The URL can be used to link to this page

Home My WebLink AboutCambridge Audit 08-31-05TEXAS STUDENT HOUSING AUTHORITY- COLLEGE STATION PROJECT ANNUAL FINANCIAL REPORT AUGUST 31 , 2005 CONTENTS Page Number INDEPENDENT AUDITORS' REPORT ................................................................. 3 MANAGEMENT'S DISCUSSION AND ANALYSIS ............................................. .4-6 FINANCIAL STATEMENTS STATEMENT OF NET ASSETS ............................................................................... 7 STATEMENT OF REVENUES, E X PEN SES AND CHANGES IN NET ASSETS ................... 8 STATEMENT OF CASH FLOWS .............................................................................. 9 NOTES TO FINANCIAL STATEM ENTS ................................................................... 1 0-18 SUPPLEMENTAL INFORMATION AUDITORS' REPORT ON SUPPLEMENTAL SCHEDULES ............................................ 19 SCHEDULE I -SCHEDULE OF R EVENUES AND EXPENSES (BUDGET VS ACTUAL) ...... 20 SCHEDULE II -FIXED CHARGES COVERAGE RATIO ............................................... 21 November 4, 2005 EASLEY, f!jDRES,fJARKJ-1/LL &Bf!(!:fl!~~f!!!E PC. AND CONSULTANTS INDEPENDENT AUDITORS' REPORT To the Board of Directors TEXAS STUDENT HOUSING AUTHORITY-COLLEGE STATION PROJECT Westlake , Texas We have audited the accompanying financial statements of TEXAS STUDENT HOUSING AUTHORITY-COLLEGE STATION PROJECT as of and for the year ended August 31 , 2005 as listed in the table of contents. These f inancial 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 1, the financial statements present only the Project, and do not purport to present the financial position of TEXA S STUDENT HOU SING AUTHORITY 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. In our opinion, the financial statements referred to above present fa irly, in all material respects , the financial position of TEXA S STUDENT HOUSING AUTHORITY-COLLEGE STATION 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 is not a required part of the basic financial statements, but is supplementary information required by principles generally accepted in the United States of America. We have applied certain limited procedures to this information, which consisted principally of inquiries of management. However, this information is unaudited, and we express no opinion on it. ~J s~t:?~ t ;6; / 7t (!__ / -3- 1333 West Loop South Suite 1 400 Houston, TX 77027 Phone: 713.622.0016 Fax: 713 .622.5527 MANAGEMENT'S DISCUSSION AND ANALYSIS As Staff of the Texas Student Housing Authority-College Station Project (the "Cambridge") we offer the readers of the Cambridge's Financial Statements this narrative overview and analysis of the financial activities of the Cambridge for the fiscal year ended August 31, 2005. We encourage readers to consider the information presented herein in conjunction with the Cambridge'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 Analysis-for State and Local Governments (Statement 34) were implemented. The reader should note that this financial report addresses only the financial condition of the Cambridge itself. FINANCIAL HIGHLIGHTS The Liabilities of the Cambridge exceeded its Assets at the close of the fiscal year by $6,310,844 due primarily to an impairment charge of $5,641,286 (calculation of the impairment charge is attached) and operating income less $562,740 than budget. Operating Income of $563, 740 less than budget is split between a shortfall of $315,673 in revenue and an overage in expenses of $247,067. Major components in the revenue shortfall were: $508,495 less than budget in room revenue, however this was partially offset by a savings of $492,222 in concessions; shortfall of $166,927 in summer revenue; $77,701 in telephone revenue not realized and a shortfall of $45,311 in interest income. Major components of the expense overage were:$71,888 in Management Fees (Management Fees were increased at the time of the Installment Sale Agreement refinance which occurred after the finalization of the budget);$23,928 in increased credit card fees; $10,270 in Postage; $8 ,063 in miscellaneous expenses; $12,292 in Advertising; $32,214 in Utility expense; and $6,567 in Insurance expense. At the end of the current fiscal year, the total cash balances were $2,458,386 m unrestricted cash and $1,326,994 in restricted cash. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis are intended to serve as an introduction to the Cambridge's basic financial statements. The Cambridge'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. 