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HomeMy WebLinkAboutMSU Audit 08-31-04TEXAS STUDENT HOUSING CORPORATION - MSU PROJECT FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORT FOR THE TWELVE MONTHS ENDED AUGUST 31, 2004 AND THE THIRTEEN MONTHS ENDED AUGUST 31, 2003 MATHIS, WEST, HUFFINES & CO., P.C. CERTIFIED PUBLIC ACCOUNTANTS. CONSULTANTS TEXAS STUDENT HOUSING CORPORATION MSU PROJECT FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORT FOR THE TWELVE MONTHS ENDED AUGUST 31, 2004 AND THE THIRTEEN MONTHS ENDED AUGUST 31, 2003 TABLE OF CONTENTS ~ Independent Auditor's Report 1 Financial Statements: Statements of Financial Position 2 Statements of Activities 3-4 Statements of Cash Flows 5 Notes to Financial Statements 6-11 Supplemental Schedules: Schedule I -Schedule of Revenue Available for Fixed Charges and Fixed Charges 12 Schedules 11- Certification of the Fixed Charges Coverage Ratio 13 MATHIS. WEST. HUFFINES & CO.. P.C. Certified Public Accountants Capital Center' Indiana at Seventh P.O. Box 97000 .Wichita Falls, Texas 76307-7000 (940) 723-1471 .FAX (940) 723-2251 Email mwh@mwhpc.com .www.mwhpc.com Independent Auditor's Report To the Board of Directors of Texas Student Housing Corporation -MSU Project We have audited the accompanying statements of financial position of Texas Student Housing Corporation -MSU Project (Corporation) as of August 31, 2004 and 2003, and the statements of activities, and cash flows for the twelve-month and thirteen-month periods then ended. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits 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 audits provide 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 Texas Student Housing Corporation -MSU Project as of August 31, 2004 and 2003, and the changes in its net assets (deficit) and its cash flows for the twelve-month and thirteen- month periods then ended in conformity with accounting principles generally accepted in the United States of America. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedules I and II are presented for purposes of additional analysis and are not required as part of the basic financial statements. Such information has been subjected to auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. MATHIS, WEST, HUFFINES & CO., P.C Wichita Falls, Texas May 18, 2005 1 TEXAS STUDENT HOUSING CORPORATION MSU PROJECT STATEMENTS OF FINANCIAL POSITION AUGUST 31, 2004 AND 2003 2003 ASSETS $ 43,557 2,768,509 164,210 30,432 3,006,708 Cash and cash equivalents Restricted cash and investments Accounts receivable Prepaid insurance 11,300,714 624,824 Property and equipment: Building Furniture, fixtures and equipment 11,925,538 Less accumulated depreciation Net property and equipment 11,925,538 Intangible assets: Deferred financing costs 464,917 Total assets $ 15,397,163 LIABILITIES Accounts payable Other current liabilities Deferred revenue Accrued interest Bonds payable Total liabilities $ 458,074 4,550 609,005 464,900 14,003,346 15,539,875 NET ASSETS (DEFICIT) Temporarily restricted (142,712) Total liabilities and net assets (deficit)$ 15,397,163 See accompanying notes to financial statements. 2 TEXAS STUDENT HOUSING CORPORATION MSU PROJECT NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2004 AND 2003 Note 1 -NATURE OF BUSINESS Texas Student Housing Corporation -MSU Project (Corporation), a Texas non-profit organization, was incorporated on April 22, 2002, as a duly constituted authority of the Town of Westlake, Texas (Town) pursuant to Section 53.35(b) of the Texas Education Code, as amended (Act). The Corporation's primary purpose was to construct, own and operate a student housing facility known as Sunwatcher Village (Property) on the campus of Midwestern State University (MSU) in Wichita Falls, Texas. The Property was constructed from the proceeds from the issuance of Texas Student Housing Corporation -MSU Project Student Housing Revenue Bonds, Series 2002 (Bonds). The Bonds were issued through a Trust Indenture (Trust Indenture) by and between the Corporation and The Bank of New York (Trustee) dated August 1,2002. The land on which the Property is located (approximately 4 acres) is leased and the Property is operated and managed under the terms of the Ground Lease and Management Agreement (Agreement) by and between the Corporation and MSU. Note 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the Corporation's significant accounting policies consistently applied in the preparation of the accompanying financial statements follows. Basis of Accountina The accounts are maintained and the financial statements have been prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. 