HomeMy WebLinkAboutCambridge Audit 08-31-14
TEXAS STUDENT HOUSING AUTHORITY–
CAMBRIDGE AT COLLEGE STATION
FINANCIAL REPORT
AUGUST31, 2014
C O N T E N T S
Page
INDEPENDENT AUDITOR’S REPORT....................................................................................1
MANAGEMENT’S DISCUSSION AND ANALYSIS (unaudited)................................................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 –Fixed Charges Coverage Ratio................................................................21
INDEPENDENT AUDITOR’S REPORT
To the Board of Directors
Texas Student Housing Authority–Cambridge at College Station
Report on the Financial Statements
We have audited the accompanying financial statements of Texas Student Housing Authority-
Cambridge at College Station(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 the Project’s basic financial statements as listed in the table of contents.
Management’s Responsibility for the Financial Statements
The Project’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. 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 inthe
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Project’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
Cambridge at College Station
Page 2
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects,
the financial position of the Projectas 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 10to the financial statements, the Project is
in default on its bondsdue to partial nonpayment of principal and interest payments and failure
to meet certain bond covenants. 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 10. 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.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the
management’s discussion and analysis onpages 4–7be presented to supplement the basic
financial statements. Such information, although not a part of the basic financialstatements, 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
Our audit was conducted for the purpose of forming an opinion on the financial statements that
collectively comprise the Project’sbasic financial statements. The Schedule of Revenues and
Expenses–Budget and Actualand the Certificate of the Fixed Charges Coverage Ratioare
presented for purposes of additional analysis and arenot a required part of the basic financial
statements.
Texas Student Housing Authority
Cambridge at College Station
Page 3
The Schedule of Revenues and Expenses –Budget and Actual and the Certificate of the Fixed
Charges Coverage Ratioarethe 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 generally accepted 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 Ratioarefairly 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–CAMBRIDGE AT COLLEGESTATION
MANAGEMENT’S DISCUSSION AND ANALYSIS
YEAR ENDED AUGUST 31, 2014
(unaudited)
As staff of the Texas Student Housing Authority–Cambridge College Station (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
$15,182,672due primarily to a decrease in net position of $2,342,653.
The Project reported an unfavorable budgetary variance of $4,772,952. Major
components of the variancewere unbudgeted depreciation and interest expense
(page 20).
At the end of the current fiscal year, the total cash balances were $5,454,797in
unrestricted cash and $1,905,574in 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’sreport 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, and a statement of cash flows.
The Project is being treated as a going concern as the Project is in default on its Cand D
certificates. They are considered an event of default by the Trustee, which gives the senior
certificate holders the right to accelerate and demand payment of the certificates 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.
The statement of net position presents information on all of the Project’s assets and liabilities
with the difference between the two reported as net position.
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.
The statement of cash flows recaps how cash changed during the year.
4
TEXAS STUDENT HOUSINGAUTHORITY–CAMBRIDGE AT COLLEGE STATION
MANAGEMENT’S DISCUSSION AND ANALYSIS
YEAR ENDED AUGUST 31, 2014
(unaudited)
The statement of net position presents information on all of the Project’s assets and liabilities
with the difference between the two reported as net position.
TABLE 1 –NET POSITION
Business-type Activities
20142013
Current and other assets$7,850,664$7,036,340
Capital assets21,509,07122,493,385
Total assets29,359,73529,529,725
Current liabilities44,542,40712,059,744
Non-current liabilities-30,310,000
Total liabilities44,542,40742,369,744
Net Position
Net investment in capital assets(8,375,929)(7,816,615)
Unrestricted(6,806,743)(5,023,404)
Total net position$(15,182,672)$(12,840,019)
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.
TABLE 2 –CHANGES IN NET POSITION
Business-type Activities
20142013
Total operating revenue$5,811,212$5,946,884
Total operating expenses(4,550,496)(4,509,892)
Total operating income1,260,7161,436,992
Interest income723321
Interest expense(3,604,092)(3,284,588)
Total nonoperating expenses(3,603,369)(3,284,267)
CHANGE IN NET POSITION(2,342,653)(1,847,275)
NET POSITION, BEGINNING(12,840,019)(10,992,744)
NET POSITION, ENDING$(15,182,672)$(12,840,019)
5
TEXAS STUDENT HOUSINGAUTHORITY–CAMBRIDGE AT COLLEGE STATION
MANAGEMENT’S DISCUSSION AND ANALYSIS
YEAR ENDED AUGUST 31, 2014
(unaudited)
FINANCIAL ANALYSIS OF THE PROJECT’S FUNDS
Notes to financial statements.
