HomeMy WebLinkAboutDenton Audit 08-31-14
TEXAS STUDENT HOUSING AUTHORITY–
THE RIDGE AT NORTH TEXASPROJECT
FINANCIAL REPORT
AUGUST 31, 2014
C O N T E N T S
Page
INDEPENDENT AUDITOR’S REPORT....................................................................................1
MANAGEMENT’S DISCUSSION AND ANALYSIS..................................................................4
FINANCIAL STATEMENTS
Statement of Net Position................................................................................................8
Statement of Revenues, Expenses, and Changes in Net Position...................................9
Statement of Cash Flows...............................................................................................10
Notes to Financial Statements.......................................................................................11
SUPPLEMENTAL SCHEDULES
Schedule I –Schedule of Revenues and Expenses–Budget and Actual......................20
Schedule II –Certificate of the Fixed Charges Coverage Ratio......................................21
INDEPENDENT AUDITOR’S REPORT
To the Board of Directors
Texas Student Housing Authority-The Ridge at North TexasProject
Report on the Financial Statements
We have audited the accompanying financial statements of Texas Student Housing Authority -
The Ridge at North Texas Project(the Project), a component unit of Town of Westlake,as of
and for the year ended August 31, 2014, and the related notes to the financial statements,
which collectively comprise theProject’s basic financial statements as listed in the table of
contents.
Management’s Responsibility for the Financial Statements
TheProject’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 auditin accordance with auditing standards generally accepted in the United
States of America. 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 policies 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 opinion.
Texas Student Housing Authority
The Ridge at North TexasProject
Page 2
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects,
the financial position of theProject as of August 31, 2014, and the changes in its financial
position and its cash flows for the year then ended in accordance with accounting principles
generally accepted in the United States of America.
Emphasis of Matter Regarding Going Concern
The accompanying financial statements have been prepared assuming that the Project will
continue as a going concern. As discussed in Note 9to the financial statements, the Project is in
default on its bondsdue to failure to make principal and interest payments when due and
payable. This gives the bondholders the right to accelerate and demand payment on the bonds
in full. These conditions raise substantial doubt about its ability to continue as a going concern.
Management’s plans regarding these matters also are described in Note 9. The financial
statements do not include any adjustments that might result from the outcome of this
uncertainty. Our opinion is not modified with respect to this matter.
Change in Accounting Principle
As discussed in Note 8 to the financial statements, in 2014 the Project adopted New Accounting
Guidance, GASB Statement No. 65, Items Previously Reported as Assets and Liabilities. Our
opinion is not modified with respect to this matter.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the
management’s discussion and analysis on pages 4–7be 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.
Texas Student Housing Authority
The Ridge at North TexasProject
Page 3
Other Information
Our audit was conducted for the purpose of forming an opinion on the financial statementsthat
collectively comprise the Project’s basic financial statements. The Schedule of Revenues and
Expenses –Budget and Actual and the Certificate of the Fixed Charges Coverage Ratio are
presented for purposes of additional analysis and are not a requiredpart of the basic financial
statements.
The Schedule of Revenues and Expenses –Budget and Actual and the Certificate of the Fixed
Charges Coverage Ratio are the responsibility of management and were derived from and
relatedirectly to the underlying accounting and other records used to prepare the basic financial
statements. Such information has been subjected to the auditing procedures applied in the audit
of the basic financial statements and certain additional procedures, including comparing and
reconciling such information directly to the underlying accounting and other records used to
prepare the basic financial statements or to the basic financial statements themselves, and
other additional procedures in accordance with auditing standards generallyaccepted in the
United States of America. In our opinion, the Schedule of Revenues and Expenses –Budget
and Actual and the Certificate of the Fixed Charges Coverage Ratio are fairly stated, in all
material respects, in relation to the basic financial statements as a whole.
WEAVER AND TIDWELL, L.L.P.