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 . The statement of revenues, expenses, and changes in net assets account for all of the Authority's revenues and expenses regardless if when cash is paid or received. The statement of cash flows recaps how cash increased year over year. -4- MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) NOTES TO THE FINANCIAL STATEMENTS The notes provide additional information that is essential to a full understanding of the data provided in the financial statements. Restricted Cash Restricted cash represents monies held in escrow by the Trustee and are restricted for the payment of expenses as outlined in the Installment Sale Agreement. As of August 31, 2005 , these balances were as follows: Total Replacement Fund Series A Debt Service Reserve Fund Series B Debt Service Reserve Fund Series A Principal Transaction Cost Payment Fund $ 45,000 682,275 512,400 57,418 29,901 $1,326,994 Non-Restricted Cash Non-restricted cash is available for general use of the project. Installment Note Payable The Proj ect's Developer refinanced the original Ins tallment Sale Agreement effective September 1, 2004 by issuing debt certificates in the following classes: Total Series A Series B Series C Series D $17,500,000 4,900,000 4,820,000 5,380,000 $32,600,000 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 1.1 . At this time the Cambridge has only realized a ratio of 0.57 and is thus technically in default ofthe 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 Cambridge's tax exempt status. -5 - MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) ECONOMIC FACTORS AND NEXT YEAR'S BUDGET Leases at the Cambridge have a duration that encompass 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 Cambridge 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. Although the Fixed Charges Coverage Ratio was only 0.57, all of the A and B Certificate Holders received all proceeds due them. The 2005/2006 budget clearly indicates that Operating Income will be sufficient to again service the A and B Certificates . CONTACTING THE AUTHORITY'S FINANCIAL MANAGEMENT This financial report is designed to provide the reader with a general overview of the Cambridge's fmances and to demonstrate the Cambridge'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 . -6- TEXAS STUDENT HOUSING AUTHORITY -COLLEGE STATION PROJECT STATEMENT OF NET ASSETS AUGUST 31 I 2005 ASSETS CURRENT ASSETS Cash Accounts receivable, net of $64,045 allowance Other assets TOTAL CURRENT ASSETS RESTRICTED CASH FOR DEBT SERVICE CAPITAL ASSETS Land Buildings and improvements Furniture , fixtures and equipment Less accumulated depreciation and impa irment TOTAL CAPITAL ASSETS TOTAL ASSETS LIABILITIES AND NET ASSETS CURRENT LIABILITIES Installment loan payable Accounts payable and accrued expenses Deferred revenue and prepaid rent Accrued interest TOTAL CURRENT LIABILITIES NET ASSETS Invested in capital assets, net of related debt Restricted for debt service Unrestricted TOTAL NET ASSETS TOTAL LIABILITIES AND NET ASSETS The accompanying notes are an integral part of the financial statements . -7- $ 2,458 ,386 301 ,778 20 ,309 2,780,473 1,326 ,994 2,899,597 27 ,727,646 2 ,591,427 33,218 ,670 {6,894 ,803} 26,323 ,867 $ 30,431,334 $ 32,600 ,000 333 ,691 2,728 ,471 1,080 ,016 36,742,178 (7 ,356, 149) 1,326 ,994 {281 ,689} {6 ,31 0 ,844} $ 30,431 ,334 TEXAS STUDENT HOUSING AUTHORITY-COLLEGE STATION PROJECT STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS FOR THE YEAR ENDED AUGUST 31 I 2005 REVENUES Rental revenue Other revenue TOTAL REVENUES OPERATING EXPENSES Management fees Administration and marketing expenses Cafeteria expenses Utilities Repairs and maintenance Insurance expense TOTAL OPERATING EXPENSES INCOME BEFORE DEPRECIATION , AMORTIZATION, INTEREST AND DEVELOPER CONTRIBUTIONS DEVELOPER CONTRIBUTIONS IMPAIRMENT CHARGE DEPRECIATION AND AMORTIZATION INTEREST EXPENSE NET LOSS AND NET ASSETS , AUGUST 31, 2005 The accompanying notes are an integral part of the financial statements . -8- $ 3,868,919 348 ,852 4 ,217,771 278,517 571,085 744,156 611,328 334,626 85,567 2 ,625,279 1,592,492 1,635,690 (5 ,641 ,286) (1,253,517) (2,644,223) $ {6 ,31 0 ,844} TEXAS STUDENT HOUSING AUTHORITY-COLLEGE STATION PROJECT STATEMENT OF CASH FLOWS FOR THE YEAR ENDED AUGUST 31 , 2005 CASH FLOWS FROM OPERATING ACTIVITIES Cash received from tenants $ 4 ,694,598 Cash paid to employees (781 ,039) Cash paid to suppliers {1 ,634,796} NET CASH PROVIDED BY OPERATING ACTIVITIES 2 ,278,763 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES -0- CASH FLOWS FROM CAPITAL FINANCING ACTIVITIES Developer contributions 1 ,220,960 Interest paid {1 ,149,477.