HomeMy WebLinkAboutDenton Audit 08-31-06 N
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TEXAS STUDENT HOUSING CORPORATION
THE RIDGE AT NORTH TEXAS PROJECT
FINANCIAL REPORT
AUGUST 31, 2006
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TEXAS STUDENT HOUSING CORPORATION
THE RIDGE AT NORTH TEXAS PROJECT
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TABLE OF CONTENTS
AUGUST 31,2006
Page
Number
FINANCIAL SECTION
Independent Auditors' Report............................................................................................. 1 -2
Management's Discussion and Analysis ............................................................................ 3 -6
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Financial Statements:
Statementof Net Assets................................................................................................... 7
Statement of Revenues, Expenses and Changes in Net Assets........................................ 8
Statementof Cash Flows ................................................................................................. 9
Notes to Financial Statements.......................................................................................... 10- 18
SUPPLEMENTAL SCHEDULES
Schedule I—Schedule of Revenues and Expenses............................................................. 19
Schedule II—Certificate of the Fixed Charges Coverage Ratio......................................... 20
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FINANCIAL STATEMENTS
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PATTILLO, BROWN & HILL, L.L.P. s
CERTIFIED PUBLIC ACCOUNTANTS ■ BUSINESS CONSULTANTS
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Texas Student Housing Corporation—
The Ridge at North Texas Project
Westlake, Texas
We have audited the accompanying financial statements of Texas Student Housing Corporation—
The Ridge at North Texas Project (the "Project"), as of and for the year ended August 31, 2006, which
collectively comprise the Project's basic financial statements as listed in the table of contents. Texas
Student Housing Corporation — The Ridge at North Texas 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 the significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
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 Corporation as of August 31,
2006, and the changes in its financial position and cash flows, where applicable, for the period then
ended in conformity with accounting principles generally accepted in the United States of America.
In our opinion, the financial statements referred to above present fairly, in all material respects,
the financial position of the Texas Student Housing Corporation— The Ridge at North Texas Project as
of August 31, 2006, and the changes in financial position, and, where applicable, cash flows thereof for
the year then ended in conformity with accounting principles generally accepted in the United States of
America.
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The accompanying financial statements have been prepared assuming that Texas Student
Housing Corporation — The Ridge at North Texas Project will continue as a going concern. As 1
discussed in Note I to the financial statements, the Project is in default on its bonds and bondholders
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.
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401 WEST HIGHWAY 6■P.O.BOX 20725■WACO,TX 76702-0725■(254)772-4901■FAX:(254)772-4920■www.pbhcpa.com
AFFILIATE OFFICES:BROWNSVILLE,TX(956)544-7778■HILLSBORO,TX(254)582-2583
TEMPLE,TX(254)791-3460■ALBUQUERQUE,NM(505)266-5904
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The management's discussion and analysis on pages 3 through 5 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 basic financial statements
that collectively comprise the 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 financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a whole. u
November 24, 2006
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MANAGEMENT'S
DISCUSSION AND ANALYSIS
MANAGEMENT'S DISCUSSION AND ANALYSIS
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As staff of the Texas Student Housing Corporation (the "Corporation") — The Ridge at North Texas
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, 2006. We
encourage readers to consider the information presented herein in conjunction with the Project's
financial statements which follow this section. As the Corporation is a component unit of the Town of y
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 2006.
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FINANCIAL HIGHLIGHTS
• The liabilities of the Project exceeded its assets at the close of the fiscal year by
$6,668,975, a decrease of$1,361,024 over the prior year. The primary reason for this
increase is debt service payments.
• Operating revenue of$3,629,813 is $102,270 less than budget. Operating expense is
$121,649 worse than budget. Major components of the expense overage were
utilities, and repair and maintenance as compared to budget.
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• At the end of the current fiscal year, the total cash balances were $528,528 in
unrestricted cash and $2,329,999 in restricted cash.
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OVERVIEW OF THE FINANCIAL STATEMENTS
This discussion and analysis is intended to serve as an introduction to the Project's basic financial
statements. The Project's report consists of three parts, Management's Discussion and Analysis, the
basic financial statements, and notes to financial statements. The basic financial statements include a
statement of net assets, statement of revenues, expenses and changes in net assets, a statement of cash
flows and supplemental schedules.
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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.
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The statement of net assets presents information on all of the Project's assets and liabilities with the
difference between the two reported as net assets.
