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Home My WebLink About01-29-08 TSHC San Marcos Agenda Packet T TR-AS STUDENT HOUSING AGENDA BOARD OF DIRECTORS OFT E TEXAS STUDENT HOUSING AUTHORITY-SAN MA COS PROJECT (AN INSTRUMENTALITY OF THE TOWN OF WESTLA ) JANUARY 29,2008 5:30 P.M. TEXAS STUDENT HOUSING OFFICE 3 VILLAGE CIRCLE, SUITE 207 WESTLAKE,TEXAS I. CALL TO ORDER. 2. DISCUSS AND CONSIDER APPROVAL OF SAN MARCOS PROPERTY AUDIT FOR FY 2006-2007 PRESENTED BY PATILLO BROWN & HILL,L.L.P. 3. REVIEW AND APPROVE MINUTES OF NOVEMBER 20,2007. 4. ADJOURNMENT. CERTIFICATION I certify that the above notice was posted at the Town Hall of the Town of Westlake, 3 Village Circle,and Westlake Civic Campus,2600 J.T.Ottinger Road,Westlake,Texas,on or before Friday,January 25,2008,by 5 p.m.under the Open Meetings Act,Chapter 551 of the Texas Government Code. Kim Sutter,TRMC,Town 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. TEXAS1w STUDENT HOUSING BOARD F DIRECTORS OF THE TEXAS STUDENT HOUSING AUTHORITY—SAN MARC OS PROJECT (AN INSTRUMENTALITY OF THE TOWN OF WESTLA ) NOVEMBER 20,2007 PRESENT: Chairman Jim Carter and Directors' Larry Darlage, George Ledak, Jac Irvine, Jill McKean, Melanie Lekkos, and Chuck Schultz ABSENT: General Counsel Scott Bradley. OTHERS PRESENT: President Hank Smyth, Finance Manager Pete Ehrenberg, and Secretary Kim Sutter. 1. CALL, TO ORDER. Chairman Carter called the meeting to order at 6:35 p.m. 2. CONSIDER DESIGNATING U.S. BAND AS THE TRUSTEE FOR THE TEXAS STUDENT HOUSING CORPORATION--SAN MARC OS PROJECT. Chairman Carter introduced the item and asked for a motion. MOTION: Director McKean made a motion to approve the designation of U.S. Bank as the Trustee for the Texas Student Housing Corporation — San Marcos Project. Director Irvine seconded the motion. The motion carried by a vote of 7-0. 3. REVIEW AND APPROVE MINUTES OF JUNE 26, 2007. Chairman Carter introduced the item and asked for a motion to approve the minutes. MOTION: Director McKean made a motion to approve the minutes as presented. Director Darlage seconded the motion. The motion carried by a vote of 7- 0. TSHA—San Marcos Project Page 2 of 2 November 20,2007 ADJOURNMENT. There being no further business before the board, Chairman Carter declared the meeting adjourned at 6:35 p.m. APPROVED BY THE TEXAS STUDENT HOUSING AUTHORITY BOARD OF DIRECTORS ON JANUARY 29,2008. The Minutes are approved and certified to be a true and correct reflection of the actions of the officers and members of the Board, and is hereby certified to be an official copy thereof, on file among the official records of the Board,on this the 29TH day of January 2008. Jim Carter, Chair ATTEST Kim Sutter, Secretary rr �. MU � .#..�. :l TEXAS STUDENT HOUSING AUTHORITY THE RIDGE AT SAN MARCOS PROJECT TABLE OF CONTENTS AUGUST 31,2007 Page Number FINANCIAL SECTION Independent Auditors' Report............................................................................................. 1 -2 Management's Discussion and Analysis ............................................................................ 3-6 Financial Statements: Statement of 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 11—Debt Service Coverage Ratio ....................................................................... 20 MMI PATTIL. LO, BROWN & HILL, L.L.P. CERTIFIED PUBLIC ACCOUNTANTS N BUSINESS CONSULTANTS MVV To the Board of Directors Texas Student Housing Authority— The Ridge at San Marcos Project Westlake, Texas We have audited the accompanying financial statements of Texas Student Housing Authority — The Ridge at San Marcos Project (the "Project"), as of and for the year ended August 31, 2007, which collectively comprise the Project's basic financial statements, as listed in the table of contents. Texas Student Housing Authority — The Ridge at San Marcos 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, 2007, and the 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. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Texas Student Housing Authority — The Ridge at San Marcos Project at August 31, 2007, 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. The accompanying financial statements have been prepared assuming that Texas Student Housing Corporation—The Ridge at San Marcos Project will continue as a going concern. As discussed in Note I to the financial statements, the Project is in default on its bonds and the Trustee or Service Agent may choose 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. 