HomeMy WebLinkAbout01-15-13 TSHA Agenda Packet
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AGENDA
BOARD OF DIRECTORS OF THE
TEXAS STUDENT HOUSING AUTHORITY
(AN INSTRUMENTALITY OF THE TOWN OF WESTLAKE)
January 15, 2013
5:30 PM
TEXAS STUDENT HOUSING OFFICE
3 VILLAGE CIRCLE, COUNCIL CHAMBERS/MUNICIPAL COURT ROOM
WESTLAKE, TEXAS
1. CALL TO ORDER
2. DISCUSS AND CONSIDER APPROVAL OF TSHA, CAMBRIDGE, TOWN LAKE,
AND AUSTIN BALLPARK ANNUAL AUDITS FOR FY 2010-2011 PRESENTED BY
PATTILLO BROWN & HILL, L.L.P.
3. REVIEW AND APPROVE MINUTES FOR THE MEETING ON JULY 16, 2012.
4. REVIEW AND APPROVE MINUTES FOR THE MEETING ON AUGUST 9, 2012.
5. REVIEW AND APPROVE AN AGREEMENT WITH EMET CAPITAL AND TSHA
REGARDING THE AUSTIN BALLPARK PROPERTY.
6. DISCUSS AND CONSIDER THE NUMBER OF FULL SCHOLARSHIPS TO OFFER
FOR THE 2013-2014 SCHOOL YEAR.
7. EXECUTIVE DIRECTORS REPORT.
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8. ADJOURN
ANY ITEM ON THIS POSTED AGENDA COULD BE DISCUSSED IN EXECUTIVE SESSION
AS LONG AS IT IS WITHIN ONE OF THE PERMITTED CATEGORIES UNDER SECTIONS
551.071 THROUGH 551.076 AND SECTION 551.087 OF THE TEXAS GOVERNMENT
CODE.
CERTIFICATION
I certify that the above notice was posted at the Town Hall of the Town of Westlake, 3 Village Circle, Westlake,
Texas, on January 11, 2013 by 5 :00 p.m. under the Open Meetings Act, Chapter 551 of the Texas Government
Code.
_____________________________________
Kelly Edwards, Secretary
If you plan to attend this public meeting and have a disability that requires special needs, please advise the Town
Secretary 48 hours in advance at 817-490-5710 and reasonable accommodations will be made to assist you.
TSHA Min 07/16/12
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MINUTES OF THE
BOARD OF DIRECTORS OF THE
TEXAS STUDENT HOUSING AUTHORITY
(AN INSTRUMENTALITY OF THE TOWN OF WESTLAKE)
July 16, 2012
PRESENT: President Jim Carter, Directors, Scott Bradley, and George Ledak.
ABSENT: Gregg Malone
OTHERS PRESENT: Executive Director Pete Ehrenberg and Secretary Kelly Edwards.
1. CALL TO ORDER
President Carter called the meeting to order at 5:48 p.m.
2. REVIEW AND APPROVE MINUTES FOR THE MEETING ON JANUARY 17, 2012.
MOTION: Director Ledak made a motion to approve the minutes with the revision
of the approval date. Director Bradley seconded the motion. The motion
carried by a vote of 3-0.
3. DISCUSS AND CONSIDER APPROVAL OF CAMBRIDGE, TOWN LAKE, AUSTIN
BALLPARK, AND TSHA ANNUAL BUDGETS FY 2012-2013.
Director Ehrenberg provided a synopsis of each budget.
Discussion ensued regarding the FY 11-12 revenues and expenses compared to the FY
12-13 proposed budgets for each property, monies budgeted for Cambridge legal fees,
current status of the Cambridge litigation, payments made to bond holders, and
replacing the HVAC equipment.
MOTION: Director Ledak made a motion to approve Cambridge, Townlake, Austin
Ballpark and the Authority budgets. Director Bradley seconded the
motion. The motion carried by a vote of 3-0.
TSHA Min 07/16/12
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4. EXECUTIVE DIRECTOR’S REPORT
Director Ehrenberg provided an update and overview of the scholarships offered,
awarded and the number declined.
5. ADJOURN
President Cater asked for a motion to adjourn.
MOTION: Director Ledak made a motion to adjourn the meeting. Director Bradley
seconded the motion. The motion carried by a vote of 3-0.
There being no further business before the board, President Carter declared the meeting
adjourned at 6:34 p.m.
APPROVED BY THE TEXAS STUDENT HOUSING AUTHORITY BOARD OF DIRECTORS
ON __________________ 2012.
______________________________________
Jim Carter, President
ATTEST
____________________________________
Kelly Edwards, Secretary
TSHA Min 08/09/12
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MINUTES OF THE
BOARD OF DIRECTORS OF THE
TEXAS STUDENT HOUSING AUTHORITY
(AN INSTRUMENTALITY OF THE TOWN OF WESTLAKE)
August 9, 2012
PRESENT: President Jim Carter, Directors, Scott Bradley, and Gregg Malone.
ABSENT: George Ledak
OTHERS PRESENT: Executive Director Pete Ehrenberg and Secretary Kelly Edwards.
1. CALL TO ORDER
President Carter called the meeting to order at 6:27 p.m.
2. DISCUSS AND CONSIDER POSSIBLE REFINANCING OF AUSTI N BALLPARK
PROPERTY.
Executive Director Ehrenberg provided an overview of the proposed restricting highlights
as provided in the packet.
Discussion ensued regarding the proposal as presented detailing that Emet proposes to
work through TSHA to restructure the debt obligations by THSA contributing $19 million
and Emet contributing $10 million. The proposal also allows Emet to cash out in 3-5
years which in turn would mean THSA would need to refinance in three (3) years.
Discussion also ensued regarding the possibility of finding a lender, the Town assuming
the debt, the possible loss of the tax exempt status to the Bond Holder, new properties
being built closer to the UT Austin campus, and the possible need to drop rates in the
future due to the addition of those newer properties.
TSHA Min 08/09/12
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MOTION: Director Malone made a motion directing the General Counsel and
Executive Director to speak with Emet advising that the current proposal
is not a workable solution; review the Travis County Appraisal records
regarding the value of the property; General Counsel to speak with Tom
Lawrence regarding the current bond market; and the General Counsel
and Executive Director to schedule a conference call with Emet’s liaison
and attorney to determine other if there are any other possibilities than
foreclosing on the property. President Carter seconded the motion.
The motion carried by a vote of 3-0.
3. ADJOURN
President Cater asked for a motion to adjourn.
MOTION: Director Bradley made a motion to adjourn the meeting. Director Malone
seconded the motion. The motion carried by a vote of 3-0.
There being no further business before the board, President Carter declared the meeting
adjourned at 7:14 p.m.
APPROVED BY THE TEXAS STUDENT HOUSING AUTHORITY BOARD OF DIRECTORS
ON __________________ 2012.
______________________________________
Jim Carter, President
ATTEST
____________________________________
Kelly Edwards, Secretary
TEXAS STUDENT HOUSING AUTHORITY
BALLPARK AUSTIN PROJECT
FINANCIAL REPORT
AUGUST 31, 2012
TEXAS STUDENT HOUSING AUTHORITY
BALLPARK AUSTIN PROJECT
TABLE OF CONTENTS
AUGUST 31,2012
Page
Number
FINANCIAL SECTION
IndependentAuditors' Report............................................................................................. 1 -2
Management's Discussion and Analysis ............................................................................ 3 -6
Financial Statements:
Statementof Net Assets................................................................................................... 7
Statement of Revenues, Expenses and Changes in Net Assets........................................ 8
Statementof Cash Flows ................................................................................................. 9
Notes to Financial Statements.......................................................................................... 10- 18
SUPPLEMENTAL SCHEDULES
Schedule I— Schedule of Revenues and Expenses............................................................. 19
Schedule II—Certificate of the Fixed Charges Coverage Ratio......................................... 20-21
FINANCIAL SECTION
FMKI
PATTILLO, BROWN & HILL, I-L.P.
CERTIFIED PUBLIC ACCOUNTANTS ■ BUSINESS CONSULTANTS
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Texas Student Housing Authority—
Ballpark Austin Project
Westlake, Texas
We have audited the accompanying financial statements of Texas Student Housing Authority —
Ballpark Austin Project (the "Project"), as of and for the year ended August 31, 2012, as listed in the
table of contents. Texas Student Housing Authority—Ballpark Austin Project is a component unit of the
Town of Westlake. These financial statements are the responsibility of the Project's management. 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 of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
As discussed in Note I, the financial statements present only the Project and do not purport to,
and do not, present fairly the financial position of Texas Student Housing Authority as of August 31,
2012, and the changes in its financial position and cash flows, where applicable, for the period then
ended in conformity with accounting principles generally accepted in the United States of America.
In our opinion, the financial statements referred to above present fairly, in all material respects,
the financial position of the Texas Student Housing Authority — Ballpark Austin Project at August 31,
2012, and the respective changes in its financial position, and, where applicable, cash flows thereof for
the year then ended in conformity with accounting principles generally accepted in the United States of
America.
The accompanying financial statements have been prepared assuming that Texas Student
Housing Authority—Ballpark Austin Project will continue as a going concern. As discussed in Note I to
the financial statements, the Project is in default on its bonds. This gives the bondholders the right to
accelerate and demand payment on the bonds in full. These conditions raise substantial doubt about the
Project's ability to continue as a going concern. Management's plans in regard to these matters are
discussed in Note I. The financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
1
401 WEST HIGHWAY 6■P.O.BOX 20725■WACO,TX 76702-0725■(254)772-4901 ■FAX:(254)772-4920■www.pbhcpa.com
AFFILIATE OFFICES:BROWNSVILLE,TX(956)544-7778■HILLSBORO,TX(254)582-2583
TEMPLE,TX(254)791-3460■ALBUQUERQUE,NM(505)266-5904
Accounting principles generally accepted in the United States of America require that the
management's discussion and analysis on pages 3 through 6 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.
Our audit was conducted for the purpose of forming an opinion on the financial statements that
collectively comprise the Texas Student Housing Authority — Ballpark Austin Project's financial
statements. The accompanying supplemental information on pages 19 and 21 is presented for purposes
of additional analysis and is not a required part of the financial statements. The supplemental
information is the responsibility of management and was derived from and relates directly to the
underlying accounting and other records used to prepare the financial statements. The information has
been subjected to the auditing procedures applied in the audit of the financial statements and certain
additional procedures, including comparing and reconciling such information directly to the underlying
accounting and other records used to prepare the financial statements or to the financial statements
themselves, and other additional procedures in accordance with auditing standards generally accepted in
the United States of America. In our opinion, the information is fairly stated in all material respects in
relation to the financial statements as a whole.
January 7, 2013
2
MANAGEMENT'S
DISCUSSION AND ANALYSIS
MANAGEMENT'S DISCUSSION AND ANALYSIS
As staff of the Texas Student Housing Authority (the "Authority") — Ballpark Austin 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, 2012. We encourage readers
to consider the information presented herein in conjunction with the Project's financial statements which
follow this section. As the Authority is 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
$17,900,707. This is a decrease of$1,666,391 over the prior year.
• Operating revenue of $3,782,426 is $199,975 more than budget, and operating
expense is $139,087 more than budget, not including depreciation and amortization.
• At the end of the current fiscal year, the total cash balances were $590,771 in
unrestricted cash and $518,794 in 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 assets, statement of revenues, expenses and changes in net assets, a statement of cash
flows and supplemental schedules.
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.
3
The statement of net assets presents information on all of the Project's assets and liabilities with the
difference between the two reported as net assets.
TABLE 1
TEXAS STUDENT HOUSING AUTHORITY-
BALLPARK AUSTIN PROJECT
NET ASSETS
Business-type Activities
2012 2011
Current and other assets $ 3,394,321 $ 3,712,570
Capital assets 21,428,008 22,288,684
Total assets 24,822,329 26,001,254
Long-term liabilities 33,518,348 34,288,263
Other liabilities 9,204,688 9,047,563
Total liabilities 42,723,036 43,335,826
Net assets:
Invested in capital assets,
net of related debt ( 13,075,340) ( 12,824,579)
Unrestricted ( 4,825,367) ( 4,509,993)
Total net assets $( 17,900,707) $( 17,334,572)
The statement of revenues, expenses and changes in net assets accounts for all of the Project's revenues
and expenses regardless of when cash is paid or received.
TABLE 2
TEXAS STUDENT HOUSING AUTHORITY-
BALLPARK AUSTIN PROJECT
CHANGES IN NET ASSETS
Business-type Activities
2012 2011
Total operating revenue $ 3,782,426 $ 3,526,263
Total operating expenses 2,759,120 2,687,503
Total operating income 1,023,306 838,760
Interest expense ( 2,689,697) ( 2,825,376)
Total nonoperating loss ( 2,689,697) ( 2,825,376)
CHANGE IN NET ASSETS ( 1,666,391) ( 1,986,616)
NET ASSETS,BEGINNING ( 17,334,572) ( 15,347,956)
PRIOR PERIOD ADJUSTMENT 1,100,256 -
NET ASSETS,ENDING $( 17,900,707) $( 17,334,572)
The statement of cash flows recaps how cash changed from year to year.
4
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 Trust Indenture. As of August 31, 2012, these balances were
as follows:
Bond Fund,Series 2001A Senior Interest $ 88,704
Bond Fund,Series 2001B Sub B 13,000
Bond Fund,Series 2001C Sub C 16
Debt Service Reserve 2001A Senior 139,150
Debt Service Reserve 2001B Sub B 862
Repair and Replacement Fund 1,313
Minimum Scholarship Fund 1,943
Trustee Fee Fund 706
Tax and Insurance Fund 124,540
Senior Bonds Principal 145,622
Sub B Bond Principal 2,938
Total $ 518,794
Nonrestricted cash. Nonrestricted cash is available for general use of the Project.