TABLE 1
TEXAS STUDENT HOUSING CORPORATION-
THE RIDGE AT NORTH TEXAS PROJECT
NET ASSETS
Business-type Activities
2006 2005
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Current and other assets $ 4,032,368 $ 3,941,275
Capital assets 23,492,952 24,786,190
Total assets 27,525,320 28,727,465
Current liabilities 34,194,295 34,035,416
Total liabilities 34,194,295 34,035,416
Net assets:
Invested in capital assets,
net of related debt ( 7,089,814) ( 5,597,279)
Restricted 1,412,324 2,297,517
Unrestricted ( 991,485) ( 2,008,189)
Total net assets $( 6,668,975) $( 5,307,951)
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The statement of revenues, expenses and changes in net assets accounts for all of the Project's revenues
and expenses regardless of when cash is paid or received.
TABLE 2
TEXAS STUDENT HOUSING AUTHORITY-
THE RIDGE AT NORTH TEXAS PROJECT
CHANGES IN NET ASSETS
Business-type Activities
2006 2005
Total operating revenue $ 3,629,813 $ 3,029,987
Total operating expenses ( 2,877,782) ( 2,562,711)
Total operating income 752,031 467,276
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Interest income 143,381 160,702
Interest expense ( 2,256,436) ( 2,406,652)
Total nonoperating loss ( 2,113,055) ( 2,245,950)
CHANGE IN NET ASSETS ( 1,361,024) ( 1,778,674)
NET ASSETS,BEGINNING ( 5,307,951) ( 3,529,277)
NET ASSETS,ENDING $( 6,668,975) $( 5,307,951)
The statement of cash flows recaps how cash changed from year to year.
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FINANCIAL ANALYSIS OF THE PROJECT'S FUNDS
Notes to financial statements. The notes provide additional information that is essential to a full
understanding of the data provided in the financial statements.
Restricted cash. Restricted cash represents monies held in escrow by the trustee and are restricted for
the payment of expenses as outlined in the Installment Sale Agreement. As of August 31, 2006, these
balances were as follows:
Bond Fund,Series 2001A $ 205,211
Bond Fund, Series 2001B 40
Debt Service Reserve Fund, Series 2001A 2,123,485
Debt Service Reserve Fund,Series 2002B 337
Repair and Replacement Fund 39
Trustee Fee Fund 142
Series A Principal Fund 737
Series B Principal Fund 1
Denton(UNT)Operating Reserve 7
Total $ 2,329,999
Nonrestricted cash. Nonrestricted cash is available for general use of the Project.
Bonds payable. As of August 31, 2006, since the bonds are in default, all amounts are considered due
immediately.
2001A Bonds $ 28,490,000
2001B Bonds 3,240,000
Less discounts ( 897,234) s
Total $ 30,832,766
For the fiscal year ending August 31, 2007, the total principal and interest payment is calculated at
$2,619,843. A total of$465,000 in principal was paid during 2006.
ECONOMIC FACTORS AND NEXT YEAR'S BUDGET
Leases at the Project are primarily 12-month leases, however, due to competitive and market conditions,
a relatively minor number of 10-month leases exist. These leases do bring a monthly premium over the
12-month leases. Occupancy for the fiscal year ending August 31, 2007, forecasts at 96%. Rental rates
will see a small increase. This is exacerbated by the fact that University of North Texas does not allow
freshmen to live in off-campus housing.
CONTACTING THE PROJECT'S FINANCIAL MANAGEMENT
This financial report is designed to provide the reader with a general overview of the Project's finances
and to demonstrate the Project's accountability for the money it receives. If you have any questions
about this report, or need additional information, please contact Pete Ehrenberg at (817) 490-5723, or
Hank Smyth at(817) 281-5053.