401 WEST HIGHWAY b E P.O.BOX 20725 0 WACO,TX 76702-0725 N(254)772-4901 E FAX:(254)772-4920 11 www.pbhcpacom AFFILIATE OFFICES:BROWNSVILLE,TX(956)544-7778 E HILLSBORO,TX(254)582-2583 TEMPLE,TX(254)791-3460 E WHITNEY,TX(254)6944600 E ALBUQUERQUE,NM(505)266-5904 The management's discussion and analysis on pages 3 through 6 are not a required part of the basic financial statements but are supplemental 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 — The Ridge at San Marcos Project's basic financial statements. The accompanying supplemental information on pages 19 and 20 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information has been subjected to the auditing procedures applied in the audit 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. I � r January 24, 2008 N As staff of the Texas Student Housing Authority (the "Authority") — The Ridge at San Marcos 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, 2007. 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 for 2007. 1 1 ® The liabilities of the Project exceeded its assets at the close of the fiscal year by $7,721,658 an increase of$1,272,640 over the prior year. The primary reason for this increase is the inability to pay interest expense. ® Operating revenue of$2,062,167 is $169,321 worse than budget. Operating expenses were $144,274 better than budget, thus compounding the revenue shortage. ® At the end of the current fiscal year, the total cash balances were $67,184 in unrestricted cash and$349,533 in restricted cash. 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. K 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. THE RIDGE NET ASSETS Current and other assets Capital assets Total assets Current liabilities Total liabilities Net assets: Invested in capital assets, net of related debt Unrestricted Total net assets Business-tvne Activities 2007 2006 $ 1,244,217 $ 1,292,299 13,976,076 14,621,651 15,220,293 15,913,950 22,941,951 22,362,968 22,941,951 22,362,968 ( 5,533,326) { 4,959,218) { 2,188,332) ( 1,489,800) $( 7,721,658) $( 6,449,018) 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. TABIIE 2 TEXAS STUDENT HOUSING AUTHORITY- THE RIDGE AT SAN MARCOS PROJECT CHANGES IN NET ASSETS Business-type Activities 2007 2006 Total operating revenue $ 2,062,167 Total operating expenses ( 1,755,200) Total operating income 306,967 Interest income 10,973 Interest expense ( 1,590 580) Total nonoperating loss ( 1,579,607) CHANGE IN NET ASSETS ( 1,272,640) NET ASSETS,BEG G ( 6,449,018) NET ASSETS,ENDING $( 7,721,658) The statement of cash flows recaps how cash changed from year to year. E $ 2,078,780 ( 1,887,579) 191,201 12,027 ( 1,449,705) ( 1,437,678) ( 1,246,477) ( 5,202,541) $( 6,449,018) Dotes 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, 2007, these balances were as follows: Revenue Fund Debt Service Reserve Fund Repair and Replacement Fund Early Receipts Fund Current Receipts Fund Tax and Insurance Fund Revenue Fund- Interest Fee and Expense Fund Total Nonrestricted cash. Nonrestricted cash is available for general use of the Project. $ 341,596 9 26 16 6 14 791 7,075 $ 349,533 Bonds payable. As of August 31, 2007, since the bonds are in default, all amounts are considered due immediately. Series 2000 Total $ 19,509,402 $ 19,509,402 For the fiscal year ending August 31, 2008, the total principal and interest payment is calculated at $1,696,350. 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, 2008, forecasts at 95%. However, rental rates, again due to competitive pressures, will not see a Large increase. This is exacerbated by the fact that Texas State University does not allow freshmen and sophomores to live in off-campus housing. Net operating revenue for next year is projected at $1,159,627. If the bonds were not in default, debt service calculated at $1,696,350 would have to be paid, however, as in the present arrangement, the Servicing Agent funds all expenses, then applies the remaining funds to debt service. This will further erode our net assets. 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, or Hank Smyth at(817) 281-5053. n. ASSETS Current assets: Cash Restricted cash Accounts receivable Prepaid expenses Total current assets Capital assets: Land Other capital assets,net of accumulated depreciation Total capital assets Other assets: Utility deposit Deferred financing costs,net of amortization Total other assets Total assets LIABILITIES Current liabilities: Trade accounts payable Management fees payable Accrued liabilities Development fees payable Deferred revenue and prepaid rent Accrued interest Bonds payable Total current liabilities NET ASSETS Invested in capital assets,net of related debt Unrestricted Total net assets $ 67,184 349,533 16,636 16,534 449,887 1,552,207 900 793,430 794,330 135,563 321,610 343,026 133,050 153,299 2,346,001 19,509,402 ( 5,533,326) ( 2,188,332) S( 7,721,658) 0 OPERATING REVENUES Rental $ 2,015,845 Other 46,322 Total operating revenues 2,062,167 i , ' 01120 W, Personnel 212,397 Utilities 364,866 Contract services 22,548 Repairs and maintenance 23,545 Turnover 78,802 Advertising and promotion 40,112 Administration 120,069 Travel 2,683 Management fees 100,117 Replacements 110,478 Depreciation 645,577 Amortization 34,006 Total operating expenses 1,755,200 NONOPERATING REVENUES (EXPENSES) Interest income 10,973 Interest expense ( 1,590,580) Total