Bonds payable. As of August 31, 2012, the following amounts on the Series A, B and C Bonds were
owed:
Series A $ 28,840,000
Series B 2,365,000
Series C 3,000,000
Deferred purchase price 1,460,000
Less discounts ( 1,161,652)
Total $ 34,503,348
Fixed charge cover ratio. The bond indenture provides for a fixed charge coverage ratio of 1.25 when
payments on the A and B Bond Series are considered and 1.15 when payments on the C Bond Series are
added. At this time, the Project has only realized a ratio of .84 and .75, respectively, and is thus
technically in default of the indenture.
l
5
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 10-month leases exist. These leases do bring a monthly premium over the
12-month leases. Occupancy for the fiscal year ending August 31, 2012, indicates a substantial increase
to 100%; however, rental rates, again due to competitive pressures,will not see an increase.
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.
6
FINANCIAL STATEMENTS
TEXAS STUDENT HOUSING AUTHORITY
BALLPARK AUSTIN PROJECT
STATEMENT OF NET ASSETS
AUGUST 31,2012
ASSETS
Current assets:
Cash $ 590,771
Restricted cash 518,794
Accounts receivable 19,151
Total current assets 1,128,716
Capital assets:
Land 4,788,265
Other capital assets,net of accumulated depreciation 16,639,743
Total capital assets 21,428,008
Intangible assets:
Deferred financing costs,net of amortization 2,265,605
Total intangible assets 2,265,605
Total assets 24,822,329
LIABILITIES
Current liabilities:
Accounts payable 153,669
Accrued liabilities 559,459
Unearned revenue and prepaid rent 252,276
Accrued interest 7,254,284
Bonds payable 985,000
Total current liabilities 9,204,688
Long-term liabilities:
Bonds payable 32,058,348
Deferred purchase price 1,460,000
Total long-term liabilities 33,518,348
Total liabilities 42,723,036
NET ASSETS
Invested in capital assets,net of related debt ( 13,075,340)
Unrestricted ( 4,825,367)
Total net assets $( 17,900,707)
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The accompanying notes are an integral part of these financial statements.
7
TEXAS STUDENT HOUSING AUTHORITY
BALLPARK AUSTIN PROJECT
STATEMENT OF REVENUES,EXPENSES
AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED AUGUST 31,2012
OPERATING REVENUES
Rental income $ 3,640,786
Other income 141,640
Total operating revenues 3,782,426
OPERATING EXPENSES
Personnel 313,097
Contract services 56,119
Utilities 574,481
Repairs and maintenance 133,756
Turnover 184,008
Advertising and promotion 96,384
Administration 182,878
Management fees 177,342
Depreciation 860,676
Amortization 180,379
Total operating expenses 2,759,120
OPERATING INCOME 1,023,306
NONOPERATING REVENUES (EXPENSES)
Interest expense ( 2,689,697)
Total nonoperating revenues(expenses) ( 2,689,697)
CHANGE IN NET ASSETS ( 1,666,391)
PRIOR PERIOD ADJUSTMENT 1,100,256
NET ASSETS,BEGINNING ( 17,334,572)
NET ASSETS,ENDING $( 17,900,707)
The accompanying notes are an integral part of these financial statements.
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TEXAS STUDENT HOUSING AUTHORITY
BALLPARK AUSTIN PROJECT
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED AUGUST 31,2012
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from tenants $ 3,305,367
Miscellaneous other income 141,640
Cash paid to employees 38,225
Cash paid to suppliers ( 1,418,553)
Net cash provided by operating activities 2,066,679
CASH FLOWS FROM CAPITAL AND RELATED
FINANCING ACTIVITIES
Payments on bonds payable ( 670,000)
Interest paid ( 1,591,437)
Net cash used by capital and related financing activities ( 2,261,437)
NET CHANGE IN CASH AND CASH EQUIVALENTS ( 194,758)
CASH AND CASH EQUIVALENTS,BEGINNING 1,304,323
CASH AND CASH EQUIVALENTS,ENDING $ 1,109,565
RECONCILIATION OF OPERATING INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
Operating income $ 1,023,306
Adjustments to reconcile operating income to
net cash provided by operating activities:
Depreciation and amortization 1,041,055
Changes in operating assets and liabilities:
Accounts receivable 2,247
Prepaid assets 950
Trade accounts payable ( 14,535)
Deferred revenue ( 337,666)
Other current liabilities 351,322
Net cash provided by operating activities $ 2,066,679
The accompanying notes are an integral part of these financial statements.
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TEXAS STUDENT HOUSING AUTHORITY—
BALLPARK AUSTIN PROJECT
NOTES TO FINANCIAL STATEMENTS
AUGUST 31,2012
I. GENERAL STATEMENT
Texas Student Housing Authority (the "Authority"), a higher education authority, was established
on January 23, 1995, as a duly constituted authority of the Town of Westlake, Texas, pursuant to
Section 53.11 of Chapter 53 of the Texas Education Code, as amended. The Authority's purpose
among other things is to acquire, finance, and operate student housing facilities. The Authority
operates several student housing facilities in Texas and one of the housing projects is the Ballpark
Austin Project (the "Project"). The Project was purchased from Jefferson Commons — Austin,
L.P., a Delaware limited partnership on December 27, 2001. The Project obtained its financing
through the issuance of Texas Student Housing Authority — Student Housing Revenue Bonds
(Austin, Texas Project), Series 2001A, Series 2001B and Subordinate Series 2001C. The bonds
were issued through a trust indenture by and between the Authority and the Bank of New York,
the, trustee. The Series 2001A, 2001B and Subordinate Series 2001C Bonds were issued in the
face amounts of $34,175,000, $2,470,000 and $3,000,000, respectively. The accompanying
financial statements present the operations of the Project, whose revenue streams are pledged for
the bonds described herein.
The 2012 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
certain principal and interest payments. These 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 and implementing plans to
increase occupancy and rental rates at the property to improve its financial performance.
II. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Project's significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows:
A. 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 Statement
No. 39. The criterion used is as follows:
(continued)
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II. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
A. Reporting Entity (Continued)
Financial Accountabilitv— The primary government is deemed to be financially
accountable if it appoints a voting majority of the organization's governing body
and 1) 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. Additionally, the primary
government may be financially accountable if an organization is fiscally
dependent on the primary government regardless of whether the organization has
•separately elected governing board appointed by a higher level of government or
•jointly appointed board.
B. Measurement Focus and Basis of Accounting
The Project uses the economic resources measurement focus. This means that all assets,
liabilities, equity, revenues, and expenses are accounted for using the accrual basis of
accounting. Revenue is recognized when earned and expenses are recognized when they are
incurred.
Private-sector standards of accounting and financial reporting issued prior to December 1,
1989, generally are followed in both the government-wide and proprietary fund financial
statements to the extent that those standards do not conflict with or contradict guidance of the
Governmental Accounting Standards Board. Governments also have the option of following
subsequent private-sector guidance for their business-type activities and Enterprise Funds,
subject to this same limitation. The government has elected not to follow subsequent private-
sector guidance.
C. Assets,Liabilities and Net Assets or Equity
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, 2012, the Project had no such
investments included in cash and cash equivalents.
In addition, the Project has restricted cash of $518,794 that is held by the trustee for the
bonds payable under provisions of the trust indenture. During the year ended August 31,
2012, the Authority did not receive any investment income from cash. See Note III for risk
disclosures and breakdown of restricted cash accounts.
(continued)
11
II. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
C. Assets,Liabilities and Net Assets or Equity (Continued)
Accounts Receivable
Accounts receivable are stated at amounts management expects to collect from outstanding
balances. Management writes off uncollectible amounts through a charge-off to expense. 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, 2012, management has determined that all accounts doubtful of collection have
been charged to operations and an allowance is not required.
Deferred Financing Costs
Costs associated with the issuance of bonds are deferred and amortized over the term of the
bonds.
Advertising Costs
All adverting costs are expensed as they are incurred. Advertising costs for the year ended
August 31, 2012, were approximately$96,384.
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.
Expenditures directly related to the improvement of property are capitalized at cost. The
Project capitalizes the cost of roof replacements and expenditures for other major property
improvements.
The trust indenture (dated December 1, 2001) provides for a repair and replacement fund
requirement. The covenant states that no less frequently than every five years following the
date of issuance of the bonds, the Project will cause a professional engineer or firm of such
engineers to conduct a physical assessment of the Project and to submit a written report
concerning the physical condition of the Project and the engineer's recommendations for
capital improvements needed at the Project.
Depreciation is computed using the straight-line method over the estimated useful lives as
follows:
Estimated
Asset Class Useful Lives
Building 30
Furniture,fixtures and equipment 3 -20
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III. DETAILED NOTES ON ALL FUNDS
A. Cash and Investments
At August 31, 2012, the carrying amount of Texas Student Housing Authority — Ballpark
Austin Project deposits (cash with interest bearing accounts and restricted cash held in
interest bearing accounts) was in total $1,109,565 of which $518,794 represented restricted
cash. The following is the breakdown of the 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, 2012, restricted cash consists of the following funds and accounts:
Fund/Account Description
Bond Fund, Series 2001A Senior Interest $ 88,704
Bond Fund, Series 2001 B Sub B 13,000
Bond Fund, Series 2001C Sub C 16
Debt Service Reserve 2001A Senior 139,150
Debt Service Reserve 2001B Sub B 862
Repair and Replacement Fund 1,313
Minimum Scholarship Fund 1,943
Trustee Fee Fund 706
Tax and Insurance Fund 124,540
Senior Bonds Principal 145,622
Sub B Bond Principal 2,938
Total $ 518,794
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 in the Bond Fund shall be used solely to fund the
payment 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 three accounts, the
Series 2001 A, 2001 B and the Series 2001 C accounts.
(continued)
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III. DETAILED NOTES ON ALL FUNDS (Continued)
A. Cash and Investments (Continued)
Restricted Cash (Continued)
Repair and Replacement Fund— Amounts in the Repair and Replacement Fund
may be a) used to pay the maintenance and repair costs related to the Ballpark
Austin property, which the Project is 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.
Surplus Fund— The trustee shall deposit any remaining amount in the Revenue
Fund into the Surplus Fund. Amounts on deposit in the Surplus Fund will be
released to the Project if certain release tests are satisfied. If the release tests are
not satisfied, the trustee will retain the monies on deposit in the Surplus Fund.
Trustee Fee Fund—Amounts are deposited in the Trustee Fee Fund on a monthly
basis and are intended to pay the fees to the trustee at year-end.
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 operations if 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 2001 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.
Proiect Fund— Amounts in the Project Fund are held and disbursed for costs of
the Project.
Residual Fund — Amounts in the Residual Fund related to three accounts — the
Subordinate Bond Amortization Account — Series C, the Issuer Education Account
and the Supplemental Management Fee Account. Based on release, tests funds are
then transferred to each respective account. In addition, insurance funds are held to
pay costs of maintaining insurance on the Project.
(continued)
14
III. DETAILED NOTES ON ALL FUNDS (Continued)
A. Cash and Investments (Continued)
Restricted Cash (Continued)
Minimum Scholarship Fund—The amounts on deposit in this account represent the
minimum annual scholarship amount determined as of the most recent Education
Funds Transfer date.
Tax and Insurance Fund— The amounts on deposit in this account represent 1/12th
of the ad valorem property taxes, if any, and 1/12th of the annual premiums for
insurance due, determined in accordance with the annual budget.
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.
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—Ballpark Austin
Project is not significantly exposed to interest rate risk as all investments earn a variable rate.
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 — Ballpark Austin
Project holds 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 — Ballpark Austin Project is subject
to the indenture agreement of the bonds. As of August 31, 2012, the Project held all of its
restricted cash balances with the trustee, which represents 46.7% of the total cash and
investments held at August 31, 2012.
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 parry. The custodial credit risk for
investments is the risk that, in the event of the failure of the counterparty to a transaction, a
government will 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.
(continued)
15
III. DETAILED NOTES ON ALL FUNDS (Continued)
A. Cash and Investments (Continued)
As of August 31, 2012, $268,732 of the Project's $568,732 bank balance was collateralized
with a Bank Deposit Guarantee Bond from the Project's depository. The remaining balance,
$250,000, was covered by FDIC insurance.
B. Capital Assets
Capital asset activity for the Project for the year ended August 31, 2012,was as follows:
Beginning Ending
Balance Additions Retirements Balance
Capital assets,not being depreciated:
Land $ 4,788,265 $ - $ - $ 4,788,265
Total capital assets,
not being depreciated 4,788,265 - - 4,788,265
Capital assets,being depreciated:
Building 21,345,305 - - 21,345,305
Improvements,furniture
and fixtures 6,993,063 - - 6,993,063
Total capital assets,
being depreciated 28,338,368 - - 28,338,368
Less accumulated depreciation for:
Building ( 6,877,931) ( 711,510) - ( 7,589,441)
Improvements,furniture
and fixtures ( 3,960,018) ( 149,166) - ( 4,109,184)
Total accumulated depreciation ( 10,837,949) ( 860,676) - ( 11,698,625)
Total capital assets,
being depreciated,net 17,500,419 ( 860,676) - 16,639,743
Capital assets,net $ 22,288,684 $( 860,676) $ - $ 21,428,008
C. 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 December 1, 2001. The bonds are payable solely from
the revenues generated by the Project and are secured by the 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 on the bonds range from 4.00% to 11.00%
and are payable semi-annually on July 1 and January 1 of each year thereafter.
