HomeMy WebLinkAboutSan Marcos Audit 08-31-08 TEXAS STUDENT HOUSING AUTHORITY
THE RIDGE AT SAN MARCOS PROJECT
FINANCIAL REPORT
AUGUST 31, 2008
TEXAS STUDENT HOUSING AUTHORITY
THE RIDGE AT SAN MARCOS PROJECT
TABLE OF CONTENTS
AUGUST 31,2008
Page
Number
FINANCIAL SECTION
Independent Auditors' Report............................................................................................. 1 -2
Management's Discussion and Analysis ............................................................................ 3 -6
Financial Statements:
Statementof Net Assets................................................................................................... 7
Statement of Revenues, Expenses and Changes in Net Assets........................................ 8
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Statement of Cash Flows ............................................................ .................................. 9
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Notes to Financial Statements.......................................................................................... 10- 18
SUPPLEMENTAL SCHEDULES
Schedule I—Schedule of Revenues and Expenses............................................................. 19
Schedule II—Debt Service Coverage Ratio ....................................................................... 20
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FINANCIAL SECTION �
PATTILLO, BROWN & HILL, L.L.P.
CERTIFIED PUBLIC ACCOUNTANTS ■ BUSINESS CONSULTANTS
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Texas Student Housing Authority—
The Ridge at San Marcos Project
Westlake, Texas
We have audited the accompanying financial statements of Texas Student Housing Authority —
The Ridge at San Marcos Project (the "Project"), as of and for the year ended August 31, 2008, which
collectively comprise the Project's basic financial statements, as listed in the table of contents. Texas
Student Housing Authority — The Ridge at San Marcos Project is a component unit of the Town of
Westlake. These financial statements are the responsibility of the Project's management. Our
responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
As discussed in Note I, the financial statements present only the Project and do not purport to,
and do not, present fairly the financial position of Texas Student Housing Authority as of August 31,
2008, and the changes in its financial position, and, where applicable, cash flows thereof for the year
then ended in conformity with accounting principles generally accepted in the United States of America.
In our opinion, the financial statements referred to above present fairly, in all material respects,
the financial position of the Texas Student Housing Authority — The Ridge at San Marcos Project at
August 31, 2008, and the results of its operations and cash flows for the year then ended in conformity
with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that Texas Student
Housing Corporation—The Ridge at San Marcos Project will continue as a going concern. As discussed
in Note I to the financial statements, the Project is in default on its bonds and the Trustee or Service
Agent may choose to continue as a going concern. Management's plans in regard to these matters are
discussed in Note I. The financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
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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
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The management's discussion and analysis on pages 3 through 6 are not a required part of the
basic financial statements but are supplemental information required by accounting principles generally
accepted in the United States of America. We have applied certain limited procedures, which consisted
principally of inquiries of management regarding the methods of measurement and presentation of the
required supplementary information. However, we did not audit the information and express no opinion
on it.
Our audit was conducted for the purpose of forming an opinion on the financial statements that
collectively comprise the business-type activities of Texas Student Housing Authority — The Ridge at
San Marcos Project's basic financial statements. The accompanying supplemental information on pages
19 and 20 is presented for purposes of additional analysis and is not a required part of the basic financial
statements. The supplemental information has been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
r r
January 14, 2009
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MANAGEMENT'S
DISCUSSION AND ANALYSIS
MANAGEMENT'S DISCUSSION AND ANALYSIS
As staff of the Texas Student Housing Authority (the "Authority") — The Ridge at San Marcos Project
(the "Project"), we offer the readers of the Project's financial statements this narrative overview and
analysis of the financial activities of the Project for the fiscal year ended August 31, 2008. We
encourage readers to consider the information presented herein in conjunction with the Project's
financial statements which follow this section. As the Authority is a component unit of the Town of
Westlake and is thus considered a governmental entity, Governmental Accounting Standards Board
Statement 34, Basic Financial Statements—and Management's Discussion and Analysis for State and
Local Governments has been implemented. The reader should note that this financial report addresses
only the financial condition of the Project itself for 2008.