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 certain reported amounts in the financial statements and accompanying notes. Actual results could differ from these estimates and assumptions. Cash and Cash Eauivalents The Corporation considers all highly liquid investments with maturity of three months or less when purchased to be cash equivalents. At August 31, 2004 and 2003, the Corporation had no such investments included in cash and cash equivalents. The Corporation maintains deposits primarily in one financial institution, which may at times exceed amounts covered by insurance provided by the U.S. Federal Deposit Insurance Corporation (FDIC). At August 31, 2004 and 2003, the uninsured portion of these deposits approximated $2,256,590 and $2,668,509, respectively. 6 TEXAS STUDENT HOUSING CORPORATION - MSU PROJECT NOTES TO FINANCIAL STATEMENTS (CONT'D.) AUGUST 31, 2004 AND 2003 Note 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D. Restricted Cash and Investments Restricted cash and investments represent amounts held by the Trustee, which are restricted for the payment of expenses as required by the Trust Indenture. Accounts Receivable Accounts receivable are stated at amounts management expects to collect from outstanding balances. Management writes off uncollectible amounts through a reduction to revenue and a credit to accounts receivable based on its assessment of the outstanding receivables. At year end management assesses the accounts receivable balance and writes off any balances deemed to be uncollectible based on historical experience and an evaluation of the outstanding balances. Management does not consider these amounts to be material. Property and Equipment Property and equipment have been recorded at the date of acquisition at cost. Expenditures directly related to the improvement of property are capitalized at cost. The Corporation capitalizes the cost of major property improvements and furniture, fixtures and equipment if the unit cost of the item is greater than $2,500. Routine maintenance and repair costs are expensed as incurred. As assets are retired or disposed of, the associated cost of assets retired and the related accumulated depreciation are removed from the accounts. There were no retirements during the twelve and thirteen month periods ended August 31,2004 and 2003. Depreciation is computed using the straight-line method over the estimated useful lives as follows: 30 years 10 years Building Furniture, fixtures and equipment Deferred Financina Costs Costs associated with the issuance of bonds are deferred and amortized to interest expense over the term of the bonds. Revenue RecoQnition Rental and other operating income is recorded on the accrual method of accounting and recognized as earned. The Corporation reports prepaid rental income as revenue when the rental income is due from the tenant. Such amounts received but not yet earned as of year end are reported as deferred revenue. Rental income received from the operation of the Corporation is restricted by the terms of the Trust Indenture for the purpose of satisfying the amounts owed by the Corporation to the bondholders and for the payment of operating expenses incurred by the Corporation. Other operating income includes various charges to tenants, such as forfeitures, damages, and other. 7 TEXAS STUDENT HOUSING CORPORATION - MSU PROJECT NOTES TO FINANCIAL STATEMENTS (CONT'D.] AUGUST 31, 2004 AND 2003 Note 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D, Advertisina Costs All advertising costs are expensed as they are incurred. Advertising costs for the twelve months and thirteen months ended August 31, 2004 and 2003 were approximately $100 and $5,278, respectively. Income Taxes The Corporation 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. Financial Statement Presentation The Corporation presents their financial statements in accordance with Statement of Financial Accounting Standards (SFAS) No. 117, Financial Statements of Not-for-Profit Corporations. Under SFAS No. 117, the Corporation is required to report information regarding their financial position and activities according to three classes of net assets: unrestricted, temporarily restricted, and permanently restricted. In addition, the Corporation is required to present a statement of cash flows. Note 3 -RESTRICTED CASH AND INVESTMENTS Restricted cash represents amounts placed on deposit in an account held by the Trustee, which are restricted for the payment of expenses as required by the Trust Indenture. At August 31, 2004 and 2003, restricted cash and investments consist of the following funds and accounts: Fund/Account DescriDtion 2004 ~ $ 104,266 464,900 1,134,479 63,740 6,257 33,388 496,821 20,011 1 2,395 30,332 $ 113,117 787,169 1,134,025 4,900 625 27,144 265,077 2,500 1 2,391 431,069 491 Revenue Fund Operating Fund Bond Fund Debt Service Reserve Fund Repair and Replacement Fund Basic Additional Payments Fund Subordinated Operating Expense Fund Issuer Administration Fund Surplus Fund Tax and Insurance Fund Insurance and Condemnation Fund Cost of Issuance Fund Construction and Acquisition Fund Working Capital Fund Total $2.356.590 $2.768.509 8 TEXAS STUDENT HOUSING CORPORATION MSU PROJECT NOTES TO FINANCIAL STATEMENTS (CONT'D.) AUGUST 31, 2004 AND 2003 Note 3 -RESTRICTED CASH AND INVESTMENTS (CONT'D. The following is a brief description of the funds and accounts making up the restricted cash and investments 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 Corporation. All monies are deposited in the revenue fund and then properly distributed to the other funds, as required by the Trust Indenture. Amounts in this fund at year end represent amounts that have not been distributed to the other funds due to timing of the interfund transfers. Operating Fund -Amounts in the operating fund are to be disbursed each month to MSU for the purpose of paying monthly operating and maintenance expenses authorized under the Annual Budget. 