(continued)
16
III. DETAILED NOTES ON ALL FUNDS (Continued)
C. Bonds Payable(Continued)
At August 31, 2012, the Project had not made interest payments on the Subordinate 2001C
Bond Series since July 2003, and the Subordinate 2001C Bond is in default. In addition, the
Project's fixed charges coverage ratio was not in compliance with the covenants of the
indenture. These events do not constitute an event of default that accelerates the bonds. As a
result, the maturities are presented under the original repayment terms.
The following is a summary of long-term debt transactions of the Project for the 12-month
period ended August 31, 2012:
Amounts
Beginning Ending Due Within Interest
Balance Increases Decreases Balance One Year Paid
Revenue Bonds:
2001A Bonds $ 29,510,000 $ - $( 670,000) $ 28,840,000 $ 705,000 $ 1,591,437
2001B Bonds 2,365,000 - - 2,365,000 280,000 -
2001C Bonds 3,000,000 - - 3,000,000 - -
Deferred purchase price 1,460,000 - - 1,460,000 - -
Less discounts ( 1,221,736) - 60,084 ( 1,161,652) - -
Total $ 35,113,264 $ - $( 609,916) $ 34,503,348 $ 985,000 $ 1,591,437
The Project has a deferred purchase commitment for $1,460,000 as part of the original
purchase of the Project. The deferred purchase price accrues interest at a rate of 11% per
annum. The first deferred purchase price installment shall be payable on September 1 of the
first year after the Series C Bonds have been paid in full (scheduled final payment on Series
C Bonds is in 2033), and the remaining installments shall be paid on each anniversary
thereafter until the deferred purchase price and all interest thereon has been paid in full. As
of August 31, 2012,there have been no payments made on the deferred purchase price.
The debt is to be amortized through 2033 with varying payment amounts ranging from
$330,000 to $4,505,000 for interest and principal. The annual requirements to amortize all
debts outstanding as of August 31, 2012, are as follows:
Year Ending Governmental Activities
August 31, Principal Interest Total
2013 $ 985,000 $ 2,047,544 $ 3,032,544
2014 795,000 2,006,275 2,801,275
2015 840,000 1,962,856 2,802,856
2016 885,000 1,916,950 2,801,950
2017 935,000 1,868,556 2,803,556
2018-2022 5,485,000 8,518,463 14,003,463
2023-2027 7,175,000 6,832,888 14,007,888
2028-2032 9,420,000 4,589,488 14,009,488
2033-2036 7,685,000 589,925 8,274,925
Totals $ 34,205,000 $ 30,332,945 $ 64,537,945
(continued)
17
III. DETAILED NOTES ON ALL FUNDS (Continued)
D. Net Assets
Net assets represent the residual assets after liabilities are deducted. These assets are
reported in the following categories:
Invested in Capital Assets, Net of Related Debt — The component of net assets
that reports the difference between 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 Net Assets — The component of net assets 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 reported
in net assets invested in capital assets, net of related debt and restricted net assets.
E. Management Fees
Beginning June 1, 2004, the Project retained Asset Campus Management for property
management and recorded property management fees of approximately $177,342 for the year
ended August 31, 2012.
F. Concentrations
The Project consists of one property in Austin, Texas, and is dependent upon the Austin area
and the higher education facilities in the Austin area for revenues.
G. Commitments and Contingencies
The Project has yet to have an arbitrage calculation performed for its outstanding debt. After
that analysis, the Project may incur a liability for interest earned in accordance with Internal
Revenue Service regulations.
H. Prior Period Adiustment
A prior period adjustment of $1,100,256 was done to remove a liability for accrued
management fees that are no longer collectible from Ballpark.
18
SUPPLEMENTAL SCHEDULES
i
TEXAS STUDENT HOUSING AUTHORITY
BALLPARK AUSTIN PROJECT
SCHEDULE I-SCHEDULE OF REVENUES AND EXPENSES
BUDGET AND ACTUAL
FOR THE YEAR ENDED AUGUST 31,2012
Budget Actual Variance
REVENUES AND OTHER SUPPORT
Rental income $ 3,449,051 $ 3,640,786 $ 191,735
Other income 133,400 141,640 8,240
Total revenues and other 3,582,451 3,782,426 199,975
OPERATING EXPENSES
Personnel 324,912 313,097 11,815
Contract services 81,570 56,119 25,451
Utilities 520,850 574,481 ( 53,631)
Repairs and maintenance 198,920 133,756 65,164
Turnover 132,800 184,008 ( 51,208)
Advertising and promotion 83,300 96,384 ( 13,084)
Management fees 179,826 177,342 2,484
Administration 56,800 182,878 ( 126,078)
Total operating expenses 1,578,978 1,718,065 ( 139,087)
REVENUES AVAILABLE FOR FIXED CHARGES 2,003,473 2,064,361 60,888
OTHER EXPENSES
Depreciation and amortization - 1,041,055 ( 1,041,055)
Interest expense - 2,689,697 ( 2,689,697)
Total other expenses - 3,730,752 ( 3,730,752)
EXCESS OF EXPENSES OVER REVENUES $ 2,003,473 $( 1,666,391) $( 3,669,864)
19
TEXAS STUDENT HOUSING AUTHORITY
BALLPARK
SCHEDULE II-FIXED CHARGES COVERAGE RATIO
FOR THE YEAR ENDED AUGUST 31,2012
CALCULATION OF FIXED CHARGES COVERAGE RATIO
Total gross revenues $ 3,782,426
Total expenses $( 5,448,817)
Add:
Interest expense 2,689,697
Depreciation and amortization 1,041,055
Property management fees 177,342
Adjusted expenses ( 1,540,723)
Adjusted net operating income available to pay fixed charges $ 2,241,703
Fixed charges/maximum principal and interest for
fiscal year-end $ 2,986,594
Fixed charges coverage ratio 0.75
Required ratio 1.10
Pass or fail Fail
20
TEXAS STUDENT HOUSING AUTHORITY—
BALLPARK AUSTIN PROJECT
SCHEDULE II-CERTIFICATE OF
THE FIXED CHARGES COVERAGE RATIO
AUGUST 31,2012
We are providing this letter, as required by the Trust Indenture by and between Texas Student Housing
Authority — Ballpark Austin Project (the "Project") and the Bank of New York (the "Trustee"), dated
December 1, 2001, relating to Texas Student Housing Authority — Ballpark Austin Project Student
Housing Revenue Bonds the "Indenture," to certify the Fixed Charges Coverage Ratio as of August 31,
2012.
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 that the 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 12-month period
ended August 31, 2012,to be $2,241,723.
Based on the above revenues and fixed charges utilizing Bond A and Bond B, we calculate that the fixed
charges coverage ratio as of August 31, 2012,to be .84 which is based on 12 months of operations.
Based on the above revenues and fixed charges utilizing Bond A, Bond B and Bond C, we calculate that
the fixed charges coverage ratio as of August 31, 2012, to be .75 which is based on 12 months of
operations.
Based on the above budgeted revenues and fixed charges utilizing Bond A and Bond B, we calculate
that the fixed charges coverage ratio as of August 31, 2012, to be .68 which is based on 12 months of
operations.
21
TEXAS STUDENT HOUSING AUTHORITY
CAMBRIDGE AT COLLEGE STATION
FINANCIAL REPORT
AUGUST 31, 2012
'I
TEXAS STUDENT HOUSING AUTHORITY
CAMBRIDGE AT COLLEGE STATION
TABLE OF CONTENTS
AUGUST 31,2012
Page
Number
FINANCIAL SECTION
Independent Auditors' Report............................................................................................. 1 -2
Management's Discussion and Analysis ............................................................................ 3 - 5
Financial Statements:
Statement of Net Assets................................................................................................... 6
Statement of Revenues, Expenses and Changes in Net Assets........................................ 7
Statement of Cash Flows ................................................................................................. 8
Notes to Financial Statements.......................................................................................... 9- 17
SUPPLEMENTAL SCHEDULES
Schedule I— Schedule of Revenues and Expenses............................................................. 18
Schedule 11—Fixed Charges Coverage Ratio 19
.....................................................................
I
�I
PATTILLO, BROWN & HILL, I-L.P.
CERTIFIED PUBLIC ACCOUNTANTS ■ BUSINESS CONSULTANTS
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Texas Student Housing Authority—
Cambridge at College Station
Westlake, Texas
We have audited the accompanying financial statements of Texas Student Housing Authority —
Cambridge at College Station (the "Project"), as of and for the year ended August 31, 2012, which
collectively comprise the Project's basic financial statements as listed in the table of contents. Texas
Student Housing Authority — Cambridge at College Station is a component unit of the Town of
Westlake. These financial statements are the responsibility of the Project's management. 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 of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
As discussed in Note I, the financial statements present only the Project and do not purport to,
and do not, present fairly the financial position of Texas Student Housing Authority as of August 31,
2012, and the changes in its financial position and, where applicable, cash flows, thereof for the period
then ended in conformity with accounting principles generally accepted in the United States of America.
In our opinion, the financial statements referred to above present fairly, in all material respects,
the financial position of the Texas Student Housing Authority — Cambridge at College Station as of
August 31, 2012, and the respective changes in financial position and, where applicable, cash flows,
thereof for the year then ended in conformity with accounting principles generally accepted in the
United States of America.
The accompanying financial statements have been prepared assuming that Texas Student
Housing Authority — Cambridge at College Station will continue as a going concern. As discussed in
Note II, H to the financial statements, the Project is in default on its certificates. This gives the
certificate holders the right to accelerate and demand payment on the certificates in full. These
conditions raise substantial doubt about its ability to continue as a going concern. Management's plans
in regard to these matters are discussed in Note II, H. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
1
401 WEST HIGHWAY 6■P.O.BOX 20725■WACO,TX 76702-0725■(254)772-4901 ■FAX:(254)772-4920■www.pbhcpa.com
AFFILIATE OFFICES:BROWNSVILLE,TX(956)544-7778■HILLSBORO,TX(254)582-2583
TEMPLE,TX(254)791-3460■ALBUQUERQUE,NM(505)266-5904
Accounting principles generally accepted in the United States of America require that the
management's discussion and analysis on pages 3 through 5 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.
Our audit was conducted for the purpose of forming an opinion on the financial statements that
collectively comprise the Project's financial statements. The accompanying supplemental information
on pages 18 and 19 is presented for purposes of additional analysis and is not a required part of the
financial statements. The supplemental information is the responsibility of management and was
derived from and relates directly to the underlying accounting and other records used to prepare the
financial statements. The information has been subjected to the auditing procedures applied in the audit
of the financial statements and certain additional procedures, including comparing and reconciling such
information directly to the underlying accounting and other records used to prepare the financial
statements or to the financial statements themselves, and other additional procedures in accordance with
auditing standards generally accepted in the United States of America. In our opinion, the information is
fairly stated in all material respects in relation to the financial statements as a whole.
P.
January 7, 2013
2
MANAGEMENT'S
DISCUSSION AND ANALYSIS
MANAGEMENT'S DISCUSSION AND ANALYSIS
As staff of the Texas Student Housing Authority (the "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, 2012. We encourage readers
to consider the information presented herein in conjunction with the Project's financial statements which
follow this section. As the Authority is 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
$10,992,744 due primarily to a decrease in net assets of$2,003,562.
• Major components of the expense overage were $984,738 in depreciation/
amortization, and$3,179,482 in interest expense.
• At the end of the current fiscal year, the total cash balances were $4,142,293 in
unrestricted cash and$2,189,987 in 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 assets, statement of revenues, expenses and changes in net assets, a statement of cash
flows and supplemental schedules.
The Project is being treated as a going concern as the Project is in default on its C and 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 assets presents information on all of the Project's assets and liabilities with the
difference between the two reported as net assets.
3
The statement of revenues, expenses and changes in net assets accounts for all of the Authority's
revenues and expenses regardless of when cash is paid or received.
The statement of cash flows recaps how cash changed during the year.
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, 2012, these
balances were as follows:
Replacement Fund $ 329,278
Series A Reserve Fund 598,776
Series B Reserve Fund 512,400
Series A Interest Account 157,708
Series A Principal Account 313,667
Series B Interest Account 153,750
Series B Principal Fund 86,758
Transaction Costs Payment Fund 32,650
Utility Deposits 5,000
Total $ 2,189,987
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 $ 16,530,000
Series B 3,990,000
Series C 4,820,000
Series D 5,380,000
Total $ 30,720,000
The note is payable at the rate of$231,545 monthly.
Fixed Charge Coverage 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 1.16 and is technically 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.
4
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 ability to attract various
camps/meetings. As the Project is tax-exempt through the Texas Higher Education Act, only those
functions sponsored by the University are eligible for acceptance. The occupancy for this school year is
100%,thus the focus for this year will be on increasing this"summer"revenue.
All of the A and B certificate holders received all proceeds due to them. The 2012/2013 budget clearly
indicates that operating income will be sufficient to again service the A and B certificates.
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.
5
FINANCIALS
TEXAS STUDENT HOUSING AUTHORITY
CAMBRIDGE AT COLLEGE STATION
STATEMENT OF NET ASSETS
AUGUST 31,2012
ASSETS
Current assets:
Cash $ 4,142,293
Restricted cash 2,189,987
Accounts receivable,net of$64,045 allowance 388,890
Total current assets 6,721,170
Capital assets:
Land 2,899,597
Other capital assets,net of accumulated depreciation 20,578,444
23,478,041
Total capital assets 23,478,041
Total assets 30,199,211
LIABILITIES
Current liabilities:
Accounts payable 154,749
Accrued expenses 15,282
Unearned revenue and prepaid rent 2,726,546
Accrued interest 7,575,378
Installment loan payable 30,720,000
Total current liabilities 41,191,955
NET ASSETS
Invested in capital assets,net of related debt ( 7,241,959)
Unrestricted ( 3,750,785)
Total net assets $( 10,992,744)
The accompanying notes are an integral part of these financial statements.