FINANCIAL HIGHLIGHTS
• The liabilities of the Project exceeded its assets at the close of the fiscal year by
$9,615,547, an increase of $1,893,889 over the prior year. The primary reason for
this increase is the inability to pay regular interest payments. j
• Operating revenue of$2,125,456 is $64,630 worse than budget. Operating expenses
were $49,606 better than budget.
• At the end of the current fiscal year, the total cash balances were $311,274 in
unrestricted cash and $139,098 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.
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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 AUTHORITY-
THE RIDGE AT SAN MARCOS PROJECT
NET ASSETS
Business-type Activities
2008 2007
Current and other assets $ 1,253,393 $ 1,244,217
Capital assets 13,404,196 13,976,076
Total assets 14,657,589 15,220,293
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Current liabilities 24,273,136 22,941,951
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Total liabilities 24,273,136 22,941,951
Net assets:
Invested in capital assets,
net of related debt ( 6,176,673) ( 5,533,326)
Unrestricted ( 3,438,874) ( 2,188,332)
Total net assets $( 9,615,547) $( 7,721,658)
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 SAN MARCOS PROJECT
CHANGES IN NET ASSETS
Business-type Activities
2008 2007
Total operating revenue $ 2,125;456 $ 2,062,167
Total operating expenses ( 1,715,938) ( 1,755,200)
Total operating income 409,518 306,967
Interest income 4,601 10,973
Interest expense ( 2,308,008) ( 1,590,580)
Total nonoperating loss ( 2,303,407) ( 1,579,607)
CHANGE IN NET ASSETS ( 1,893,889) ( 1,272,640)
NET ASSETS,BEGINNING ( 7,721,658) ( 6,449,018)
NET ASSETS,ENDING $( 9,615,547) $( 7,721,658)
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, 2008, these
balances were as follows:
Revenue Fund $ 136,162
Debt Service Reserve Fund 9
Repair and Replacement Fund 26
Early Receipts Fund 17 f
Current Receipts Fund 6
Tax and Insurance Fund 14
Revenue Fund-Interest 879
Fee and Expense Fund 1,985
Total $ 139,098
Nonrestricted cash. Nonrestricted cash is available for general use of the Project.
Bonds payable. As of August 31, 2008, since the bonds are in default, all amounts are considered due
immediately.
Series 2000 $ 19,580,869
Total $ 19,580,869
For the fiscal year ending August 31, 2008, the total principal and interest payment is calculated at
$1,696,350.
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, 2009, forecasts at 94%. However,
rental rates, again due to competitive pressures, will not see a large increase. This is exacerbated by the
fact that Texas State University does not allow freshmen and sophomores to live in off-campus housing.
Net operating revenue for next year is projected at $1,046,150. If the bonds were not in default, debt
service calculated at $1,696,350 would have to be paid, however, as in the present arrangement, the
Servicing Agent funds all expenses, then applies the remaining funds to debt service. This will further
erode net assets.
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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.
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TEXAS STUDENT HOUSING AUTHORITY
THE RIDGE AT SAN MARCOS PROJECT
STATEMENT OF NET ASSETS
AUGUST 31,2008
ASSETS
Current assets:
Cash $ 311,274
Restricted cash 139,098
Accounts receivable 26,161
Prepaid expenses 17,434
Total current assets 493,967
Capital assets:
Land 1,552,207
Other capital assets,net of accumulated depreciation 11,851,989
Total capital assets 13,404,196
Other assets:
Deferred financing costs,net of amortization 759,426
Total other assets 759,426 1
Total assets 14,657,589
LIABILITIES
Current liabilities:
Trade accounts payable 64,007
Management fees payable 321,610
Accrued liabilities 378,464
Development fees payable 133,050
Deferred revenue and prepaid rent 217,594
Accrued interest 3,577,542
Bonds payable 19,580,869
Total current liabilities 24,273,136
NET ASSETS
Invested in capital assets,net of related debt ( 6,176,673)
Unrestricted ( 3,438,874)
Total net assets $( 9,615,547)
The accompanying notes are an integral part of these financial statements.