}_, NET CASH PROVIDED BY CAPITAL FINANCING ACTIVITIES 71,483 CASH FLOWS FROM INVESTING ACTIVITIES Cash received upon purchase of Project 1,719,736 Cash deposited into restricted accounts (1 ,326,994) Fixed asset purchases {284 ,602} NET CASH PROVIDED BY INVESTING ACTIVITIES 108,140 CASH AND CASH EQUIVALENTS , end of period $ 2 !458,386 RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating loss Adjustments to reconcile operating loss to net cash provided by operating activities: Depreciation Impairment charge Allowance for bad debts (Increase) decrease in: Accounts receivable Other assets (Decrease) increase in : Accounts payable Deferred revenue and prepaid rent NET CASH PROVIDED BY OPERATING ACTIVITIES The accompanying notes are an integral part of the financial statements. -9- $ $ (5,302,311) 1,253,517 5 ,641 ,286 65,045 (73,595) (20 ,3 09) 229 ,753 485,377 2 ,278 ,763 TEXAS STUDENT HOUSING AUTHORITY- COLLEGE STATION PROJECT NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2005 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Operations Texas Student Housing Authority -College Station Project (the "Project"), is a component unit of the Texas Student Housing Authority (the "Authority"), 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 . The College Station Project 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 . The College Station Project 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 2005 financial statements were prepared assuming the project will continue as a going concern . The Project's Installment Sale is considered to be in default which allows its debt holders or any assigned interest the right to demand payment of the Installment Sale in full. The Project's significant accounting policies are as 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. -10 - TEXAS STUDENT HOUSING AUTHORITY- COLLEGE STATION PROJECT NOTES TO FINANCIAL STATEMENTS NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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 organizat ion 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 o r a jointly appointed board . As previously stated , the Project is a component unit of the Authority, and is not a component unit of any other governmental entity. Cash and Ca s h Equ ivalents For the purpose of the stateme nt of cash flows, the Project cons iders unrestricted cash and highly liquid investments with maturities of three months or less at the date of purchase to be cash and cash equ ivalents . Measurement Focus and Basis of Account ing The Project uses the "net income and capital maintenance" measurement focus. This means that all assets, liabilities , equity , revenues , and expenses are accounted for using the accrual basis of accounting . Such standards are generally in accordance with the reporting standards of income producing real estate projects owned in the private sector. 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 . -11 - TEXAS STUDENT HOUSING AUTHORITY - COLLEGE STATION PROJECT NOTES TO FINANCIAL STATEMENTS NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Capitalization . Depreciation and Impairment Policies Property and Depreciation Property and equipment are recorded at cost. Such costs include carpet and appliance replacements. 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: Impairment Buildings Improvements Equipment, furniture and fixtures 30 years 15 years 5-20 years The Project periodically reviews the net carrying value of its real estate and equipment to determine if circumstances exist indicating whether there is an impairment. Recoverability of real estate and equipment is measured by a comparison of the net carrying amount to future undiscounted net cash flows expected to be generated over their remaining useful life. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. At August 31, 2005, an impairment charge of $5 ,641,286 was recognized based on the fair value of the Project's indebtedness as determined by the secondary offering to investors by Cambridge Student Housing Financing Company, L.P . (See Note 3). Concentration of Credit Risk As of and during the year ended August 31 , 2005, the Project had cash deposits with financial institutions in excess of the $100 ,000 amount insured by the Federal Deposit Insurance Corporation . The Project believes that credit risk in these deposits is minimal. Taxes The project is an instrumentality of the Town of Westlake, therefore, its income is not subject to federal income taxation pursuant to Section 115 of the Internal Revenue Code. Additionally, the Project is exempt from local property taxes. -12- TEXAS STUDENT HOUSING AUTHORITY - COLLEGE STATION PROJECT NOTES TO FINANCIAL STATEMENTS NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Accounts Receivable Accounts receivable are stated at amounts management expects to collect from students. 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 eva luation of the outstanding balances . Advertising Costs All advertising costs are expensed as they are incurred . Advertising costs for the year ending August 31 , 2005 were approximately $61 ,000. 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 pe riod. Actual results could differ from those estimates. NOTE 2: RESTRICTED CASH Restricted cash represents amounts held in escrow that which are restricted for the payment of expenses as required by the Installment Sale Agreement. As of August 31, 2005 , restricted cash consists of the followin g: Fund/Account Description Replacement Fund Series A Reserve Fund Series B Reserve Fund Series A Principal Transaction Costs Payment Fund Total -13- $ 45 ,000 682 ,275 51 2 ,400 57,418 29 ,901 $ 1,326,994 NOTE 2: TEXAS STUDENT HOUSING AUTHORITY - COLLEGE STATION PROJECT NOTES TO FINANCIAL STATEMENTS RESTRICTED CASH The following is a brief description of the funds and accounts compnsmg the restricted cash balance at year end, as defined by the Installment Sale Agreement and the Trust Agreement (See Note 3): 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 B Reserve Fund .The amounts on deposit in this account were required to be contributed by the developer and are to be used for the purpose of paying principal and interest on the Series B certificates as they become due in the event there should be insufficient funds in the Debt Service Fund. Series A Principal Amounts in the Series A principal fund represent payments set aside for repayment of the principal balance on the Series A certificates. Transaction Costs Payment Fund -Amounts in transaction costs payment fund are to be used to pay for debt issuance costs. NOTE 3: INSTALLMENT NOTE PAYABLE The Project's installment note payable is summarized as follows: Lender/Security/Due Date Cambridge Student Housing Financing Company, L.P.; substantially all assets and assignment of rents; due November 1 , 2039 Interest Rate 8 .00% Balance $ 32 ,600,000 The Project's installment note is payable monthly with principal and interest payments of $231,545 until November 1, 2039 . -14- NOTE 3: TEXAS STUDENT HOUSING AUTHORITY- COLLEGE STATION PROJECT NOTES TO FINANCIAL STATEMENTS INSTALLMENT NOTE PAYABLE (Continued) The following is a summary of long-term debt transactions of the Project for the year ended August 31 , 2005 : Balance 9/1/04 $0 Increases Decreases $32 ,600,000 $0 Balance 8/31 /05 $32 ,600 ,000 Due W ithin One Year $32,600,000 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) Offerin9 Total A $ 17,500,000 B 4 ,900 ,000 c 4 ,820,000 D 5,380 ,000 Total $ 32,600,000 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 the private placement memorandum . At August 31 , 2005 , the Project was not in compliance with the fixed charge coverage ratio, which constitutes a default of the lending agreement. Upon 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. NOTE 4 : CAPITAL ASSETS Capital asset activity for the Project for the year ended August 31 , 2005 was as follows : -15- TEXAS STUDENT HOUSING AUTHORITY - COLLEGE STATION PROJECT NOTES TO FINANCIAL STATEMENTS NOTE4: CAPITAL ASSETS (Continued) Beginning Balance Additions Retirements Capital assets not being depreciated: Land $ $ 2 ,899,597 $ Total capital assets not being depreciated 2 ,899,597 Capital assets being depreciated: Building 27 ,727,646 Furniture and fixtures 2 ,591,427 Total capital assets being depreciated 30 ,319 ,073 Totals at historical cost 33,218 ,670 Less impairment charge Building ~5 .641 ,286~ Less accumulated depreciation: Building (827 ,692) Furniture and fixtures ~425 ,825~ Total accumulated depreciation ~1 .253 ,517~ Capital assets, net $ $ 26 ,323 ,867 $ NOTE 5: GEOGRAPHY AND CONCENTRATION Ending Balance $ 2,899 ,597 2 ,899,597 27,727,646 2 ,591,427 30,319,073 33 ,218,670 ~5 .641 ,286~ (827,692) ~425 ,825~ ~1 .253 ,517~ $ 26,323 ,867 