The notes provide additional information that is essential to a
full understanding of the data provided in the financial statements.
Restricted cash.
Restricted cash represents monies held in escrow by the trustee and are
restricted for the payment of expenses as outlined in the Installment Sale Agreement. As of
August 31, 2014, these balances were as follows:
Replacement Fund$ 44,274
Series A Reserve Fund598,843
Series B Reserve Fund512,458
Series A Interest Fund281,988
Series A Principal Fund175,002
Series B Interest Fund71,600
Series B Principal Fund183,753
Transaction Costs Payment Fund32,656
Utility Deposits5,000
Total$ 1,905,574
Nonrestricted cash.
Nonrestricted cash is available for general use of the Project.
Installment note payable.
The Project’s developer refinanced the original Installment Sale
Agreement effective December 1, 2004, by issuing debt certificates in the following classes:
Series A$ 16,105,000
Series B3,580,000
Series C4,820,000
Series D5,380,000
Total$ 29,885,000
6
TEXAS STUDENT HOUSINGAUTHORITY–CAMBRIDGE AT COLLEGE STATION
MANAGEMENT’S DISCUSSION AND ANALYSIS
YEAR ENDED AUGUST 31, 2014
(unaudited)
Fixed ChargeCoverage Ratio
The Installment Sale Agreement provides for a fixed charges coverage ratio of 1.10. At this
time, the Project has realized a ratio of 0.95and is technically not in compliance with the
Agreement. Upon default, the lender may accelerate maturity of the unpaid portion of the
principal, however, it is not anticipated that this event will incur since foreclosure by the
certificate holders would result in the loss of the Project’s tax-exempt status.
ECONOMIC FACTORS AND NEXT YEAR’S BUDGET
Leases at the Project have a duration that encompasses the school year, primarily the months
of September through May. The June to August revenue is dependent on the Project’s ability to
attract various camps/meetings. As the Project is tax-exempt through theTexas Higher
Education Act, only those functions sponsored by the University are eligible for acceptance. The
occupancy for this school year is 99.8%;thus,the focus for this year will be on increasing this
“summer” revenue.
CONTACTING THE PROJECT’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 STATEMENTS
TEXAS STUDENT HOUSING AUTHORITY
CAMBRIDGE AT COLLEGE STATION
STATEMENT OF NET POSITION
AUGUST 31, 2014
ASSETS
CURRENT ASSETS
Cash $ 5,454,797
Restricted cash1,905,574
Prepaid expenses146,004
Accounts receivable344,289
Total current assets7,850,664
CAPITAL ASSETS
Land2,899,597
Other capital assets, net of accumulated depreciation18,609,474
Total capital assets21,509,071
TOTAL ASSETS29,359,735
LIABILITIES
CURRENT LIABILITIES
255,236
Accounts payable
23,258
Accrued liabilities
11,573,483
Accrued interest payable
2,805,430
Unearned revenue and prepaid rent
29,885,000
Installment loan payable
Total current liabilities44,542,407
NET POSITION
Net investment in capital assets(8,375,929)
Unrestricted(6,806,743)
Total net position$(15,182,672)
The Notes to Financial Statements are
an integral part of thisstatement.
8
TEXAS STUDENT HOUSING AUTHORITY
CAMBRIDGE AT COLLEGE STATION
STATEMENT OF REVENUE, EXPENSES AND CHANGES IN NET POSITION
FOR THE YEAR ENDED AUGUST 31, 2014
OPERATING REVENUE
Rental income$ 5,398,315
Other 412,897
Total operating revenue5,811,212
OPERATING EXPENSES
Management fees382,887
Administration and marketing1,531,055
Cafeteria477,749
Utilities624,955
Repairs and maintenance483,122
Insurance66,414
Depreciation expense984,314
Total operating expenses4,550,496
OPERATING INCOME1,260,716
NON-OPERATING REVENUE (EXPENSES)
Interest revenue723
Interest expense(3,604,092)
TOTAL NON-OPERATING REVENUE (EXPENSES)(3,603,369)
CHANGE IN NET POSITION(2,342,653)
NET POSITION, BEGINNING(12,840,019)
NET POSITION,ENDING$(15,182,672)
The Notes to Financial Statements are
an integral part of thisstatement.