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TEXAS STUDENT HOUSING AUTHORITY
THE RIDGE AT SAN MARCOS PROJECT
STATEMENT OF REVENUES,EXPENSES
AND CHANGES IN NET ASSETS
AUGUST 31,2008
OPERATING REVENUES
Rental $ 2,052,387
Other 73,069
Total operating revenues 2,125,456
OPERATING EXPENSES
Personnel 221,068
Utilities 322,773
Contract services 29,987
Repairs and maintenance 40,746
Turnover 99,471
Advertising and promotion 53,072
Administration 104,197 I
Travel 35
Management fees 94,593
Replacements 144,112 i
Depreciation 571,880
Amortization 34,004 i
Total operating expenses 1,715,938
OPERATING INCOME 409,518
NONOPERATING REVENUES (EXPENSES)
Interest income 4,601
Interest expense ( 2,308,008)
Total nonoperating revenues (expenses) ( 2,303,407)
CHANGE IN NET ASSETS ( 1,893,889)
NET ASSETS, BEGINNING ( 7,721,658)
NET ASSETS,ENDING $( 9,615,547)
The accompanying notes are an integral part of these financial statements.
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TEXAS STUDENT HOUSING AUTHORITY
THE RIDGE AT SAN MARCOS PROJECT
STATEMENT OF CASH FLOWS
AUGUST 31,2008
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from tenants $ 2,180,226
Cash paid to employees ( 221,068)
Cash paid to suppliers ( 925,104)
Net cash provided by operating activities 1,034,054
CASH FLOWS FROM CAPITAL AND RELATED
FINANCING ACTIVITIES
Principal payment on bonds 71,467
Interest paid ( 1,076,467)
Net cash used in capital and related financing activities ( 1,005,000)
CASH FLOWS FROM INVESTING ACTIVITIES
Interest on investments 4,601
Net cash provided by investing activities 4,601
NET CHANGE IN CASH AND CASH EQUIVALENTS 33,655
CASH AND CASH EQUIVALENTS,BEGINNING 416,717
CASH AND CASH EQUIVALENTS,ENDING $ 450,372
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Cash $ 311,274
Restricted cash 139,098 I
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Total cash and cash equivalents $ 450,372
RECONCILIATION OF OPERATING INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
Operating income $ 409,518
Adjustments to reconcile operating income to
net cash provided by operating activities:
Depreciation and amortization 605,884
Changes in operating assets and liabilities:
Accounts receivable ( 9,525)
Deposits 900
Prepaid expenses ( 900)
Trade accounts payable ( 71,556)
Deferred revenue 64,295
Other current liabilities 35,438
Net cash provided by operating activities $ 1,034,054
The accompanying notes are an integral part of these financial statements.
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TEXAS STUDENT HOUSING AUTHORITY—
THE RIDGE AT SAN MARCOS PROJECT
NOTES TO FINANCIAL STATEMENTS
AUGUST 31,2008
I. GENERAL STATEMENT
Texas Student Housing Authority (the "Authority"), a higher education authority, was established
on January 23, 1995, as a duly constituted authority of the Town of Westlake, Texas, pursuant to
Section 53.11 of Chapter 53 of the Texas Education Code, as amended. The Authority's purpose
among other things is to acquire, finance, and operate student housing facilities. The Authority
operates several student housing facilities in Texas and one of the housing projects is The Ridge at
San Marcos Project (the "Project"). The Project was purchased from Jefferson Commons —
Austin, L.P., a Delaware limited partnership on December 28, 2000. The Project obtained its
financing through the issuance of the City of Cameron Education Corporation Student Housing
Revenue Bonds Series 2000. The bonds were issued through a Trust Indenture (the "Trust
Indenture") by and between the City of Cameron Education Corporation and The Bank of New
York(the "Trustee"). The Series 2000 Bonds were issued in the face amount of$19,900,000. The
accompanying financial statements present the operations of the one Project, whose revenue
streams are pledged for the bonds described herein.
The Project was operated and managed under the terms of (a) the Property Management and
Leasing Agreement by and between the Authority and JPI Campus Quarters Management, L.P.
("JPI") and (b) the Asset Management Agreement by and between the Authority and JPI
Apartment Management, L.P.,up until March 31, 2004. The Project is now managed and operated
by Asset Campus Housing under the terms of a Property Management and Leasing Agreement
dated April 1, 2004. The Property Management Agreements are collectively referred to as the
"Agreements."
