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HomeMy WebLinkAboutBallpark Audit 08-31-05-rev1TEXAS STUDENT HOUSING AUTHORITY- BALLPARK AUSTIN PROJECT FINANCIAL REPORT AUGUST 31, 2005 CONTENTS Page INDEPENDENT AUDITOR'S REPORT ................................................................................... 1 MANAGEMENT'S DISCUSSION AND ANALYSIS (unaudited) ................................................ 2 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 ....................................................................................... 10 SUPPLEMENTAL SCHEDULES Schedule 1-Schedule of Revenues and Expenses ....................................................... 20 Schedule II-Certificate of the Fixed Charges Coverage Ratio ..................................... 21 I I l~.r. r CERTIFIED PUBLiC ACCOUNTANTS AND CONSULTANTS , :ill' --,c;; )'(J F (';-,,., ·-·-" '!._' INDEPENDENT AUDITOR'S REPORT To the Board of Directors Texas Student Housing Authority -Ballpark Austin Project We have audited the accompanying financial statements of the business type activities of Texas Student Housing Authority-Ballpark Austin Project (the "Project"), as of and for the year ended August 31, 2005, 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 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 pian 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 1, 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, 2005, 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 business type activities of the Texas Student Housing Authority -Ballpark Austin Project at August 31, 2005 and the results of its operations and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Management's discussion and analysis on pages 2 through 5 are not a required part of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the business type activities of Texas Student Housing Authority - Ballpark Austin Project's basic financial statements. The supplementary information on pages 20 and 21 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. WEAVER AND TIDWELL, LLP. Fort Worth, Texas January 9, 2006 MANAGEMENT'S DISCUSSION AND ANALYSIS (unaudited) TEXAS STUDENT HOUSING AUTHORITY-BALLPARK AUSTIN PROJECT MANAGEMENT'S DISCUSSION AND ANAYLSIS YEAR ENDED AUGUST 31, 2005 (unaudited) Page2 As Staff of the Texas Student Housing Authority-Ballpark Austin Project (the "Ballpark") we offer the readers of Ballpark's Financial Statements this narrative overview and analysis of the financial activities of Ballpark for the fiscal year ended August 31, 2005. We encourage readers to consider the information presented herein in conjunction with Ballpark's financial statements which follow this section. As the Authority is an instrumentality of the Town of Westlake and is thus considered a governmental entity, Governmental Accounting Standards Board Statement 34, Basic Financial Statements-and Management Discussion and Ana~vsis-for State and Local Governments (Statement 34) has been implemented. The reader should note that this financial report addresses only the financial condition of Ballpark itselffor 2005. The prior period covered twenty months of activity and will not provide meaningful comparison to current year activities. Comparative information will be presented when available. FINANCIAL HIGHLIGHTS The Liabilities of the Ballpark Austin Project exceeded its Assets at the close of the fiscal year by $6,192,401. Of this liability, a total of$1,956,483 is carried as a liability to JPI, the former Management Company and management is of the opinion that pending a settlement with JPI, that this liability may be forgiven. The increase of $944,021 in liabilities from 2004 to 2005 can be mainly attributed to an increase of$525,142 in Accrued Interest and $110,170 in Other Current Liabilities. Operating Revenue of $3,163,73 3 is $17,163 better than budget; however Operating Expense is $185,835 worse than budget not including depreciation and amortization thus effectively negating the revenue overage. Major components of the expense overage were $84,914 in Turnover Expense (painting, recarpeting, etc. rooms during student turnover); $26,087 in Advertising, and $68,048 in General Administration expenses. At the end of the current fiscal year, the total cash balances were $571,169 in unrestricted cash and $3,000,448 in restricted cash. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis are intended to serve as an introduction to Ballpark's basic financial statements. Ballpark's report consists of three parts-Management Discussion and Analysis, the basic financial statements, and notes to the 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. TEXAS STUDENT HOUSING AUTHORITY-BALLPARK AUSTIN PROJECT MANAGEMENT'S DISCUSSION AND ANAYLSIS YEAR ENDED AUGUST 31,2005 (unaudited) Page 3 The statement of net assets presents information on all of the Authority's assets and liabilities with the difference between the two reported as net assets. Total current assets $ 6,795,535 Total capital assets 28,461,279 TOTAL ASSETS 35,256,814 Total current liabilities 3,706,376 Noncurrent liabilities 37,742,839 TOTAL LIABILITIES 41,449,215 NET ASSETS Invested in capital assets, net of related debt 8,306,475) Restricted for debt service 1,604,513 Unrestricted 509,561 TOTAL NET ASSETS ($ 6,192,401) The statement of revenues, expenses, and changes in net assets account for all of the Authority's revenues and expenses regardless of when cash is paid or received. Total operating revenue $ 3,163,733 Total operating expenses 2,871,910 OPERATING INCOME 291,823 Interest income 157,043 Interest expense ( 2,460,253) TOTAL NON-OPERATING LOSS ( 2,303,210) CHANGE IN NET ASSETS (2,011 ,387) NET ASSETS, AUGUST 31, 2004 ( 4,181 ,014) NET ASSETS, AUGUST 31, 2005 ($ 6,192,401) The statement of cash flows recaps how cash changed from year to year. 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. TEXAS STUDENT HOUSING AUTHORITY-BALLPARK AUSTIN PROJECT MANAGEMENT'S DISCUSSION AND ANAYLSIS YEAR ENDED AUGUST 31, 2005 (unaudited) Restricted Cash Page4 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, 2005 these balances were as follows: Bond Fund-Series 2001 A Senior Interest Bond Fund-Series 2001 B Sub B Bond Fund-Series 2001 C Sub C Debt Service Reserve 2001 A Senior Debt Service Reserve 2001 B Sub B Repair and Replacement Fund Minimum Scholarship Fund Surplus Fund Sub C Amortization Trustee Fee Fund Tax and Insurance Fund Supplemental Management Fee Account Senior Bonds Principal Sub B Bond Total Non-Restricted Cash $ 148,002 61 15 2,280,538 174,605 161,526 1,751 22 3,153 32,107 34 195,877 2 757 $ 3,000,448 Non-restricted cash is available for general use of the project. Bonds Payable As of August 31, 2005, the following amounts on the Series A, B, and C Bonds were owed: Series A Series B Series C Less Discounts Total $32,955,000 2,395,000 3,000,000 ( 1,5 82,246) $36,767,754 For the Fiscal Year ending on August 31, 2006, the total principal and interest payment is calculated at $2,777,586. A total of $525,000 in principal was paid during 2005. Fixed Charge Coverage Ratio The Bond Indenture provides for a Fixed Charges 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 Ballpark has only realized a ratio of0.43 and 0.25 respectively and is thus technically in default of the Indenture. TEXAS STUDENT HOUSING AUTHORITY-BALLPARK AUSTIN PROJECT MANAGEMENT'S DISCUSSION AND ANAYLSIS YEAR ENDED AUGUST 31, 2005 (unaudited) ECONOMIC FACTORS AND NEXT YEAR'S BUDGET Page 5 Leases at Ballpark 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, 2006 indicates a substantial increase to 99%; however rental rates, again due to competitive pressures will not see an increase. Net Operating Revenue for this next year is projected at $1,897,273. This negative gap between cash available for Debt Service and cash required for Debt service will result in the necessity to invade both Series A and Series B Debt service Reserve Funds. CONTACTING THE AUTHORITY'S FINANCIAL MANAGEMENT This financial report is designed to provide the reader with a general overview of the Ballpark's finances