6
TEXAS STUDENT HOUSING AUTHORITY
CAMBRIDGE AT COLLEGE STATION
STATEMENT OF REVENUES,EXPENSES
AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED AUGUST 31,2012
OPERATING REVENUES
Rental $ 5,238,584
Other 579,501
Total operating revenues 5,818,085
OPERATING EXPENSES
Management fees 386,106
Administration and marketing 1,327,679
Cafeteria 516,793
Utilities 622,867
Repairs and maintenance 763,122
Insurance 41,166
Depreciation and amortization 984,738
Total operating expenses 4,642,471
OPERATING INCOME 1,175,614
NONOPERATING REVENUES (EXPENSES)
Interest revenue 306
Interest expense ( 3,179,482) j
Total nonoperating revenues(expenses) ( 3,179,176)
CHANGE IN NET ASSETS ( 2,003,562)
NET ASSETS,BEGINNING ( 8,989,182)
NET ASSETS,ENDING $( 10,992,744)
The accompanying notes are an integral part of these financial statements.
7
TEXAS STUDENT HOUSING AUTHORITY
CAMBRIDGE AT COLLEGE STATION
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED AUGUST 31,2012
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from tenants $ 5,450,655
Other operating revenues 579,501
Cash paid to employees ( 840,747)
Cash paid to suppliers ( 2,790,983)
Net cash provided by operating activities 2,398,426
CASH FLOWS FROM CAPITAL AND RELATED
FINANCING ACTIVITIES
Principal repayments on bonds ( 375,000)
Interest paid ( 1,490,350)
Net cash used by capital and related financing activities ( 1,865,350)
CASH FLOWS FROM INVESTING ACTIVITIES
Interest received 306
Net cash provided by investing activities 306
NET CHANGE IN CASH AND CASH EQUIVALENTS 533,382
CASH AND CASH EQUIVALENTS,BEGINNING 5,798,898
CASH AND CASH EQUIVALENTS,ENDING $ 6,332,280
Cash $ 4,142,293
Restricted cash 2,189,987
Total cash and cash equivalents $ 6,332,280
RECONCILIATION OF OPERATING INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
Operating income $ 1,175,614
Adjustments to reconcile operating income to
net cash provided by operating activities:
Depreciation 984,738
Changes in operating assets and liabilities:
Accounts receivable ( 62,309)
Other assets 16,577
Accounts payable 9,649
Accrued liabilities ( 223)
Deferred revenue and prepaid rent 274,380
Net cash provided by operating activities $ 2,398,426
The accompanying notes are an integral part of these financial statements.
8
TEXAS STUDENT HOUSING AUTHORITY—
CAMBRIDGE AT COLLEGE STATION
NOTES TO FINANCIAL STATEMENTS
AUGUST 31,2012
I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 Authority was established to acquire
educational facilities and housing facilities to be used by the students, faculty and staff of
institutions of higher education within the State of Texas. The Project's purpose is to own and
operate a student housing facility known as Cambridge at College Station (the "College Station
Project") 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 a
seller-financed installment sale agreement. The accompanying financial statements present the
operations of the Project, whose revenues are pledged for the installment note described herein.
Cambridge at College Station is operated and managed under the terms of the First Amended and
Restated Property Project Management and Leasing Agreement by and between the Authority
and Asset Campus Housing, Inc. for the period audited.
The Project's significant accounting policies are as follows:
A. 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 Statement
No. 39.
(continued)
9
I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
A. Reporting Entity(Continued)
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 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. Additionally, the primary government may be financially
accountable if an organization is fiscally dependent regardless of whether the organization
has a separately elected governing board appointed by a higher level of government or a
jointly appointed board.
B. 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 Authority uses 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 assets and the
operating statement present increases (revenues) and decreases (expenses) in net total assets
under the accrual basis of accounting, revenues are recognized when earned, and expenses
are recognized at the time the liability is incurred.
Private-sector standards of accounting and financial reporting issued prior to December 1,
1989, generally are followed in both the government-wide and proprietary fund financial
statements to the extent that those standards do not conflict with or contradict guidance of the
Governmental Accounting Standards Board. Governments also have the option of following
subsequent private-sector guidance for their business-type activities and Enterprise Funds,
subject to this same limitation. The government has elected not to follow subsequent private-
sector guidance.
C. Capitalization,Depreciation and Impairment Policies
Property and Depreciation
Property and equipment are recorded at cost. Expenditures for routine maintenance and
repairs are expensed as incurred.
Property and equipment are depreciated using the straight-line method over the following
useful lives:
Buildings 30 years
Improvements 15 years
Equipment, furniture and fixtures 5 -20 years
(continued)
10
I. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
D. Assets,Liabilities and Net Assets or Equity
Cash and Cash Equivalents
For the purpose of the statement of cash flows, the Project considers unrestricted cash and
highly liquid investments with maturities of three months or less at the date of purchase to be
cash and cash equivalents.
Concentration of Credit Risk
As of and during the year ended August 31, 2012, the Project had cash deposits with
financial institutions in excess of the $250,000 amount insured by the Federal Deposit
Insurance Corporation. Any amounts over the FDIC limit are insured with pledged securities
by the Project's depository.
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.
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.
Advertising Costs
All advertising costs are expensed as they are incurred. Advertising costs for the year ended
August 31, 2012, were approximately$129,197.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
11
II. DETAILED NOTES ON ALL FUNDS
A. 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, 2012, restricted
cash consists of the following:
Replacement Fund $ 329,278
Series A Reserve 598,776
Series B Reserve 512,400
Series A Principal 157,708
Series A Interest 313,667
Series B Principal 153,750
Series B Interest 86,758
TR Costs Pymt FD 32,650
Utility Deposits 5,000
$ 2,189,987
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 the
Project 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 S 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 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.
Transaction Costs Payment Fund— Amounts in the Transaction Costs Payment
Fund are to be used to pay for debt issuance costs.
i
Emergency Operating Fund— Amounts in the Emergency Operating Fund may
be used to pay operating expenses in the event that funds from the depository
account are less than operating expenses.
(continued)
12
II. DETAILED NOTES ON ALL FUNDS (Continued)
A. Restricted Cash (Continued)
Series D Interest Fund — Amounts in the Series D Interest Fund are used to
accumulate funds to pay interest on the Series D certificates.
Current Receipts Fund—Amounts in the Current Receipts Fund are to be used to
accumulate funds from the collections of rent payments and other income from
the College Station Project.
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.
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. The Project is not significantly
exposed to interest rate risk as all investments earn a variable rate.
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. The Project holds all of its cash and investments with
the bond trustee and commercial banks.
Concentration of Credit Risk
The investment policy of the Project is subject to the indenture agreement of the bonds. As
of August 31, 2012, the Project held all of its restricted cash balances with the trustee, which
represents 34.6% of the total cash and investments held at August 31, 2012.
(continued)
13
II. DETAILED NOTES ON ALL FUNDS (Continued)
A. Restricted Cash (Continued)
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 government will 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, 2012, $3,722,232 of the Project's $4,222,232 bank balance was
collateralized with a Bank Deposit Guarantee Bond from the Project's depository. The
remaining balance, $500,000, was covered by FDIC insurance.
B. Installment Note Payable
The Project's installment note payable is summarized as follows:
Interest
Lender/Security/Due Date Rate Balance
Cambridge Student Housing Financing Company, L.P.;
substantially all assets and assignment of rents; due
November 1,2039. 8.00% $ 30,720,000
The Project's installment note is payable monthly with principal and interest payments of
$231,545 until November 1, 2039.
The following is a summary of long-term debt transactions of the Project for the year ended
August 31, 2012:
Amounts
Beginning Ending Due Within Interest
Balance Increases Decreases Balance One Year Paid
Installment note $ 31,095,000 $ - $ 375,000 $ 30,720,000 $ 410,000 $ 1,490,350
(continued)
14
II. DETAILED NOTES ON ALL FUNDS (Continued)
B. Installment Note Payable(Continued)
The Project's original Developer refinanced the installment note through a secondary
offering with Cambridge Student Housing Financing Company, L.P. The debt certificates
were sold to private investors in the following classes:
Class(Series) Offering Total
A $ 16,530,000
B 3,990,000
C 4,820,000
D 5,380,000
Total $ 30,720,000
The debt is to be amortized through 2040 with varying payments. The annual requirements
to amortize Class A and B debts outstanding as of August 31, 2012 are as follows:
Year Ending Governmental Activities
August 31,2012 Principal Interest Total
2013 $ 410,000 $ 1,460,925 $ 1,870,925
2014 440,000 1,429,050 1,869,050
2015 470,000 1,394,925 1,864,925
2016 505,000 1,358,350 1,863,350
2017 545,000 1,318,950 1,863,950
2018-2022 3,510,000 5,873,550 9,383,550
2023-2027 2,320,000 4,787,050 7,107,050
2028-2032 3,245,000 3,821,575 7,066,575
2033-2037 4,560,000 2,467,950 7,027,950
2038-2042 4,515,000 574,925 5,089,925
Totals $ 20,520,000 $ 24,487,250 $ 45,007,250
Class C and D bonds are in default and the property does not generate enough revenue to pay
the debt obligations so the maturity schedules are not included. All of the Class C and D
bonds issued remain outstanding as of August 31, 2012.
Each class has certain rights and privileges, as contained 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.
i
At August 31, 2012, the Project was in compliance with the fixed charge coverage ratio.
Should the project default, 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 loss
of tax-exempt status for the Project.
(continued)
15
II. DETAILED NOTES ON ALL FUNDS (Continued)
C. Capital Assets
Capital asset activity for the Project for the year ended August 31, 2012, was as follows:
Beginning Ending
Balance Increase Decrease Reclass Balance
Capital assets,not being depreciated:
Land $ 2,899,597 $ - $ - $ - $ 2,899,597
Total capital assets,
not being depreciated 2,899,597 - - - 2,899,597
Capital assets,being depreciated:
Building 27,727,646 - - 27,727,646
Furniture and fixtures 2,594,804 2,594,804
Total capital assets,
being depreciated 30,322,450 30,322,450
Less accumulated depreciation for:
Building ( 6,163,885) ( 896,177) - - ( 7,060,062)
Furniture and fixtures ( 2,595,383) ( 88,561) - - ( 2,683,944)
Total accumulated depreciation ( 8,759,268) ( 984,738) - - ( 9,744,006)
Total capital assets,
being depreciated,net 21,563,182 ( 984,738) - 20,578,444
Capital assets,net $ 24,462,779 $( 984,738) $ $ $ 23,478,041
D. Geography and Concentration
Resident leases generally have a duration that encompasses the school year. This enables the
Project 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 influences
the housing rates charged to students. Despite these risks, the Project believes there will be a
continued strong demand for its dwelling units.
E. Net Assets
Net assets represent the residual assets after liabilities are deducted. Net assets are reported
in the following categories.
Invested in Capital Assets, Net of Related Debt — The component of net assets
that reports the difference between 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.
(continued)
16
II. DETAILED NOTES ON ALL FUNDS (Continued)
E. Net Assets (Continued)
Restricted Net Assets — The component of net assets 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 reported
in net assets invested in capital assets, net of related debt and restricted net assets.
F. Management Fees/Related Party Transactions
The Project pays Asset Campus Housing asset management fees for the management of the
College Station Property. The Project recorded property management fees of approximately
$280,800 for the period ended August 31, 2012.
Administration and marketing expenses include approximately $105,306 for administrative
fees earned by Texas Student Housing Authority. There were no administrative fees
included in accounts payable at August 31, 2012.
G. 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 owed 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. Oral arguments were
heard in October of 2012 and no decision has been reached. The ultimate status of this
appeal is unknown at this time and a liability has not been booked. Should the county
prevail, the Project would owe the county a material amount of property taxes, from both
current and prior periods.
The Project has not yet to have an arbitrage calculation performed for its outstanding debt.
After that analysis, the Project may incur a liability for interest earned in accordance with
Internal Revenue Service regulations.
H. Going Concern
The 2012 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 partial non-
payment of principal and interest payments. These 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. This condition raises substantial doubt about the Project's ability to continue as a going
concern. 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.
17
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 31,2012
Budget Actual Variance
REVENUES AND OTHER SUPPORT
Rental $ 5,079,477 $ 5,238,584 $ 159,107
Other 594,804 579,501 ( 15,303)
Interest - 306 306
Total revenues and other support 5,674,281 5,818,391 144,110
OPERATING EXPENSES
Administrative and marketing 1,275,629 1,327,679 ( 52,050)
Management fees 382,884 386,106 ( 3,222)
Cafeteria 517,472 516,793 679
Utilities 748,048 622,867 125,181
Repairs and maintenance 710,887 763,122 ( 52,235)
Insurance 47,385 41,166 6,219
Total operating expenses 3,682,305 3,657,733 24,572
REVENUE AVAILABLE FOR FIXED CHARGES 1,991,976 2,160,658 168,682
OTHER EXPENSES
Depreciation and amortization - 984,738 ( 984,738)
Interest - 3,179,482 ( 3,179,482)
Total other expenses - 4,164,220 ( 4,164,220)
EXCESS OF EXPENSES OVER REVENUES $ 1,991,976 $( 2,003,562) $( 3,995,538)
18
TEXAS STUDENT HOUSING AUTHORITY
CAMBRIDGE AT COLLEGE STATION
SCHEDULE II-FIXED CHARGES COVERAGE RATIO
FOR THE YEAR ENDED AUGUST 31,2012
CALCULATION OF FIXED CHARGES COVERAGE RATIO
Total gross revenues $ 5,818,391
Total expenses $( 7,821,953)
Add:
Interest 3,179,482
Depreciation and amortization 984,738
Adjusted expenses ( 3,657,733)
Adjusted net operating income available to pay fixed charges $ 2,160,658
Fixed charges/maximum principal and interest for
fiscal year-end(for A&B certificates) $ 1,865,350
Fixed charges coverage ratio 1.16
Required ratio 1.10
Pass or fail Pass
19
TEXAS STUDENT HOUSING AUTHORITY
TOWN LAKE AUSTIN PROJECT
FINANCIAL REPORT
AUGUST 31, 2012
TEXAS STUDENT HOUSING AUTHORITY
TOWN LAKE AUSTIN PROJECT
TABLE OF CONTENTS
AUGUST 31,2012
Page
Number
FINANCIAL SECTION
IndependentAuditors' Report............................................................................................. 1 -2
Management's Discussion and Analysis ............................................................................ 3 -5
Financial Statements:
Statementof Net Assets................................................................................................... 6
Statement of Revenues, Expenses and Changes in Net Assets........................................ 7
Statementof Cash Flows ................................................................................................. 8
Notes to Financial Statements.......................................................................................... 9- 17
SUPPLEMENTAL SCHEDULES
Schedule I—Schedule of Revenues and Expenses............................................................. 18
FINANCIAL SECTION
'I
W4 M1
PATTILLO, BROWN & HILL, I..L.P.