The 2008 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. On
November 14, 2008, the Ridge at San Marcos was given a deed-in-lieu by the bondholder, Muni
Mae, and these assets and liabilities pertaining to the facility are no longer under the control of
Texas Student Housing Authority.
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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 Accountability — The primary government is deemed to be financially
accountable if it appoints a voting majority of the organization's governing body and
1) is able to impose its will on that organization; or 2) there is a potential for the
organization to provide specific financial benefits to, or impose specific financial
burdens on,the primary government. Additionally, the primary government may be
financially accountable if an organization is fiscally dependent on the primary
government regardless of whether the organization has a separately elected
governing board appointed by a higher level of government or a jointly appointed
board. The Project does not have any component units.
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, 2008, the Project had no such
investments included in cash and cash equivalents.
In addition, the Project has restricted cash of $139,098 that is held by the Trustee for the
bonds payable under provisions of the Trust Indenture. During the year ended August 31,
2008, the investment income received from cash was $4,601. 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 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 I
allowance based on historical experience and an evaluation of the outstanding balances. As
of August 31, 2008,management has determined that all accounts doubtful of collection have
been charged to operations and an allowance is not required.
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, 2008, were approximately $53,000.
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.
Depreciation is computed using the straight-line method over the estimated useful lives as
follows:
Estimated
Asset Class Useful Lives
Building 30 years
Furniture,fixtures and equipment 7 years
III. DETAILED NOTES ON ALL FUNDS
A. Cash and Investments
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At August 31, 2008, 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 $450,372 of which $139,098 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, 2008, restricted cash consists of the following funds and accounts:
Fund/Account Description
Revenue Fund $ 136,162
Tax and Insurance Fund 14
Replacement Fund 26
Fee and Expense Fund 1,985
Early Receipts Fund 17
Current Receipts Fund 6
Revenue Fund-Interest 879
Debt Service Reserve 9
Total $ 139,098
(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 to collect monthly deposits
made by the Project and properly distribute appropriate amounts to the other
funds. The Revenue Fund has other accounts, including the current receipts
account and the early receipts accounting.
Tax and Insurance Fund— Pro rata amounts estimated by the Servicing Agent
are deposited to pay the annual property taxes and annual premiums on all
insurance required by the financing agreement.
Fee and Expense Fund— The amounts are deposited into account until (a) such
account contains sufficient funds to pay all fees and expenses payable under the
Financing Agreement and the indenture as of the next date the payment is due and
(b) a pro rata portion of any such fees and expenses as directed by the Servicing
Agent which are not currently due and will not be paid within 30 days of
receiving the invoice.
Replacement Fund — Amounts deposited into this account are to be held and
disbursed as required under the terms of the Loan and Financing Agreement for
purchases related to the San Marcos Property. The Loan and Financing
Agreement requires monthly deposits to the Replacement Fund. The Trustee
disburses amounts from the Replacement Fund, but only upon the receipt of a
written authorization from MuniMae Portfolio Services, LLC (the "Servicing
Agent").
Early Receipts Fund — The Early Receipts account is a sub-account of the
Revenue Fund. Amounts in this account were established with the original
proceeds of the note and were to be held until early repayment of the note was
allowed on or after January 1, 2011. During the year ended August 31, 2008, the
funds in this account were used to fund principal and interest payments.
Current Receipts Fund— The Current Receipts account is also a sub-account of
the Revenue Fund. Monthly deposits in the Revenue Fund are first deposited in
the Current Receipts account. From here they are appropriately distributed to
other funds in accordance with the Loan and Financing Agreement for payment to
certain expenses.
(continued)
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III. DETAILED NOTES ON ALL FUNDS (Continued)
A. Cash and Investments (Continued)
Restricted Cash (Continued)
Debt Service Reserve Fund—This account is funded by the proceeds of the bond
equal to the Debt Service Reserve Fund requirement. The funds are only to be
used in the event any principal or interest is not paid in accordance with the terms
of the Loan and Financing Agreement. During the year ended August 31, 2008,
the balance in the Debt Service Reserve Fund was used to make principal and
interest payments.
The Public Funds Investment Act (Government Code Chapter 2256) contains specific
provisions in the areas of investment practices, management reports and establishment of
appropriate policies relating to a governmental entity's cash and investments.
Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will adversely affect the fair
value of an instrument. Generally, the longer the maturity of an investment the greater the
sensitivity of its fair value to changes in market interest rates. Texas Student Housing
Authority—The Ridge at San Marcos Project is not significantly exposed to interest rate risk
as all investments earn a variable rate.
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 San
Marcos Project holds all of its cash and investments with the bond Trustee and commercial
banks.
Concentration of Credit Risk
The investment policy of Texas Student Housing Authority — The Ridge at San Marcos
Project is subject to the indenture agreement of the bonds. As of August 31, 2008, the
Project held all of its restricted cash balances with the Trustee, which represents 31% of the
total cash and investments held at August 31, 2008.
(continued)
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III. DETAILED NOTES ON ALL FUNDS (Continued)
A. Cash and Investments (Continued)
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, 2008, the Project has unrestricted cash of $311,274 (bank balance
$737,766). Of the bank balances, $200,000 was covered by federal depository insurance.
The remaining balance was collateralized with a Bank Deposit Guarantee Bond from the
Project's depository.
B. Capital Assets
Capital asset activity for the Project for the year ended August 31, 2008, was as follows:
Beginning Ending
Balance Additions Retirements Balance
Capital assets,not being depreciated:
Land $ 1,552,207 $ - $ - $ 1,552,207
Total capital assets,
not being depreciated 1,552,207 - - 1,552,207
Capital assets,being depreciated:
Building 15,875,143 - - 15,875,143
Furniture,fixtures and equipment 818,332 - - 818,332
Total capital assets,
being depreciated 16,693,475 - - 16,693,475
Less accumulated depreciation ( 4,269,606) 571,880 - ( 4,841,486)
Total capital assets,
being depreciated,net 12,423,869 571,880 - 11,851,989
Capital assets,net $ 13,976,076 $C_511,880) $ - $ 13,404,196
(continued)
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M. DETAILED NOTES ON ALL FUNDS (Continued)
C. 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 December 1, 2000. The Bonds are payable solely from
the revenues generated by the Project and are secured by the revenues pledged and assigned
under the terms of the Trust Indenture. The Town of Westlake does not have any liability for
the payment of the bonds, as the bonds are non-recourse to both the Town of Westlake and
Texas Student Housing Authority. The annual interest rate is 8.2% and interest is due on the
first of each month. In the case of default under the terms of the Indenture, the interest rate
increases by 2%. During 2005, the Project defaulted on the bonds and the interest rate
increased to 10.2%.
During 2005, the Project ceased making the required principal and interest payments required
by the Loan and Financing Agreement. This constitutes an event of default under provisions
of the Indenture and permits the Trustee at the direction of the Servicing Agent to declare the
principal and all interest then due to be immediately due and payable. Accounting principles
generally accepted in the United States of America require that if an event of default occurs,
the liability should be disclosed as a current liability. As a result, the outstanding principal at
August 31, 2008, has been shown as a current liability in the accompanying financial
statements.
The following is a summary of long-term debt transactions of the Project for the 12-month
period ended August 31, 2008:
Amounts
Beginning Ending Due Within
Balance Adjustments Increases Decreases Balance One Year
Revenue Bonds:
2000 Bonds $ 19,509,402 $ 71,467 $ - $ - $ 19,580,869 $ 19,580,869
Total $ 19,509,402 $ 71,467 $ - $ - $ 19,580,869 $ 19,580,869
The debt originally was to be amortized through 2031 with varying monthly principal
payment amounts ranging from $7,280 to $11,613,942 due at maturity. The annual
requirements to amortize all debts outstanding as of August 31, 2008, are as follows and
includes interest per the original payment schedule adjusted for the increase in the interest
rate. The total interest to be paid will depend upon the ultimate maturity of the bonds. The
total amount of accrued interest due at August 31, 2008, was $3,577,542.
Year Ending
August 31, Principal Interest Total
2008 $ 19,580,869 $ 3,577,542 $ 23,158,411
In addition, the Project was not in compliance with certain debt covenants as of August 31,
2008.