Dallas, Texas
February 5, 2015
MANAGEMENT’S DISCUSSION AND ANALYSIS
(unaudited)
TEXAS STUDENT HOUSINGAUTHORITY–
THE RIDGE AT NORTH TEXASPROJECT
MANAGEMENT’S DISCUSSION AND ANALYSIS
YEAR ENDED AUGUST 31, 2014
(unaudited)
As staff of the Texas Student Housing Authority–The Ridge at North Texas Project (the
“Project”), we offer the readers of the Project’s financial statements this narrative overview and
analysis of the financial activities of the Project for the fiscal year ended
August 31, 2014. We encourage readers to consider the information presented herein in
conjunction with the Project’s financial statements which follow this section. As the Projectis a
component unit of the Town of Westlake and is thus considered a governmental entity,
Governmental Accounting Standards Board Statement 34, Basic Financial Statements—and
Management’s Discussion and Analysis—for State and Local Governments has been
implemented. The reader should note that this financial report addresses only the financial
condition of the Project itself.
FINANCIAL HIGHLIGHTS
The liabilities of the Project exceeded its assets at the close of the fiscal year by
$14,766,737, adecrease of $1,704,959fromthe prior year(including a $605,372
adjustment to beginning net position to reflect the cumulative effect of implementing
GASB Statement No. 65).
Operating revenue of $4,515,970was$120,508morethan budget. Operating expense
(not including depreciation and amortization and interest expense) was$140,901less
than budget.
At the end of the current fiscal year, the total cash balances were $352,180in
unrestricted cash and $1,932,392in restricted cash.
OVERVIEW OF THE FINANCIAL STATEMENTS
This discussion and analysis is intended to serve as an introduction to the Project’s basic
financial statements. The Project’s report consists of three parts, Management’s Discussion and
Analysis, the basic financial statements, and notes to financial statements. The basic financial
statements include a statement of net position, statement of revenues, expenses and changes
in net position, anda statement of cash flows.Supplemental schedules follow the notes to the
financial statements.
The Project is being treated as a going concern. The Project is in default on its bonds and is not
financially able to make scheduled principal and interest payments on its outstanding debt. They
are considered an event of default by the Trustee, which gives the bondholders the right to
accelerate and demand payment of the bonds in full. Management and the property manager
are in the process of developing plans to increase occupancy and rental rates at the property to
improve its financial performance.
4
TEXAS STUDENT HOUSINGAUTHORITY–
THE RIDGE AT NORTH TEXASPROJECT
MANAGEMENT’S DISCUSSION AND ANALYSIS
YEAR ENDED AUGUST 31, 2014
(unaudited)
The statement of net positionpresents information on all of the Project’s assets and liabilities
with the difference between the two reported as net position.
NET POSITION
Business-type Activities
20142013
Current and other assets$2,323,843$ 2,939,706
Capital assets16,481,68417,346,967
Total assets
18,805,52720,286,673
Current liabilities33,572,26432,113,451
Noncurrent liabilities-1,235,000
Total liabilities
33,572,26433,348,451
Net position
Net investment in capital assets(9,870,962)(9,703,194)
Unrestricted(4,895,775)(3,358,584)
Total net position
$(14,766,737)$(13,061,778)
The statement of revenues, expenses and changes in net position accounts for all of the
Project’s revenues and expenses regardless of when cash is paid or received.
CHANGES IN NET POSITION
Business-type Activities
20142013
Total operating revenue$ 4,515,970$ 4,154,003
Total operating expenses(2,770,801)(2,949,621)
Total operating income
1,745,1691,204,382
Interest income9,7727,793
Interest expense(2,854,528)(2,756,770)
Total nonoperating expenses
(2,844,756)(2,748,977)
CHANGE IN NET POSITION
(1,099,587)(1,544,595)
NET POSITION, BEGINNING
(13,061,778)(11,517,183)
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE(605,372)-
NET POSITION, ENDING
$(14,766,737)$(13,061,778)
The statement of cash flows recaps how cash changed from year to year.
5
TEXAS STUDENT HOUSINGAUTHORITY–
THE RIDGE AT NORTH TEXASPROJECT
MANAGEMENT’S DISCUSSION AND ANALYSIS
YEAR ENDED AUGUST 31, 2014
(unaudited)
NOTES TO THE FINANCIAL STATEMENTS
The notes provide additional information that is essential to a full understanding of the data
provided in the financial statements.