and to demonstrate the Ballpark'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 or Hank Smyth at 817-281-5053. FINANCIAL STATEMENTS Page6 TEXAS STUDENT HOUSING AUTHORITY-BALLPARK AUSTIN PROJECT STATEMENT OF NET ASSETS Current Assets Cash Restricted cash Prepaid Expenses Accounts receivable Total current assets Capital Assets Land AUGUST 31, 2005 ASSETS Other capital assets, net of accumulated depreciation Total capital assets Intangible Assets Deferred financing costs, net of amortization Total intangible assets Total Assets Current Liabilities Trade accounts payable Management fees payable Deferred revenue Accrued interest Other current liabilities Development fee payable Bonds payable Total current liabilities Long Term Liabilities Bonds payable Deferred purchase price Total liabilities LIABILITIES NET ASSETS Invested in capital assets, net of related debt Restricted for debt service Unrestricted Total net assets The Notes to Financial Statements are an integral part of this statement. $ 571 '169 3,000,448 35,987 20,182 3,627,786 4,788,265 23,673,014 28,461,279 3,167,749 3,167,749 35,256,814 128,522 338,450 463,153 1,890,547 242,756 158,033 484,915 3,706,376 36,282,839 1,460,000 41,449,215 8,306,475) 1,604,513 509,561 ($ 6,192,401) Page 7 TEXAS STUDENT HOUSING AUTHORITY-BALLPARK AUSTIN PROJECT STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS FOR THE YEAR ENDED AUGUST 31, 2005 OPERATING REVENUES Rental income Other income Total operating revenue OPERATING EXPENSES Personnel expenses Contract services Utilities Repairs and maintenance Turnover expenses Advertising and promotion Administration expenses Management fees Replacements Depreciation expense Amortization expense Total operating expenses OPERATING INCOME NON-OPERATING REVENUES (EXPENSES) Interest income Interest expense TOTAL NON-OPERATING LOSS CHANGE IN NET ASSETS NET ASSETS, AUGUST 31, 2004 NET ASSETS, AUGUST 31, 2005 The Notes to Financial Statements are an integral part of this statement $ 3,163,011 722 3,163,733 306,143 44,345 415,521 38,237 168,810 91,610 217,412 86,139 50,269 1,273,044 180,380 2,871,910 291,823 157,043 2,460,253) 2,303,210) ( 2,011,387) 4,181 ,014) ($ 6, 192,401) Page 8 TEXAS STUDENT HOUSING AUTHORITY • BALLPARK AUSTIN PROJECT STATEMENT OF CASH FLOWS FOR THE YEAR ENDED AUGUST 31, 2005 CASH FLOWS FROM OPERATING ACTIVITIES Cash received from tenants Cash paid to employees Cash paid to suppliers Net cash provided by operating activities CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Payments on bonds payable Interest paid Net cash used in capital and related financing activities CASH FLOWS FROM INVESTING ACTIVITIES Interest on investments Net cash provided by investing activities Net change in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Cash Restricted cash Total cash and cash equivalents The Notes to Financial Statements are an integral part of this statement. $ 3,183,780 ( 319,344) ( 795,613) 2,068,823 ( 525,000) ( 1,935,112) ( 2,460, 112) 157,043 157,043 234,246) 3,805,863 $ 3,571,617 $ 571,169 3,000,448 $ 3,571,617 Page 9 TEXAS STUDENT HOUSING AUTHORITY · BALLPARK AUSTIN PROJECT STATEMENT OF CASH FLOWS FOR THE YEAR ENDED AUGUST 31, 2005 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income Adjustments to reconcile operating income to net cash provided by operating activities Depreciation and amortization Changes in operating assets and liabilities: Accounts receivable Other assets Trade accounts payable Deferred revenue Tenant security deposits Other current liabilities Net cash provided by operating activities The Notes to Financial Statements are an integral part ofthis statement. $ 291,823 1,453,424 20,769 ( 35,987) 56,531 97,211 74,879 110,173 $ 2,068,823 TEXAS STUDENT HOUSING AUTHORITY-BALLPARK AUSTIN PROJECT NOTES TO FINANCIAL STATEMENTS NOTE 1. GENERAL STATEMENT Page 10 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 Ballpark Austin 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"). The Bonds were issued through a Trust Indenture (the "Trust Indenture") by and between the Authority and The Bank of New York (the "Trustee"). The Series 2001A, 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 one Project, whose revenue streams are pledged for the bonds described herein. The Project is managed and operated by Asset Campus Housing under the terms of a Property Management and Leasing Agreement dated June 1, 2004. The property management agreements are collectively referred to as the "Agreements". NOTE 2. 