HomeMy WebLinkAboutDenton Audit 08-31-12 TEXAS STUDENT HOUSING AUTHORITY
THE RIDGE AT NORTH TEXAS PROJECT
FINANCIAL REPORT
AUGUST 31, 2012
TEXAS STUDENT HOUSING AUTHORITY
THE RIDGE AT NORTH TEXAS PROJECT
TABLE OF CONTENTS
AUGUST 31,2012
Page
Number
FINANCIAL SECTION
Independent Auditors' Report............................................................................................. 1 -2
Management's Discussion and Analysis ............................................................................ 3 -5
Financial Statements:
Statementof Net Assets................................................................................................... 6
Statement of Revenues, Expenses and Changes in Net Assets........................................ 7
Statement of Cash Flows ................................................................................................. 8
Notes to Financial Statements.......................................................................................... 9- 18
SUPPLEMENTAL SCHEDULES
Schedule I— Schedule of Revenues and Expenses............................................................. 19
Schedule I1—Certificate of the Fixed Charges Coverage Ratio......................................... 20
FINANCIAL SECTION
I,
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P ATTILLO, BROWN & HILL, I..L.P.
CERTIFIED PUBLIC ACCOUNTANTS ■ BUSINESS CONSULTANTS
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Texas Student Housing Authority—
The Ridge at North Texas Project
Westlake, Texas
We have audited the accompanying financial statements of Texas Student Housing Authority —
The Ridge at North Texas Project (the "Project"), as of and for the year ended August 31, 2012, which
collectively comprise the Project's basic financial statements as listed in the table of contents. Texas
Student Housing Authority — 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 Authority as of August 31,
2012, and the changes in its financial position and, where applicable, cash flows, 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 Authority—The Ridge at North Texas Project as of
August 31, 2012, and the changes in financial position, and cash flows, where applicable, thereof 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 Authority — The Ridge at North Texas Project will continue as a going concern. As discussed
in Note I to the financial statements, the Project is in default on its bonds. This gives the bondholders
the right to accelerate and demand payment on the bonds in full. These conditions raise substantial
doubt about the Project's ability 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
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Accounting principles generally accepted in the United States of America require that the
management's discussion and analysis on pages 3 through 5 be presented to supplement the basic
financial statements. Such information, although not a part of the basic financial statements, is required
by the Governmental Accounting Standards Board, who considers it to be an essential part of financial
reporting for placing the basic financial statements in an appropriate operational, economic, or historical
context. We have applied certain limited procedures to the required supplementary information in
accordance with auditing standards generally accepted in the United States of America, which consisted
of inquiries of management about the methods of preparing the information and comparing the
information for consistency with management's responses to our inquiries, the basic financial
statements, and other knowledge we obtained during our audit of the basic financial statements. We do
not express an opinion or provide any assurance on the information because the limited procedures do
not provide us with sufficient evidence to express an opinion or provide any assurance.
Our audit was conducted for the purpose of forming an opinion on the financial statements that
collectively comprise the Project's 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
financial statements. The supplemental information is the responsibility of management and was
derived from and relates directly to the underlying accounting and other records used to prepare the
financial statements. The information has been subjected to the auditing procedures applied in the audit
of the financial statements and certain additional procedures, including comparing and reconciling such
information directly to the underlying accounting and other records used to prepare the financial
statements or to the financial statements themselves, and other additional procedures in accordance with
auditing standards generally accepted in the United States of America. In our opinion,the information is
fairly stated in all material respects in relation to the financial statements as a whole.
t
January 7, 2013
2
MANAGEMENT'S
DISCUSSION AND ANALYSIS
MANAGEMENT'S DISCUSSION AND ANALYSIS
As staff of the Texas Student Housing Authority (the "Authority") — 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, 2012. 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.
FINANCIAL HIGHLIGHTS
• The liabilities of the Project exceeded its assets at the close of the fiscal year by
$11,517,183, a decrease of$1,133,912 over the prior year.
• Operating revenue of$4,657,011 is $66,312 less than budget. Operating expense is
$45,809 less than budget. Major components of the expense variance were personnel
and utilities as compared to budget.
