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HomeMy WebLinkAboutTownLake Audit 08-31-04 TEXAS STUDENT HOUSING AUTHORITY JEFFERSON COMMONS AT TOWN LAKE PROJECT FINANCIAL REPORT AUGUST 31, 2004 CONTENTS Page INDEPENDENT AUDITOR'S REPORT ...................................................................................1 FINANCIAL STATEMENTS Statementof Net Assets..................................................................................................2 Statement of Revenues, Expenses, and Changes in Net Assets.....................................3 Statementof Cash Flaws.................................................................................................4 Notes to Financial Statements.........................................................................................6 INDEPENDENT AUDITOR'S REPORT WEAVER TIDWELL L.1.P. To the Board of Directors CERTIFIED 'PUBLIC Texas Student Housing Authority --Jefferson Commons at Town Lake Project ACCOUNTANTS AND CONSULTANTS We have audited the accompanying financial statements of Texas Student Housing Authority - Jefferson Commons at Town Lake Project (the "Project"), as of August 31, 2004 and for the period from inception (December 17, 2002) to August 31, 2004, as listed in the table of contents. 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 1, 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, 2004, and the changes in its financial position and cash flows, where applicable, for the period from inception (December 17, 2002) to August 31, 2004 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 — Jefferson Commons at Town Lake Project at August 31, 2004 and the results of its operations and cash flows for the period from inception (December 17, 2002) to August 31, 2004 in conformity with accounting principles generally accepted in the United States of America. DALLA- Three Forest Place Texas Student Housing Authority—Jefferson Commons at Town Lake Project has not 12221 Merit p,;i, presented management discussion and analysis that accounting principles generally s"1`e 1400 Dallas, Ttcxur 75251-2280 accepted in the United States of America has determined is necessary to 972.490.1970 supplement, although not required to be part of the basic financial statements. F 9;72.,102-8,321 FORT WORTH as .'CW�X;ff- 1600 lest Sevensb Sneer Suire300 WEAVER AND TIDWELL, L.L.P. Fart It$lrth, Ti-xxs 76102-2506 31 7.337.7905 Fort Worth, Texas F817.429.5936 July $, 2005 W W W.WEAVERANDTIOWELL.COM AN INDEPENDENT MEMBER OF 4372 BAKER 71LLY INTERNATIONAL Page 2 TEXAS STUDENT HOUSING AUTHORITY JEFFERSON COMMONS TOWN LAKE PROJECT STATEMENT OF NET ASSETS AUGUST 31, 2004 ASSETS CURRENT ASSETS Cash $ 89,698 Restricted cash 2,979,280 Accounts receivable 106,999 Prepaids 10,874 Total current assets 3,186,851 CAPITAL ASSETS Land 2,182,816 Other capital assets, net of accumulated depreciation 17,427,592 Total capital assets 19,610,408 INTANGIBLE ASSETS Debt issue costs, net of amortization 1,119,827 Total intangible assets 1,119,827 TOTAL ASSETS $ 23,917,086 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Bonds payable -current maturities $ 1,400,195 Trade accounts payable 58,861 Management fees payable 25,000 Deferred revenue 116,924 Tenant security deposits 1,225 Accrued interest 153,679 Development fee payable 10,450 Other current liabilities 68,575 Total current liabilities 1,834,909 LONG TERM LIABILITIES Bonds payable 22,194,105 Total long term liabilities 22,194,105 NET ASSETS Invested in capital assets, net of related debt ( 2,732,902) Restricted for debt service 2,693,147 Unrestricted ( 72,173} Total net assets ( 111,928) TOTAL LIABILITIES AND NET ASSETS $ 23,917,086 The Notes to Financial Statements are an integral part of this statement, Page 3 TEXAS STUDENT HOUSING AUTHORITY JEFFERSON COMMONS TOWN LAKE PROJECT STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS FOR THE PERIOD FROM INCEPTION (DECEMBER 17, 2002) TO AUGUST 31, 2004 OPERATING REVENUES Rental income $ 3,2.95,862 Other income 103,450 Total operating revenue 3,399,312 OPERATING EXPENSES Personnel expenses 345,371 Contract services 37,583 Utilities 286,333 Repairs and maintenance 9,363 Advertising and promotion 86,214 Administration expenses 249,345 Management fees 162,500 Replacements 32,793 Depreciation expense 708,594 Amortization expense 95,442 Total operating expenses 2,013,538 OPERATING INCOME 1,385,774 NONOPERATING REVENUES (EXPENSES) Interest income 2=945 Interest expense ( 1,500,647) TOTAL NONOPERATING