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: 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) 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 TEXAS STUDENT HOUSING AUTHORITY-BALLPARK AUSTIN PROJECT NOTES TO FINANCIAL STATEMENTS NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUTED Reporting Entity-continued Page 11 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. 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. In applying the requirements of GASB Statement No. 20, the Project has chosen to apply all applicable GASB pronouncements as well as Financial Accounting Standards Board pronouncements issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements. 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, 2005, the Project had no such investments included in cash and cash equivalents. In addition, the Project has restricted cash of $3,000,448 that is held by the Trustee for the Bonds payable under provisions of the Indenture. During the year ended August 31, 2005 the investment income received from cash was $157,043. See Note 3 for risk disclosures and breakdown of restricted cash accounts. 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 establishes a valuation allowance based on historical experience and an evaluation of the outstanding balances. As of August 31, 2005, management has determined that all accounts doubtful of collection have been charged to operations and an allowance is not required. TEXAS STUDENT HOUSING AUTHORITY-BALLPARK AUSTIN PROJECT NOTES TO FINANCIAL STATEMENTS NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUTED Deferred Financing Costs Page 12 Costs associated with the issuance of bonds are deferred and amortized over the terms of the bonds. Advertising Costs All advertising costs are expensed as they are incurred. Advertising costs for the year ending August 31, 2005 were approximately $92,000. Capital Assets Property and equipment have been recorded at the date of acquisition at cost. Routine maintenance and repair costs to ready the units for the next period are expensed as incurred. 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 (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: Building Furniture, fixtures and equipment 30 years 3 to 20 years Page 13 TEXAS STUDENT HOUSING AUTHORITY-BALLPARK AUSTIN PROJECT NOTES TO FINANCIAL STATEMENTS NOTE 3. CASH AND INVESTMENTS At August 31, 2005, 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 $3,571,617 of which $3,000,448 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, 2005, restricted cash consists of the following funds and accounts: Fund/Account Description Revenue Fund Bond Fund-Series 2001A Senior Interest Bond Fund -Series 2001 B Sub B Bond Fund-Series 2001C Sub C Debt Service Reserve 2001A Senior Debt Service Reserve 2001 B Sub B Project Fund Repair and Replacement Fund Minimum Scholarship Fund Surplus Fund Sub C Amortization Surplus Fund Issuer Education Trustee Fee Fund Tax and Insurance Fund Supplemental Management Fee Account Senior Bonds Principal Sub B Bond Residual Fund/Insurance Fund Total $ 148,002 61 15 2,280,538 174,605 161,526 1,751 22 3,153 32,107 34 195,877 2,757 $3 000.448 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. TEXAS STUDENT HOUSING AUTHORITY-BALLPARK AUSTIN PROJECT NOTES TO FINANCIAL STATEMENTS NOTE 3. CASH AND INVESTMENTS-CONTINUTED Page 14 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 2001A, 2001 B and the Series 2001 C accounts. 