9
TEXAS STUDENT HOUSING AUTHORITY
CAMBRIDGE AT COLLEGE STATION
STATEMENT OFCASH FLOWS
FOR THE YEAR ENDEDAUGUST 31, 2014
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from tenants$ 5,820,413
Other operating revenues412,897
Cash paid to employees(834,945)
Cash paid to suppliers(2,834,910)
Net cash provided by operating activities
2,563,455
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES
Payments on bonds payable(425,000)
Interest paid (1,429,650)
Net cash used in capital and related financing activities
(1,854,650)
CASH FLOWS FROM INVESTING ACTIVITIES
Interest on investments723
Net change in cash and cash equivalents
709,528
Cash and cash equivalents at beginning of year
6,650,843
Cash and cash equivalents at end of year
$ 7,360,371
Cash$ 5,454,797
Restricted cash1,905,574
Total cash and cash equivalents
$ 7,360,371
RECONCILIATION OF OPERATING INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
Operating income$ 1,260,716
Adjustments to reconcile operating income to
net cash provided by operating activities:
Depreciation984,314
Changes in operating assets and liabilities:
Accounts receivable41,208
Prepaid expenses(146,004)
Accounts payable42,331
Unearned revenue and prepaid rent380,890
Net cash provided by operating activities$ 2,563,455
The Notes to Financial Statements are
an integral part of thisstatement.
10
TEXAS STUDENT HOUSING AUTHORITY–CAMBRIDGE AT COLLEGESTATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1.GENERAL STATEMENT
Operations
Texas Student Housing Authority –Cambridge at College Station (the Project), a duly
constituted authority of the Town of Westlake, Texas (the Town) pursuant to Section
53.35(b)of the Texas Education Code, as amended (the Act). The Projectwas
established to acquireeducational facilities and housing facilities to be used by the
students, faculty and staff ofinstitutions of higher education within the State of Texas.
The Project’s purpose is to own andoperate a student housing facility known as
Cambridge at College Station (the College StationProject) in College Station, Texas.
Cambridge at College Station was purchased from Cambridge Student Housing
Development,L.P. (the Developer) effective September 1, 2004. The Project obtained its
financing through aseller-financed installment sale agreement. The accompanying
financial statements present theoperations of the Project, whose revenues are pledged
for the installment note described herein.
Cambridge at College Stationis operated and managed under the terms of the First
Amended andRestated Property Project Management and Leasing Agreement by and
between the Authorityand Asset Campus Housing, Inc. for the period audited.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 byapplying the criteria set forth in GASB Statement No. 14 as amended by GASB
StatementNos. 39 and 61.
The criteria set forth require governmental reporting entities to determine their primary
government for the purposes of annual reporting. The primary government is deemed to
befinancially accountable if it appoints a voting majority of the organization’s governing
bodyand (1) it is able to impose its will on that organization or (2) there is a potential for
theorganization to provide specific financial benefits to, or impose specific financial
burdenson,the primary government. Additionally, the primary government may be
financiallyaccountable if an organization is fiscally dependent regardless of whether the
organizationhas a separately elected governing board appointed by a higher level of
government or ajointly appointed board.
Accordingly, the Project reports no component units.
11
TEXAS STUDENT HOUSING AUTHORITY–CAMBRIDGE AT COLLEGESTATION
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES–CONTINUED
Measurement Focus and Basis of Accounting
Measurement focus refers to what is being measured; basis of accounting refers to
whenrevenues and expenditures are recognized in the accounts and reported in the
financialstatements. The Projectuses the economic resources measurement focus and
the accrualbasis of accounting. The economic resources measurement focus means all
assets andliabilities (whether current or noncurrent) are included on the statement of net
position andthe operating statement presentsincreases (revenues) and decreases
(expenses) in net position. Under the accrual basis of accounting, revenues are
recognized when earned, andexpenses 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.
Capitalization, Depreciation and Impairment Policies
Property and Depreciation
Property and equipment are recorded at cost. Expenditures for routine maintenance
andrepairs are expensed as incurred.Property and equipment are depreciated
using the straight-line method over the followinguseful lives:
Buildings30 years
Improvements15 years
Equipment, furniture and fixtures5-20 years
Cash and Cash Equivalents
For the purpose of the statement of cash flows, the Project considers unrestricted cash
andhighly liquid investments with maturities of three months or less at the date of
purchase to becash and cash equivalents.
Income Taxes
The Project is an instrumentality of the Town of Westlake, therefore, its income is not
subject to federal income taxation pursuant to Section 115 of the Internal Revenue
Code. Additionally, the Project is exempt from local property taxes.