CERTIFIED PUBLIC ACCOUNTANTS ■ BUSINESS CONSULTANTS
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Texas Student Housing Authority—
Town Lake Austin Project
Westlake, Texas
We have audited the accompanying financial statements of Texas Student Housing Authority —
Town Lake Austin Project (the "Project"), as of and for the year ended August 31, 2012, which
collectively comprise the Project's basic financial statements as listed in the table of contents. Texas
Student Housing Authority — Town Lake Austin Project is a component unit of the Town of Westlake.
These financial statements are the responsibility of the Project management. 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 of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
As discussed in Note I, the financial statements present only the Project and do not purport to,
and do not, present fairly the financial position of Texas Student Housing Authority as of August 31,
2012, and the changes in its financial position and cash flows, where applicable, for the period then
ended in conformity with accounting principles generally accepted in the United States of America.
In our opinion, the financial statements referred to above present fairly, in all material respects,
the financial position of the Texas Student Housing Authority—Town Lake Austin Project as of August
31, 2012, and the respective changes in its financial position and, where applicable, cash flows, thereof
for the year then ended in conformity with accounting principles generally accepted in the United States
of America.
The accompanying financial statements have been prepared assuming that Texas Student
Housing Authority—Town Lake Austin Project will continue as a going concern. As discussed in Note I
to the financial statements, the Project is in default on its bonds. This gives the bondholders the right to
accelerate and demand payment on the bonds in full. Those conditions raise substantial doubt about the
Project's ability to continue as a going concern. Management's plans in regard to these matters are
discussed in Note I. The financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
1
401 WEST HIGHWAY 6■P.O.BOX 20725■WACO,TX 76702-0725■(254)772-4901 ■FAX:(254)772-4920■www.pbhcpa.com
AFFILIATE OFFICES:BROWNSVILLE,TX(956)544-7778■HILLSBORO,TX(254)582-2583
TEMPLE,TX(254)791-3460■ALBUQUERQUE,NM(505)266-5904
Accounting principles generally accepted in the United States of America require that the
management's discussion and analysis on pages 3 through 5 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.
Our audit was conducted for the purpose of forming an opinion on the financial statements that
collectively comprise the Texas Student Housing Authority — Town Lake Austin Project's financial
statements. The accompanying supplemental information on page 18 is presented for purposes of
additional analysis and is not a required part of the basic financial statements. The supplemental
information is the responsibility of management and was derived from and relates directly to the
underlying accounting and other records used to prepare the financial statements. The information has
been subjected to the auditing procedures applied in the audit of the financial statements and certain
additional procedures, including comparing and reconciling such information directly to the underlying
accounting and other records used to prepare the financial statements or to the financial statements
themselves, and other additional procedures in accordance with auditing standards generally accepted in
the United States of America. In our opinion, the information is fairly stated in all material respects in
relation to the financial statements as a whole.
January 7, 2013
2
MANAGEMENT'S DISCUSSION
AND ANALYSIS
i
i
i
MANAGEMENT'S DISCUSSION AND ANALYSIS
As staff of the Texas Student Housing Authority (the "Authority") — Town Lake Austin 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, 2012. We encourage readers
to consider the information presented herein in conjunction with the Project's financial statements which
follow this section. As the Authority is 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
$7,687,063, a decrease of$1,403,659 over the prior year.
• Operating revenue of$2,811,775 is $1,754 more than budget; and operating expenses
were $65,351 more than budget.
• At the end of the current fiscal year, the total cash balances were $275,717 in
unrestricted cash and $108,046 in 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 assets, statement of revenues, expenses and changes in net assets, a statement of cash
flows and a supplemental schedule.
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.
3
The statement of net assets presents information on all of the Project's assets and liabilities with the
difference between the two reported as net assets.
TABLE 1
TEXAS STUDENT HOUSING AUTHORITY-
TOWN LAKE AUSTIN PROJECT
NET ASSETS
Business-type Activities
2012 2011
Current and other assets $ 1,088,410 $ 1,565,923
Capital assets 14,171,565 14,827,536
Total assets 15,259,975 16,393,459
Current liabilities 2,643,238 2,071,185
Noncurrent liabilities 20,303,800 20,605,678
Total liabilities 22,947,038 22,676,863
Net assets:
Invested in capital assets,
net of related debt ( 6,435,918) ( 6,059,222)
Unrestricted ( 1,251,145) ( 224,182)
Total net assets $( 7,687,063) $( 6,283,404)
The statement of revenues, expenses and changes in net assets accounts for all of the Project's revenues
and expenses regardless of when cash is paid or received.
TABLE 2
TEXAS STUDENT HOUSING AUTHORITY-
TOWN LAKE AUSTIN PROJECT
CHANGES IN NET ASSETS
Business-type Activities
2012 2011
Total operating revenue $ 2,811,775 $ 2,848,897
Total operating expenses 2,247,050 2,128,520
Total operating income 564,725 720,377
Interest income - 42
Interest expense ( 1,968,384) ( 1,631,478)
Total nonoperating loss ( 1,968,384) ( 1,631,436)
CHANGE IN NET ASSETS ( 1,403,659) ( 911,059)
NET ASSETS,BEGINNING ( 6,283,404) ( 5,372,345)
NET ASSETS,ENDING $( 7,687,063) $( 6,283,404)
The statement of cash flows recaps how cash changed from year to year.
4
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 Trust Indenture. As of August 31, 2012, these balances were
as follows:
Bond Proceeds Interest Fund, Series 2002 A-2 $ 5,240
Debt Service Reserve Fund -
Repair and Replacement Fund 92,148
Fee and Expense Fund 10,667
Initial Purchase Fund ( 9)
Total $ 108,046
Nonrestricted cash. Nonrestricted cash is available for general use of the Project.
Bonds payable. As of August 31, 2012, the following amounts on the Series 2002 A-1 and 2002 A-2
were payable:
Series 2002 A-1 $ 15,518,241
Series 2002 A-2 5,089,241
Total $ 20,607,482
For the fiscal year ending August 31, 2012, the total principal and interest payment is calculated at
$1,449,810. A total of$279,275 in principal was paid during 2012.
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 10-month leases exist. These leases do bring a monthly premium over the
12-month leases. Occupancy for the fiscal year ending August 31, 2013, forecasts at 100%. However,
rental rates, again due to competitive pressures will not see a large increase.
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.
5
FINANCIALS
TEXAS STUDENT HOUSING AUTHORITY
TOWN LAKE AUSTIN PROJECT
STATEMENT OF NET ASSETS
AUGUST 31,2012
ASSETS
Current assets:
Cash $ 275,717
Restricted cash 108,046
Accounts receivable 56,173
Total current assets 439,936
Capital assets:
Land 2,182,816
Other capital assets,net of accumulated depreciation 11,988,749
Total capital assets 14,171,565
Intangible assets:
Debt issue costs,net of amortization 648,474
Total intangible assets 648,474
Total assets 15,259,975
LIABILITIES
Current liabilities:
Accounts payable 251,074
Accrued liabilities 8,675
Bonds payable-current maturities 303,683
Unearned revenue and prepaid rent 128,194
Accrued interest 1,951,612
Total current liabilities 2,643,238
Noncurrent liabilities:
Bonds payable 20,303,800
Total noncurrent liabilities 20,303,800
Total liabilities 22,947,038
NET ASSETS
Invested in capital assets,net of related debt ( 6,435,918)
Unrestricted ( 1,251,145)
Total net assets $( 7,687,063)
II
The accompanying notes are an integral part of these financial statements.
6
TEXAS STUDENT HOUSING AUTHORITY
TOWN LAKE AUSTIN PROJECT
STATEMENT OF REVENUES,EXPENSES
AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED AUGUST 31,2012
OPERATING REVENUES
Rental $ 2,689,370
Other 122,405
Total operating revenues 2,811,775
OPERATING EXPENSES
Personnel 293,350
Contract services 76,963
Utilities 525,091
Travel 3,601
Repairs and maintenance 71,307
Turnover 249,600
Advertising and promotion 62,328
Administration 159,071
Management fees 102,867
Depreciation and amortization 702,872
Total operating expenses 2,247,050
OPERATING INCOME 564,725
NONOPERATING REVENUES(EXPENSES)
Interest expense ( 1,968 384)
Total nonoperating revenues(expenses) ( 1,968,384)
CHANGE IN NET ASSETS ( 1,403,659)
NET ASSETS,BEGINNING ( 6,283,404)
NET ASSETS,ENDING $( 7,687,063)
The accompanying notes are an integral part of these financial statements.
7
TEXAS STUDENT HOUSING AUTHORITY
TOWN LAKE AUSTIN PROJECT
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED AUGUST 31,2012
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from tenants $ 2,489,540
Cash paid to employees ( 289,482)
Cash paid to suppliers ( 1,204,433)
Net cash provided by operating activities 995,625
CASH FLOWS FROM CAPITAL AND RELATED
FINANCING ACTIVITIES
Payments on bonds payable ( 279,275)
Interest paid ( 1,170,535)
Net cash used in capital and related financing activities ( 1,449,810)
NET CHANGE IN CASH AND CASH EQUIVALENTS ( 454,185)
CASH AND CASH EQUIVALENTS,BEGINNING 837,948
CASH AND CASH EQUIVALENTS,ENDING $ 383,763
Cash $ 275,717
Restricted cash 108,046
Total cash and cash equivalents $ 383,763
RECONCILIATION OF OPERATING INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
Operating income $ 564,725
Adjustments to reconcile operating income to
net cash provided by operating activities:
Depreciation and amortization 655,971
Changes in operating assets and liabilities:
Accounts receivable ( 24,073)
Prepaids 500
Trade accounts payable 92,796
Deferred revenue ( 298,162)
Other current liabilities 3,868
Net cash provided by operating activities $ 995,625
i
III
The accompanying notes are an integral part of these financial statements.
8
TEXAS STUDENT HOUSING AUTHORITY—
TOWN LAKE AUSTIN PROJECT
NOTES TO FINANCIAL STATEMENTS
AUGUST 31,2012
I. GENERAL STATEMENT
Texas Student Housing Authority (the "Authority"), a higher education authority, was established
on January 23, 1995, as a duly constituted authority of the Town of Westlake, Texas, pursuant to
Section 53.11 of Chapter 53 of the Texas Education Code, as amended. The Authority's purpose
among other things is to acquire, finance, and operate student housing facilities. The Authority
operates several student housing facilities in Texas and one of the housing projects is the Town
Lake Austin Project (the "Project"). The Project was purchased from Jefferson Commons —
Austin, L.P., a Delaware limited partnership on December 17, 2002. The Project obtained its
financing through the issuance of Texas Student Housing Authority — Student Housing Revenue
Bonds (Jefferson Commons at Town Lake Project), Series 2002 A-1 and A-2 (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 2002 A-1 and Series 2002 A-2 Bonds
were issued in the face amounts of$19,480,000 and $5,670,000, respectively. The accompanying
financial statements present the operations of the one Project, whose revenue streams are pledged
for the Bonds described herein.
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 February 2005. The Project is now managed and operated by Asset
Campus Housing under the terms of a Property Management and Leasing Agreement dated March
1,2005. The Property Management Agreements are collectively referred to as the"Agreements."
The 2012 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 not making full
principal and interest payments. These 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 and implementing plans to
increase occupancy and rental rates at the property to improve its financial performance.
II. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Project's significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows:
A. 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 Statement
No. 39. The criteria used is as follows:
(continued)
9
II. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
A. Reporting Entity (Continued)
Financial Accountabilitv — The primary government is deemed to be financially
accountable if it appoints a voting majority of the organization's governing body and
1) 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. 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.
B. Measurement Focus and Basis of Accounting
The Project uses the economic resources measurement focus. This means that all assets,
liabilities, equity, revenues, and expenses are accounted for using the accrual basis of
accounting. Revenue is recognized when earned and expenses are recognized when they are
incurred.
Private-sector standards of accounting and financial reporting issued prior to December 1,
1989, generally are followed in both the government-wide and proprietary fund financial
statements to the extent that those standards do not conflict with or contradict guidance of the
Governmental Accounting Standards Board. Governments also have the option of following
subsequent private-sector guidance for their business-type activities and Enterprise Funds,
subject to this same limitation. The government has elected not to follow subsequent private-
sector guidance.
