is due annually commencing May 1, 2016 through May 1, 2033.

The Series 2015A Bonds are subject to redemption at the option of the District prior to their maturity and extraordinary mandatory redemption prior to their maturity in the manner determined by the Bond Indenture.

The Bond Indenture requires that the District maintain adequate funds in a reserve account to meet the debt service reserve requirement as defined in the Indenture. The requirement was met at September 30, 2017.

The Bond Indenture has certain restrictions and requirements relating principally to the use of proceeds to pay for the infrastructure improvements and the procedures to be followed by the District on assessments to property owners. The District agreed to levy special assessments in annual amounts adequate to provide payment of debt service and to meet the reserve requirements. The principal and interest on the Series 2015A Special Assessment Refunding Bonds issued under the Indenture are secured by all revenues received by the District from Series 2015A assessments levied and collected on the District lands benefited by the 2015A Project. The District is in compliance with the requirements of the Bond Indenture.

As of September 30, 2017, total principal and interest remaining on the Series 2015A Special Assessment Refunding Bonds totaled $41,861,700. For the year ended September 30, 2017, principal and interest of $2,603,925 was paid and special assessment revenue pledged for the year ended September 30, 2017 was $2,625,516.

26

REUNION EAST COMMUNITY DEVELOPMENT DISTRICT

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Year Ended September 30, 2017

Note 6 - Long-Term Liabilities (Continued):

Long-term debt activity for the year ended September 30, 2017 was as follows:

			Beginning									Ending		Due Within		
			Balance			Additions		Reductions			Balance			One Year		
Governmental activities:																	
																	
Bonds Payable:																	
Series 2002	$	4,590,000	$	-	$	(415,000)	$	4,175,000	$	445,000		
Series 2005			5,280,000			-			(430,000)			4,850,000			455,000		
Series 2015			18,590,000			-			(555,000)			18,035,000			585,000		
Series 2015A			29,575,000			-			(1,175,000)			28,400,000			1,215,000		
Bond premium			147,970			-			(8,834)			139,136			-		
Governmental Activity Long-																	
term Liabilities	$	58,182,970	$	-	$	(2,583,834)	$	55,599,136	$	2,700,000		

The Series 2002 and 2005 Bonds payable beginning balance excludes $2,845,000 which was due in prior years, but was not paid. This amount was reclassified into matured bonds payable in prior years. Of the total current year reductions, $845,000 was due in the current year, but also was not paid and was reclassified to matured bonds payable. The total matured bonds payable at September 30, 2017 is $3,690,000.

At September 30, 2017, the scheduled debt service requirements on the bonds payable were as follows:

Governmental Activities
Year Ending									
September 30,				Principal				Interest	
2018		$	2,700,000		$	3,161,516	
2019				2,845,000				3,015,098	
2020				3,005,000				2,860,376	
2021				3,175,000				2,696,494	
2022				3,370,000				2,509,002	
2023 - 2027				16,975,000				9,441,224	
2028 - 2032				17,285,000				4,826,200	
2033 - 2036				6,105,000				636,010	
	$	55,460,000	$	29,145,920	

27

REUNION EAST COMMUNITY DEVELOPMENT DISTRICT

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Year Ended September 30, 2017

Note 7 - Related Party Transactions and Litigation:

Developer:

The Prior Developer has not paid the special assessments owed the District, on certain properties, in the current and prior year. As a result, the District was unable to make all of the debt service payments due on the Series 2005 and Series 2002A Bonds in the current and prior years. In prior years, the District initiated foreclosure proceedings against the Prior Developer. These proceedings were filed in an effort to collect the delinquent debt service and operations and maintenance assessments owed by the Prior Developer. The Trustee, on behalf of the bondholders, funded the costs associated with the foreclosure litigation.

In a prior fiscal year, the District filed foreclosure actions against the prior Developer, because of the Prior Developer’s failure to pay debt service and operating and maintenance assessments owed. A judgement was issued to the District for past due operation and maintenance assessments. Reunion East SPE, LLC, a Special Purpose Entity (“SPE”), was awarded a parcel of land within the District owned by the Developer through a tax deed sale. The SPE was formed by the Trustee, on behalf of the Bondholders, to own, manage and dispose of the property and is responsible for funding current operating and maintenance costs. Land was received in the tax deed sale, that was valued at $4,064,500. Due to the Settlement Agreement with the SPE, the outstanding O&M and debt assessments on this property that was owed by the Prior Developer was eliminated.

