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HomeMy WebLinkAboutCambridge Audit 08-31-15TEXAS STUDENT HOUSING CORPORATION – COLLEGE STATION PROJECT A Component Unit of the Town of Westlake FINANCIAL REPORT AUGUST 31, 2015 C O N T E N T S Page INDEPENDENT AUDITOR’S REPORT ..................................................................................... 1 MANAGEMENT’S DISCUSSION AND ANALYSIS (unaudited) ................................................ 4 BASIC FINANCIAL STATEMENTS Statement of Net Position .................................................................................................. 8 Statement of Revenues, Expenses, and Changes in Net Position .................................... 9 Statement of Cash Flows ................................................................................................ 10 Notes to Financial Statements ......................................................................................... 11 SUPPLEMENTAL INFORMATION Schedule I – Schedule of Revenues and Expenses-Budget and Actual ......................... 19 Schedule II – Certificate of the Fixed Charges Coverage Ratio ...................................... 20 INDEPENDENT AUDITOR’S REPORT To the Board of Directors Texas Student Housing Corporation –College Station Project Report on the Financial Statements We have audited the accompanying statement of net position of Texas Student Housing Corporation - College Station Project (the Project), a component unit of Town of Westlake, as of August 31, 2015, and the related statements of revenues, expenses, and changes in net position, and cash flows for the year then ended, and the related notes to the financial statements, which collectively comprise the Project’s basic financial statements as listed in the table of contents. Management’s Responsibility for the Financial Statements The Project’s management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility 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 from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Project’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Texas Student Housing Corporation - College Station Project Page 2 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Project as of August 31, 2015, and the changes in its financial position and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter Regarding Going Concern The accompanying financial statements have been prepared assuming that the Project will continue as a going concern. As discussed in Note 9 to the financial statements, the Project is in default on its bonds due to partial nonpayment of principal and interest payments and failure to meet certain bond covenants. This gives the bondholders the right to accelerate and demand payment on the bonds in full. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters also are described in Note 9. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis on pages 4 – 7 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. Other Information Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively comprise the Project’s basic financial statements. The Schedule of Revenues and Expenses – Budget and Actual and the Certificate of the Fixed Charges Coverage Ratio are presented for purposes of additional analysis and are not a required part of the basic financial statements. Texas Student Housing Corporation - College Station Project Page 3 The Schedule of Revenues and Expenses – Budget and Actual and the Certificate of the Fixed Charges Coverage Ratio are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the Schedule of Revenues and Expenses – Budget and Actual and the Certificate of the Fixed Charges Coverage Ratio are fairly stated, in all material respects, in relation to the basic financial statements as a whole. WEAVER AND TIDWELL, L.L.P. Dallas, Texas December 18, 2015 MANAGEMENT’S DISCUSSION AND ANALYSIS (unaudited) TEXAS STUDENT HOUSING CORPORATION –COLLEGE STATION PROJECT MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED AUGUST 31, 2015 (unaudited) 4 As staff of the Texas Student Housing Corporation – College Station 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, 2015. We encourage readers to consider the information presented herein in conjunction with the Project’s financial statements which follow this section. As the Project 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 $17,229,772 (net position), a $2,047,100 reduction from the prior year, primarily the result of $3,615,462 of interest expense.  