• At the end of the current fiscal year, the total cash balances were $676,602 in
unrestricted cash and$2,002,044 in restricted cash.
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.
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.
3
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 AUTHORITY-
THE RIDGE AT NORTH TEXAS PROJECT
NET ASSETS
Business-type Activities
2012 2011
Current and other assets $ 3,428,317 $ 3,448,752
Capital assets 18,212,297 19,077,659
Total assets 21,640,614 22,526,411
Current liabilities 33,157,797 32,909,682
Total liabilities 33,157,797 32,909,682
Net assets:
Invested in capital assets,
net of related debt ( 9,485,379) ( 9,227,532)
Unrestricted ( 2,031,804) ( 1,155,739)
Total net assets $( 11,517,183) $( 10,383,271)
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
2012 2011
Total operating revenue $ 4,634,578 $ 4,216,352
Total operating expenses ( 3,087,084) ( 3,059,800)
Total operating income 1,547,494 1,156,552
Interest income 22,433 18,601
Interest expense ( 2,703,839) ( 2,342,558)
Total nonoperating loss ( 2,681,406) ( 2,323,957)
CHANGE IN NET ASSETS ( 1,133,912) ( 1,167,405)
NET ASSETS,BEGINNING ( 10,383,271) ( 9,215,866)
NET ASSETS,ENDING $( 11,517,183) $( 10,383,271)
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 Trust Indenture. As of August 31, 2012, these balances were
as follows:
Revenue Fund $ 49
Bond Fund-Series 2001A 124,639
Bond Fund-Series 2001B 2
Debt Service Reserve Fund-A 6
Debt Reserve Fund-CD 1,876,976
Debt Service Reserve Fund-B 365
Repair and Replacement Fund 13
Series B Principal Fund 3
Denton(UNT)Operating Reserve 7
Denton(UNT)Ser A Princ ( 16)
Total $ 2,002,044
Nonrestricted cash. Nonrestricted cash is available for general use of the Project.
Bonds payable. As of August 31, 2012, since the bonds are in default, all amounts are considered due
immediately.
2001A Bonds $ 25,130,000
2001B Bonds 3,240,000
Less discounts ( 672,324)
Total $ 27,697,676
For the fiscal year ending August 31, 2012, the total principal and interest payment is calculated at
$2,330,369. A total of$645,000 in principal was paid during 2012.
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 6 and 10-month leases exist. These leases do bring a monthly premium
over the 12-month leases. Occupancy for the fiscal year ending August 31, 2013, forecasts at 88%.
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.
5
FINANCIAL STATEMENTS
TEXAS STUDENT HOUSING AUTHORITY
THE RIDGE AT NORTH TEXAS PROJECT
STATEMENT OF NET ASSETS
AUGUST 31,2012
ASSETS
Current assets:
Cash $ 676,602
Restricted cash 2,002,044
Accounts receivable,net reserve of$2,857 110,360
Total current assets 2,789,006
Capital assets:
Land 2,200,000
Other capital assets,net of accumulated depreciation 16,012,297
Total capital assets 18,212,297
Other assets:
Deferred financing costs,net of amortization 639,311
Total other assets 639,311
Total assets 21,640,614
LIABILITIES
Current liabilities:
Trade accounts payable 403,548
Accrued liabilities 10,455
Unearned revenue and prepaid rent 418,739
Accrued interest 4,627,379
Bonds payable 27,697,676
Total current liabilities 33,157,797
NET ASSETS
Invested in capital assets,net of related debt ( 9,485,379)
Unrestricted ( 2,031,804)
Total net assets $( 11,517,183)
The accompanying notes are an integral part of these financial statements.