Restricted Cash
Restricted cash represents monies held in escrow by the Trustee and are restricted for the
payment of expenses as outlined in the Installment Sale Agreement. As of August 31, 2014
these balances were as follows:
Revenue Fund$ 9,858
Bond Fund - Series 2001A269,568
Bond Fund - Series 2001B1
Repair and Replacement Fund13
Series A Principal Fund32,276
Series B Principal Fund3
Operating Reserve Fund7
Debt Service Reserve 2001A Account1,620,301
Debt Service Reserve 2001B Account365
Total$ 1,932,392
Non-Restricted Cash
Non-restricted cash is available for general use of the project.
Bonds Payable
As of August 31, 2014, since the bonds are in default, all amounts are considered due
immediately.
2001A Bonds$23,710,000
2001B Bonds3,240,000
Less discounts on bonds issued(597,354)
Total$26,352,646
For the fiscal year ending August 31, 2014, the total principal and interest paymentswere
$2,457,504, including $735,000 in principal.
6
TEXAS STUDENT HOUSINGAUTHORITY–
THE RIDGE AT NORTH TEXASPROJECT
MANAGEMENT’S DISCUSSION AND ANALYSIS
YEAR ENDED AUGUST 31, 2014
(unaudited)
ECONOMIC FACTORS AND NEXT YEAR’S BUDGET
Leases at the Project are primarily 12-month leases, however, due to competitive and market
conditions, a relatively minor number of 6 and 10-month leases exist. These leases do bring a
monthly premium over the 12-month leases. Occupancy for the fiscal year ending
August 31, 2014, forecasts at 93%. Rental rates will see a small increase. This is exacerbated
by the fact that University of North Texas does not allow freshmen to live in off-campus housing.
CONTACTING THE AUTHORITY’S FINANCIAL MANAGEMENT
This financial report is designed to provide the reader with a general overview of the Project’s
finances and to demonstrate the Project’s accountability for the money it receives. If you have
any questions about this report, or need additional information, please contact Pete Ehrenberg
at (817) 490-5723.
7
FINANCIAL SECTION
TEXASSTUDENT HOUSING AUTHORITY
THE RIDGE AT NORTH TEXASPROJECT
STATEMENT OF NET POSITION
AUGUST 31, 2014
ASSETS
Current Assets
Cash $ 352,180
Restricted cash1,932,392
Accounts receivable39,271
Total current assets2,323,843
Capital Assets
Land2,200,000
Other capital assets, net of accumulated depreciation14,281,684
Total capital assets16,481,684
Total Assets18,805,527
LIABILITIES
Current Liabilities
Accounts payable247,586
Accrued liabilities13,818
Unearned revenue and prepaid rent192,781
Accrued interest 6,765,433
Bonds payable26,352,646
Total current liabilities33,572,264
NET POSITION
Net investment in capital assets(9,870,962)
Unrestricted(4,895,775)
Total net position$(14,766,737)
The Notes to Financial Statements are
an integral part of this statement.
8
TEXAS STUDENT HOUSINGAUTHORITY
THE RIDGE ATNORTH TEXASPROJECT
STATEMENT OF REVENUE, EXPENSES AND CHANGES IN NET POSITION
FOR THE YEAR ENDED AUGUST 31, 2014
OPERATING REVENUE
Rental $4,372,768
Other 143,202
Total operating revenue4,515,970
OPERATING EXPENSES
Personnel 328,780
Contract services105,720
Utilities696,868
Repairs and maintenance175,831
Turnover259,350
Advertising and promotion77,078
Administration126,882
Management fees132,000
Depreciation865,283
Travel3,009
Total operating expenses2,770,801
OPERATING INCOME1,745,169
NONOPERATING REVENUE (EXPENSES)
Interest income9,772
Interest expense(2,854,528)
TOTAL NONOPERATING REVENUE (EXPENSES)(2,844,756)
CHANGE IN NET POSITION(1,099,587)
NET POSITION, BEGINNING(13,061,778)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE(605,372)
NET POSITION, ENDING$(14,766,737)
The Notes to Financial Statements are
an integral part of this statement.