During a previous fiscal year, the SPE acquired two additional parcels of land through a tax deed sale from the prior Developer. The land received in the tax deed sale was valued at $13,440,300. In May 2015, the SPE sold all the land that was acquired through foreclosure or purchase tax certificates to EHOF Acquisitions II, LLC. As a result of the land sale, the SPE was able to pay the District, from the proceeds of the sale, delinquent O & M assessments of $609,249 and debt service assessments of $8,167,994, in a prior fiscal year. During the previous fiscal year, the SPE was voluntarily dissolved.

28

REUNION EAST COMMUNITY DEVELOPMENT DISTRICT

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Year Ended September 30, 2017

Note 7 - Related Party Transactions and Litigation (Continued):

Related Districts:

The District has an interlocal agreement with Reunion West to share certain maintenance costs. These shared costs are allocated based on the number of currently platted units, with 70% of the costs currently allocated to Reunion East and 30% to Reunion West (See Note 10 - Subsequent Events). Most of these costs are paid by Reunion East and reimbursed by Reunion West. At year end, $98,341 is due from Reunion West for reimbursement of these expenses.

Potential Claim

During the prior fiscal year, the District received correspondence dated May 4, 2016 regarding potential litigation involving the U.S. Bank Bond Trustee and one significant landowner within the District regarding potential debt assessments on certain unassessed parcels within the boundary of the District. The District has been informed that the Trustee’s counsel and the landowner are currently negotiating a resolution, which would eliminate the District as a party. However, until a resolution is agreed to by the Trustee and landowner, the District could be involved in potential legal or equitable actions with the Trustee and significant landowner.

Assessments from Developer

The Current Developer owns a portion of land within the District; therefore, assessment revenue in the general and debt service funds include the assessments levied on those lots owned by the Developer. The Developer’s portion of special assessment revenue for the year ended September 30, 2017 totaled approximately $2,651,000, which is 41% of total special assessment revenue.

Note 8 - Risk Management:

The District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; and natural disasters. These risks are covered by commercial insurance from independent third parties. Settled claims from these risks have not exceeded commercial insurance coverage since inception of the District.

Note 9 - Deficit Net Position:

The District has a government-wide net deficit of $(12,393,794) at September 30, 2017. This deficit primarily results from 1) capital assets which were financed by District long-term debt but were conveyed to other governmental entities and 2) uncollected revenues.

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REUNION EAST COMMUNITY DEVELOPMENT DISTRICT

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Year Ended September 30, 2017

Note 10 - Subsequent Events:

Prior Developer:

The Prior Developer has failed to remit special assessments owed for the Series 2002A-2 and 2005 Bonds.

Bond Payments:

The District was unable to make its November 1, 2017 required debt service payments on the Series 2002A-2 Bonds and the Series 2005 Bonds.

Shared Maintenance Costs

For the fiscal year ending September 30, 2018, the District amended the Interlocal Agreement with Reunion East to share certain maintenance costs from 37% of the costs allocated to Reunion West to 40% and from 63% of the costs allocated to Reunion East to 60%.

30

COMPLIANCE SECTION

MCDIRMIT Ill DA VIS
CERTIFIED PUBLIC ACCOUNTANTS AND ADVISORS

INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE

WITH GOVERNMENT AUDITING STANDARDS

To the Board of Supervisors

Reunion East Community Development District

We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities and each major fund of the Reunion East Community Development District (the “District”) as of and for the year ended September 30, 2017, and the related notes to the financial statements, which collectively comprise the District’s financial statements and have issued our report thereon dated March 28, 2018.

Internal Control Over Financial Reporting

In planning and performing our audit of the financial statements, we considered the District’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the District’s internal control. Accordingly, we do not express an opinion on the effectiveness of the District’s internal control over financial reporting.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.