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TEXAS STUDENT HOUSING AUTHORITY
THE RIDGE AT NORTH TEXAS PROJECT
STATEMENT OF REVENUES,EXPENSES
AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED AUGUST 31,2012
OPERATING REVENUES
Rental $ 4,411,645
Other 222,933
Total operating revenues 4,634,578
OPERATING EXPENSES
Personnel 339,149
Contract services 98,195
Utilities 804,220
Repairs and maintenance 103,313
Turnover 425,027
Advertising and promotion 104,411
Administration 141,455
Management fees 132,000
Depreciation and amortization 936,786
Travel 2,528
Total operating expenses 3,087,084
OPERATING INCOME 1,547,494
NONOPERATING REVENUES(EXPENSES)
Interest income 22,433
Interest expense ( 2,703,839)
Total nonoperating revenues(expenses) ( 2,681,406)
CHANGE IN NET ASSETS ( 1,133,912)
NET ASSETS,BEGINNING ( 10,383,271)
NET ASSETS,ENDING $( 11,517,183)
The accompanying notes are an integral part of these financial statements.
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TEXAS STUDENT HOUSING AUTHORITY
THE RIDGE AT NORTH TEXAS PROJECT
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED AUGUST 31,2012
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from tenants $ 4,443,478
Cash paid to employees ( 338,714)
Cash paid to suppliers ( 1,852,574)
Net cash provided by operating activities 2,252,190
CASH FLOWS FROM CAPITAL AND RELATED
FINANCING ACTIVITIES
Payments on bonds payable ( 645,000)
Interest paid ( 1,685,369)
Net cash used in capital and related financing activities ( 2,330,369)
CASH FLOWS FROM INVESTING ACTIVITIES
Interest on investments 22,433
Net cash provided by investing activities 22,433
NET CHANGE IN CASH AND CASH EQUIVALENTS ( 55,746)
CASH AND CASH EQUIVALENTS,BEGINNING 2,734,392
CASH AND CASH EQUIVALENTS,ENDING $ 2,678,646
Cash $ 676,602
Restricted cash 2,002,044
Total cash and cash equivalents $ 2,678,646
RECONCILIATION OF OPERATING INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
Operating income $ 1,547,494
Adjustments to reconcile operating income to
net cash provided by operating activities:
Depreciation 865,362
Changes in operating assets and liabilities:
Accounts receivable ( 93,767)
Prepaid expenses 24,517
Trade accounts payable 5,482
Deferred revenue ( 97,333)
Other current liabilities 435
Net cash provided by operating activities $ 2,252,190
The accompanying notes are an integral part of these financial statements.
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TEXAS STUDENT HOUSING AUTHORITY
THE RIDGE AT NORTH TEXAS PROJECT
NOTES TO FINANCIAL STATEMENTS
AUGUST 31,2012
I. GENERAL STATEMENT
Texas Student Housing Authority — 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 Authority—The Ridge at North Texas.
The Project was purchased from Jefferson Commons—Denton, L.P. on July 1, 2001. The Project
obtained its financing through the issuance of Texas Student Housing Authority— 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 Authority and The Bank of New York(the "Trustee"). The
Series 2001 A and Subordinate Series 2001 B 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 Authority 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,
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 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 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 2012 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.
9
II. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Project's significant accounting policies consistently applied in the preparation
of the accompanying financial statements follows:
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
applying the criteria set forth in GASB Statement No. 14 as amended by GASB Statement
No. 39. The criteria used is as follows:
Financial Accountabilitv — 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
Measurement focus refers to what is being measured; basis of accounting refers to when
revenues and expenditures are recognized in the accounts and reported in the financial
statements. The Authority uses the economic resources measurement focus and the accrual
basis of accounting. The economic resources measurement focus means all assets and
liabilities (whether current or noncurrent) are included on the statement of net assets and the
operating statement present increases (revenues) and decreases (expenses) in net total assets
under the accrual basis of accounting, revenues are recognized when earned, and expenses
are recognized at the time the liability is incurred.
Private-sector standards of accounting and financial reporting issued prior to December 1,
1989, generally are followed in both the government-wide and proprietary fund financial
statements to the extent that those standards do not conflict with or contradict guidance of the
Governmental Accounting Standards Board. Governments also have the option of following
subsequent private-sector guidance for their business-type activities and Enterprise Funds,
subject to this same limitation. The government has elected not to follow subsequent private-
sector guidance.
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)
10
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, 2012, the Project had no such
investments included in cash and cash equivalents.