The Project reported an unfavorable budgetary variance of $4,106,605. Major components of the variance were unbudgeted depreciation and interest expense (page 19).  At the end of the current fiscal year, the total cash balances were $5,174,458 in unrestricted cash and $2,023,193 in restricted cash. OVERVIEW OF THE FINANCIAL STATEMENTS This discussion and analysis is intended to serve as an introduction to the Project’s basic financial statements. The Project’s report consists of three parts: Management’s Discussion and Analysis, the basic financial statements (which include notes to financial statements), and supplemental information. The basic financial statements also include a statement of net position, statement of revenues, expenses, and changes in net position, and a statement of cash flows. The Project is being treated as a going concern as the Project is in default on its revenue certificates. This is considered an event of default by the Trustee, which gives the senior certificate holders the right to accelerate and demand payment of the certificates in full. Management and the property manager are in the process of developing plans to increase occupancy and rental rates at the property to improve its financial performance. The statement of net position presents information on all of the Project’s assets and liabilities with the difference between the two reported as net position. The statement of revenues, expenses, and changes in net position accounts for all of the Project’s revenues and expenses regardless of when cash is paid or received. The statement of cash flows reflects cash inflows and outflows by operating, noncapital financing, capital financing, and investing activities during the year. TEXAS STUDENT HOUSING CORPORATION –COLLEGE STATION PROJECT MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED AUGUST 31, 2015 (unaudited) 5 Table 1 provides a summary of the statement of net position for the current and prior fiscal years: TABLE 1 – NET POSITION 2015 2014 Current and other assets 7,449,111$ 7,850,664$ Capital assets 20,527,821 21,509,071 Total assets 27,976,932 29,359,735 Current liabilities 45,206,704 44,542,407 Net Position Net investment in capital assets (8,901,379) (8,375,929) Unrestricted (8,328,393) (6,806,743) Total net position (17,229,772)$ (15,182,672)$ Business-type Activities Table 2 provides a summary of the statement of revenues, expenses and changes in net position for the current and prior fiscal years: TABLE 2 – CHANGES IN NET POSITION 2015 2014 Total operating revenue 6,006,756$ 5,811,212$ Total operating expenses (4,439,212) (4,550,496) Total operating income 1,567,544 1,260,716 Interest income 818 723 Interest expense (3,615,462) (3,604,092) Total nonoperating expenses (3,614,644) (3,603,369) CHANGE IN NET POSITION (2,047,100) (2,342,653) NET POSITION, BEGINNING (15,182,672) (12,840,019) NET POSITION, ENDING (17,229,772)$ (15,182,672)$ Business-type Activities TEXAS STUDENT HOUSING CORPORATION –COLLEGE STATION PROJECT MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED AUGUST 31, 2015 (unaudited) 6 NOTES TO THE 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, 2015, these balances were as follows: Replacement Fund 162,887$ Series A Reserve Fund 598,939 Series B Reserve Fund 512,540 Series A Interest Fund 277,748 Series A Principal Fund 180,008 Series B Interest Fund 67,206 Series B Principal Fund 169,178 Transaction Costs Payment Fund 32,662 Utility Deposits 5,000 Debt Service Fund 17,025 Total 2,023,193$ Non-Restricted Cash Non-restricted cash is available for general use of the Project. Revenue Certificates Payable The Project’s developer refinanced the original Installment Sale Agreement effective December 1, 2004, by issuing debt certificates in the following classes: Series A 15,869,200$ Series B 3,360,000 Series C 4,820,000 Series D 5,380,000 Total 29,429,200$ TEXAS STUDENT HOUSING CORPORATION –COLLEGE STATION PROJECT MANAGEMENT’S DISCUSSION AND ANALYSIS YEAR ENDED AUGUST 31, 2015 (unaudited) 7 Fixed Charge Coverage Ratio The Installment Sale Agreement provides for a fixed charges coverage ratio of 1.10. At this time, the Project has realized a ratio of 1.08 and is technically not in compliance with the Agreement. Upon default, the lender may accelerate maturity of the unpaid portion of the principal, however, it is not anticipated that this event will occur since foreclosure by the certificate holders would result in the loss of the Project’s