C. Assets,Liabilities and Net Assets or Equity
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, 2012, the Project had no such
investments included in cash and cash equivalents.
In addition, the Project has restricted cash of $108,046 that is held by the Trustee for the
Bonds payable under provisions of the Trust Indenture. During the year ended August 31,
2012, the investment income received from cash was $0. See Note III for risk disclosures
and breakdown of restricted cash accounts.
(continued)
10
II. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
C. Assets,Liabilities and Net Assets or Equity (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 expense. 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, 2012,management has determined that all accounts doubtful of collection have
been charged to operations and an allowance is not required.
Deferred Financing Costs
Costs associated with the issuance of bonds are deferred and amortized over the term of the
Bonds.
Advertising Costs
All adverting costs are expensed as they are incurred. Advertising costs for the year ended
August 31, 2012, were $62,328.
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.
Expenditures directly related to the improvement of property are capitalized at cost. The
Project capitalizes the cost of roof replacements and expenditures for other major property
improvements.
The indenture provides for a replacement fund requirement. Depreciation is computed using
the straight-line method over the estimated useful lives as follows:
Estimated
Asset Class Useful Lives
Building 30
Furniture,fixtures and equipment 3 -20
I
11
III. DETAILED NOTES ON ALL FUNDS
A. Cash and Investments
At August 31, 2012, the carrying amount of Texas Student Housing Authority— Town Lake
Austin Project deposits (cash with interest bearing accounts and restricted cash held in
interest bearing accounts) was in total $383,763 of which $108,046 represented 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, 2012, restricted cash consists of the following funds and accounts:
Fund/Account Description
Bond Proceeds Interest Fund, Series 2002 A-2 $ 5,240
Repair and Replacement Fund 92,148
Fee and Expense Fund 10,667
Initial Purchase Fund ( 9)
Total $ 108,046
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 Proceeds Fund — The Trustee makes monthly deposits in the Bond
Proceeds Fund pursuant to the Trust Indenture. Amounts in the Bond Proceeds
Fund shall be used solely to fund the payment 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.
Debt Service Reserve Fund— The amounts on deposit in this account are to be
used for the purpose of paying principal and interest on the Bonds in the event the
principal and interest is not paid by issuer in accordance with the terms of the
indenture and written notice of the Servicing Agent.
Proiect Fund— Amounts in the Project Fund are held and disbursed for costs of j
the Project.
(continued)
12
III. DETAILED NOTES ON ALL FUNDS (Continued)
A. Cash and Investments (Continued)
Restricted Cash (Continued)
Repair and Replacement Fund— Amounts in the Repair and Replacement Fund
may be used to make mandatory repairs of the Project pursuant to the Trust
Indenture.
Trustee Fee Fund—Amounts are deposited in the Trustee Fee Fund on a monthly
basis and are intended to pay the fees to the Trustee at year-end.
Temporary Funds and Accounts—The Trustee may establish and maintain for so
long as is necessary one or more Temporary Funds and accounts under this
indenture. The Deferred Debt Service Reserve Fund, Tax and Insurance Fund,
and Initial Purchase Funds are Temporary Funds at August 31, 2012.
Residual Fund—The Trustee shall deposit any remaining amount in the Revenue
Fund into the Surplus Fund. Amounts on deposit in the Surplus Fund will be
released to the Project if certain release tests are satisfied. If the release tests are
not satisfied, the Trustee will retain the monies on deposit in the Residual Fund.
Deferred Debt Service Fund— The amounts on deposit in this account are to be
used to pay the next interest payment on the Series A-2 Bonds.
Tax and Insurance Fund — The amounts on deposit in this account represent
1/12th of the ad valorem property taxes, if any, and 1/12 1h of the annual premiums
for insurance due, determined in accordance with the annual budget.
Initial Purchase Fund—The amounts on deposit in this account represent monies
that were withheld from the seller at closing and were to be paid once certain
operating criteria were met. These conditions have not been met yet.
Fee and Expense Fund — The amounts on deposit in this account represent
money set aside for future payments to the Program Administrator.
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.
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— Town Lake Austin Project is not significantly exposed to interest rate risk as all
investments earn a variable rate.
(continued)
13
III. DETAILED NOTES ON ALL FUNDS (Continued)
A. Cash and Investments (Continued)
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—Town Lake Austin
Project holds 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 — Town Lake Austin Project is
subject to the indenture agreement of the Bonds. As of August 31, 2012, the Project held all
of its restricted cash balances with the Trustee, which represents 28.1% of the total cash and
investments held at August 31, 2012.
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 government will 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, 2012,the Project has unrestricted cash of$275,717 (bank balance $234,655).
Of the bank balance, $234,655 was covered by federal depository insurance.
(continued)
14
III. DETAILED NOTES ON ALL FUNDS (Continued)
B. Capital Assets
Capital asset activity for the Project for the year ended August 31, 2012, was as follows:
Beginning Retirements/ Ending
Balance Additions Reclassifications Balance
Capital assets,not being depreciated:
Land $ 2,182,816 $ - $ - $ 2,182,816
Total capital assets,
not being depreciated 2,182,816 - - 2,182,816
Capital assets,being depreciated:
Building and improvements 13,270,150 - - 13,270,150
Capitalized purchase costs 887,095 - - 887,095
Land improvements 2,806,596 - - 2,806,596
Unit appliances 295,134 - - 295,134
Furniture and fixtures 915,951 - - 915,951
Total capital assets,
being depreciated 18,174,926 - - 18,174,926
Less accumulated depreciation for:
Capitalized purchase costs 227,872 28,484 - 256,356
Building and equipment 5,302,334 627,487 - 5,929,821
Total accumulated depreciation 5,530,206 655,971 - 6,186,177
Total capital assets,
being depreciated,net 12,644,720 ( 655,971) - 11,988,749
Capital assets,net $ 14,827,536 $( 65L,971) $ - $ 14,171,565
C. 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 November 1, 2002. The Bonds are payable solely
from the revenues generated by the Project and are secured by the 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 on the Bonds range from
7.76%to 8.69% and are payable monthly each year thereafter.
(continued)
15
III. DETAILED NOTES ON ALL FUNDS (Continued)
C. Bonds Payable (Continued)
The following is a summary of long-term debt transactions of the Project for the 12-month
period ended August 31, 2012:
Amounts
Beginning Ending Due Within Interest
Balance Increases Decreases Balance One Year Paid
Revenue Bonds:
2002 A-1 Bonds $ 15,797,516 $ - $ 279,275 $ 15,518,241 $ 307,159 $ 1,217,436
2002 A-2 Bonds 5,089,241 - - 5,089,241 - -
Total $ 20,886,757 $ - $ 279,275 $ 20,607,482 $ 307,159 $ 1,217,436
The debt is to be amortized on the A-1 Bonds through 2033 with monthly payments of
$124,726 and the A-2 Bonds through 2038 with monthly payments of $167,675 starting
November 1, 2033. The A-2 Bonds have no regular principal payments until the year 2033.
The Bonds also had a clause for an initial purchase release draw. The requirements for that
draw were not met and during 2006, the funds held in the initial Purchase Fund were applied
to principal on the Bonds. The annual requirements to amortize all debts outstanding as of
August 31, 2012, are as follows:
Year Ending Governmental Activities
August 31, Principal Interest Total
2013 $ 307,159 $ 1,587,954 $ 1,895,113
2014 328,105 1,563,532 1,891,637
2015 354,491 1,537,146 1,891,637
2016 382,998 1,508,639 1,891,637
2017 413,797 1,477,840 1,891,637
2018-2022 2,624,986 6,833,199 9,458,185
2023-2027 3,864,419 5,593,766 9,458,185
2028-2032 5,689,073 3,769,112 9,458,185
2033-2036 6,642,454 466,006 7,108,460
Totals $ 20,607,482 $ 24,337,194 $ 44,944,676
D. Net Assets
Net assets represent the residual assets after liabilities are deducted. These assets are
reported in the following categories:
Invested in Capital Assets, Net of Related Debt consists of capital assets, net of
accumulated depreciation and reduced by outstanding balances for bonds, notes,
and other debt that are attributed to the acquisition, construction, or improvement
of those assets.
(continued)
16
III. DETAILED NOTES ON ALL FUNDS (Continued)
D. Net Assets (Continued)
Restricted for Net Assets results when constraints placed on net asset use are
either externally imposed by creditors, grantors and the like, or imposed by law
through constitutional provisions or enabling legislation.
Unrestricted Net Assets consists of the portion of net assets after invested in
capital assets, net of related debt and restricted for debt service has been satisfied.
E. Management Fees
The Project paid JPI property and asset management fees for the Project through February
28, 2005. Effective March 1, 2005, the Project entered into a management agreement with
ACH and began paying management fees to ACH at that date. During 2012, the Project
recorded management fees of$102,867 to ACH.
F. Concentrations
The Project consists of one property in Austin, Texas, and is dependent upon the Austin area
and the higher education facilities in the Austin area for revenues.
G. Commitments and Contingencies
The Project has yet to have an arbitrage calculation performed for its outstanding debt. After
that analysis, the Project may incur a liability for interest earned in accordance with Internal
Revenue Service regulations.
17
SUPPLEMENTAL SCHEDULE
TEXAS STUDENT HOUSING AUTHORITY
TOWN LAKE AUSTIN PROJECT
SCHEDULE I-SCHEDULE OF REVENUES AND EXPENSES
BUDGET AND ACTUAL
FOR THE YEAR ENDED AUGUST 31,2012
Budget Actual Variance
REVENUES AND OTHER SUPPORT
Rental $ 2,687,121 $ 2,689,370 $ 2,249
Other 122,900 122,405 ( 495)
Total revenues and other support 2,810,021 2,811,775 1,754
OPERATING EXPENSES
Personnel 298,696 293,350 5,346
Contract services 87,420 76,963 10,457
Utilities 461,850 525,091 ( 63,241)
Repairs and maintenance 60,490 71,307 ( 10,817)
Turnover 277,650 249,600 28,050
Advertising and promotion 78,700 62,328 16,372
Travel - 3,601 ( 3,601)
Management fees 112,401 102,867 9,534
Administration 101,620 159,071 ( 57,451)
Total operating expenses 1,478,827 1,544,178 ( 65,351)
REVENUES AVAILABLE FOR FIXED CHARGES 1,331,194 1,267,597 63,597
OTHER EXPENSES
Depreciation and amortization - 702,872 ( 702,872)
Interest - 1,968,384 ( 1,968,384)
Total other expenses - 2,671,256 2,671,256
EXCESS OF EXPENSES OVER(UNDER)REVENUES $ 1,331,194 $( 1,403,659) $( 2,734,853)
18
TEXAS STUDENT HOUSING AUTHORITY
FINANCIAL REPORT
AUGUST 31, 2012
TEXAS STUDENT HOUSING AUTHORITY
TABLE OF CONTENTS
AUGUST 31,2012
Page
Number
FINANCIAL SECTION
Independent Auditors' Report............................................................................................. 1 -2
Management's Discussion and Analysis ............................................................................ 3 -4
Financial Statements:
Statementof Net Assets................................................................................................... 5
Statement of Revenues, Expenses and Changes in Net Assets........................................ 6
Statement of Cash Flows ................................................................................................. 7
Notes to Financial Statements.......................................................................................... 8 - 11
SUPPLEMENTAL INFORMATION
Budgetary Comparison Schedule........................................................................................ 12
i
FINANCIAL STATEMENTS
PATTILLO, BROWN & HILL, I..L.P.
CERTIFIED PUBLIC ACCOUNTANTS ■ BUSINESS CONSULTANTS
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Texas Student Housing Authority
Westlake, Texas
We have audited the accompanying financial statements of Texas Student Housing Authority (the
"Authority") (a component unit of the Town of Westlake), as of and for the year ended August 31, 2012,
which collectively comprise the Authority's basic financial statements, as listed in the table of contents.
These financial statements are the responsibility of the Authority's management. 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 of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects,
the financial position of the Texas Student Housing Authority as of August 31, 2012, and the respective
changes in its financial position, and cash flows, where applicable, thereof for the year then ended in
conformity with accounting principles generally accepted in the United States of America.
Accounting principles generally accepted in the United States of America require that the
management's discussion and analysis on pages 3 through 4 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.
1
401 WEST HIGHWAY 6■P.O.BOX 20725■WACO,TX 76702-0725■(254)772-4901■FAX:(254)772-4920■www.pbhcpa.com
AFFILIATE OFFICES:BROWNSVILLE,TX(956)544-7778■HILLSBORO,TX(254)582-2583
TEMPLE,TX(254)791-3460■ALBUQUERQUE,NM(505)266-5904
Our audit was conducted for the purpose of forming an opinion on the financial statements that
collectively comprise the Authority's financial statements as a whole. The accompanying supplemental
information on page 12 is presented for purposes of additional analysis and is not a required part of the
financial statements. The supplemental information is the responsibility of management and was
derived from and relate directly to the underlying accounting and other records used to prepare the
financial statements. The information has been subjected to the auditing procedures applied in the audit
of the financial statements and certain additional procedures, including comparing and reconciling such
information directly to the underlying accounting and other records used to prepare the financial
statements or to the financial statements themselves, and other additional procedures in accordance with
auditing standards generally accepted in the United States of America. In our opinion,the information is
fairly stated in all material respects in relation to the financial statements as a whole.
January 7, 2013
i
i
2
MANAGEMENT'S
DISCUSSION AND ANALYSIS
MANAGEMENT'S DISCUSSION AND ANALYSIS
As staff of the Texas Student Housing Authority (the "Authority"), we offer the readers of the
Authority's financial statements this narrative overview and analysis of the financial activities of the
Authority for the fiscal year ended August 31, 2012. We encourage readers to consider the information
presented herein in conjunction with the Authority's financial statements. The Authority is a component
unit of the Town of Westlake and is considered a governmental entity; accordingly, the Authority has
adopted 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 Authority itself.