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TEXAS STUDENT HOUSING CORPORATION
THE RIDGE AT NORTH TEXAS PROJECT
STATEMENT OF NET ASSETS
AUGUST 31,2006
ASSETS
Current assets:
Cash $ 528,528
Restricted cash 2,329,999
Accounts receivable,net reserve of$2,857 33,269
Prepaid expenses 16,243
Property management receivable 31,420
Total current assets 2,939,459
Capital assets:
Land 2,200,000
Other capital assets,net of accumulated depreciation 21,542,952 q
Total capital assets 23,742,952
Other assets:
Deferred financing costs,net of amortization 842,909
Total other assets 842,909
Total assets 27,525,320
LIABILITIES
Current liabilities:
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Trade accounts payable 238,568 k
Management fees payable 831,011
Tenant security deposits 75,353
Accrued interest 917,675
Accrued legal fees 188,922
Other current liabilities 149,682
Property management advance 499,737
Deferred revenue 460,581
Bonds payable 30,832,766
Total current liabilities 34,194,295
NET ASSETS
Invested in capital assets,net of related debt ( 7,089,814)
Restricted for debt service 1,412,324
Unrestricted ( 991,485)
Total net assets $( 6,668,975)
The accompanying notes are an integral part of these financial statements.
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TEXAS STUDENT HOUSING CORPORATION
THE RIDGE AT NORTH TEXAS PROJECT
STATEMENT OF REVENUES,EXPENSES
AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED AUGUST 31,2006
OPERATING REVENUES
Rental $ 3,449,720
Other 180,093
Total operating revenues 3,629,813
OPERATING EXPENSES
Personnel 344,658
Contract services 17,667 y
Utilities 579,389
Repairs and maintenance 93,907
Turnover 168,554
Advertising and promotion 38,300
Administration 126,384
Management fees 166,260
Replacements 225,656
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Depreciation and amortization 1,114,626
Travel 2,381
Total operating expenses 2,877,782
OPERATING INCOME 752,031
NONOPERATING REVENUES (EXPENSES)
Interest income 143,381
Interest expense ( 2,256,430
Total nonoperating revenues (expenses) ( 2,113,055)
CHANGE IN NET ASSETS ( 1,361,024)
NET ASSETS, BEGINNING ( 5,307,951)
NET ASSETS,ENDING $ 6,668,975
The accompanying notes are an integral part of these financial statements.
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TEXAS STUDENT HOUSING CORPORATION
THE RIDGE AT NORTH TEXAS PROJECT
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED AUGUST 31,2006
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from tenants $ 3,692,615
Cash paid to employees ( 304,782)
Cash paid to suppliers ( 979,400)
Net cash provided by operating activities 2,408,433
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CASH FLOWS FROM CAPITAL AND RELATED
FINANCING ACTIVITIES
Payments on bonds payable ( 427,515)
Interest paid ( 2,293,921)
Net cash used in capital and related financing activities ( 2,721,436)
CASH FLOWS FROM INVESTING ACTIVITIES
Interest on investments 143,381
Net cash provided by investing activities 143,381
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NET CHANGE IN CASH AND CASH EQUIVALENTS ( 169,622)
CASH AND CASH EQUIVALENTS,BEGINNING 3,028,149
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CASH AND CASH EQUIVALENTS,ENDING $ 2,858,527
Cash $ 528,528
Restricted cash 2,329,999
Total cash and cash equivalents $ 2,858,527
RECONCILIATION OF OPERATING INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
Operating income $ 752,031
Adjustments to reconcile operating income to
net cash provided by operating activities:
Depreciation and amortization 1,114,626
Changes in operating assets and liabilities:
Accounts receivable ( 28,375)
Prepaid expenses ( 16,243)
Trade accounts payable 149,892
Accrued interest 305,449
Deferred revenue 17,088
Tenant security deposits 74,089
Other current liabilities 39,876
Net cash provided by operating activities $ 2,408,433
The accompanying notes are an integral part of these financial statements.
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TEXAS STUDENT HOUSING CORPORATION—
THE RIDGE AT NORTH TEXAS PROJECT
NOTES TO FINANCIAL STATEMENTS
AUGUST 31,2006
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I. GENERAL STATEMENT
Texas Student Housing Corporation—The Ridge at North Texas (the "Project"), a Texas nonprofit
organization, was incorporated on May 17, 2001, a component unit of the Town of Westlake,
Texas (the "Town") pursuant to Section 53.35(b) of the Texas Education Code, as amended (the
"Act"). The Project's primary purpose is to purchase, own and operate a student housing facility
known as Texas Student Housing Corporation—The Ridge at North Texas.