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. -16- NOTE6: TEXAS STUDENT HOUSING AUTHORITY- COLLEGE STATION PROJECT NOTES TO FINANCIAL STATEMENTS 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-consists of capital assets, net of accumulated depreciation and reduced by outstanding balances for certificates, notes , and other debt that are attributed to the acquisition, construction, or improvement of those assets. Restricted for Debt Service -consists of net asset for which conditions are either externally imposed by creditors, grantors and the like, or imposed by law through constitutional provisions or enabling legislation . Unrestricted-Available for general use of the Project without restriction. NOTE 7: DEVELOPER CONTRIBUTIONS In conjunction with the secondary debt offering with Cambridge Student Housing Financing Company, L.P. (See Note 3), the Developer was required to contribute cash of $1 ,220,960 for debt service reserves. Additionally , the Authority required the Developer to assume the obligation for unpaid interest prior to December 1, 2004 in - the amount of $414 ,730 in lieu of a cash contribution to fund operations . Total - contributions of $1,635,690 are reported as non-operating income. NOTE 8: 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 asset management fees of approximately $279 ,000 for the period ending August 31, 2005 . Administration and marketing expenses include approximately $91,000 for administrative fees earned by Texas Student Housing Authority . Administrative fees totaling $36,000 are included in accounts payable at August 31, 2005. -17- NOTE 9 : TEXAS STUDENT HOUSING AUTHORITY- COLLEGE STATION PROJECT NOTES TO FINANCIAL STATEMENTS SUPPLEMENTAL CASH FLOW DISCLOSURES Effective September 1, 2004, the Project acquired the net assets from the Developer as follows : Cash and cash equivalents Accounts receivable and other current assets F ixed assets Current liabilities Total debt assumed $ 1,719 ,736 293 ,228 32 ,934 ,068 (2 ,347 ,032) $ 32 ,600,000 Except for cash acquired , the above transaction is not included in the statement of cash flows. -18- SUPPLEMENTAL SCHEDULES [ I November 4 , 2005 fASLEY, HJDRE5,PARJ<.HIU &Bf!t}:~f!~~~'!f P.C. AND CONSULTANTS INDEPENDENT AUDITORS ' REPORT To the Board of Directors TEXAS STUDENT HOUSING AUTHORITY-COLLEGE STATION PROJECT Westlake , Texas Our audit was made for the purpose of forming an op1n1on on the basic financial statements taken as a whole. The accompanying supplemental schedules on pages 20 and 21 are presented for purposes of additional analysis and are not a required part of the basic financial statements of the TEXAS STUDENT HOUSING AUTHORITY -COLLEGE STAT ION PROJECT. The information has been subjected to the 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. e:~/~)(l~ f /!?A I) f-L. -19- 1333 West Loop South Suite 1400 Houston, TX 77027 Phone: 713.622.0016 Fax: 713.622.5527 TEXAS STUDENT HOUSING AUTHORITY-COLLEGE STATION PROJECT SCHEDULE I -SCHEDULE OF REVENUES AND EXPENSES FOR THE YEAR ENDED AUGUST 31, 2005 Revenue and Other Support: Rental Income Other Income Interest Income Total revenue and other Operating Expenses Management fees Administrative and marketing expenses Cafeteria expenses Utilities Repairs and maintenance Insurance expense Total operating expenses Operating Income available for fixed charges 2005 Actual $ 3,868,919 326,664 22,188 4 ,217 ,771 278,517 571,085 744,156 611,328 334,626 85 ,567 2,625 ,279 $ 1,592,492 See auditors' report. -20- 2005 Bud9et $ 3,885,192 580,752 67,500 4 ,533,444 181,337 435,222 759,476 579,114 344,063 79,000 2 ,378,212 $ 2 ,155,232 $ $ Variance (16,273) (254,088) (45,312) (315,673) (97,180) (135,863) 15 ,320 (32,214) 9,437 (6,567) (247,067) (562,740} TEXAS STUDENT HOUSING AUTHORITY-COLLEGE STATION PROJECT SCHEDULE II -FIXED CHARGES COVERAGE RATIO FOR THE YEAR ENDED AUGUST 31, 2005 Calculation of Fi xed Charges Coverage Ratio: Total gross revenues Total expenses Less : Deposits required to be made to Replacement Reserve Fund Add back : Impairment charge Interest Deprecia tion and amortization Property manag e ment fees in excess of Base Property Management Fee Adjusted Expenses Adjusted Net Operating Income Available to Pay Fi xed Charges Fi xed Cha rges/Ma x imum principal and interest for FYE 8/31 /05 ($231 ,545 x 12) Fi xed Charges Coverage Ratio Required Ratio Pass or Fail See auditors' report. -21- $ (12,164,305 ) (36,000) 5,641,286 2,644 ,223 1,253,517 25,291 $ 4 ,217 ,771 (2 ,63 5,988 ) $ 1,581 ,783 $ 2 ,778,540 0 .57 1.10 Fail