(continued)
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III. DETAILED NOTES ON ALL FUNDS (Continued)
D. 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. j
I
Restricted for Debt Service results when constraints placed on net asset use are
either externally imposed by creditors, grantors and the like, or imposed by law
through constitutional provisions or enabling legislation. At August 31, 2008, the
total funds available for debt service was less than the accrued interest due at
August 31, 2008. As a result, net assets restricted for debt service are shown at
zero.
Unrestricted Net Assets consists of the portion of net assets after invested in
capital assets, net of related debt and restricted for net assets has been satisfied.
E. Management Fees
Previous to April 30, 2004, the Project paid JPI property management fees for the
management of the Project. Subsequent to April 30, 2004, the Project paid Asset Campus
Management for property management fees for the management of the Project. The Project
recorded property management fees of approximately $108,000 to ACH for the year ended
August 31, 2008. As of August 31, 2008, the Project has recorded approximately $321,610
in unpaid property and asset management fees to JPI. An additional $12,017 is owed to ACH
and is included in accounts payable August 31, 2008.
F. Concentrations
The Project consists of one property in San Marcos, Texas and is dependent upon the San
Marcos area and the higher education facilities in the San Marcos area for revenue.
G. Commitments and Contingencies
The Project has not yet to have an arbitrage calculation performed for its outstanding debt.
After that analysis, the Project may incur a liability for interest earned in accordance with
Internal Revenue Service regulations.
H. Subsequent Event
On November 14, 2008, the Ridge at San Marcos was given a deed-in-lieu by the
bondholder, MuniMae, and assets and liabilities pertaining to the facility are no longer under
the control of Texas Student Housing Authority.
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i
SUPPLEMENTAL SCHEDULES
TEXAS STUDENT HOUSING AUTHORITY
THE RIDGE AT SAN MARCOS PROJECT
SCHEDULE I-SCHEDULE OF REVENUES AND EXPENSES
BUDGET AND ACTUAL
AUGUST 31,2008
Budget Actual Variance
REVENUES AND OTHER SUPPORT
Rental $ 2,111,221 $ 2,052,387 $( 58,834)
Other 78,865 73,069 ( 5,796)
Interest - 4,601 4,601
Total revenues and other support 2,190,086 2,130,057 ( 60,029)
OPERATING EXPENSES
Personnel 262,475 221,068 41,407
Utilities 352,895 322,773 30,122
Contract services 38,150 29,987 8,163
Repairs and maintenance 35,595 40,746 ( 5,151)
Turnover 76,925 99,471 ( 22,546)
Advertising and promotion 47,386 53,072 ( 5,686)
Travel 1,200 35 1,165
Administration 106,329 104,197 2,132
Total operating expenses 920,955 871,349 49,606
REVENUES AVAILABLE FOR FIXED CHARGES 1,269,131 1,258,708 ( 10,423)
OTHER EXPENSES
Management fees 138,316 94,593 ( 43,723)
Replacements 129,950 144,112 14,162
Depreciation and amortization 605,884 605,884 -
Interest 2,308,008 2,308,008 -
Total other expenses 3,182,158 3,152,597 29,561)
EXCESS OF EXPENSES OVER(UNDER)REVENUES $( 1,913,027) $(1,893,889) $ 19,138
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TEXAS STUDENT HOUSING CORPORATION
THE RIDGE AT SAN MARCOS
SCHEDULE II-DEBT SERVICE COVERAGE RATIO
FOR THE YEAR ENDED AUGUST 31,2008
The debt service coverage ratio is defined in the Loan and Financing Agreement as net operating income
divided by the total amount of principal and interest due under the Note. Net operating revenue is
defined as gross revenues less operating expenses.
Schedule I indicates that the actual revenue available for debt coverage for the year ended August 31,
2008, is $1,258,708. The amount of principal and interest due under the Note for the next 12 months is
$1,782,672 under the original terms of the Indenture.
Based on the above revenue available for debt coverage and the required principal and interest due under
the Note, the debt service coverage ratio as of August 31, 2008, is .71.
Schedule I indicates that the budgeted revenue available for debt coverage for the year ended August 31,
2008, to be $1,269,131. Based on the budgeted revenue available for debt coverage and the required
principal and interest due under the Note, the budget would have resulted in a debt service coverage
ratio as of August 31, 2008, of.71.
20