nonoperating revenues (expenses) ( 1,579,607) CHANGE IN NET ASSETS ( 1,272,640) NET ASSETS, BEGINNING ( 6,449,018) NET ASSETS, ENDING $( 7,7211658) The accompanying notes are an integral part of these financial statements. E TEXAS STUDENT HOUSING AUTHORITY THE RIDGE AT SAN lid COs PROJECT STATEMENT OF CASH FLOWS FOR THE YEAR ENDED AUGUST 31, 2007 Cash received from tenants S 2,125,267 Cash paid to employees 215,776) Cash paid to suppliers 182,960) Net cash provided by operating activities 1,726,531 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Principal payment on bonds 71,467) Interest paid 1,590,580) Net cash used in capital and related financing activities 1,662,047) CASH FLOWS FROM INVESTING ACTIVITIES Interest on investments 10,973 Net cash provided by investing activities 10,973 NET CHANGE IN CASH AND CASH EQUIVALENTS 75,457 CASH AND CASH EQUIVALENTS, BEGINNING 217,562 CASH AND CASH EQUIVALENTS,ENDING S 293,019 Cash S 67,184 Restricted cash 349,533 Total cash and cash equivalents S 416,717 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income S 306,967 Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation and amortization 679,583 Changes in operating assets and liabilities: Accounts receivable 95,826 Prepaid expenses 6,295) Trade accounts payable 85,127) Accrued expenses 771,682 Deferred revenue 32,726) Other current liabilities 3,379) Net cash provided by operating activities S 1,726,531 10 AUGUST 31,2007 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 Ridge at San Marcos Project (the "Project'). The Project was purchased from Jefferson Commons — Austin, L.P., a Delaware limited partnership on December 28, 2000. The Project obtained its financing through the issuance of the City of Cameron Education Corporation Student Housing Revenue Bonds Series 2000. The bonds were issued through a Trust Indenture (the "Trust Indenture") by and between the City of Cameron Education Corporation and The Bank of New York (the "Trustee"). The Series 2000 Bonds were issued in the face amount of$19,900,000. 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 (a) the 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 March 31, 2004. The Project is now managed and operated by Asset Campus Housing under the terms of a Property Management and Leasing Agreement dated April 1, 2004. The Property Management Agreements are collectively referred to as the "Agreements." The 2007 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 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. m A summary of the Project's significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: 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. The Project does not have any component units. l�►�' :. . ::: :: NC�i�c'Fi'iTi�: ��a :�TTTi '�i'iTiiiTJ 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. rIff 170, Income'faxes 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. M1 II. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) A. Reporting Entity (Continued) C �:TTi[l�7xi[i�f+�1 The Project considers all highly liquid investments with maturity of three months or less when purchased to be cash equivalents. At August 31, 2007, the Project had no such investments included in cash and cash equivalents. In addition, the Project has restricted cash of $349,533 that is held by the Trustee for the bonds payable under provisions of the Trust Indenture. During the year ended August 31, 2006, the investment income received from cash was $10,973. See Note III for risk disclosures and breakdown of restricted cash accounts. 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. 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, 2007, management has determined that all accounts doubtful of collection have been charged to operations and an allowance is not required. Costs associated with the issuance of bonds are deferred and amortized over the term of the bonds. r, All adverting costs are expensed as they are incurred. Advertising costs for the year ended August 31, 2007, were approximately $40,000. 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. IN II. SUMMARY OF SIGNIFICAN'T' ACCOUN'T'ING POLICIES (Continued) C. Assets, Liabilities and Net Assets or Ecguity (Continued) Capital Assets (Continued) 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. Depreciation is computed using the straight-line method over the estimated useful lives as follows: Estimated Asset Class Useful Lives Building 30 years Furniture, fixtures and equipment 7 years A. Cash and Investments At August 31, 2007, the carrying amount of Texas Student Housing Authority— The Ridge at San Marcos Project deposits (cash with interest bearing accounts and restricted cash held in interest bearing accounts) was in total $416,717 of which $349,533 represented 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, 2007, restricted cash consists of the following funds and accounts: Fund/Account Description