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HomeMy WebLinkAboutSan Marcos Audit 2002TEXAS STUDENT HOUSING CORPORATION- SAN MARCOS PROJECT FINANCIAL STATEMENTS Years Ended December 31, 2002 and 2001 with Report of Independent Auditors TEXAS STUDENT HOUSING CORPORATION- SAN MARCOS PROJECT Years Ended December 31,2002 and 2001 Table of Contents Report of Independent Auditors......................................................................................................... 1 Financial Statements: Statements ofFinancial Position........................................................................................... 2 Statements of Activities and Changes in Net Deficit............................................................ 3 Statements of Cash Flows..................................................................................................... 4 Notes to Financial Statements............................................................................................................ 5 Supplemental Schedules: Schedule I-Schedule of Revenues and Expenses............................................................... 12 Schedule II-Debt Service Coverage Ratio.......................................................................... 13 WHIT LEY PENN CPAs AND PROFESSIONAL CONSULTANTS REPORT OF INDEPENDENT AUDITORS To the Board of Directors of Texas Student Housing Corporation-San Marcos Project We have audited the accompanying statements of financial position of Texas Student Housing Corporation-San Marcos Project (the "Corporation") as of December 31, 2002 and 2001, and the related statements of activities and changes in net deficit and cash flows for the years then ended. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted out audits 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 misstatements. 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 audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Texas Student Housing Corporation -San Marcos Project as of December 31, 2002 and 2001, and the changes in its net deficit and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our audits were conducted for the purpose of forming an opm10n on the basic financial statements taken as a whole. Schedule I and II are presented for purposes of additional analysis and are not required as part of the basic financial statements. Such information has been subjected to auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. t/(Jh; rl~:r fZ,.) Fort Worth, Texas July 11, 2003 Dallas: 5420 LBJ Freeway, Suite 1440 • Dallas, Texas 75240 • (972) 392-66oo • fax (972) 392-6601 Fort Worth: 1701 River Run Road, Suite 507 • Fort Worth, Texas 76107 • (817) 258-9100 • fax (817) 877-3036 Mid-Cities: 86o West Airport Freeway, Suite 601 ·Hurst, Texas 76054 • (817) 258-9100 • fax (817) 656-4013 www.wpcpa.com Partners Larry G. Autrey, P. C. Felix). Lozano Ill, P.C. Scott A. Mayfield, P. C. Ricky L. McBride, P. C. David L Neal, P.C. James C. Penn, P.C. Thomas). Rein, P.C. Mark A Topel, P.C. J. Alan White, P.C. B. Glen Whitley, P.C. TEXAS STUDENT HOUSING CORPORATION-SAN MARCOS PROJECT -STATEMENTS OF FINANCIAL POSITION- December 31, 2002 2001 Assets Current assets: Cash $ 118,785 $ 304,582 Restricted cash 879,322 881,835 Accounts receivable 33,626 5,206 Other assets 8,777 Total current assets 1,040,510 1,191,623 Property and equipment: Land 1,552,207 1,552,207 Furniture, fixtures and equipment 818,333 750,961 Building 15,875,143 15,875,143 Total property and equipment 18,245,683 18,178,311 Less accumulated depreciation 1,256,903 623,772 Total property and equipment, net 16,988,780 17,554,539 Intangible assets: Deferred fmancing costs 1,020,132 1,020,132 Less accumulated amortization 68,008 34,004 Total intangible assets 952,124 986,128 Total assets $ 18,981,414 $ 19,732,290 Liabilities and Net Deficit Current liabilities: Accounts payable and accrued liabilities $ 609,935 $ 352,646 Deferred revenue 172,855 171,254 Tenant security deposits 22,633 37,270 Current portion of note.payable 78,381 72,231 Total current liabilities 883,804 633,401 Note payable 19,688,297 19,766,678 Net deficit: Temporarily restricted (1,590,687) (667,789) Total liabilities and net deficit $ 18,981,414 $ 19,732,290 See accompanying notes. 2 TEXAS STUDENT HOUSING CORPORATION-SAN MARCOS PROJECT -STATEMENTS OF ACTIVITIES AND CHANGES IN NET DEFICIT- Years Ended December 31, 2002 and 2001 2002 2001 Temporarily Temporarily Unrestricted Restricted Total Unrestricted Restricted Total --- Revenue and Other Support Rental income $ -$ 2,313,197 $ 2,313,197 $ -$ 2,563,724 $ 2,563,724 Other income 226,159 226,159 375,918 375,918 Total -2,539,356 2,539,356 2,939,642 2,939,642 Net assets released from restriction 3,462,254 (3,462,254) -3,473,511 (3,473,511) Total revenue and other support 3,462,254 (922,898) 2,539,356 3,473,511 (533,869) 2,939,642 Expenses Prope11y management 235,746 -235,746 255,723 255,723 General and administrative 116,689 116,689 134,555 134,555 Repairs and maintenance 69,053 -69,053 176,436 176,436 Replacements 11,027 11,027 81,732 81,732 Utilities 273,851 273,851 256,469 -256,469 Property management fees 176,100 176,100 171,000 171,000 Asset management fees 42,000 42,000 37,500 37,500 Depreciation and amortization 667,135 -667,135 657,776 -657,776 Interest expense 1,848,370 -1,848,370 1,575,196 1,575,196 Other 22,283 22,283 127,124 127,124 Total expenses 3,462,254 3,462,254 3,473,511 3,473,511 Change in net deficit -(922,898) (922,898) (533,869) (533,869) Net deficit at beginning of year -(667,789) (667,789) (133,920) (133,920) Net deficit at end of year $ $ (I ,590,687) $ (1 ,590,687) $ -$ (667,789) $ (667,789) See accompanying notes. 