The Project was purchased from Jefferson Commons—Denton, L.P. on July 17, 2001. The Project
obtained its financing through the issuance of Texas Student Housing Corporation — Denton
Project Texas Student Housing Revenue Bonds (University of North Texas Project), Series 2001A
and Subordinate Series 2001B (the "Bonds"). The Bonds were issued through a Trust Indenture
(the "Trust Indenture") by and between the Corporation and The Bank of New York (the
"Trustee"). The Series 2001A and Subordinate Series 2001B bonds were issued in the face
amounts of $29,105,000 and $5,250,000, respectively. The accompanying financial statements
present the operations of the Project, whose revenue streams are pledged for the bonds described
herein.
The Corporation was also established to acquire educational facilities and housing facilities to be
used by the students, faculty and staff of institutions of higher education and facilities incidental, a
subordinate or related thereto or appropriate within the State of Texas.
The Project was operated and managed under the terms of the (a) Property Management and
Leasing Agreement by and between the Corporation and JPI Campus Quarters Management, L.P.
("JPI") and (b) the Asset Management Agreement by and between the Corporation and JPI
Apartment Management, L.P., up until September 30, 2004. The Project subsequent to September
30, 2004, is managed and operated by Asset Campus Housing under the terms of a Property
Management and Leasing Agreement.
The 2006 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.
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II. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES G
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A summary of the Project's significant accounting policies consistently applied in the preparation
of the accompanying financial statements follows:
A. Reporting Entity
For financial reporting purposes, management has considered all potential component units.
The decision to include a potential component unit in the reporting entity was made by 3
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.
B. Measurement Focus and Basis of Accounting
The Project uses the economic resources measurement focus. This means that all assets,
liabilities, equity, revenues, and expenses are accounted for using the accrual basis of
accounting.
Revenue is recognized when earned and expenses are recognized when they are incurred. 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.
C. Assets,Liabilities and Net Assets or Equity
Income Taxes
The Project is an instrumentality of the Town and, therefore, its income is not subject to
federal income taxation pursuant to Section 115 of the Internal Revenue Code.
(continued)
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II. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
A. Reporting Entity(Continued)
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, 2006, the Project had no such
investments included in cash and cash equivalents.
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In addition, the Project has restricted cash of$2,329,999 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 $143,381. See Note III for risk
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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
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. An
allowance of$2,857 has been provided at August 31, 2006.
Deferred Financing Costs
Costs associated with the issuance of bonds are deferred and amortized over the term of the
bonds.
Advertising Costs
All adverting costs are expensed as they are incurred. Advertising costs for the year ended
August 31, 2006, were approximately$38,000.
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.
(continued)
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II. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
C. Assets,Liabilities and Net Assets or Equity(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. r
Depreciation is computed using the straight-line method over the estimated useful lives as
follows:
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Estimated
Asset Class Useful Lives
Building 30 years
Furniture and fixtures 3-20 years
III. DETAILED NOTES ON ALL FUNDS
A. Cash and Investments
At August 31, 2006, 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 $2,858,527 of which $2,329,999 represented restricted
cash.
Restricted Cash
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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, 2006, restricted cash consists of the following funds and accounts:
Fund/Account Description �
Revenue Fund $ - �
Bond Fund,Series 2001A 205,211
Bond Fund,Series 2001B 40
Repair and Replacement Fund 39
Surplus Fund -
Trustee Fee Fund 142
Series A Principal Fund 737
Series B Principal Fund 1 s
Operating Reserve Fund 7
Debt Service Reserve Fund,Series 2001A 2,123,485
Debt Service Reserve Fund,Series 2001B 337
Total $ 2,329,999
(continued)
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III. DETAILED NOTES ON ALL FUNDS (Continued)
A. Cash and Investments (Continued)
Restricted Cash (Continued) x
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 a
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.
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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 3
to making any payments to the bondholders. This fund has two accounts, the
Series 2001A and the Series 2001B 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 Project,
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.
(continued)
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III. DETAILED NOTES ON ALL FUNDS (Continued)
A. Cash and Investments (Continued)
Restricted Cash (Continued)
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 playing 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 2001E Account— The amounts on deposit in this account
are to be used for the purpose of paying principal and interest on the Series 2001B u
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Bonds as they become due in the event there should be insufficient funds in the
Bond Fund.
The Public Funds Investment Act (Government Code Chapter 2256) contains specific
provisions in the areas of investment practices, management reports and establishment of
appropriate policies relating to a governmental entity's cash and investments.
Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will adversely affect the fair
value of an instrument. Generally, the longer the maturity of an investment the greater the
sensitivity of its fair value to changes in market interest rates. Texas Student Housing
Corporation — The Ridge at North Texas Project is not significantly exposed to interest rate
risk as all investments earn a variable rate.