tax-exempt status. ECONOMIC FACTORS AND NEXT YEAR’S BUDGET Leases at the Project have a duration that encompasses the school year, primarily the months of September through May. The June to August revenue is dependent on the Project's ability to attract various camps/meetings. As the Project is tax-exempt through the Texas Higher Education Act, only those functions sponsored by the University are eligible for acceptance. The occupancy for the fiscal year ending August 31, 2016 is 72%, thus the focus for this year is creating a new relationship with Blinn Community College. Asset Campus Housing is attempting to become the official sponsor for Blinn College students housing. There are 3000 new beds expected to be on the Texas A&M campus for the 2015-16 school year. As a result, Cambridge will not see an increase in rental rates and will continue to house overflow Texas A&M students as well as attracting new Blinn students. 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 Tracy Schornack at (817) 430-5874. BASIC FINANCIAL STATEMENTS TEXAS STUDENT HOUSING CORPORATION –COLLEGE STATION PROJECT STATEMENT OF NET POSITION AUGUST 31, 2015 The Notes to Financial Statements are an integral part of this statement. 8 CURRENT ASSETS Cash 5,174,458$ Restricted cash 2,023,193 Prepaid expenses 52,996 Accounts receivable 198,464 Total current assets 7,449,111 CAPITAL ASSETS Land 2,899,597 Other capital assets, net of accumulated depreciation 17,628,224 Total capital assets 20,527,821 TOTAL ASSETS 27,976,932 CURRENT LIABILITIES Accounts payable 191,977 Accrued liabilities 23,258 Accrued interest payable 13,792,220 Unearned revenue and prepaid rent 1,770,049 Revenue certificates payable 29,429,200 Total current liabilities 45,206,704 Net investment in capital assets (8,901,379) Unrestricted (8,328,393) Total net position (17,229,772)$ NET POSITION ASSETS LIABILITIES TEXAS STUDENT HOUSING CORPORATION –COLLEGE STATION PROJECT STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION FOR THE YEAR ENDED AUGUST 31, 2015 The Notes to Financial Statements are an integral part of this statement. 9 OPERATING REVENUES Rental income 5,492,237$ Other 514,519 Total operating revenues 6,006,756 OPERATING EXPENSES Management fees 386,938 Administration and marketing 1,243,999 Cafeteria 527,379 Utilities 620,200 Repairs and maintenance 616,089 Insurance 63,357 Depreciation expense 981,250 Total operating expenses 4,439,212 OPERATING INCOME 1,567,544 NON-OPERATING REVENUES (EXPENSES) Interest revenue 818 Interest expense (3,615,462) TOTAL NON-OPERATING REVENUE (EXPENSES)(3,614,644) CHANGE IN NET POSITION (2,047,100) NET POSITION, BEGINNING (15,182,672) NET POSITION,ENDING (17,229,772)$ TEXAS STUDENT HOUSING CORPORATION –COLLEGE STATION PROJECT STATEMENT OF CASH FLOWS FOR THE YEAR ENDED AUGUST 31, 2015 The Notes to Financial Statements are an integral part of this statement. 10 CASH FLOWS FROM OPERATING ACTIVITIES Cash received from tenants 4,602,681$ Other operating revenues 514,519 Cash paid to suppliers (3,428,213) Net cash provided by operating activities 1,688,987 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Payments on revenue certificates payable (455,800) Interest paid (1,396,725) Net cash used in capital and related financing activities (1,852,525) CASH FLOWS FROM INVESTING ACTIVITIES Interest received 818 Net change in cash and cash equivalents (162,720) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 7,360,371 CASH AND CASH EQUIVALENTS AT END OF YEAR 7,197,651$ Cash 5,174,458$ Restricted cash 2,023,193 Total cash and cash equivalents 7,197,651$ RECONCILIATION OF OPERATING INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income 1,567,544$ Adjustments to reconcile operating income to net cash provided by operating activities: Depreciation 981,250 Changes in operating assets and liabilities: Accounts receivable 145,825 Prepaid expenses 93,008 Accounts payable (63,259) Unearned revenue and prepaid rent (1,035,381) Net cash provided by operating activities 1,688,987$ TEXAS STUDENT HOUSING CORPORATION–COLLEGE STATION PROJECT NOTES TO FINANCIAL STATEMENTS 11 NOTE 1. GENERAL STATEMENT Operations Texas Student Housing Corporation – College Station Project (the Project), 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 Project was established to acquire educational facilities and housing facilities to be used by the students, faculty and staff of institutions of higher education within the State of Texas. The Project’s purpose is to own and