3 TEXAS STUDENT HOUSING CORPORATION-SAN MARCOS PROJECT -STATEMENTS OF CASH FLOWS- Years Ended December 31, 2002 and 2001 Operating Activities Changes in net deficit Adjustments to reconcile changes in net deficit to net cash provided by (used in) operating activities: Depreciation Amortization Changes in operating assets and liabilities: Restricted cash Accounts receivable Other assets Intangible assets Accounts payable and accrued liabilities Deferred revenue Tenant security deposits Net cash provided by (used in) operating activities Investing Activities Purchase of property and equipment Financing Activities Repayments of notes payable Net increase (decrease) in cash Cash at beginning of year Cash at end of year Supplemental Disclosures of Cash Flow Information Cash paid during year for interest See accompanying notes. 4 2002 $ (922,898) 633,131 34,004 2,513 (28,420) (8,777) 257,289 1,601 (14,637) (46,194) (67,372) (72,231) (185,797) 304,582 $ 118,785 $1,713,298 2001 $ (533,869) 623,772 34,004 214,533 (5,206) (6,500) 352,646 37,334 (65,055) 651,659 (438,311) (61,091) 152,257 152,325 $ 304,582 $ 1,575,196 TEXAS STUDENT HOUSING CORPORATION-SAN MARCOS PROJECT NOTES TO FINANCIAL STATEMENTS December 31, 2002 A. Nature of Business Texas Student Housing Corporation-San Marcos Project (the "Corporation"), a Texas non-profit organization, was created on December 11, 2000, as a duly constituted authority of the Town of Westlake, Texas (the "Town") pursuant to Section 53.35(b) of the Texas Education Code, as amended (the "Act"). The Corporation's primary purpose was to purchase, own and operate a student housing facility known as Jefferson Commons (the "San Marcos Property") in San Marcos, Texas. The San Marcos Property was purchased from Jefferson Commons-San Marcos, L.P. ("JPI") on December 28, 2000. The Corporation obtained its conduit financing through the City of Cameron Education Corporation (the "City") under the terms of the Loan and Financing Agreement by and between the City as Issuer and the Corporation as Borrower (the "Loan and Financing Agreement"). The City funded its loan to the Corporation via the issuance of conduit or "no-commitment" debt by issuing the City of Cameron Education Corporation Student Housing Revenue Bonds (Southwest Texas State University Project) Series 2000 (the "Bonds") in the amount of $19,900,000. The term conduit means that the City undertakes no commitment to pay or guarantee the debt service payments, but merely gives the Corporation, as the underlying obligator, access to a tax-exempt market. After issuance, the City irrevocably assigned all of its rights pursuant to the terms of the Loan and Financing Agreement, which is evidenced by a note made by and between the Corporation and the City as well as title, monies, and properties pledged for payment of the Bonds to the Bank of New York as trustee (the "Trustee") for the benefit of the bond holders. The Corporation was also established to provide education and/or housing assistance to deserving students residing in the Keller Independent School District, the Carroll Independent School District, and the Northwest Independent School District at institutions of higher education that are aided by the Corporation (the "Student Assistant Program"). The San Marcos Property is operated and managed under the terms of (a) the Property Management and Leasing Agreement by and between the Corporation and JPI Campus Quarters Management, L.P. and (b) the Asset Management Agreement by and between the Corporation and JPI Apartment Development L.P., (collectively referred to as the "Agreements"). B. Summary of Significant Accounting Policies A summary of the Corporation's significant accounting policies consistently applied m the preparation ofthe accompanying financial statements follows: 5 TEXAS STUDENT HOUSING CORPORATION-SAN MARCOS PROJECT NOTES TO FINANCIAL STATEMENTS (continued) B. Summary of Significant Accounting Policies-continued Basis of Accounting The financial statements of the Corporation have been prepared on the accrual basis of accounting and accordingly reflect all significant receivables, payables, and other liabilities. The significant accounting policies followed are described below to enhance the usefulness of the financial statements to the reader. 