12
TEXAS STUDENT HOUSING AUTHORITY–CAMBRIDGE AT COLLEGESTATION
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES –CONTINUED
Accounts Receivable
Accounts receivable are stated at amounts management expects to collectfrom
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 allowanceis not required.
Advertising Costs
All advertising costs are expensed as they are incurred. Advertising costs for the year
endedAugust 31, 2014, were approximately $113,000.
Subsequent Events
The Projecthas evaluated all events or transactions that occurred after August 31,
2014, and up through February 5, 2015, the date the financial statements were issued.
NOTE 3. CASH AND INVESTMENTS
Restricted Cash
Restricted cash represents amounts held in escrow, which are restricted for the payment
of expenses as required by the installment sale agreement. As of August 31, 2014,
restricted cash consists of the following:
Replacement Fund$ 44,274
Series A Reserve Fund598,843
Series B Reserve Fund512,458
Series A Interest Fund281,988
Series A Principal Fund175,002
Series B Interest Fund71,600
Series B Principal Fund183,753
Transaction Costs Payment Fund32,656
Utility Deposits5,000
Total$ 1,905,574
13
TEXAS STUDENT HOUSING AUTHORITY–CAMBRIDGE AT COLLEGESTATION
NOTES TO FINANCIAL STATEMENTS
NOTE 3. CASH AND INVESTMENTS –CONTINUED
The following is a brief description of the funds and accounts comprising the restricted cash
balance at year-end, as defined by the installment sale agreement and the trust agreement:
Replacement Fund –Amounts in the Replacement Fund may be used to pay the
maintenance and repair costs related to the College Station Property, which theProject
is obligated to pay pursuant to the installment sale agreement.
Series A Reserve Fund –The amounts on deposit in this account were required to be
contributed by the Developer and are to be used for the purpose of paying principal and
interest on the Series A certificates as they become due in the event there should be
insufficient funds in the Debt Service Fund.
Series B Reserve Fund –The amounts on deposit in this account were required to be
contributed by the Developer and are to be used for the purpose of paying principal and
interest on the Series B certificates as they become due in the event there should be
insufficient funds in the Debt Service Fund.
Series A Interest Fund–Amounts in the Series A Interest Fund are used to accumulate
funds to pay interest on the Series A certificates.
Series A Principal Fund –Amounts in the Series A Principal Fund represent payments
set aside for the repayment of the principal balance on the Series A certificates.
Series BInterest Fund –Amounts in the Series BInterest Fund are used to accumulate
funds to pay interest on the Series Bcertificates.
Series B Principal Fund–Amounts in the Series B Principal Fund represent payments
set aside for the repayment of the principal balance on the Series B certificates.
Transaction Costs Payment Fund –Amounts in the Transaction Costs Payment Fund
are to be used to pay for debt issuance costs.
Utility Deposits–Amounts in the Utility Deposits Fund are used to accumulate utility
deposits paid by tenants.
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’s cash and investments.
Disclosure Relating to Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will adversely affect the
fairvalue of an instrument. Generally, the longer the maturity of an investment the
greater thesensitivity of its fair value to changes in market interest rates. The Project is
not significantlyexposed to interest rate risk as all investments earn a variable rate.
14
TEXAS STUDENT HOUSING AUTHORITY–CAMBRIDGE AT COLLEGESTATION
NOTES TO FINANCIAL STATEMENTS
NOTE 3. CASH AND INVESTMENTS –CONTINUED
Disclosure Relating to Credit Risk
Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation
tothe holder of the investment. This is measured by the assignment of a rating by a
nationallyrecognized statistical rating organization. The Public Funds Investment Act
has a minimumrating that is required for investments. The Project holds all of its cash
and investments withthe bond trustee and commercial banks.
Concentration of Credit Risk
The investment policy of the Project is subject to the indenture agreement of the bonds.
Asof August 31, 2014,the Project held all of its restricted cash balances with the
trustee, which represents 25.9%ofthe 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
ableto recover collateral securities that are in the possession of an outside party. The
custodialcredit risk for investments is the risk that, in the event of the failure of the
counterparty to atransaction, a government will not be able to recover the value of its
investment or collateralsecurities that are in the possession of another party. The Public
Funds Investment Act doesnot contain legal or policy requirements that would limit the
exposure to custodial credit riskfor deposits or investments, other than the following
provision for deposits: The PublicFunds Investment Act requires that a financial
institution secure deposits made by state orlocal governmental units by pledging
securities in an undivided collateral pool held by adepository regulated under state law
(unless so waived by the governmental unit). Themarket value of the pledged securities
in the collateral pool must equal at least the bankbalances less FDIC insurance at all
times.