LOSS ( 1,497,702) CHANGE IN NET ASSETS ( 111,928) NET ASSETS, DATE OF INCEPTION - NET ASSETS, AUGUST 31, 2004 The Notes to Financial Statements are an integral part of this statement. Page 4 TEXAS STUDENT HOUSING AUTHORITY JEFFERSON COMMONS TOWN LAKE PROJECT STATEMENT OF CASH FLOWS FOR THE PERIOD FROM INCEPTION (DECEMBER 17, 2002) TO AUGUST 31, 2004 CASH FLOWS FROM OPERATING ACTIVITIES Cash received from tenants $ 3,460,691 Cash paid to employees ( 341,871) Cash paid to suppliers ( 765,848) Net cash provided by operating activities 2,352,972 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES - CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds on bonds 23,900,000 Debt issue costs ( 1,185,699) Payments on bonds payable { 305,701) Interest paid { 1,346,967) Net cash used in capital and related financing activities 21,061,633 CASH 'FLOWS FROM INVESTING ACTIVITIES Purchase of land and building and improvements ( 20,348,572) Interest on investments 2,945 Net cash provided by investing activities { 20,345,627) Net change in cash and cash equivalents 3,068,978 Cash and cash equivalents at beginning of year restated - Cash and cash equivalents at end of year $ 3,068,978 Cash $ 89,698 Restricted cash 2,979,280 Total cash and cash equivalents $ 3,068,978 The Notes to Financial Statements are an integral part of this statement. Page 5 TEXAS STUDENT HOUSING AUTHORITY JEFFERSON COMMONS TOWN LAKE PROJECT STATEMENT OF CASH FLOWS FOR THE PERIOD FROM INCEPTION (DECEMBER 17, 2002) TO AUGUST 31, 2004 RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income $ 1,385,774 Adjustments to reconcile operating income to net cash provided by operating activities Depreciation and amortization 804,036 Changes in operating assets and liabilities: Accounts receivable ( 106,999) Prepaids ( 10,874) Trade accounts payable 58,861 Management fees payable 25,000 Deferred revenue 116,924 Tenant security deposits 1,225 Development fee payable 10,450 Other current liabilities 68,575 Net cash provided by operating activities $ 2,352,972 The Notes to Financial Statements are an integral part of this statement. Page 6 TEXAS STUDENT HOUSING AUTHORITY JEFFERSON COMMONS AT TOWN LAKE PROJECT NOTES TO THE FINANCIAL STATEMENTS NOTE 1. 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 (the Town), 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 Jefferson Commons at Town Lake Project (the "Project"). The Project was purchased from Jefferson Commons - Austin, L.P., a Delaware limited partnership on December 17, 2002. The Project obtained its financing through the issuance of Texas Student Housing Authority - Student Housing Revenue Bonds (Jefferson Commons at Town Lake Project) Series 2002 A-1 and A-2 (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 2002 A-1 and Series 2002 A-2 bonds were issued in the face amounts of $19,480,000 and $5,670,000, respectively. At August 31, 2004 $968,191 and $281,809 of the Series 2002 A-1 and A-2 Bonds had not been issued. 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 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 February 2005. The Project is now managed and operated by Asset Campus Management under the terms of a Property Management and Leasing Agreement dated March 1, 2005. The property management agreements are collectively referred to as the "Agreements". NOTE 2. 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: 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 are 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) it 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. Page 7 TEXAS STUDENT HOUSING AUTHORITY JEFFERSON COMMONS AT TOWN LAKE PROJECT NOTES TO THE FINANCIAL STATEMENTS NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued Measurement Focus and Basis of Accounting The Project uses the "net income and capital maintenance" 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. 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. 