Credit Risk
Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to
the holder of the investment. This is measured by the assignment of a rating by a nationally
recognized statistical rating organization. The Public Funds Investment Act has a minimum
rating that is required for investments. Texas Student Housing Corporation — The Ridge at
North Texas Project holds all of its cash and investments with the bond Trustee and
commercial banks.
(continued)
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III. DETAILED NOTES ON ALL FUNDS (Continued)
A. Cash and Investments (Continued)
Concentration of Credit Risk
The investment policy of Texas Student Housing Corporation — The Ridge at North Texas
Project is subject to the indenture agreement of the bonds. As of August 31, 2006, the
Project held all of its restricted cash balances with the Trustee, which represents 82% of the
total cash and investments held at August 31, 2006.
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 a
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 r
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, 2006, the Project has unrestricted cash of $528,528 (bank balance
$534,003). Of the bank balances, $100,000 was covered by federal depository insurance
while the remaining $434,003 was uncollateralized. The Project has a Bank Deposit
Guarantee Bond from the Project's depository in the amount of$3,000,000.
B. Property Management Advance and Management Fees
As of August 31, 2006, the Project has recorded a liability to JPI for amounts received of
approximately $499,737. These advances have been made to the Project according to the
terms of the Agreements.
Further, the Agreement requires interest to accrue on the advances at the "Prime Rate" as
published in The Wall Street Journal, plus 100 basis points (9.25% at August 31, 2006). As
of August 31, 2006, the financial statements include accrued interest related to the Property
Management advance in the amount of approximately $70,000 with expense for 2006 of
approximately $37,000.
(continued)
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III. DETAILED NOTES ON ALL FUNDS (Continued) a
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B. Property Management Advance and Management Fees (Continued)
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In addition, the Project owes JPI property and asset management fees for the management of
the Denton Property. As of August 31, 2006, the Project has recorded $831,011 in unpaid
property and asset management fees. Interest accrues at 12% on unpaid management fees.
Accrued interest of approximately $251,000 and current year expense of$90,000 has been
recorded at August 31, 2006.
The Project owes management fees of approximately $70,000 to ACH at August 31, 2006,
which is included in other current liabilities.
C. Capital Assets
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Capital asset activity for the Project for the year ended August 31, 2006, was as follows:
Beginning Ending
Balance Balance
Capital assets,not being depreciated:
Land $ 2,200,000 $ - $ - $ 2,200,000
Total capital assets,
not being depreciated 2,200,000 - - 2,200,000
Capital assets,being depreciated:
Building 25,705,000 - - 25,705,000
Furniture and fixtures 1,253,841 - - 1,253,841
Total capital assets,
being depreciated 26,958,841 - - 26,958,841
a
Less accumulated depreciation for:
Building 2,570,542 851,833 - 3,422,375
Furniture and fixtures 1,802,109 191,405 - 1,993,514
Total accumulated depreciation 4,372,651 1,043,238 - 5,415,889
889
Total capital assets,
being depreciated,net 22,586,190 ( 1,043,238) - 21,542,952
Capital assets,net $ 24,786,190 $( 1,043,238) $ - $ 23,742,952
D. 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 July 1, 2001. The Bonds are payable solely from 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 5.00% to 11.00% and are payable semi-annually on July 1 and
January 1 of each year thereafter.
(continued)
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III. DETAILED NOTES ON ALL FUNDS (Continued)
D. Bonds Payable(Continued)
At August 31, 2006, the Project was not in compliance with certain covenants of the
Indenture including insufficient funds in some of the required funds discussed in Note II and
the fixed charge ratio. Upon certain events of default either the Trustee, or owners of not less
than 25% in aggregate principal of the bonds then outstanding, may declare the principal and
all interest then due to be immediately due and payable. Generally accepted accounting
principles require that if the events of default occur, the liability should be disclosed as
current on the financial statements. In addition, all required principal payments on the Series
B bonds had not been made at August 31, 2006.
x
The following is a summary of long-term debt transactions of the Project for the year ended
August 31, 2006:
Amounts
Beginning Ending Due Within
Balance Increases Decreases Balance One Year
Revenue Bonds: i
2001A Bonds $ 28,955,000 $ - $( 465,000) $ 28,490,000 $ 28,490,000
2001B Bonds 3,240,000 - - 3,240,000 3,240,000 i
Less discounts ( 934,719) - 37,485 ( 897,234) ( 897,234)
Total $ 31,260,281 $ - $ 427,515 $ 30,832,766 $ 30,832,766
The debt originally was to be amortized through 2031 with varying monthly principal
payment amounts ranging from $2,618,093 to $3,465,280 for interest and principal. The
annual requirements to amortize all debts outstanding as of August 31, 2006, are as follows
and have not been adjusted for the default of the bonds. Under the original terms of the
Indenture, a total of $485,000 in principal and $2,134,843 in interest is due in fiscal 2007.