MCDIRMIT DAVIS & COMPANY, LLC

934 NORTH MAGNOLIA AVENUE, SUITE 100 ORLANDO, FLORIDA 32803 TELEPHONE: 407-843-5406 FAX: 407-649-9339 EMAIL: INFO@MCDIRMITDAVIS.COM

MEMBERS: PRIVATE COMPANIES PRACTICE SECTION AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS FLORIDA INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS

31

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the District’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations and contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. See Appendix A.

We noted certain other matters that we reported to management of the District, in a separate letter dated March 28, 2018. The District’s response to our findings identified in our audit is included in this report. We did not audit the District’s response, and accordingly, we express no opinion on it.

Purpose of this Report

The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the District’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the District’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

March 28, 2018

Orlando, Florida

32

MCDIRMIT Ill DAVIS
CERTIFIED PUBLIC ACCOUNTANTS AND ADVISORS

MANAGEMENT COMMENTS

Board of Supervisors

Reunion East Community Development District

Report on the Financial Statements

We have audited the financial statements of the Reunion East Community Development District, (the “District”) as of and for the fiscal year ended September 30, 2017, and have issued our report thereon dated March 28, 2018.

Auditor’s Responsibility

We conducted our audit in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States and Chapter 10.550, Rules of the Auditor General.

Other Reporting Requirements

We have issued our Independent Auditor’s Report on Internal Control over Financial Reporting and Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards and Independent Auditor’s Report on an examination conducted in accordance with AICPA Professional Standards, AT-C Section 315, regarding compliance requirements in accordance with Chapter 10.550, Rules of the Auditor General. Disclosures in those reports, which are dated March 28, 2018, should be considered in conjunction with this management letter.

Prior Audit Findings

Section 10.554(1)(i.)1., Rules of the Auditor General, require that we determine whether or not corrective actions have been taken to address findings and recommendations made in the preceding annual financial audit report. Corrective actions have been taken to address findings and recommendations made in the preceding annual audit report, except as noted below.

Tabulation of Uncorrected Audit Findings

Current Year Finding #	2015-16 FY Finding #	2014-2015 FY Finding #	
12-01	12-01	12-01	
13-01	13-01	13-01	
13-02	13-02	13-02	

MCDIRMIT DAVIS & COMPANY, LLC

934 NORTH MAGNOLIA AVENUE, SUITE 100 ORLANDO, FLORIDA 32803 TELEPHONE: 407-843-5406 FAX: 407-649-9339 EMAIL: INFO@MCDIRMITDAVIS.COM

MEMBERS: PRIVATE COMPANIES PRACTICE SECTION AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS FLORIDA INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS

33

Official Title and Legal Authority

Section 10.554(1)(i)4., Rules of the Auditor General, requires that the name or official title and legal authority for the primary government and each component unit of the reporting entity be disclosed in this management letter, unless disclosed in the notes to the financial statements. This information has been disclosed in the notes to the financial statements.

Financial Condition and Management

Section 10.554(1)(i)5.a. and 10.556(7), Rules of the Auditor General, require us to apply appropriate procedures and communicate the results of our determination as to whether or not the District has met one or more of the conditions described in Section 218.503(1), Florida Statutes, and to identify of the specific condition(s) met. In connection with our audit, we determined that the District met one of the conditions described in Section 218.503(1), Florida Statutes, as listed in Appendix B.

Pursuant to Sections 10.554(1)(i)5.c. and 10.556(8), Rules of the Auditor General, we applied financial condition assessment procedures for the District. It is management’s responsibility to monitor the District financial condition, and our financial condition assessment was based in part on representations made by management and the review of financial information provided by same. Deteriorating financial conditions were noted as indicated above under Section 10.554(1)(i)5.a.

Section 10.554(1)(i)2., Rules of the Auditor General, requires that we communicate any recommendations to improve financial management. In connection with our audit, we did not have any such recommendations.

Annual Financial Report

Section 10.554(1)(i)5.b. and 10.556(7), Rules of the Auditor General, require us to apply appropriate procedures and communicate the results of our determination as to whether the annual financial report for the District for the fiscal year ended September 30, 2017, filed with the Florida Department of Financial Services pursuant to Section 218.32(1)(a), Florida Statutes, is in agreement with the annual financial audit report for the fiscal year ended September 30, 2017. In connection with our audit, we determined that these two reports were in agreement.