Revenue Fund $ 341,596 Tax and Insurance Fund 14 Replacement Fund 26 Fee and Expense Fund 7,075 Early Receipts Fund 16 Current Receipts Fund 6 Revenue Fund-Interest 791 - Debt Service Reserve 9 Total $ 349,533 IN, III. DETAILED NOTES ON ALL FUNDS (Continued) A. Cash and Investments (Continued) Restricted Cash (Continued) 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 to collect monthly deposits made by the Project and properly distribute appropriate amounts to the other funds. The Revenue Fund has other accounts, including the current receipts account and the early receipts accounting. Tax and Insurance Fund— Pro rata amounts estimated by the Servicing Agent are deposited to pay the annual property taxes and annual premiums on all insurance required by the financing agreement. Fee and Expense Fund— The amounts are deposited into account until (a) such account contains sufficient funds to pay all fees and expenses payable under the Financing Agreement and the indenture as of the next date the payment is due and (b) a pro rata portion of any such fees and expenses as directed by the Servicing Agent which are not currently due and will not be paid within 30 days of receiving the invoice. Replacement Fund — Amounts deposited into this account are to be held and disbursed as required under the terms of the Loan and Financing Agreement for purchases related to the San Marcos Property. The Loan and Financing Agreement requires monthly deposits to the Replacement Fund. The Trustee disburses amounts from the Replacement Fund, but only upon the receipt of a written authorization from MuniMae Portfolio Services, LLC (the "Servicing Agent"). Early Receipts Fund — The Early Receipts account is a sub-account of the Revenue Fund. Amounts in this account were established with the original proceeds of the note and were to be held until early repayment of the note was allowed on or after January 1, 2011. During the year ended August 31, 2007, the funds in this account were used to fund principal and interest payments. Current Receipts Fund— The Current Receipts account is also a sub-account of the Revenue Fund. Monthly deposits in the Revenue Fund are first deposited in the Current Receipts account. From here they are appropriately distributed to other funds in accordance with the Loan and Financing Agreement for payment to certain expenses. m III. DETAILED NOTES ON ALL FUNDS (Continued) A. Cash and Investments (Continued) Restricted Cash (Continued) Debi Service Deserve Fund—This account is funded by the proceeds of the bond equal to the Debt Service Reserve Fund requirement. The funds are only to be used in the event any principal or interest is not paid in accordance with the terms of the Loan and Financing Agreement. During the year ended August 31, 2007, the balance in the Debt Service Reserve Fund was used to make principal and interest payments. 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 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— The Ridge at San Marcos Project is not significantly exposed to interest rate risk as all investments earn a variable rate. Is=11M=I 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 — The Ridge at San Marcos Project holds all of its cash and investments with the bond Trustee and commercial banks. The investment policy of Texas Student Housing Authority — The Ridge at San Marcos Project is subject to the indenture agreement of the bonds. As of August 31, 2007, the Project held all of its restricted cash balances with the Trustee, which represents 84% of the total cash and investments held at August 31, 2007. ON f 1 i ► l71Y3f►ii7►��i1►17 i�� :.Il Am Cash and Investments (Continued) , I . • r, 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, 2007, the Project has unrestricted cash of$67,184 (bank balance $64,624). Of the bank balances, $64,624 was covered by federal depository insurance. ,: ;r . Capital asset activity for the Project for the year ended August 31, 2007, was as follows: Capital assets,not being depreciated: Land Total capital assets, not being depreciated Capital assets,being depreciated: Building Furniture,fixtures and equipment Total capital assets, being depreciated Less accumulated depreciation Total capital assets, being depreciated,net Capital assets,net Beginning Ending Balance Additions Retirements Balance $ 1,552,207 $ - $ $ 1,552,207 1,552,207 - - 1,552,207 15,8751143 - - 15,875,143 818,332 - - 818,332 16,693,475 - - 16,693,475 ( 3,624,031) ( 645,575) - ( 4,269,606) 13,069,444 { 645,575) - 12,423,869 $ 14,621,651 $( 645,575) $ - $ 13,976,076 III. DETAILED NOTES ON ALL FUNDS (Continued) 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, 2000. 