9
TEXAS STUDENT HOUSINGAUTHORITY
THE RIDGE AT NORTH TEXASPROJECT
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED AUGUST 31, 2014
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from tenants$4,427,446
Cash paid to employees(328,780)
Cash paid to suppliers(1,696,824)
Net cash provided by operating activities
2,401,842
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES
Payments on bonds payable(735,000)
Interest paid (1,722,504)
Net cash used in capital and related financing activities
(2,457,504)
CASH FLOWS FROM INVESTING ACTIVITIES
Interest on investments9,772
Net cash provided by investing activities
9,772
Net change in cash and cash equivalents
(45,890)
Cash and cash equivalents at beginning of year
2,330,462
Cash and cash equivalents at end of year
$2,284,572
Cash$ 352,180
Restricted cash1,932,392
Total cash and cash equivalents
$ 2,284,572
RECONCILIATION OF OPERATING INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
Operating income$1,745,169
Adjustments to reconcile operating income to
net cash provided by operating activities:
Depreciation 865,283
Changes in operating assets and liabilities:
Accounts receivable(35,399)
Accounts payable(120,086)
Unearned revenue and prepaid rent(53,125)
Net cash provided by operating activities
$2,401,842
The Notes to Financial Statements are
an integral part of this statement.
10
TEXAS STUDENT HOUSING AUTHORITY–THE RIDGE AT NORTH TEXASPROJECT
NOTES TO FINANCIAL STATEMENTS
NOTE 1. GENERAL STATEMENT
Texas Student Housing Authority –The Ridge at North Texas (the Project), a Texas
nonprofit organization, was incorporated on May 17, 2001, a component unit of the Town of
Westlake, Texas (the Town) pursuant to Section 53.35(b) of the Texas Education Code, as
amended (the Act). The Project’s primary purpose is to purchase, own and operate a
student housing facility known as Texas Student Housing Authority –The Ridge at North
Texas.
The Project was purchased from Jefferson Commons –Denton, L.P. on July 1, 2001. The
Project obtained its financing through the issuance of Texas Student Housing Authority –
Denton Project Texas Student Housing Revenue Bonds (University of North Texas Project),
Series 2001A and Subordinate Series 2001B (the Bonds). The Bonds were issued through a
Trust Indenture (the Trust Indenture) by and between the Authority and The Bank of New
York (the Trustee). The Series 2001A and Subordinate Series 2001B bonds were issued in
the face amounts of $29,105,000 and $5,250,000, respectively. The accompanying financial
statements present the operations of the Project, whose revenue streams are pledged for
the bonds described herein.
The Authority was also established to acquire educational facilities and housing facilities to
be used by the students, faculty and staff of institutions of higher education and facilities
incidental, subordinate or related thereto or appropriate within the State of Texas.
The Project was operated and managed under the terms of the (a) Property Management
and Leasing Agreement by and between the Authority and JPI Campus Quarters
Management, L.P. (JPI) and (b) the Asset Management Agreement by and between the
Authority and JPI Apartment Management, L.P., up until September 30, 2004. The Project
subsequent to September 30, 2004, is managed and operated by Asset Campus Housing
under the terms of a Property Management and Leasing Agreement.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Project’ssignificant accounting policies consistently applied in the
preparation of the accompanying financial statements follows:
Reporting Entity
For financial reporting purposes, management has considered all potential component
units. The decision to include a potential component unit in the reporting entity was
made by applying the criteria set forth in GASB Statement No. 14 as amended by GASB
statementsNo. 39and 61. The criteria used is as follows:
Financial Accountability-The primary government is deemed to be financially
accountable if it appoints a voting majority of the organization's governing body
and (1) it is able to impose its will on that organization or (2) there is a potential for
the organization to provide specific financial benefits to, or impose specific
financial burdens on, the primary government.
11
TEXAS STUDENT HOUSING AUTHORITY–THE RIDGE AT NORTH TEXASPROJECT
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES –CONTINUED
Reporting Entity –Continued
Additionally, the primary government may be financially accountable if an
organization is fiscally dependent on the primary government regardless of
whether the organization has a separately elected governing board appointed by a
higher level of government or a jointly appointed board.
Accordingly, the Project reports no component units.
Measurement Focus and Basis of Accounting
Measurement focus refers to what is being measured; basis of accounting refers to
when revenues and expenditures are recognized in the accounts and reported in the
financial statements. The Projectuses the economic resources measurement focus and
the accrual basis of accounting. The economic resources measurement focus means all
assets and liabilities (whether current or noncurrent) are included on the statement of net
position and the operating statement presentsincreases (revenues) and decreases
(expenses) in net totalposition.Under the accrual basis of accounting, revenues are
recognized when earned, and expenses are recognized at the time the liability is
incurred.