As of August 31, 2014,$7,103,463of the Project’s $7,353,463bankbalance was
collateralized with a Bank Deposit Guarantee Bond from the Project’s depository. The
remaining balance, $250,000, was covered by FDIC insurance.
15
TEXAS STUDENT HOUSING AUTHORITY–CAMBRIDGE AT COLLEGESTATION
NOTES TO FINANCIAL STATEMENTS
NOTE 4. CAPITAL ASSETS
Capital asset activity for the Project for the year ended August 31, 2014was as follows:
BeginningEnding
BalanceIncreaseDecreaseReclassBalance
Capital assets, not being depreciated
Land$2,899,597$ -$ -$-$2,899,597
Total capital assets, not being depreciated2,899,597---2,899,597
Capital asstes, being depreciated
Building26,885,312- --26,885,312
Furniture and fixtures3,437,138 -- -3,437,138
Total capital assets, being depreciated30,322,450---30,322,450
Less accumulated depreciation for:
Building(7,957,433)(895,741)--(8,853,174)
Furniture and fixtures(2,771,229)(88,573)--(2,859,802)
Total accumulated depreciation(10,728,662)(984,314)--(11,712,976)
Total capital assets, being depreciated, net19,593,788(984,314)--18,609,474
Capital assets, net$22,493,385$ (984,314)$ -$ -$21,509,071
NOTE 5. NOTES PAYABLE
The Project’s installment note payable is summarized as follows:
Interest
Lender/Security/Due DateRateBalance
Cambridge Student Housing Financing Company, L.P.
secured by substantially all assets and assignment
of rents; due November 1, 2039.8.00%$29,885,000
The following is a summary of long-term debt transactions of the Project for the year ended
August 31, 2014:
BeginningEndingDue Within
BalanceIncreasesDecreasesBalanceOne Year
Installment note$30,310,000$-$ (425,000)$29,885,000$ 515,000
16
TEXAS STUDENT HOUSING AUTHORITY–CAMBRIDGE AT COLLEGESTATION
NOTES TO FINANCIAL STATEMENTS
NOTE 5. NOTES PAYABLE –CONTINUED
The debt is to be amortizedthrough 2040 with varying payments. The annual requirements
to amortize the Project’s outstanding installment notes payableas of August 31, 2014are as
follows:
Year EndingGovernmental Activities
August 31, 2014PrincipalInterestTotal
Past Due$ 255,000$11,161,489$11,416,489
2015515,0001,838,0032,353,003
2016555,0001,795,8202,350,820
2017600,0001,751,3282,351,328
2018645,0001,703,3252,348,325
2019720,0001,650,6372,370,637
2020-20243,525,0007,371,30010,896,300
2025-20293,325,0006,173,2009,498,200
2030-20344,790,0004,653,7509,443,750
2035-20396,915,0002,442,7209,357,720
20408,040,000103,8088,143,808
Total$29,885,000$40,645,380$70,530,380
Class C and D bonds are in default and the property does not generate enough revenue to
pay the debt obligations. All of the Class C and D bonds issued remain outstanding as of
August 31, 2014.
Each class has certain rights and privileges, ascontained in the private placement
memorandum. As a part of the offering, the Project entered into a trust agreement with J. P.
Morgan Trust Company, N.A. (the Trustee) for the purpose of determining that each class is
paid in accordance with the private placement memorandum.
At August 31, 2014, the Project wasnotin compliance with the fixed charge coverage ratio.
As a result, the lender may accelerate the maturity of the unpaid portion of the principal
payable under the installment sale agreement. However, the Authority does not anticipate
this event will occur, since foreclosure by private interests would result in the lossof tax-
exempt status for the Project.Generally accepted accounting principles require that if events
of default such as this occur, the liability should be disclosed as current on the financial
statements.
NOTE 6. GEOGRAPHY AND CONCENTRATION
Resident leases generally have a duration that encompasses the school year. This enables
theProject to pass on inflationary increases in operating expenses on a timely basis;
however,this exposes the Project to rental rate decreases during economic downturns.
Additionally,competition from nearby university housing properties in College Station, Texas
influencesthe housing rates charged to students. Despite these risks, the Project believes
there will be acontinued strong demand for its dwelling units.