operate a student housing facility known as Cambridge at College Station (the College Station Project) in College Station, Texas. Cambridge at College Station was purchased from Cambridge Student Housing Development, L.P. (the Developer) effective September 1, 2004. The Project obtained its financing through a seller-financed installment sale agreement. The accompanying financial statements present the operations of the Project, whose revenues are pledged for the installment note described herein. Cambridge at College Station is operated and managed under the terms of the First Amended and Restated Property Project Management and Leasing Agreement by and between the Texas Student Housing Authority (the Authority) and Asset Campus Housing, Inc. for the period audited. 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 the Governmental Accounting Standards Board (GASB) Statement No. 14 as amended by GASB statements No. 39 and 61. 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. Accordingly, the Project reports no component units. TEXAS STUDENT HOUSING CORPORATION–COLLEGE STATION PROJECT NOTES TO FINANCIAL STATEMENTS 12 NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED 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 Project 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 position and the operating statement presents increases (revenues) and decreases (expenses) in net position. Under the accrual basis of accounting, revenues are recognized when earned, and expenses are recognized at the time the liability is incurred. GASB is the accepted standards setting body for establishing generally accepted accounting principles (GAAP) for governments. Management uses estimates and assumptions in preparing financial statements in accordance with GAAP. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that are used. Income Taxes The Project is an instrumentality of the Town, therefore, its income is not subject to federal income taxation pursuant to Section 115 of the Internal Revenue Code. Cash and Cash Equivalents For the purpose of the statement of cash flows, the Project considers unrestricted cash and highly liquid investments with maturities of three months or less at the date of purchase to be cash and cash equivalents. Accounts Receivable Accounts receivable are stated at amounts management expects to collect from outstanding balances. 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, 2015, management has determined that all accounts doubtful of collection have been charged to operations and an allowance is not required. TEXAS STUDENT HOUSING CORPORATION –COLLEGE STATION PROJECT NOTES TO FINANCIAL STATEMENTS 13 NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – CONTINUED Advertising Costs All advertising costs are expensed as they are incurred. Advertising costs for the year ended August 31, 2015 were approximately $135,000. Capital Assets Property and equipment are recorded at cost. Expenditures for routine maintenance and repairs are expensed as incurred. Property and equipment are depreciated using the straight-line method over the following useful lives: Building 30 years Furniture and fixtures 5-20 years Subsequent Events The Project has evaluated all events or transactions that occurred after August 31, 2015, and up through December 18, 2015, the date the financial statements were issued. NOTE 3. CASH AND INVESTMENTS Restricted Cash Restricted cash represents amounts held in escrow, which are restricted for the payment of expenses as required by the installment sale agreement. As of August 31, 2015, restricted cash consists of the following: Replacement Fund 162,887$ Series A Reserve Fund 598,939 Series B Reserve Fund 512,540 Series A Interest Fund 277,748 Series A Principal Fund 180,008 Series B Interest Fund 67,206 Series B Principal Fund 169,178 Transaction Costs Payment Fund 32,662 Utility Deposits 5,000 Debt Service Fund 17,025 Total 2,023,193$ TEXAS STUDENT HOUSING CORPORATION –COLLEGE STATION PROJECT NOTES TO FINANCIAL STATEMENTS 14 NOTE 3. CASH AND INVESTMENTS – CONTINUED Restricted Cash – Continued The following is a brief description of the funds and accounts comprising the restricted cash balance at year-end, as defined by the installment sale agreement and the trust agreement: Replacement Fund – Amounts in the Replacement Fund may be used to pay the maintenance and repair costs related to the College Station Property, which the Project is obligated to pay pursuant to the installment sale