The Governmental Accounting Standards Board (GASB) is the accepted standards
setting body for establishing governmental accounting and financial reporting principles
(GAAP). Management uses estimates and assumptions in preparing financial
statements in accordance with GAAP. Those estimates and assumptions affect the
reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities, and the reported revenuesand expenses. Actual results could vary from the
estimates that are used.
Income Taxes
The Project is an instrumentality of the Town and, therefore, its income is not subject to
federal income taxation pursuant to Section 115 of the Internal Revenue Code.
Cash and Cash Equivalents
The Project considers all highly liquid investments with maturity of three months or less
when purchased to be cash equivalents. At August 31, 2014, the Project had no such
investments included in cash and cash equivalents.
In addition, the Project has restricted cash of $1,932,392that is held by the Trustee for
the bonds payable under provisions of theTrust Indenture. During the year ended
August 31, 2014, the investment income received from cash was $9,772. See Note 3for
risk disclosures and breakdown of restricted cash accounts.
12
TEXAS STUDENT HOUSING AUTHORITY–THE RIDGE AT NORTH TEXASPROJECT
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES –CONTINUED
Accounts Receivable
Accounts receivable are stated at amounts management expects to collect from
outstanding balances. Management writes off uncollectible amounts through a charge to
expenses and a credit to accounts receivable based on its assessment of the
outstanding receivables. At year-end, management assesses the accounts receivable
balance and establishes a valuation allowance based on historical experience and an
evaluation of the outstanding balances. As of August 31, 2014, management has
determined that all accounts doubtful of collection have been charged to operations and
an allowance is not required.
Advertising Costs
All advertising costs are expensed as they are incurred. Advertising costs for the twelve-
month period ending August 31, 2014were approximately $77,000.
Capital Assets
Property and equipment have been recorded at the date of acquisition at cost. Routine
maintenance and repair costs to ready the units for the next period are expensed as
incurred.
Expenses directly related to the improvement of property are capitalized at cost. The
Projectcapitalizes the cost of roof replacementsand expenditures or other major
property improvements.
Depreciation is computed using the straight-line method over the estimated useful lives
as follows:
Estimated
Asset ClassUseful Lives
Building30 years
Furniture and fixtures3-20 years
Subsequent Events
The Projecthas evaluated all events or transactions that occurred after August 31,
2014, and up through February 5, 2015, the date the financial statements were issued.
13
TEXAS STUDENT HOUSING AUTHORITY–THE RIDGE AT NORTH TEXASPROJECT
NOTES TO FINANCIAL STATEMENTS
NOTE 3. CASH AND INVESTMENTS
At August 31, 2014, the carrying amount of Texas Student Housing Authority –The Ridge at
North Texas Project deposits (cash with interest bearing accounts and restricted cash held
in interest bearing accounts) was in total $2,284,572of which $1,932,392represented
restricted cash.
Restricted Cash
Restricted cash represents amounts placed on deposit in accounts and held by the
Trustee, which are restricted for the payment of expenses as required by the Trust
Indenture. At August 31, 2014, restricted cash consists of the following funds and
accounts:
Fund/Account Description
Revenue Fund$ 9,858
Bond Fund - Series 2001A269,568
Bond Fund - Series 2001B1
Repair and Replacement Fund13
Series A Principal Fund32,276
Series B Principal Fund3
Operating Reserve Fund7
Debt Service Reserve 2001A Account1,620,301
Debt Service Reserve 2001B Account365
Total$1,932,392
The following is a brief description of the funds and accounts making up the restricted cash
balance at year end, as defined by the Trust Indenture:
Revenue Fund-The revenue fund was established for monthly deposits from the
depository account that holds general revenues of the Project. All monies are deposited
in the revenue fund and then properly distributed to the other funds, as required by the
Trust Indenture. Amounts in the fund at year end represent amounts that have not been
distributed to the other funds due to timing of the interfund transfers.
Bond Fund-The Trustee makes monthly deposits in the bond fund pursuant to the Trust
Indenture. Amounts inthe Bond Fund shall be used solely to fund thepayment of
principal and interest on the Bonds, for the redemption of the Bonds at or prior to
maturity, and to purchase Bonds on the open market. In the event of default, amounts
in this fund may pay the fees and expenses of the Trustee prior to making any payments
to the bondholders. This fund has two accounts, the Series 2001A and the Series
2001B accounts.