Additional Matters

Section 10.554(1)(i)3., Rules of the Auditor General, requires us to communicate noncompliance with provisions of contracts or grant agreements, or abuse, that have occurred, or are likely to have occurred, that have an effect on the financial statements that is less than material but which warrants the attention of those charged with governance. In connection with our audit, we did not note any such findings.

Purpose of this Letter

Our management letter is intended solely for the information and use of the Legislative Auditing Committee, members of the Florida Senate and the Florida House of Representatives, the Florida Auditor General, Federal and other granting agencies, the Board of Supervisors, and applicable management, and is not intended to be and should not be used by anyone other than these specified parties.

Orlando, Florida

March 28, 2018

34

REUNION EAST COMMUNITY DEVELOPMENT DISTRICT

APPENDIX A - COMPLIANCE VIOLATIONS OF LAWS,

REGULATIONS AND CONTRACTUAL PROVISIONS

Year Ended September 30, 2017

13-01 - Failure to Make Bond Debt Service Payments When Due

Criteria

The Special Assessment Revenue Bonds Series 2005 and Series 2002A require semiannual interest payments and annual principal payments.

Condition

All of the debt service payments due on the Series 2005 and Series 2002A Bonds have not been made as of September 30, 2017.

Cause

The Prior Developer failed to pay debt service special assessments to the District.

Effect

At September 30, 2017, the District is not in compliance with the requirements of the Bond Indenture.

Recommendation

We recommend the District utilize all legal remedies available to collect delinquent assessments and bring debt service payments current.

13-02 - Failure to Meet Reserve Account Requirement

Criteria

The Special Assessment Revenue Bond Series 2005 requires the District maintain adequate funds in a reserve account to meet the reserve requirement as defined in the Indenture.

Condition

At September 30, 2017, the District did not meet the reserve requirement on the Series 2005 Bonds.

Cause

The District had to use amounts in reserve account to pay debt service since the Prior Developer has not paid their special assessments to the District.

Effect

The District is not in compliance with the requirements of the Bond Indenture.

Recommendation

We recommend the District utilize all legal remedies available to collect delinquent assessments and replenish the Reserve account.

35

REUNION EAST COMMUNITY DEVELOPMENT DISTRICT

APPENDIX B - CONDITIONS OF FINANCIAL EMERGENCY

Year Ended September 30, 2017

12-01 - Failure to Make Debt Service Payments When Due

In the current and prior years, the District did not pay all of the principal and interest due on the Series 2005 and Series 2002A Bonds due to lack of funds; therefore, the District meets Section 218.503(1)(a) as a financial emergency condition.

36

MCDIRMIT Ill DAVIS
CERTIFIED PUBLIC ACCOUNTANTS AND ADVISORS

INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE WITH

THE REQUIREMENTS OF SECTION 218.415, FLORIDA STATUTES

Board of Supervisors

Reunion East Community Development District

We have examined Reunion East Community Development District’s (the “District”) compliance with the requirements of Section 218.415, Florida Statutes, during the year ended September 30, 2017. Management is responsible for the District’s compliance with those requirements. Our responsibility is to express an opinion on the District’s compliance based on our examination.

Our examination was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants and the standards applicable to attestation engagements contained in Government Auditing Standards issued by the Comptroller General of the United States and, accordingly, included examining, on a test basis, evidence about the District’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our examination provides a reasonable basis for our opinion. Our examination does not provide a legal determination on the District’s compliance with specified requirements.

In our opinion, the District complied, in all material respects, with the aforementioned requirements for the year ended September 30, 2017.

Orlando, Florida

March 28, 2018

MCDIRMIT DAVIS & COMPANY, LLC

934 NORTH MAGNOLIA AVENUE, SUITE 100 ORLANDO, FLORIDA 32803 TELEPHONE: 407-843-5406 FAX: 407-649-9339 EMAIL: INFO@MCDIRMITDAVIS.COM

MEMBERS: PRIVATE COMPANIES PRACTICE SECTION AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS FLORIDA INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS

37

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