17
TEXAS STUDENT HOUSING AUTHORITY–CAMBRIDGE AT COLLEGESTATION
NOTES TO FINANCIAL STATEMENTS
NOTE 7. NET POSITION
Net position represents 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
difference between capital assets less both the accumulated depreciation and the
outstanding balance of debt, excluding unspent proceeds, that is directlyattributable to
the acquisition, construction, or improvement of these capitalassets.
Restricted Net Position–The component of net position calculated by reducing the
carrying value of restricted assets by the amount of any related debt outstanding.
Unrestricted –The difference between the assets and liabilities that is not reportedin net
position net investment in capital assets and restricted net position.
NOTE 8. MANAGEMENT FEES/RELATED PARTY TRANSACTIONS
The Project pays Asset Campus Housing asset management fees for the management of
theCollege Station Property. The Project recorded property management fees of $280,800
forthe period ended August 31, 2014.
Administration and marketing expenses include $102,087 for administrative fees earned by
Texas Student Housing Authority. There were no administrativefeesincluded in accounts
payable at August 31, 2014.
NOTE 9. COMMITMENTS AND CONTINGENCIES
During fiscal year 2006, the Brazos County Tax –Assessor’s office filed suit against the
Project in order to eliminate the Project’s tax-exempt status. This would force the Project to
begin paying property taxes on the property owned by the Project. The County is also
seeking back property taxes previously not paid as the Project was under tax-exempt status.
The original suit filed by the Project was lost during a non-jury trial. The Project appealed
that judgment and the case was assigned to the Seventh Court of Appeals. The Appellate
Court held that the Project was entitled to tax-exempt status for 2005, but not for years
2006-2008. In August and September 2013, both the Project and the County filed petitions
for review of this case with the Texas Supreme Court.Review by the Texas Supreme Court
is discretionary.OnDecember10,2014, the TexasSupremeCourt heard this case, but has
not yetissued a ruling. The ultimate status of this appeal is unknown at thistime and a
liability has not been recorded. Should the County prevail, the Project would owethe county
a material amount of property taxes, from both current and prior periods.
18
TEXAS STUDENT HOUSING AUTHORITY–CAMBRIDGE AT COLLEGESTATION
NOTES TO FINANCIAL STATEMENTS
NOTE 10. GOING CONCERN
The 2014financial 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 partial
nonpaymentof principal and interest paymentsand failure to maintain a fixed charges ratio
of 1.1 or higher. These are considered an event of default by theTrustee, which gives the
bondholders the right to accelerate and demand payment of the bondsin full. This condition
raises substantial doubt about the Project’s ability to continue as a goingconcern.
Management and the property manager are in the process of developing andimplementing
plans to increase occupancy and rental rates at the property to improve itsfinancial
performance.
19
SUPPLEMENTAL SCHEDULES
TEXAS STUDENT HOUSING AUTHORITY
CAMBRIDGE AT COLLEGE STATION
SCHEDULE I –SCHEDULE OF REVENUES AND EXPENSES
BUDGET AND ACTUAL
FOR THE YEAR ENDED AUGUST 31, 2014
BudgetActualVariance
Revenue and other support:
Rental $ 5,434,740$5,398,315$ (36,425)
Other 588,100412,897(175,203)
Interest1,020723(297)
Total revenue and other
6,023,8605,811,935(211,925)
Operating expenses
Administration and marketing 1,420,0081,531,055(111,047)
Management fees382,884382,887(3)
Cafeteria532,763477,74955,014
Utilities648,315624,95523,360
Repairs and maintenance543,177483,12260,055
Insurance66,41466,414-
Total operating expenses
3,593,5613,566,18227,379
Revenue available for debt coverage
2,430,2992,245,753(184,546)
Other expenses
Depreciation -984,314(984,314)
Interest expense-3,604,092(3,604,092)
Total other expenses-4,588,406(4,588,406)
Excess (deficiency) of
revenues over (under) expenses
$ 2,430,299($ 2,342,653)$(4,772,952)
20
TEXAS STUDENT HOUSING AUTHORITY
CAMBRIDGE AT COLLEGE STATION
SCHEDULE II–FIXED CHARGES COVERAGE RATIO
FOR THE YEAR ENDED AUGUST 31, 2014
CALCULATION OF FIXED CHARGES COVERAGE RATIO
Total gross revenue$5,811,935
Total expenses(8,154,588)
Add:
Interest3,604,092
Depreciation and amortization984,314
Adjusted expenses(3,566,182)
Adjusted net operating income available to pay fixed charges$2,245,753
Fixed charges/maximum principal and interest for
fiscal year$2,370,637
Fixed charges coverage ratio0.95
Required ratio1.1
Pass or failFail
21