In addition, the Project has restricted cash of$2,002,044 that is held by the Trustee for the
bonds payable under provisions of the Trust Indenture. During the year ended August 31,
2012, the investment income received from cash was $22,433. 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
Accounts receivable are stated at amounts management expects to collect from outstanding
balances. Management writes off uncollectible amounts through a charge to expenses 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, 2012.
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, 2012, were approximately$104,411.
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.
Depreciation is computed using the straight-line method over the estimated useful lives as
follows:
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, 2012, the carrying amount of Texas Student Housing Authority—The Ridge at
North Texas Project deposits (cash with interest bearing accounts and restricted cash held in
interest bearing accounts) was in total $2,678,646 of which $2,002,044 represented restricted
cash.
Restricted Cash
Restricted cash represents amounts placed on deposit in accounts and held by the Trustee,
which are restricted for the payment of expenses as required by the Trust Indenture. At
August 31, 2012, restricted cash consists of the following funds and accounts:
Fund/Account Description
Revenue Funds $ 49
Bond Fund-Series 2001A 124,639
Bond Fund-Series 2001 B 2
Debt Service Reserve Fund-A 6
Debt Reserve Fund-CD 1,876,976
Debt Service Reserve Fund-B 365
Repair and Replacement Fund 13
Series B Principal Fund 3
Denton(UNT)Oper Reserve 7
Denton(UNT)Ser A Princ ( 16)
Total $ 2,002,044
(continued)
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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 for monthly deposits from
the depository account that holds general revenues of the Project. All monies are
deposited in the Revenue Fund and then properly distributed to the other funds, as
required by the Trust Indenture. Amounts in the fund at year-end represent
amounts that have not been distributed to the other funds due to timing of the
interfund transfers.
Bond Fund—The Trustee makes monthly deposits in the Bond Fund pursuant to
the Trust Indenture. Amounts in the Bond Fund shall be used solely to fund the
payment of principal and interest on the bonds, for the redemption of the bonds at
or prior to maturity, and to purchase bonds on the open market. In the event of
default, amounts in this fund may pay the fees and expenses of the Trustee prior
to making any payments to the bondholders. This fund has two accounts, the
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
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
Authority—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 Authority—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 Authority — The Ridge at North Texas
Project is subject to the indenture agreement of the bonds. As of August 31, 2012, the
Project held all of its restricted cash balances with the Trustee, which represents 74.8% of the
total cash and investments held at August 31, 2012.
Custodial Credit Risk
Custodial credit risk for deposits is the risk that, in the event of the failure of a depository
financial institution, a government will not be able to recover its deposits or will not be able
to recover collateral securities that are in the possession of an outside party. The custodial
credit risk for investments is the risk that, in the event of the failure of the counterparty to a
transaction, a 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, 2012, the Project has unrestricted cash of $674,819 (bank balance,
$513,429). Of the bank balances, $250,000 was covered by federal depository insurance
while the remaining $263,429 was collateralized by a Bank Deposit Guarantee Bond from
the Project's depository in the amount of$2,647,869.
(continued)
15
III. DETAILED NOTES ON ALL FUNDS (Continued)
C. Capital Assets
Capital asset activity for the Project for the year ended August 31, 2012, was as follows:
Beginning Deletions/ Ending
Balance Additions Reclass 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
Less accumulated depreciation for:
Building ( 6,477,733) ( 856,833) ( 2,447,615) ( 9,782,181)
Furniture and fixtures ( 3,603,449) ( 8,529) 2,447,615 ( 1,164,363)
Total accumulated depreciation ( 10,081,182) ( 865,362) - ( 10,946,544)
Total capital assets,
being depreciated,net 16,877,659 ( 865,362) - 16,012,297
Capital assets,net $ 19,077,659 $( 865,362) $ - $ 18,212,297
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, 2012, 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, 2012.