Properties managed by the Authority are reported individually by property under separate cover.
FINANCIAL HIGHLIGHTS
• The assets of the Authority exceeded its liabilities at the close of the fiscal year by
$286,906, a decrease of $297,797 over the prior fiscal year. All of the assets and
liabilities of the Authority are classified as current.
• At the end of the current fiscal year,the total cash balances were $317,820, a decrease
of$260,457 over the prior fiscal year.
• All revenues are generated from management of the properties and scholarship
activity of the authority and totaled $852,309. Total expenses incurred were
$1,150,106.
OVERVIEW OF THE FINANCIAL STATEMENTS
This discussion and analysis is intended to serve as an introduction to the Authority's basic financial
statements. The Authority'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 assets, statement of revenues, expenses and changes in net assets, a statement of cash
flows and supplemental schedules.
The statement of net assets presents information on the Authority's assets and liabilities with the
difference between the two reported as net assets.
The statement of revenues, expenses and changes in net assets accounts for all of the Authority's
revenues and expenses regardless of when cash is paid or received.
i
The statement of cash flows reflects cash inflows and outflows by operating, noncapital financing and
capital related financing activities during the year.
3
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.
ECONOMIC FACTORS AND NEXT YEAR'S BUDGET
It is anticipated that fiscal year 2012/2013 will end with less income to the Authority as we have less
scholarships at our facilities in Austin, Texas.
CONTACTING THE AUTHORITY'S FINANCIAL MANAGEMENT
This financial report is designed to provide the reader with a general overview of the Authority's finances
and to demonstrate the Authority'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.
i
I
4
TEXAS STUDENT HOUSING AUTHORITY
STATEMENT OF NET ASSETS
AUGUST 31,2012
ASSETS
Current assets:
Cash $ 317,820
Accounts receivable 973
Total current assets 318,793
Total assets 318,793
LIABILITIES
Accounts payable -
Unearned revenue 31,887
Total liabilities 31,887
NET ASSETS
Unrestricted 286,906
Total net assets $ 286,906
The accompanying notes are an integral part of these financial statements.
5
TEXAS STUDENT HOUSING AUTHORITY
STATEMENT OF REVENUES,EXPENSES
AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED AUGUST 31,2012
OPERATING REVENUES
Basic property administration $ 220,343
Scholarship value 453,600
Scholarship administration 178,334
Total operating revenues 852,277
OPERATING EXPENSES
Scholarship 453,600
Scholarship expense 146,315
Labor 118,058
Professional fees 5,931
Contingency fund 400,000
Office and other 26,202
Total operating expenses 1,150,106
OPERATING INCOME ( 297,829)
NONOPERATING REVENUES (EXPENSES)
Interest income 31
Other income 1
Total nonoperating revenues(expenses) 32
CHANGE IN NET ASSETS ( 297,797)
NET ASSETS,BEGINNING 584,703
NET ASSETS,ENDING $ 286,906
The accompanying notes are an integral part of these financial statements.
6
TEXAS STUDENT HOUSING AUTHORITY
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED AUGUST 31,2012
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from scholarships and scholarship properties $ 434,136
Cash paid to contract services ( 5,931)
Cash paid to others ( 688,694)
Net cash provided for operating activities ( 260,489)
CASH FLOWS FROM INVESTING ACTIVITIES
Interest received 31
Miscellaneous other income 1
Net cash provided by investing activities 32
NET CHANGE IN CASH AND CASH EQUIVALENTS ( 260,457)
CASH AND CASH EQUIVALENTS,BEGINNING 578,277
CASH AND CASH EQUIVALENTS,ENDING $ 317,820
RECONCILIATION OF OPERATING GAIN TO
NET CASH USED FOR OPERATING ACTIVITIES
Operating gain $( 297,829)
Adjustments to reconcile operating income to
net cash provided(used)by operating activities:
Accounts receivable 35,459
Prepaid assets -
Accounts payable ( 2,753)
Deferred revenue 4,634
Net cash provided for operating activities $( 260,489
The accompanying notes are an integral part of these financial statements.
7
TEXAS STUDENT HOUSING AUTHORITY
NOTES TO FINANCIAL STATEMENTS
AUGUST 31,2012
I. GENERAL STATEMENT
Texas Student Housing Authority (the "Authority"), a higher education authority, was established
on January 23, 1995, as a duly constituted authority of the Town of Westlake (the "Town"), Texas,
pursuant to Section 53.11 of Chapter 53 of the Texas Education Code, as amended. The
Authority's purpose among other things is to acquire, finance, and operate student housing
facilities and to provide scholarships to students from high schools and community colleges in
Texas. The Authority operates several student housing projects in Texas. The accompanying
financial statements do not present the projects, but the scholarship administration of the Authority.
II. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Authority's significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows:
A. 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 Statement
No. 39. 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) 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. 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.
(continued)
8
II. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
B. 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 Authority uses 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 assets and the
operating statement present increases (revenues) and decreases (expenses) in net total assets
under the accrual basis of accounting, revenues are recognized when earned, and expenses
are recognized at the time the liability is incurred.
Private-sector standards of accounting and financial reporting issued prior to December 1,
1989, generally are followed in both the government-wide and proprietary fund financial
statements to the extent that those standards do not conflict with or contradict guidance of the
Governmental Accounting Standards Board. Governments also have the option of following
subsequent private-sector guidance for their business-type activities and Enterprise Funds,
subject to this same limitation. The government has elected not to follow subsequent private-
sector guidance.
C. Assets, Liabilities and Net Assets or Equity
Income Taxes
The Authority 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 Authority considers all highly liquid investments with maturity of three months or less
when purchased to be cash equivalents. At August 31, 2012, the Authority had no such
investments included in cash and cash equivalents.
Accounts Receivable
Accounts receivable are stated at amounts management expects to collect from outstanding
balances. 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, 2012, management has determined that all accounts doubtful of
collection have been charged to operations and an allowance is not required.
Capital Assets
Texas Student Housing Authority utilizes space within the Town of Westlake offices and
does not have capital assets at this time.
9
III. DETAILED NOTES ON ALL FUNDS
A. Cash and Investments
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.
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 is not significantly exposed to interest rate risk as all investments earn a variable rate.
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 holds all of its cash
and investments with commercial banks.
Concentration of Credit Risk
Texas Student Housing Authority holds no investments at August 31, 2012, and is not
exposed to concentration of credit risk.
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 government will 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, 2012, the Authority's cash balances totaled $317,820 (bank balance of
$320,935). Of the bank balance, $250,000 was covered by federal depository insurance
while the remaining amount was collateralized by a Bank Deposit Guarantee Bond from the
Authority's depository in the amount of$70,935.
(continued)
10
III. DETAILED NOTES ON ALL FUNDS (Continued)
B. Net Assets
Net assets represent the residual assets after liabilities are deducted. These assets are
reported in the following categories:
Unrestricted Net Assets consists of the portion of net assets after invested in
capital assets, net of related debt and restricted for net assets has been satisfied.
At August 31, 2012, the Authority has no restricted net assets or capital assets.
All net assets are unrestricted.
C. Concentrations
The Authority services scholarships for Texas students attending Texas higher education
facilities and is dependent upon the geographic areas and the higher education facilities in
Texas.
D. Related Party Transactions
The Town of Westlake charges an oversight fee to the Authority. The fee of $400,000 is
included in expenses at August 31, 2012. The Authority also received revenues of$220,343
related to its oversight of the various properties.
i
I
11
SUPPLEMENTAL INFORMATION
TEXAS STUDENT HOUSING AUTHORITY
BUDGETARY COMPARISON SCHEDULE
FOR THE YEAR ENDED AUGUST 31,2012
Budget Actual Variance
REVENUES
Basic property administration $ 217,145 $ 220,343 $ 3,198
Scholarship value 453,600 453,600 -
Scholarship administration 153,600 178,334 24,734
Interest income - 31 31
Other income - 1 1-
Total revenues 824,345 852,309 27,964
EXPENDITURES
Scholarships 453,600 453,600 -
Scholarship expense 152,800 146,315 6,485
Contract labor 116,600 118,058 ( 1,458)
Professional fees 5,500 5,931 ( 431)
Contingency fund 400,000 400,000 -
Office and other 27,600 26,202 1,398
Total expenditures 1,156,100 1,150,106 5,994
CHANGE IN NET ASSETS OVER EXPENSES ( 331,755) ( 297,797) 33,958
NET ASSETS,BEGINNING 584,703 584,703 -
NET ASSETS,ENDING $ 252,948 $ 286,906 $ 33,958
12
FORBEARANCE AGREEMENT t 1 ,Z&
This FORBEARANCE AGREEMENT("Agreement')is executed effective January 15,2013 t
between Austin Ballpark Lender, LLC, a Delaware limited liability company("Bondholder"), and
Texas Student Housing Authority,a higher education authority duly organized and existing under the
Higher Education Authority, Act Chapter 53, Texas Education Code, as amended (the "Act") (the
"Issuer").
RECITALS:
WHEREAS,by virtue of the Act,the Issuer has the authority to acquire,construct,enlarge,
extend,repair,renovate,improve,finance,refinance,or otherwise improve educational facilities or
housing facilities,and facilities which are incidental,subordinate or related thereto or appropriate in
connection therewith, including,but not limited to, educational facilities or housing facilities to be
used by institutions of higher education, accredited primary or secondary schools, or authorized
charter schools, as those terms are defined in the Act; and
WHEREAS,the Issuer issued its Student Housing Revenue Bonds(Austin,Texas Project),
Senior Series 2001A (the "Senior Bonds"), Junior Series 2001B (the "Series 2001B Bonds"), and
Subordinate Series 2001C (the "Series 2001C Bonds") (collectively, the Senior Bonds, the Series
2001B Bonds, and the Series 2001C Bonds shall be referred to as the "Bonds") for the purpose of
financing the acquisition and equipping of Jefferson Commons at the Ballpark, a student housing
facility with 282 apartment units and related amenities located at 4600 Elmont Drive,Austin,Texas,
near the campus of the University of Texas (the"Project"),paying the expenses of authorizing and
issuing the Bonds and funding a Debt Service Reserve Fund for the Senior Bonds and the Series
2001B Bonds; and
WHEREAS,the Issuer has expressly determined and hereby confirms that the issuance of
the Bonds and the acquisition of the Project accomplished a valid public purpose of the Issuer by
making available housing facilities to the students,faculty members, staff of"institutions of higher
education," as defined in the Act; and
WHEREAS,contemporaneously with the issuance of the Bonds,the Issuer and Wells Fargo
Bank, National Association, as trustee (as successor to The Bank of New York) (the "Trustee")
entered into a Trust Indenture, dated as of December 1, 2001 (the "Indenture") and the Issuer
executed a Deed of Trust, Security Agreement and Fixture Filing("Deed of Trust")(collectively,the
Indenture and the Deed of Trust shall be referred to as the"Bond Documents")for the benefit of the
Trustee for the purposes of effecting the issuance of the Bonds,furthering the public purposes of the
Act, and securing to the owners of the Bonds the payment of the amounts required to be paid to the
owners pursuant to the Bond Documents; and
WHEREAS,the MBIA Insurance Corporation("MBIA"),concurrently with the issuance of
the Bonds, issued its financial guaranty insurance policy No. 371220 (the"Policy")with respect to
the Senior Bond and National Public Finance Guarantee Corporation,a stock insurance corporation,
is the reinsurer of the Policy pursuant to the Quota Share Reinsurance Agreement, effective as of
January 1,2009(the"Reinsurance Agreement"),by and between MBIA and MBIA Insurance Corp,
of Illinois, now known as National Public Finance Guarantee Corporation("National"); and
WHEREAS,pursuant to the Reinsurance Agreement,MBIA has assigned all of its right and
obligations under the Policy to National; and
WHEREAS, the Issuer has failed to punctually pay principal of and interest on the Bonds
when due and National has exercised its rights to accelerate the maturity of the Bonds and has
purchased all of the Senior Bonds on the acceleration date under the Indenture;
WHEREAS,National and Bondholder have entered into an agreement pursuant to which
National, on behalf of itself and MBIA, has transferred and assigned 100% of its interest in the
Senior Bonds to the Bondholder, and has acknowledged and agreed that as a result of the
acceleration and payment of the Senior Bonds,its rights as Bond Insurer have been transferred to the
Majority of the Bondholders as provided in Section 17.11 of the Indenture. This includes, without
limitation,the subrogation rights with respect to the prior payments of$203,664.50 made on January
1,2011 and$349,848.09 made on January 1,2012 by National or MBIA under the Policy(the"Prior
Subrogation Payments"); and
WHEREAS,as the transferee of National's rights as the Bond Insurer,Bondholder has all of
the rights of the"Bond Insurer" under the Bond Documents; and
WHEREAS,Issuer remains in default in the payment of the Bonds and the Prior Subrogated
Payments remaining outstanding. The Issuer has requested that Bondholder forbear from exercise of
its rights and remedies under the Bond Documents for a period of time as specified herein in reliance
upon the covenants, representations, and warranties of Issuer herein and for other consideration.
AGREEMENT:
In consideration of the mutual covenants and agreements contained herein and other good and
valuable consideration, the receipt and sufficiency of which are acknowledged, the parties hereto
agree as follows:
1. Recitals. The foregoing recitals are confirmed by the parties as true and correct and
are incorporated herein by reference.