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, 2004, the Project had no such investments included in cash and cash equivalents. The Project's cash of $89,698 (bank balance $86,701) is deposited in FDIC insured state or national banking corporations and is categorized as category one. Category one represents cash and cash equivalents that are insured in the amount of $100,000. Cash in excess of FDIC insured amounts are secured by a safekeeping receipt from Northwest Bank in the amount of $1,000,000 at August 31, 2004. In addition, the Project has restricted cash of $2,979,280 that is held by the Trustee per provisions of the Indenture. From inception to August 31, 2004 the investment income received from the restricted cash was $2,945. Accounts Receivable Accounts receivable are stated at amounts management expects to collect from outstanding balances. Management writes-off uncollectible amounts through a reduction to revenue and a credit to accounts receivable based on its assessment of the outstanding receivables. At year end management assesses the accounts receivable balance and establishes a valuation allowance based on historical experience and an evaluation of the outstanding balances. As of August 31, 2004, 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 terms of the bonds. Page 8 TEXAS STUDENT HOUSING AUTHORITY JEFFERSON COMMONS AT TOWN LAKE PROJECT NOTES TO THE FINANCIAL STATEMENTS NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — continued Advertising Costs All advertising costs are expensed as they are incurred. Advertising costs from inception to the period ending August 31, 2004 were approximately $58,000. 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. 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. The Indenture provides for a replacement fund requirement. Depreciation is computed using the straight-line method over the estimated useful lives as follows: Building 30 years Furniture, fixtures and equipment 3 to 20 years 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, 2004, restricted cash consists of the following funds and accounts: Fund/Account Description Revenue Fund $ 67 Bond Proceeds Principal Fund - Series 2002 A-1 1 Bond Proceeds Interest Fund - Series 2002 A-1 118,828 Bond Proceeds Principal Fund - Series 2002 A-2 34,842 Bond Proceeds Interest Fund - Series 2002 A-2 14,291 Debt Service Reserve Fund 1,413,145 Project Fund 219 Replacement Fund 7 6,375 Deferred Debt Service Reserve Fund 14,729 Trustee Fee Fund 55,792 Tax and Insurance Fund 1 Initial Purchase Fund 1,250,990 Total 2,979 280 Page 9 TEXAS STUDENT HOUSING AUTHORITY JEFFERSON COMMONS AT TOWN LAKE PROJECT NOTES TO THE FINANCIAL STATEMENTS NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — 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 Proceeds 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. Debt Service Reserve Fund— The amounts on deposit in this account are to be used for the purpose of paying principal and interest on the Bonds in the event the principal and interest is not paid by Issuer in accordance with the terms of the Indenture and written notice of the Servicing Agent. Project Fund — Amounts in the project fund are held and disbursed for costs of the project. Replacement Fund—Amounts in the replacement fund may be used to make mandatory repairs of the Project pursuant to the Trust Indenture. 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. Temporary Funds and Accounts — The Trustee may establish and maintain for so long as is necessary one or more Temporary Funds and accounts under this indenture. The Deferred Debt Service Reserve Fund, Tax and Insurance Fund, and Initial Purchase Funds are Temporary Funds at August 31, 2004. Residual 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 residual fund. Page 10 TEXAS STUDENT HOUSING, AUTHORITY JEFFERSON COMMONS AT TOWN LANCE PROJECT NOTES TO THE FINANCIAL STATEMENTS NOTE 3. CAPITAL ASSETS Capital asset activity for the Project from inception to August 31, 2004 was as follows: Beginning Ending Balance Additions Retirements Balance Capital assets not being depreciated: Land $- $ 2,182,816 $ - $ 2,182.,816 Total capital assets not being depreciated - 2,182,816 - 2,182,816 Capital assets being depreciated: Building and improvements - 13,260,980 - 13,260,980 Capitalized purchase costs - 887,095 - 887,095 Land improvements - 2,806,596 - 2,806,596 Unit appliances - 295,134 - 295,134 Furniture and fixtures - 915,951 - 915,951 Total capital assets being depreciated - 18,165,756 - 18,165,756 Totals at historical cost - 20,348,572 - 20,348,572 Less accumulated depreciation: Building and improvements - 442,163 - 442,163 Capitalized purchase casts - 29,570 - 29,570 Land improvements - 93,553 - 93,553 Unit appliances - 42,162 - 42,162 Furniture and fixtures - 130,716 - 130,716 Total accumulated depreciation - 738,164 - 738,164 Capital assets, net _$ ___ - $19,610,408 Capitalized interest at August 31, 2004 is $18,005. NOTE 4. 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 November 1, 2002. 