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 two accounts, the interest and principal accounts. Debt SefVice ResefVe Fund -The amounts on deposit in this account are to be used for the purpose of paying principal and interest on the Bonds as they become due in the event there should be insufficient funds in the Bond Fund. 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 Property, which the Corporation 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. Basic Additional Payments Fund -Amounts are deposited in the basic additional payments fund on a monthly basis and are intended to pay the fees of the Trustee and Rating Agency. Subordinated Operating Expense Fund -Amounts in the subordinated operating expense fund are to be disbursed to MSU for any operating and maintenance expense item included in the Annual Budget not otherwise payable from the operating fund. Issuer Administration Fund -The amounts in the account are to be used to pay the Annual Lessee Fee on September 1 of each year until the Bonds have been paid in full. 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 Corporation 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. 9 TEXAS STUDENT HOUSING CORPORATION MSU PROJECT NOTES TO FINANCIAL STATEMENTS (CONT'D. AUGUST 31, 2004 AND 2003 Note 3 -RESTRICTED CASH AND INVESTMENTS (CONT'D Tax and Insurance Fund -Amounts in the tax and insurance fund are to be disbursed for the payment of the costs of maintaining the insurance on the Project, pay ad valorem property taxes, if any, or payments in lieu of taxes, if any. Insurance and Condemnation Fund -This account is to be used to deposit net insurance proceeds and net condemnation proceeds, if any. Cost of Issuance Fund -Amounts deposited in the cost of issuance fund are intended to pay the costs of issuing the Bonds. Construction and Acquisition Fund -Amounts deposited in the construction and acquisition fund are intended to pay the costs of constructing and equipping the Project. Working Capital Fund -Amounts deposited in the working capital fund are intended to fund the Project's operating deficit, if any, before the Project's opening. Note 4 -BONDS PAYABLE The Bonds are Tax-Exempt Governmental Obligations under the Internal Revenue Code. The bonds payable represents amounts due to the bondholders, via the Trustee, and payable under the terms of the Trust Indenture dated August 1, 2002. The Bonds are payable solely from the revenues generated by the Property and are secured by the revenues pledged and assigned under the terms of the Trust Indenture. The bonds payable as of August 31, 2004 and 2003 are as follows: 2004 2003 $14,540,000 512.327 $14,540,000 536.654 Gross bonds payable Less discounts Totals $14,027,673 $14,003,346 Future payments for the bond principal are as follows Principal Pa~mentYear Endinq Auqust 31 2005 2006 2007 2008 2009 Thereafter $ 110,000 145,000 170,000 200,000 13.915.000 $14.540.000Total 10 SUPPLEMENTAL SCHEDULES TEXAS STUDENT HOUSING CORPORATION MSU PROJECT SCHEDULE I -SCHEDULE OF REVENUE AVAILABLE FOR FIXED CHARGES AND FIXED CHARGES FOR THE TWELVE MONTHS ENDING AUGUST 31, 2004 Revenue Available for Fixed Charges Revenue: Rental income Other operating income Total revenue $ 1,572,884 12,445 $1,585,329 104,030 45,958 47,342 187,589 55,653 25,000 7,500 Expenses: Personnel expenses Insurance Telephone & communication services Utilities Other operating expenses Issuer administration fee Other fees Total expenses 473,072 Other income: Interest income 94,956 Revenue Available for Fixed Charges Fixed Charges Maximum annual debt service (2003-04 payments)$929,800 Fixed Charges Coverage Ratio 1.30 12 TEXAS STUDENT HOUSING CORPORATION - MSU PROJECT SCHEDULE 11- CERTIFICATION OF THE FIXED CHARGES COVERAGE RATIO We are providing this letter, as required by the Trust Indenture by and between the Corporation and the Trustee, dated August 1, 2002, relating to the Bonds to certify the Fixed Charges Coverage Ratio as of August 31, 2004. 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 twelve month period ended August 31, 2004 to be $1,207,213. The maximum annual debt service for the bonds is $929,800. Based on the above revenues and fixed charges, we calculate that the Fixed Charges Coverage Ratio as of August 31, 2004 to be 1.30, which is based on twelve months of operations then ended, which is in compliance with the Trust Indenture. 13