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 and disclosures regarding certain types of assets and liabilities. Such estimates primarily related to unsettled transactions and events as of the financial statement date. Accordingly, actual results could differ from estimated amounts. Cash The Corporation considers all investments and securities with original maturities of three months or less to be cash equivalents. The Corporation had no such investments or securities at December 31, 2002 and 2001. Restricted Cash Restricted cash represents amounts held by the Trustee, which are restricted for the payment of expenses as required by the Loan and Financing Agreement by and between the City and the Corporation. Deferred Financing Costs and Amortization Deferred financing costs represent certain costs incurred in connection with the issuance of the Loan and Financing Agreement, which states that the Corporation will pay the City's closing fees and other reasonable fees and expenses related to the issuance of bonds by the City. These costs are being amortized using the straight-line method over the life of the Bonds, or 30 years. Property and Equipment Property and equipment have been recorded at the date of acqmsttlon at cost. Routine maintenance and repair costs are expensed as incurred. As assets are retired or disposed of the associated cost of assets retired and the related accumulated depreciation are removed from the accounts. There were no retirements during 2002 and 2001. 6 TEXAS STUDENT HOUSING CORPORATION-SAN MARCOS PROJECT NOTES TO FINANCIAL STATEMENTS (continued) B. Summary of Significant Accounting Policies -continued Property and Equipment-continued Expenditures directly related to the improvement of property and equipment are capitalized at cost. The Corporation capitalizes the cost of roof replacement, appliances, and expenditures for other major property improvements, as well as rehabilitation and repositioning costs incurred. Depreciation is computed using the straight-line method over the estimated useful lives as follows: Building Furniture, fixtures and equipment Revenue Recognition 30 years 5-10 years Rental and other income are recorded on the accrual method of accounting and recognized as earned. The Corporation reports prepaid rental income as revenue when the rental income is due from the tenant. Such amounts received but not yet earned as of year end are reported as deferred revenue. Rental income received from the operation of the San Marcos Property is restricted by terms of the Loan and Financing Agreement for the purpose of satisfYing the amounts owed by the Corporation to the City and for the payment of operating expenses incurred by the San Marcos Property. Financial Statement Presentation The Corporation presents its financial statements in accordance with Statement of Financial Accounting Standards ("SFAS") No. 117, Financial Statements of Not-for-Profit Corporations. Under SFAS No. 117, the Corporation is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted, temporarily restricted, and permanently restricted. In addition, the Corporation is required to present a statement of cash flows. Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation. 7 TEXAS STUDENT HOUSING CORPORATION-SAN MARCOS PROJECT NOTES TO FINANCIAL STATEMENTS (continued) C. Restricted Cash Restricted cash are monies held by the Trustee as required by the Loan and Financing Agreement. At December 31, 2002 and 2001, restricted cash consists of the following funds and accounts: Fund/ Account Description 2002 2001 Debt service reserve fund $ 442,763 $ 437,993 Revenue fund 93,406 164,733 Early receipts account 161,885 160,139 Current receipts account 31,938 31,593 Replacement fund 128,426 67,934 Fee and expense fund 20,891 14,411 Cost of issuance fund 5,000 Tax and insurance fund 13 32 $ 879,322 $ 881,835 The following is a brief description of the funds making up the restricted cash balance at year end, as defined by the Loan and Financing Agreement: Debt service reserve fund -Amounts held in this fund were initially funded by bond proceeds and are only used in the event any principal or interest is not paid in accordance with the terms of the Loan and Financing Agreement. Revenue fund -The revenue fund was established to collect monthly deposits made by the Property and properly distribute appropriate amount to the other funds. The revenue fund has other accounts, including the current receipts account and the early receipts account. Early receipts account -The early receipts account is a sub-account of the revenue fund. Amounts in this account were established from the original proceeds of the note and will be held until early repayment of the note is allowed. According to the Loan and Financing Agreement, the note may be prepaid on or after January 1, 2011. Excess revenues can be deposited and held in this account for early repayment. Current receipts account -The current receipts account is also a sub-account of the revenue fund. Monthly deposits into 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 of certain expenses. 