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. Interest rates on the bonds range from 7.76% to 8.69% at present and principal and interest payments are made monthly. Page 11 TEXAS STUDENT HOUSING AUTHORITY JEFFERSON COMMONS AT TOWN LAKE PROJECT NOTES TO THE FINANCIAL STATEMENTS NOTE 4. BONDS PAYABLE — continued The following is a summary of long-term debt transactions of the Project from inception to the period ended August 31, 2004: Balance Beginning August 31, Due Within Balance Increases Decreases 2004 One Year Revenue Bonds 2002 A-1 Bonds $ - $18,511,809 ($ 288,501) $18,223,309 $ 1,400,195 2002 A-2 Bonds - 5,388.191 ( 17,200) 5,370,991 - Total $ $23,900,Q00 ($ 5 ) $23,594 300 $ 1.400 195 The debt is to be amortized on the A -1 Bonds through 2033 and the A -2 Bonds through 2038 with varying regular payment amounts ranging from $140,000 to $176,000 for interest and principal. The A-2 Bonds have no regular principal payments until the year 2033. The Bonds also had a clause for an initial purchase release draw in the amount of $1,250,000, the requirements for that draw were not met and subsequent to August 31, 2004 the $1,250,000 held in the Initial Purchase Fund was applied to principal on the Bonds. The annual requirements to amortize all debts outstanding as of August 31, 2004 are as follows: Due Fiscal Year Ending Au ust 31 Principal Interest Total 2005 $ 1,400,195 $ 1,742,836 $ 3,143,031 2006 175,583 1,716,054 1,891,637 2007 189,703 1,701,934 1,891,637 2008 204,958 1,686,678 1,891,636 2009 221,440 1,670,196 1,891,636 2010-2014 1,404,740 8,053,441 9,458,181 2015-2019 2,068,013 7,390,170 9,458,183 2020-2024 3,044,062 6,413,721 9,457,783 2025-2029 4,481,958 4,976,225 9,458,183 2030-2034 6,259,404 3,321,088 9,580,492 2035-2038 4,144,2 1,765,947 5,910,191 Total Debt Service $ 23.594.300 $40.438.29Q $64,032,59-_0 Page 12 TEXAS STUDENT HOUSING AUTHORITY JEFFERSON COMMONS AT TOWN LAKE PROJECT NOTES TO THE FINANCIAL STATEMENTS NOTE 5. NET ASSETS Net assets represents the residual assets after liabilities are deducted. These assets are reported in the following categories. Invested in Capital Assets, Net of Related Debt consists of capital assets, net of accumulated depreciation and reduced by outstanding balances for bonds, notes, and other debt that are attributed to the acquisition, construction, or improvement of those assets. Restricted for Debt Service results when constraints placed on net asset use are either externally imposed by creditors, grantors and the like, or imposed by law through constitutional provisions or enabling legislation. Unrestricted Net Assets consists of the portion of net assets after Invested in Capital Assets, Net of Related Debt and Restricted for Debt Service has been satisfied. NOTE 6. EMPLOYEE BENEFIT PLAN Employees after meeting eligibility requirements were eligible to participate in the JPI 401(k) Profit Sharing Retirement Plan 'the "Plan") as of August 31, 2004. Employee salary deferrals into the Plan are matched by the Project up to 3% of employee compensation as defined by the Plan. The Project was under development for a significant portion of the period and employee benefit plan contributions to the Plan were $0 from inception to August 31, 2004. NOTE 7. MANAGEMENT FEES The Project paid JPI property and asset management fees for the Project. The Project from inception to August 31, 2004 expensed property management fees of $162,500 and capitalized $98,640 during the development phase of the Project. The Project expensed asset management fees of $69,008 and capitalized $81,624 during the development phase of the Project. NOTE 8. CONCENTRATIONS The Project consists of one property in Austin, Texas and is dependent upon the Austin area and the higher education facilities in the Austin area for revenue. Page 13 TEXAS STUDENT HOUSING AUTHORITY JEFFERSON COMMONS AT TOWN LAKE PROJECT NOTES TO THE FINANCIAL STATEMENTS NOTE 9. SUBSEQUENT EVENTS The Project was operated and managed by JPI Campus Quarters Management, L.P. ("JPI") up until February 2005. The Project is now managed and operated by Asset Campus Management under the terms of a Property Management and Leasing Agreement dated March 1, 2005. NOTE 10. RELATED PARTY TRANSACTIONS The Authority receives funds for administrative services and other transfers based on release tests from the Trustee on behalf of the Project. For the period from inception to August 31, 2004 the Trustee paid approximately $45,790 to the Authority.