2. No Waiver. The execution, delivery and performance of this Agreement by
Bondholder,any termination or expiration of this Agreement,and the acceptance by Bondholder of
performance of Issuer hereunder (a) shall not constitute a waiver or release by Bondholder of any
default that may now or hereafter exist under the Bond Documents, and (b) except as specifically
provided in Section 5, shall be without prejudice to,and is not a waiver or release of,Bondholder's
rights at any time in the future to exercise any and all rights conferred upon Bondholder by the Bond
Documents or otherwise at law or in equity, including the right to accelerate the Bonds, and to
institute foreclosure proceedings and/or to institute collection proceedings against Issuer. Except as
amended hereby, the Bond Documents remain in full force and effect.
2
3. Acknowledgements and Agreements of Status and Default.
(a) Issuer hereby acknowledges and represents that: (i) the Bond Documents
constitute the valid and binding obligations of the Issuer, enforceable against Issuer in accordance
with their terms; (ii) a default has occurred and is continuing under the Bond Documents, (iii)
because of said default, MBIA had the authority to direct the acceleration of the Bonds and such
acceleration has validly occurred and is continuing and the Bondholder is now entitled to pursue
remedies specified or permitted under the Bond Documents including,without limitation,foreclosure
under the Deed of Trust; and (iv) no valid defenses, set-offs, reductions, claims or counterclaims,
whether legal or equitable, exist with respect to the payment of the indebtedness or performance of
other obligations of Issuer evidenced by the Bond Documents.
(b) The Issuer hereby confirms and acknowledges that a failure to make due and
punctual payment of certain principal of and interest on the Bonds in the amount of the Prior
Subrogation Payments (the "Specified Defaults") under the Indenture have occurred and are
continuing and reaffirms that the Prior Subrogation Payments are unpaid and are outstanding.
(c) Issuer represents to Bondholder that,other than the Specified Defaults,there
are no other defaults under the Bond Documents nor any events which with the passage of time or
giving of notice or both would ripen into a default or Event of Default under the Bond Documents.
(d) Issuer waives any and all rights to other notice of payment default or any other
default,protest and notice of protest,dishonor,diligence in collecting and the bringing of suit against
any party,notice of intention to accelerate,notice of acceleration,demand for payment and any other
notices whatsoever regarding the Bonds or the other Bond Documents,and further waive any claims
that any notices previously given are insufficient for any reason.
(e) Issuer acknowledges the Bondholder has relied on the confirmations,
representations,acknowledgements,warranties,and agreements made by Issuer in this Section 3 as
an inducement to Bondholder's execution and delivery of, and performance under,this Agreement.
4. Conditions to Forbearance. From the date hereof until the Specified Defaults have
been cured and no Events of Default are continuing under the Bond Documents,Issuer agrees(i)to
use its best efforts to comply with the covenants contained in the Bond Documents, including,
without limitation,the covenants contained in the Article IV of the Indenture,(ii)to fully recognize
and comply with the Bondholder's rights, as the Bond Insurer,to be informed of and to review the
operating policies of the Issuer and(iii)to implement all reasonable recommendations made by the
Bondholder with respect to its operating policies. In furtherance thereof, until Issuer is in full
compliance,in the reasonable judgment of Bondholder,with the covenants contained in Article IV of
the Indenture and no Event of Default exists under the Indenture, Issuer shall present to Bondholder
for its approval all tenant leases,any amendments to the property management agreement, vendor
contracts, operating budgets, major maintenance repairs and other capital expenditures.
Issuer concurs and agrees with Bondholder that approximately$700,000 of improvements are
needed to maintain the Project in good repair and operating condition and improve its marketability
in the Austin student housing marketplace.Issuer further concurs and agrees with the direction given
3
by the Bondholder to the Trustee to retain all or a portion of the funds under the Indenture
("Available Funds") in lieu of applying them to a partial Senior Bond debt service payment on
January 2, 2013. Bondholder agrees that all or a portion of the Available Funds may be applied to
fund the required improvements and related expenses and to consult with Issuer regarding the
improvements to be made and Issuer agrees to apply the Available Funds to fund the improvements
and related expenses as directed by the Bondholder.
Notwithstanding any provision in this Agreement to the contrary, Issuer acknowledges and
agrees that during the continuance of an Event of Default under the Bond Documents, that
Bondholder,as the successor Bond Insurer,shall be entitled to exercise its rights under Article IV of
the Indenture,including,without limitation,Section 4.12 thereof,and Bondholder acknowledges and
agrees that during the Forbearance Period, Issuer shall be entitled to receive a monthly asset
management fee of$3,044,which shall be paid as a first payment priority under Section 10.06(ii)of
the Indenture and shall continue to grant scholarships in accordance with its bylaws and any
regulations promulgated thereunder.
5. Forbearance.
(a) Subject to the terms of this Agreement,Bondholder hereby agrees to forbear
from directing the Trustee under the Bond Documents during the Forbearance Period (as defined
below),and hereby agrees to forbear during the Forbearance Period from exercising remedies under
the Bond Documents as a result of the Specified Defaults. For the purposes hereof,the"Forbearance
Period" shall mean a period from the date hereof until the earlier of (i) July 15, 2013 or (ii) a
termination pursuant to Section 8 below. Notwithstanding the foregoing,in the event that the Issuer
continues to satisfy the conditions set forth in Section 4 hereof,and provided that none of the events
described in Section 8 below have occurred,the Bondholder may, at its option, extend the term set
forth in clause(i)of the Forbearance Period for successive six(6)month periods.Bondholder hereby
agrees that if the term is not extended for a successive six (6) month period, Bondholder shall
provide Issuer with an amount sufficient for the Issuer to pay the remaining academic year term of
any awarded scholarships granted to students residing at the Project. Any such extension of the
Forbearance Period shall be in writing and signed by the Bondholder and shall,in no event, extend
beyond the second anniversary date of this Agreement.If the Proj ect is acquired by the Trustee,or its
designee, by foreclosure or deed in lieu of foreclosure, Issuer shall be paid an amount equal to the
monthly asset management fee of$3,044 multiplied by the number of months remaining in the
calendar year in which such foreclosure event occurs.
(b) Other than as expressly described in this Section 5,no forbearance under any
of the Bond Documents has been agreed to by Bondholder or the Bondholder. The foregoing
agreement to forbear by Bondholder (i) is not intended by the parties to be, and shall not be
construed as,a waiver of any existing and continuing defaults or Events of Default under the Bond
Documents(it being acknowledged and agreed that no such waiver shall be effected hereby),and(ii)
is only an agreement by Bondholder to forbear from directing the Trustee to exercise its right to
pursue any remedies under the Bond Documents(subject to the terms hereof)as such right relates to
the Specified Defaults, and is in no way intended to limit any rights or remedies the Trustee or
Bondholder may have with respect to any other default or Event of Default under any instrument or
Bond Document or other agreement occurring before, on, or after the date hereof.
4
6. Release of Claims and Defenses. Issuer,for itself and for its employees and agents,as
appropriate, and its successors and assigns, (collectively,the"Releasing Parties"),arties"), hereby releases
and forever discharges Bondholder, and all persons controlling, controlled by, or under common
control with any of the foregoing, and all of the agents, employees, directors, officers, attorneys,
counsel and advisors of Bondholder of the foregoing (collectively, the "Released Parties"), of and
from any and all damages, losses, claims, demands, liabilities, obligations, actions and causes of
action whatsoever which the Releasing Parties may now have, or claim to have, against any such
member of the Released Parties as of the date of this Agreement, and whether presently known or
unknown, and of every nature and extent whatsoever on account of, or in any way concerning,
arising out of, founded upon, or in any way relating to, this Agreement or any other instrument
relating to or securing the Bonds, including,but not limited to, all such loss or damage of any kind
heretofore sustained, or that may arise as a consequence of the dealings between the parties hereto.
7. Representations and Warranties. In order to induce Bondholder to execute,deliver,
and perform this Agreement, Issuer warrants and represents to Bondholder(each of which shall be
deemed independently material, and each of which shall survive the execution and delivery hereof
and any independent investigation by Bondholder or its representatives) that:
(a) this Agreement is not being made or entered into with the actual intent to
hinder, delay, or defiaud any entity or person, and Issuer is solvent and is not bankrupt;
(b) no action or proceeding, including, without limitation, a voluntary or
involuntary petition for bankruptcy under any chapter of the Federal Bankruptcy Code,has
been instituted or threatened by or against Issuer;
(c) the execution of this Agreement by Issuer and the performance by the Issuer
of Issuer's obligations hereunder will not violate or result in a breach or constitute a default
under any agreements to which Issuer is a party;
(d) all information provided by Issuer to Bondholder prior to the date hereof,
including, without limitation, all financial statements, balance sheets, and cash flow
statements, was, at the date of delivery, and is, as of the date hereof, true and correct in all
respects. Issuer recognizes and acknowledges that Bondholder is entering into this
Agreement based in part on the financial information provided to Bondholder and that the
truth and correctness of that financial information is a material inducement to Bondholder in
entering into this Agreement. During the term of this Agreement,Issuer agrees promptly to
advise Bondholder in writing of any and all new information, facts, or occurrences which
would in any way materially supplement, contradict, or affect any financial statements,
balance sheets, cash flow statements, or similar items furnished to Bondholder;
(e) Issuer acknowledges Bondholder has relied on the confirmations,
representations, acknowledgements, warranties, and agreements made by Issuer in this
Section 7 as an inducement to Bondholder's execution and delivery of, and performance
under,this Agreement; and
5
(f) Issuer acknowledges that (i) MBIA has assigned all of its rights, title and
interests under the Bond Documents, including its subrogation rights relating to prior Bond
principal and interest payments made by MBIA under its financial guaranty policy, to
Bondholder,(ii)Bondholder is the"Bond Insurer"under the Bond Documents and has all the
rights of the Bond Insurer thereunder and (iii) all costs and expenses of the Bondholder,
including attorney's fees and advances for the renewal,repair and replacement of the Project
are included within the indebtedness secured by the Deed of Trust and are payable as
provided in Section 10.06(ii) of the Indenture as directed by Bondholder.
8. Termination of this Agreement. This Agreement will terminate upon the expiration
of the Forbearance Period or may be terminated by Bondholder, at Bondholder's sole option, upon
written notice to Issuer, upon the occurrence of any of the following:
(a) Issuer files a petition for bankruptcy under any chapter of the Federal
Bankruptcy Code or takes advantage of any other debtor relief law, or there is filed against
Issuer an involuntary petition for bankruptcy under any chapter of the Federal Bankruptcy
Code,or any other judicial action is taken with respect to Issuer by any of Issuer's creditors;
(b) the discovery by Bondholder that any representation or warranty made herein
by Issuer was or is untrue, incorrect or misleading in any material respect;
(c) any lien, claim or charge, including, without limitation, any mechanic's or
materialman's lien, or any attachment,judgment, execution of judgment, is filed against or
with respect to the Property, whether or not naming Issuer as a defendant;
(d) a default or Event of Default occurs under the Bond Documents, other than
the Specified Defaults; or
(e) Issuer breaches, or defaults in performance of, any covenant or agreement
contained in this Agreement.
9. Additional Issuer Acknowledgment. Issuer hereby acknowledges and agrees that it(i)
has read and understands the contents of this Agreement,(ii)has had the opportunity to consult with
counsel of its choice respecting this Agreement and the matters contained herein and contemplated
hereby, and (iii) has acted voluntarily and without duress in connection with the execution and
delivery of this Agreement.
10. Miscellaneous.
(a) This Agreement may be executed in multiple counterparts, each of which
shall constitute an original instrument, but all of which shall constitute one and the same
agreement. An executed counterpart received by facsimile or by electronic mail shall be
treated as an original executed counterpart.
(b) Any amendment to this Agreement must be in writing, be executed and
delivered by Bondholder, and must expressly refer to this Agreement.
6
(c) The provisions of this Agreement shall be binding upon,and shall inure to the
benefit of, the respective successors and assigns of Bondholder, and the respective heirs,
legal representatives, successors and assigns of the Issuer;provided, however, that Issuer
shall have no right to assign any of its rights or obligations hereunder without the prior
written consent of Bondholder and any attempt to effect such assignment by Issuer without
such consent shall be null and void.
(d) The headings of paragraphs in this Agreement are for convenience of
reference only and shall not in any way affect the interpretation or construction of this
Agreement.
(e) THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF TEXAS AND FEDERAL LAW, AS APPLICABLE.
(f) The recitals,warranties and representations of the parties,and the provisions
of Section b in this Agreement shall survive the expiration or termination of this Agreement.
(g) Time is of the essence to each and every term of this Agreement.
(h) Each and every term hereof shall be deemed material except as provided
herein. Any breach of any conditions herein shall be deemed a material breach. No waiver
on any one occasion shall be deemed a waiver in any subsequent occasion. No waiver shall
be enforceable except in writing signed by the party to be charged.
(i) In the event that any time period provided herein or hereunder ends on a
Saturday, Sunday or legal holiday then the time period shall be extended to the first business
day thereafter.
0) No language on any check,draft or other instrument of payment nor upon any
correspondence accompanying such check,draft or other instrument of payment shall create
an accord and satisfaction,rather any acceptance thereof by Bondholder shall be deemed an
endorsement under protest or such similar language as to negate such accord and satisfaction.
(k) All notices,demands and requests which may be given or which are required
to be given by either party to the other,and any exercise of a right of termination provided by
this Agreement, shall be in writing and shall be given in accordance with and governed by
the terms of the Indenture.
[SIGNATURES BEGIN ON THE FOLLOWING PAGE]
7
THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
EXECUTED as of the day and year first above written.
BONDHOLDER:
AUSTIN BALLPARK LENDER, LLC
By:
Name:
Title:
ISSUER:
TEXAS STUDENT HOUSING AUTHORITY
By:
Name:
Title:
8