14
TEXAS STUDENT HOUSING AUTHORITY–THE RIDGE AT NORTH TEXASPROJECT
NOTES TO FINANCIAL STATEMENTS
NOTE 3. CASH AND INVESTMENTS –CONTINUED
Restricted Cash–Continued
Repair and Replacement Fund-Amounts in the repair and replacement fundmay be (a)
used to pay the maintenance and repair costs related to the Denton Property, which the
Projectis obligated to pay pursuant to the Trust Indenture and (b) transferred to the
bond fund to pay principal of or interest on the Bonds to the extent there are insufficient
monies in the bond fund.
Series A Principal Fund-Amounts in the Series A principal fund represent sinking fund
payments set aside for repayment of the principal balance on the Series A Bonds.
Series B Principal Fund-Amounts in the Series B principal fund represent sinking fund
payments set aside for repayment of the principal balance on the Series B Bonds.
Operating Reserve Fund-Amounts in the operating reserve fund may be transferred to
the property manager to fund operationsif the transfer from the revenue fund is not
sufficient to pay operating expenses. Amounts may also be transferred to the Bond
Fund to pay principal and interest on the Bonds; to the extent there are insufficient
monies in the Bond Fund on any interest payment date.
Debt Service Reserve 2001A Account-The amounts on deposit in this account are to
be used for the purpose of paying principal and interest on the Series 2001A Bonds as
they become due in the event there should be insufficient funds in the Bond Fund.
Debt Service Reserve 2001B Account-The amounts on deposit in this account are to
be used for the purpose of paying principal and interest on the Series 2001B Bonds as
they become due in the event there should be insufficient funds in the Bond Fund.
The Public Funds Investment Act (Government Code Chapter 2256) contains specific
provisions in the areas of investment practices, management reports and establishment of
appropriate policies relating to a governmental entity’scash and investments.
15
TEXAS STUDENT HOUSING AUTHORITY–THE RIDGE AT NORTH TEXASPROJECT
NOTES TO FINANCIAL STATEMENTS
NOTE 3. CASH AND INVESTMENTS –CONTINUED
Disclosure Relating to Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will adversely affect the
fair value of an instrument. Generally, the longer the maturity of an investment,the
greater the sensitivity of its fair value to changes in market interest rates. Texas Student
Housing Authority –The Ridge at North Texas Project is not significantly exposed to
interest rate risk,as all investments earn a variable rate.
Disclosure Relating to Credit Risk
Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation
to the holder of the investment. This is measured by the assignment of a rating by a
nationally recognized statistical rating organization. The Public Funds Investment Act
has a minimum rating that is required for investments. Texas Student Housing Authority
-The Ridge at North TexasProjectholds all of its cash and investments with the bond
trustee and commercial banks.
Concentration of Credit Risk
The investment policy of Texas Student Housing Authority -The Ridge at North Texas
Projectis subject to the indenture agreement of the Bonds. As of August 31, 2014,
Texas Student Housing Authority -The Ridge at North Texas Project held all of its
restricted cash balances with the trustee, which represents 85% of the total cash and
investments held at August 31, 2014.
Custodial Credit Risk
Custodial credit risk for deposits is the risk that, in the event of the failure of a depository
financial institution, a government will not be able to recover its deposits or will not be
able to recover collateral securities that are in the possession of an outside party. The
custodial credit risk for investments is the risk that, in the event of the failure of the
counterparty to a transaction, a governmentwill not be able to recover the value of its
investment or collateral securities that are in the possession of another party. The
Public Funds Investment Act does not contain legal or policy requirements that would
limit the exposure to custodial credit risk for deposits or investments, other than the
following provision for deposits: The Public Funds Investment Act requires that a
financial institution secure deposits made by state or local governmental units by
pledging securities in an undivided collateral pool held by a depository regulated under
state law (unless so waived by the governmental unit). The market value of the pledged
securities in the collateral pool must equal at least the bank balances less FDIC
insurance at all times.