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 2001A Account-The amounts on deposit in this account are to be used for the purpose of paying principal and interest on the Series 2001A Bonds as they become due in the event there should be insufficient funds in the Bond Fund. Debt Service Reserve 2001 B Account-The amounts on deposit in this account are to be used for the purpose of paying principal and interest on the Series 2001 B Bonds as they become due in the event there should be insufficient funds in the Bond Fund. Project Fund -Amounts in the project fund are held and disbursed for costs of the project. TEXAS STUDENT HOUSING AUTHORITY-BALLPARK AUSTIN PROJECT NOTES TO FINANCIAL STATEMENTS NOTE 3. CASH AND INVESTMENTS -CONTINUTED Page 15 Residual Fund -Amounts in the residual fund relate 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. 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 entities cash and investments. Disclosure Relating to Interest Rate Risk Interest rate risk is the risk that changes in market interest rates will adversely affect the 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. Disclosure Relating to Credit Risk Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. The Public Funds Investment Act has a minimum rating that is required for investments. Texas Student Housing Authority-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, 2005, Texas Student Housing Authority-Ballpark Austin Project held all of its restricted cash balances with the trustee, which represents 84% of the total cash and investments held at August 31, 2005. 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 governmental will not be able to recover the value of its Page 16 TEXAS STUDENT HOUSING AUTHORITY-BALLPARK AUSTIN PROJECT NOTES TO FINANCIAL STATEMENTS NOTE 3. CASH AND INVESTMENTS-CONTINUTED Custodial Credit Risk -continued 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, 2005, the Project's unrestricted cash of $571,169 (bank balance $269,455). Of the bank balance $100,000 was covered by federal depository insurance while the remaining $169,455 were collateralized with a Bank Deposit Guarantee Bond from the Project's depository in the amount of $2,000,000. NOTE 4. CAPITAL ASSETS Capital asset activity for the Project for the year ended August 31, 2005 was as follows: Beginning Ending Balance Additions Retir§!ments 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 Totals at historical cost 33,126,633 33,126,633 Less accumulated depreciation: Building 1,897,360 711,510 2,608,870 Improvements, furniture and fixtures 1 494 950 561 534 2,056,484 Total accumulated depreciation 3,392,310 1 273 044 4,665,354 Capital assets, net :£29 Z31323 (:£1 2Z3 Q11) $ $28 461 279 Page 17 TEXAS STUDENT HOUSING AUTHORITY-BALLPARK AUSTIN PROJECT NOTES TO FINANCIAL STATEMENTS NOTE 5. BONDS PAYABLE The Bonds are Tax-Exempt Governmental Obligations under the Internal Revenue Code. The Bonds payable represent amounts due to the bondholders, via the Trustee, and payable under the terms of the Trust Indenture dated 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. At August 31, 2005, the Project had not made interest payments on the subordinate 2001C Bond series since July 2003 and the subordinate 2001 C 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 twelve month period ended August 31, 2005: Balance Balance December 31, August 31, Due Within 2004 Increases Decreases 2005 One Year Revenue Bonds 2001A Bonds $ 33,450,000 $ ($ 495,000) $32,955,000 $ 515,000 2001B Bonds 2,425,000 ( 30,000) 2,395,000 30,000 2001C Bonds 3,000,000 3,000,000 Less Discounts ( 1,642,332) 60 086 ( 1,582,246) 60,085) Total :s 37 :m 668 $ ($ 46!1 914) ~36 Z67 Z5!! :11 484 915 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, 2005 are as follows: Due Fiscal Year Ending August 31 Princi12al Interest Total 2006 $ 545,000 $ 2,232,586 $ 2,777,586 2007 570,000 2,207,923 2,777,923 2008 595,000 2,180,920 2,775,920 2009 620,000 2,151,940 2,771,940 2010 650,000 2,121,044 2,771,044 2011-2015 3,785,000 10,028,319 13,813,319 2016-2020 4,935,000 8,814,963 13,749,963 2021-2025 6,440,000 7,225,825 13,665,825 2026-2030 8.445,000 5,110,942 13,555,942 