The following is a summary of long-term debt transactions of the Project for the year ended
August 31, 2012:
Amounts
Beginning Ending Due Within Interest
Balance Increases Decreases Balance One Year Paid
Revenue Bonds:
2001A Bonds $ 25,775,000 $ - $( 645,000) $ 25,130,000 $ 685,000 $ 1,756,793
2001B Bonds 3,240,000 - - 3,240,000 - -
Less discounts ( 709,809) - 37,485 ( 672,324) ( 37,485) -
Total $ 28,305,191 $ - $( 607,515) $ 27,697,676 $ 647,515 $ 1,756,793
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, 2012, are as follows
and have not been adjusted for the default of the bonds. Under the original terms of the
Indenture, a total of$645,000 in principal and $1,976,793 in interest is due in fiscal 2012.
The total interest to be paid will depend on the ultimate maturities of the bonds.
Year Ending
August 31, Principal Interest Total
2012 $ 28,370,000 $ 23,542,340 $ 51,912,340
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 — The component of net assets
that reports the difference between capital assets less both the accumulated
depreciation and the outstanding balance of debt, excluding unspent proceeds,that
is directly attributable to the acquisition, construction, or improvement of these
capital assets.
(continued)
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III. DETAILED NOTES ON ALL FUNDS (Continued)
E. Net Assets (Continued)
Restricted for Debt Service — The component of net assets calculated by reducing
the carrying value of restricted assets by the amount of any related debt outstanding.
Unrestricted — The difference between the assets and liabilities that is not
reported in net assets invested in capital assets, net of related debt and restricted
net assets.
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.
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
Revenue Service regulations.
I
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SUPPLEMENTAL SCHEDULES
i
TEXAS STUDENT HOUSING AUTHORITY
THE RIDGE AT NORTH TEXAS PROJECT
SCHEDULE I-SCHEDULE OF REVENUES AND EXPENSES
BUDGET AND ACTUAL
FOR THE YEAR ENDED AUGUST 31,2012
Budget Actual Variance
REVENUES AND OTHER SUPPORT
Rental $ 4,478,773 $ 4,411,645 $( 67,128)
Other 244,550 222,933 ( 21,617)
Interest - 22,433 22,433
Total revenues and other support 4,723,323 4,657,011 ( 66,312)
OPERATING EXPENSES
Personnel 381,947 339,149 42,798
Contract services 99,420 98,195 1,225
Utilities 904,500 804,220 100,280
Repairs and maintenance 79,940 103,313 ( 23,373)
Turnover 382,550 425,027 ( 42,477)
Advertising and promotion 89,100 104,411 ( 15,311)
Management fees 132,000 132,000 -
Administration 126,650 141,455 ( 14,805)
Travel - 2,528 ( 2,528)
Total operating expenses 2,196,107 2,150,298 45,809
REVENUES AVAILABLE FOR
FIXED CHARGES 2,527,216 2,506,713 ( 20,503)
OTHER EXPENSES
Depreciation and amortization - 936,786 ( 936,786)
Interest expense - 2,703,839 ( 2,703,839)
Total other expenses - 3,640,625 ( 3,640,625)
EXCESS OF EXPENSES OVER REVENUES $ 2,527,216 $(_L,133,912 $( 3,661,128)
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TEXAS STUDENT HOUSING AUTHORITY
THE RIDGE AT NORTH TEXAS PROJECT
SCHEDULE II-CERTIFICATE OF THE FIXED CHARGES COVERAGE RATIO
FOR THE YEAR ENDED AUGUST 31,2012
We are providing this letter, as required by the Trust Indenture by and between Texas Student Housing
Authority—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 Authority — 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, 2012.
The fixed charges coverage ratio is defined in the Indenture as the ratio of revenue available for fixed
charges to fixed charges. Further, fixed charges are defined in the Indenture as the sum of all cash
outflows related to the Project that the Issuer cannot avoid without violating long-term contractual or
legal obligations (those obligations which extend for a period greater than one year), including, but not
limited to, (i) interest on indebtedness other than short-term indebtedness, and (ii) scheduled payments
of principal on indebtedness other than short-term indebtedness, provided that maximum annual debt
service shall be used for purposes of computing (i) and(ii) above.
The audited financial statements indicate revenue available for fixed charges for the year ended August
31, 2012, to be $2,506,713.
Based on the above revenues and fixed charges, we calculate that the fixed charges coverage ratio as of
August 31, 2012, to be .65, which is based on one year of operations and is not in compliance with the
Indenture.
20