As of August 31, 2014, the Project’s unrestricted cash is$352,180(bank balance
$377,262). When the bank balance exceeds $250,000 it is no longer covered by federal
depository insurance and the remaining portion iscollateralized with a BankDeposit
Guarantee Bond from the Project’s primary depository.
16
TEXAS STUDENT HOUSING AUTHORITY–THE RIDGE AT NORTH TEXASPROJECT
NOTES TO FINANCIAL STATEMENTS
NOTE 4. CAPITAL ASSETS
Capital asset activity for the Project for the year ended August 31, 2014was as follows:
BeginningEnding
BalanceAdditionsDeletionsBalance
Capital assets, not being depreciated
Land$2,200,000$-$ -$2,200,000
Total capital assets, not being depreciated2,200,000--2,200,000
Capital assets, being depreciated
Building25,705,000--25,705,000
Furniture and fixtures1,253,841--1,253,841
Total capital assets, being depreciated26,958,841- -26,958,841
Less accumulated depreciation for:
Building(10,639,014)(856,833) -(11,495,847)
Furniture and fixtures(1,172,860)(8,450)-(1,181,310)
Total accumulated depreciation(11,811,874)(865,283)-(12,677,157)
Total capital assets, being depreciated, net15,146,967(865,283)-14,281,684
Capital assets, net$17,346,967$ (865,283)$ -$16,481,684
NOTE 5. BONDS PAYABLE
The Bonds are Tax-Exempt Governmental Obligations under the Internal Revenue Code.
The Bonds payable represent amounts due to the bondholders, via the Trustee, and
payable under the terms of the Trust Indenture dated July 1, 2001. The Bonds are payable
solely from the revenues generated by the Denton Property and are secured bythe
revenues pledged and assigned under the terms of the Trust Indenture. The Town of
Westlake does not have any liability for the payment of the bonds as the bonds are non-
recourse to both the Town of Westlake and Texas Student Housing Authority. Interest rates
onthe bondsrange from 5.00% to 11.00%and are payable semi-annually on July 1 and
January 1 of each year thereafter.
At August 31, 2014, the Project was not in compliance with certain covenants of the
Indenture including insufficient funds in some of the required funds discussed in Note 2 and
afixed chargesratioless than 1.0.In addition, all required principal payments on the Series
B bonds had not been made as ofAugust 31, 2014.Upon certain events of defaulteither
the trustee,or owners of not less than 25% in aggregate principal of thebondsthen
outstanding, may declare the principal and all interest then due to be immediately due and
payable.Generally accepted accounting principles require that if the events of default occur,
theliability should be disclosed as current on the financial statements.
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TEXAS STUDENT HOUSING AUTHORITY–THE RIDGE AT NORTH TEXASPROJECT
NOTES TO FINANCIAL STATEMENTS
NOTE 5. BONDS PAYABLE –CONTINUED
The following is a summary of long-term debt transactions of the Projectfor the year ended
August 31, 2014:
Amounts
BeginningEndingDue Within
BalanceIncreasesDecreasesBalalnceOne Year
Revenue Bonds:
2001A Bonds$24,445,000$ -$ (735,000)$23,710,000$ 785,000
2001B Bonds3,240,000--3,240,000-
Less discounts(634,839)-37,485(597,354)-
Total$27,050,161$ -$ (697,515)$26,352,646$ 785,000
The annual requirements to amortize all debts outstanding as of August 31, 2014are as
follows.
Year Ending
August 31,PrinicpalInterestTotal
Past Due$1,240,000$6,459,199$7,699,199
2015785,0001,837,4052,622,405
2016835,0001,784,4182,619,418
2017950,0001,728,0552,678,055
20181,020,0001,661,5932,681,593
20191,085,0001,589,9802,674,980
2020-20246,710,0006,683,47313,393,473
2025-20299,500,0003,905,63813,405,638
2030-20344,825,000531,5085,356,508
$26,950,000$26,181,269$53,131,269
NOTE 6. NET POSITION
Net positionrepresents the residual assets after liabilities are deducted. Net position is
reported in the following categories.
Net Investment in Capital Assets–The component of net position that reports the capital
assets less both the accumulated depreciation and the outstanding balance of debt,
excluding unspent proceeds, that is directly attributable to the acquisition, construction,
or improvement of these capital assets.