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 reserve agreement, but only upon the receipt of a written authorization from MuniMae Portfolio Services, LLC (the "Servicing Agent"). 8 TEXAS STUDENT HOUSING CORPORATION-SAN MARCOS PROJECT NOTES TO FINANCIAL STATEMENTS (continued) C. Restricted Cash -continued Fee and expense fund-Amounts deposited into this account are to be used to pay the portion of the fees and expenses payable to the Servicing Agent, the Trustee or the City, which become due periodically throughout the year. Cost of issuance fund-Amounts in this account were utilized by the Trustee at the date of closing for the payment of certain costs incurred in connection with the issuance of the Bonds. These costs were capitalized and are being amortized over the life of the Bonds. Tax and insurance fund -Amounts deposited in this account are to be used to pay the annual property taxes and premiums on insurance required by the Loan and Financing Agreement. D. Note Payable The note payable represents amounts due to bondholders, via the Trustee, and payable under the terms of the Loan and Financing Agreement dated December 1, 2000. The note is payable solely from the revenues generated by the San Marcos Property and is secured by the revenues pledged and assigned under the terms of the Loan and Financing Agreement. The note bears interest at 8.2% per annum and has additional interest due quarterly based on the Net Cash Flow Available for Deferred Debt Service, as defined in the Loan and Financing Agreement, up to a maximum interest rate of 8.65% per annum. For the years ending December 31, 2002 and 2001, the Corporation paid approximately $1,713,000 and $1,575,000 for interest, respectively. Of this interest, approximately $89,000 and $68,000, respectively, was related to additional quarterly interest payments. Future minimum principal payments under the Financing Agreement are as follows: Year ending Principal December 31, Payment 2003 $ 78,381 2004 85,056 2005 92,299 2006 100,158 2007 105,687 Thereafter 19,305,097 $ 19,766,678 9 TEXAS STUDENT HOUSING CORPORATION-SAN MARCOS PROJECT NOTES TO FINANCIAL STATEMENTS (continued) E. Temporarily Restricted Net Deficit The temporarily restricted net deficit represents excess of expenses over revenues in 2002 and 2001 the amount of ($922,898) and ($533,869), respectively. The activity in the temporarily restricted net deficit is restricted for the operations of the San Marcos Property and the repayment of principal and interest associated with the Loan and Financing Agreement entered into by the Corporation and the City. F. Income Taxes The Corporation 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. G. Employee Benefit Plan Employees of the San Marcos Property are eligible to participate in the JPI 401 (k) Profit Sharing Retirement Plan (the "Plan"). Employee salary deferrals into the Plan are matched by the Corporation up to 3% of employee compensation as defined by the Plan. The Corporation's contributions to the Plan were approximately $2,000 for each of the years ended December 31, 2002 and 2001. H. Concentrations of Credit Risk The Property maintains cash deposits at three banks, which is insured by the Federal Deposit Insurance Corporation up to $100,000. As ofDecember 31, 2002 and 2001, the uninsured portions of these deposits were approximately $782,000 and $947,000, respectively. 10 SUPPLEMENTAL SCHEDULES TEXAS STUDENT HOUSING CORPORATION-SAN MARCOS PROJECT -SCHEDULE I-SCHEDULE OF REVENUES AND EXPENSES - Year Ended December 31,2002 Actual Budget Variance Revenue: Rental income $ 2,313,197 $ 2,735,906 $ (422,709) Other income 212,294 285,554 (73,260) Interest income 13,865 12,000 1,865 2,539,356 3,033,460 (494,104) Expenses: Property management 235,746 300,411 (64,665) General and administrative 116,689 101,603 15,086 Repairs and maintenance 69,053 151,914 (82,861) Utilities 273,851 296,378 (22,527) Property management fees 116,028 116,028 811,367 966,334 (154,967) Revenue available for debt coverage 1,727,989 2,067,126 (339,137) Other expenses: Supplemental management fees 60,072 59,772 300 Asset management fees 42,000 42,000 Replacements 11,027 11,027 Depreciation and amortization 667,137 667,137 Interest expense 1,848,370 1,747,906 100,464 Other 22,281 67,738 (45,457) 2,650,887 1,857,644 733,171 Excess of expenses over revenue $ (922,898) $ 209,482 $ (1 ,072,308) 12 TEXAS STUDENT HOUSING CORPORATION- SAN MARCOS PROJECT Schedule II -Debt Service Coverage Ratio 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 December 31, 2002 to be $1,727,989. The amount of principal and interest due under the Note for the next twelve months is $1,696,34 7. 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 December 31, 2002 is 1.019. Schedule I indicates that the budgeted revenue available for debt coverage for the year ended December 31, 2002 to be $2,067,126. 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 ofDecember 31, 2002 of 1.219. 13