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. The annual interest rate is 8.2% and interest is due on the first of each month. In the case of default under the terms of the Indenture, the interest rate increases by 2%. During 2005, the Project defaulted on the bonds and the interest rate increased to 10.2%. During 2005, the Project ceased making the required principal and interest payments required by the Loan and Financing Agreement. This constitutes an event of default under provisions of the Indenture and permits the Trustee at the direction of the Servicing Agent to declare the principal and all interest then due to be immediately due and payable. Accounting principles generally accepted in the United States of America require that if an event of default occurs, the liability should be disclosed as a current liability. As a result, the outstanding principal at August 31, 2007, has been shown as a current liability in the accompanying financial statements. The following is a summary of long-term debt transactions of the Project for the 12-month period ended August 31, 2007: Beginning Balance Adjustments Increases Decreases Amounts Ending Due Within Balance One Year Revenue Bonds: 2000 Bonds $ 19,580,869 $ - $ - $ 71,467 $ 19.509,402 $ 19,509,402 Total $ 19,580,869 $ - $ - $ 7( 1,467) $ 19,509,402 $ 19.509,402 The debt originally was to be amortized through 2031 with varying monthly principal payment amounts ranging from $7,280 to $11,613,9422 due at maturity. The annual requirements to amortize all debts outstanding as of August 31, 2007, are as follows and includes interest per the original payment schedule adjusted for the increase in the interest rate. The total interest to be paid will depend upon the ultimate maturity of the bonds. The total amount of accrued interest due at August 31, 2007, was $2,346,001. Year Ending August 31, 2008 Principal Interest Total $ 19,509,402 $ - $ 19,509,402 In addition, the Project was not in compliance with certain debt covenants as of August 31, 2007. 1b III. DETAILED NOTES ON ALL FUNDS (Continued) 1 e 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. At August 31, 2007, the total funds available for debt service was less than the accrued interest due at August 31, 2007. As a result, net assets restricted for debt service are shown at zero. E. Management Fees Previous to April 30, 2004, the Project paid JPI property management fees for the management of the Project. Subsequent to April 30, 2004, the Project paid Asset Campus Management for property management fees for the management of the Project. The Project recorded property management fees of approximately $81,000 to ACH for the year ended August 31, 2007. As of August 31, 2007, the Project has recorded approximately $321,610 in unpaid property and asset management fees to JPI. An additional $13,252 is owed to ACH and is included in accounts payable August 31, 2007. The Project consists of one property in San Marcos, Texas and is dependent upon the San Marcos area and the higher education facilities in the San Marcos area for revenue. G. Commitments and Contingencies 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. IN :91 11 i. �' I Budget Actual Variance REVENUES AND OTHER SUPPORT Rental S 2,153,773 S 2,015,845 S( 137,928) Other 77,715 46,322 ( 31,393) Interest - 10,973 10,973 Total revenues and other support 2,231,488 2,073,140 ( 158,348 OPERATING EXPENSES Personnel 253,004 212,397 40,607 Utilities 440,095 364,866 75,229 Contract services 25,860 22,548 3,312 Repairs and maintenance 35,845 23,545 12,300 Turnover 61,975 78,802 ( 16,827) Advertising and promotion 39,675 40,112 ( 437) Travel 1,200 2,683 ( 1,483) Administration 151,642 120,069 31,573 Total operating expenses 1,009,296 865,022 144,274 REVENUES AVAILABLE FOR FIXED CHARGES 1,222,192 1,208,118 ( 14,074) OTHER EXPENSES Management fees 111,974 100,117 ( 11,857) Replacements 80,450 110,478 30,028 Depreciation and amortization 679,583 679,583 - Interest 1,590,580 1,590,580 - Total other expenses 2,462,587 2,480,758 18,171 EXCESS OF EXPENSES OVER(UNDER)REVENUES $ 1,240,395 S( 1,272,640) S( 32,245) I U 01 112 161 WIN 111 The debt service coverage ratio is defined in the Loan and Financing Agreement as net operating income divided by the total amount of principal and interest due under the Note. Net operating revenue is defined as gross revenues less operating expenses. Schedule I indicates that the actual revenue available for debt coverage for the year ended August 31, 2007, is $1,208,118. The amount of principal and interest due under the Note for the next 12 months is $1,696,350 under the original terms of the Indenture. Based on the above revenue available for debt coverage and the required principal and interest due under the Note, the debt service coverage ratio as of August 31, 2007, is .68. Schedule I indicates that the budgeted revenue available for debt coverage for the year ended August 31, 2007, to be $1,222,192. Based on the budgeted revenue available for debt coverage and the required principal and interest due under the Note, the budget would have resulted in a debt service coverage ratio as of August 31, 2007, of.68. RM