2031-2033 11,765,000 1 644 413 13,409,413 Total Debt Service ~ 38.35Q QQO ~13 Z18 815 ~82 Q68 875 TEXAS STUDENT HOUSING AUTHORITY-BALLPARK AUSTIN PROJECT NOTES TO FINANCIAL STATEMENTS NOTE 6. NET ASSETS Page 18 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. Restricted for Debt Service 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. NOTE 7. EMPLOYEE BENEFIT PLAN Employees of the Project are eligible to participate in the Asset Campus Management 401 (k) as of August 31, 2005. Employee salary deferrals into the Plan are matched by the Project up to 1% of employee compensation as defined by the Plan. During 2005, there were no contributions to the plan for participants. NOTE 8. MANAGEMENT FEES Beginning June 1, 2004, the Project retained Asset Campus Management for property management and recorded property management fees of approximately $85,000 for year ended August 31, 2005 with approximately $21,000 due at August 31, 2005 and included in accounts payable. As of August 31, 2005, the Project has recorded approximately $338,450 in unpaid property and asset management fees to the prior property management company. The management agreement with the previous management company states that if the management fees are not paid, the amounts past due will accrue interest at the lessor of 12% or the highest lawful rate of interest. The Project's financials include accrued interest of approximately $41,000 for the unpaid management fees for the year ending August 31, 2005. NOTE 9. 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 revenue. TEXAS STUDENT HOUSING AUTHORITY-BALLPARK AUSTIN PROJECT NOTES TO FINANCIAL STATEMENTS NOTE 10. RELATED PARTY TRANSACTIONS Page 19 The Authority receives funds for administrative services and other transfers based on release tests from the Trustee on behalf of the Project. As of August 31, 2005 for the year then ended the Trustee paid approximately $36,397 to the Authority. NOTE 12. COMMITMENTS 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, 2005 there have been no payments made on the deferred purchase price. SUPPLEMENTAL SCHEDULES Page 20 TEXAS STUDENT HOUSING AUTHORITY-BALLPARK AUSTIN PROJECT SCHEDULE I -SCHEDULE OF REVENUES AND EXPENSES FOR THE YEAR ENDED AUGUST 31, 2005 Actual Bud9et Variance Revenue and other support: Rental income $ 3,163,011 $ 3,064,348 $ 98,663 Other income 722 82,222 ( 81 ,500) Interest income 157,043 157,043 Total revenue and other 3,320,776 3,146,570 174,206 Operating expenses Personnel expenses 306,143 299,507 ( 6,636) Contract services 44,345 45,095 750 Utilities 415,521 409,099 ( 6,422) Repairs and maintenance 38,237 36,344 ( 1 ,893) Turnover expense 168,810 83,896 ( 84,914) Advertising and promotion 91,610 65,523 ( 26,087) Administration expenses 217,412 149,364 ( 68,048) Total operating expenses 1,282,078 1,088,828 193,250) Revenue available for fixed charges 2,038,698 2,057,742 ( 19,044) Other expenses Management fees 86,139 93,645 7,506 Replacements 50,269 50,178 ( 91) Depreciation and amortization 1,453,424 1,453,424 Interest expense 2,460,253 2,460,253 Total other expenses 4,050,085 4,057,500 7,415 Excess of expenses over revenue ($ 2,011 ,387) ($ 1 ,999,758) ($ 11,629) TEXAS STUDENT HOUSING AUTHORITY-BALLPARK AUSTIN PROJECT SCHEDULE II-CERTIFICATE OF THE FIXED CHARGES COVERAGE RATIO Page 21 We are providing this letter, as required by the Trust Indenture by and between Texas Student Housing Authority -Ballpark Austin Project ("Project") and the Bank of New York ("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, 2005. 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, 2005 to be $2,038,698. 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, 2005 to be .43, which is based on twelve 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, 2005 to be .25, which is based on twelve months of operations. Based on the budgeted revenues and fixed charges utilizing Bond A and Bond B, we calculate that the Fixed Charges Coverage Ratio as of August 31, 2005, to be .44, which is based on twelve months of operations.