Restricted–The component of net position calculated by reducing the carrying value of
restricted assets by the amount of any related debt outstanding.
Unrestricted-The residual difference between the assets and liabilities that is not
reported in net investment in capital assets and restricted net position.
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TEXAS STUDENT HOUSING AUTHORITY–THE RIDGE AT NORTH TEXASPROJECT
NOTES TO FINANCIAL STATEMENTS
NOTE 7. CONCENTRATIONS
The Project consists of one property in Denton, Texas and is dependent upon the Denton
area and the higher education facilities in the Denton area for revenue.
NOTE 8. CUMULATIVE EFFECT OF ADOPTION OF GASB STATEMENT NO. 65
As a result of the implementation of GASB Statement No. 65, Items Previously Reported as
Assets and Liabilities, an adjustment has been made to write off all unamortized bond
issuance costs from previous years. As a result, beginning net position has been reduced by
$605,372.
NOTE 9. GOING CONCERN
The 2014 financial statements were prepared assuming the Project will continue as a going
concern. The Project’s bonds payable are considered to be in default due to the
discontinuance of principal and interest paymentsand failure to maintain a fixed charges
ratio of at least 1.0. These are considered an event of default by the Trustee, which gives
the bondholders theright to accelerate and demand payment of the bonds in full.
Management and the property manager are in the process of developing and implementing
plans to increase occupancy and rental rates at the property to improve its financial
performance.
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SUPPLEMENTAL SCHEDULES
TEXAS STUDENT HOUSING AUTHORITY
THE RIDGE AT NORTH TEXAS PROJECT
SCHEDULE I –SCHEDULE OF REVENUES AND EXPENSES
BUDGET AND ACTUAL
FORTHE YEAR ENDED AUGUST 31, 2014
BudgetActualVariance
Revenue and Other Support:
Rental Income$ 4,273,759$ 4,372,768$ 99,009
Other income131,475143,20211,727
Interest income-9,7729,772
Total revenue and other support4,405,2344,525,742120,508
Operating Expenses
Personnel expenses 355,835328,78027,055
Contract services111,245105,7205,525
Utilities776,180696,86879,312
Repairs and maintenance137,050175,831(38,781)
Turnover expense290,460259,35031,110
Advertising and promotion101,70077,07824,622
Administration expenses137,079126,88210,197
Travel4,8703,0091,861
Total operating expenses1,914,4191,773,518140,901
Revenue available for fixed charges2,490,8152,752,224261,409
Other Expenses
Management fees132,000132,000-
Depreciation and amortization-865,283(865,283)
Interest expense-2,854,528(2,854,528)
Total other expenses132,0003,851,811(3,719,811)
Excess (Deficiency) of expenses
over (under) revenue$ 2,358,815$(1,099,587)$(3,458,402)
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TEXAS STUDENT HOUSING AUTHORITY–THE RIDGE AT NORTH TEXASPROJECT
SCHEDULE II -CERTIFICATE OF THE FIXED CHARGES COVERAGE RATIO
We are providing this letter, as required by the Trust Indenture by and between Texas Student
Housing Authority –The Ridge at North Texas (the Project) and TheBank of New York (the
Trustee), dated July 1, 2001, as amended on March 22, 2005, relating to Texas Student
Housing Authority –Denton Project Texas Student Housing Revenue Bonds (University of North
Texas project) the “Indenture,” to certify the fixed charges coverage ratio as of August 31, 2014.
The fixed charges coverage ratio is defined in the Indenture as the ratio of revenue available for
fixed charges to fixed charges. Further, fixed charges are defined in the Indenture as the sum of
all cash outflows related to the Project thatthe Issuer cannot avoid without violating long-term
contractual or legal obligations (those obligations which extend for a period greater than one
year), including, but not limited to, (i) interest on indebtedness other than short-term
indebtedness, and (ii) scheduled payments of principal on indebtedness other than short-term
indebtedness, provided that maximum annual debt service shall be used for purposes of
computing (i) and (ii) above.
The audited financial statements indicate revenue available for fixed charges for the year ended
August 31, 2014, to be $2,752,224.
Based on the above revenues and fixed charges, we calculate that the fixed charges coverage
ratio as of August 31, 2014, to be .71, which is based on one year of operations and is not in
compliance with the Indenture.
21