The total interest to be paid will depend on the ultimate maturities of the bonds.
Year Ending
August 31, Principal Interest Total
2007 $ 31,730,000 $ 35,905,245 $ 67,635,245
6
E. Net Assets
Net assets represent the residual assets after liabilities are deducted. These assets are
reported in the following categories:
Invested in Capital Assets, Net of Related Debt consists of capital assets, net of
accumulated depreciation and reduced by outstanding balances for bonds, notes,
and other debt that are attributed to the acquisition, construction, or improvement
of those assets.
(continued)
17
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III. DETAILED NOTES ON ALL FUNDS (Continued)
E. Net Assets (Continued)
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.
F. Concentrations
The Project consists of one property in Denton, Texas and is dependent upon the Denton area
and the higher education facilities in the Denton area for revenue.
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G. Commitments and Contingencies
The Project has yet to have an arbitrage calculation performed for its outstanding debt. After
that analysis, the Project may incur a liability for interest earned in accordance with Internal r
Revenue Service regulations.
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SUPPLEMENTAL SCHEDULES q
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TEXAS STUDENT HOUSING CORPORATION
THE RIDGE AT NORTH TEXAS PROJECT
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SCHEDULE I-SCHEDULE OF REVENUES AND EXPENSES
BUDGET AND ACTUAL
FOR THE YEAR ENDED AUGUST 31,2006
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Budget Actual Variance
REVENUES AND OTHER SUPPORT
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Rental $ 3,643,183 $ 3,449,720 $( 193,463)
Other 88,900 180,093 91,193
Interest - 143,381 143,381
Total revenues and other support 3,732,083 3,773,194 41,111
OPERATING EXPENSES
Personnel 341,009 344,658 ( 3,649)
Contract services 51,950 17,667 34,283
Utilities 416,872 579,389 ( 162,517)
Repairs and maintenance 36,865 93,907 ( 57,042) 4
Turnover 138,350 168,554 ( 30,204)
Advertising and promotion 47,300 38,300 9,000
Administration 170,974 126,384 44,590
Travel 3,950 2,381 1,569
Other 42,321 - 42,321
Total operating expenses 1,249,591 1,371,240 ( 121,649)
REVENUES AVAILABLE FOR
FIXED CHARGES 2,482,492 2,401,954 ( 80,538)
OTHER EXPENSES
Management fees 181,321 166,260 15,061 If
Replacements 234,400 225,656 8,744
Depreciation and amortization - 1,114,626 ( 1,114,626)
Interest - 2,256,436 ( 2,256,436)
Total other expenses 415,721 3,762,978 ( 3,347,257)
EXCESS OF EXPENSES OVER REVENUES $ 2,066,771 $ 1,361,024 $ 3,427,795
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TEXAS STUDENT HOUSING CORPORATION
THE RIDGE AT NORTH TEXAS PROJECT
SCHEDULE H—CERTIFICATE OF THE FIXED CHARGES COVERAGE RATIO
FOR THE YEAR ENDED AUGUST 31,2006
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We are providing this letter, as required by the Trust Indenture by and between Texas Student Housing
Corporation — The Ridge at North Texas (the "Project") and The Bank of New York (the "Trustee"),
dated July 1, 2001, as amended on March 22, 2005, relating to Texas Student Housing Corporation —
Denton Project Texas Student Housing Revenue Bonds (University of North Texas project) the
"Indenture,"to certify the fixed charges coverage ratio as of August 31, 2006.
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.
a
The audited financial statements indicate revenue available for fixed charges for the year ended August
31, 2006, to be $2,401,954.
Based on the above revenues and fixed charges, we calculate that the fixed charges coverage ratio as of
August 31, 2006, to be .92, which is based on one year of operations and is not in compliance with the 4
Indenture.
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