agreement. Series A Reserve Fund – The amounts on deposit in this account were required to be contributed by the Developer and are to be used for the purpose of paying principal and interest on the Series A certificates as they become due in the event there should be insufficient funds in the Debt Service Fund. Series B Reserve Fund – The amounts on deposit in this account were required to be contributed by the Developer and are to be used for the purpose of paying principal and interest on the Series B certificates as they become due in the event there should be insufficient funds in the Debt Service Fund. Series A Interest Fund – Amounts in the Series A Interest Fund are used to accumulate funds to pay interest on the Series A certificates. Series A Principal Fund – Amounts in the Series A Principal Fund represent payments set aside for the repayment of the principal balance on the Series A certificates. Series B Interest Fund – Amounts in the Series B Interest Fund are used to accumulate funds to pay interest on the Series B certificates. Series B Principal Fund – Amounts in the Series B Principal Fund represent payments set aside for the repayment of the principal balance on the Series B certificates. Transaction Costs Payment Fund – Amounts in the Transaction Costs Payment Fund are to be used to pay for debt issuance costs. Utility Deposits – Amounts in the Utility Deposits Fund are used to accumulate utility deposits paid by tenants. Debt Service Fund – Amounts in the Debt Service Fund are used to accumulate funds to pay principal and interest as they become due. 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. TEXAS STUDENT HOUSING CORPORATION –COLLEGE STATION PROJECT NOTES TO FINANCIAL STATEMENTS 15 NOTE 3. CASH AND INVESTMENTS – CONTINUED 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. The 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. The Project holds all of its cash and investments with the bond trustee and commercial banks. Concentration of Credit Risk The investment policy of the Project is subject to the indenture agreement of the bonds. As of August 31, 2015, the Project held all of its restricted cash balances with the trustee, which represents 28.1% of the total cash and investments held at August 31, 2015. 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, 2015, $6,992,427 of the Project’s $7,242,427 bank balance was collateralized with a Bank Deposit Guarantee Bond from the Project’s depository. The remaining balance, $250,000, was covered by FDIC insurance. TEXAS STUDENT HOUSING CORPORATION –COLLEGE STATION PROJECT NOTES TO FINANCIAL STATEMENTS 16 NOTE 4. CAPITAL ASSETS Capital asset activity for the Project for the year ended August 31, 2015 was as follows: Beginning Ending Balance Increase Decrease Reclass Balance Capital assets, not being depreciated Land 2,899,597$ -$ -$ -$ 2,899,597$ Total capital assets, not being depreciated 2,899,597 - - - 2,899,597 Capital asstes, being depreciated Building 26,885,312 - - - 26,885,312 Furniture and fixtures 3,437,138 - - - 3,437,138 Total capital assets, being depreciated 30,322,450 - - - 30,322,450 Less accumulated depreciation for: Building (8,853,174) (896,177) - - (9,749,351) Furniture and fixtures (2,859,802) (85,073) - - (2,944,875) Total accumulated depreciation 11,712,976)( (981,250) - - 12,694,226)( Total capital assets, being depreciated, net 18,609,474 (981,250) - - 17,628,224 Capital assets, net 21,509,071$ (981,250)$ -$ -$ 20,527,821$ NOTE 5. REVENUE CERTIFICATES PAYABLE The Project’s revenue certificates payable are summarized as follows: Interest Rate Balance Cambridge Student Housing Financing Company, L.P. secured by substantially all assets and assignment of rents; due November 1, 2039. 8.00% 29,429,200$ Lender/Security/Due Date The following is a summary of long-term debt transactions of the Project for the year ended August 31, 2015: Beginning Ending Due Within Balance Increases Decreases Balance One Year Revenue certificates 29,885,000$ -$ (455,800)$ 29,429,200$ 870,000$ TEXAS STUDENT HOUSING CORPORATION –COLLEGE STATION PROJECT NOTES TO FINANCIAL STATEMENTS 17 NOTE 5. REVENUE CERTIFICATES PAYABLE – CONTINUED The debt is to be amortized through fiscal year 2040 with varying payments. The annual requirements to amortize the Project’s outstanding revenue certificates payable as of August 31, 2015 are as follows: Principal Interest Total 315,000$ 13,101,973$ 13,416,973$ 555,000 1,795,820 2,350,820 600,000 1,751,328 2,351,328 645,000 1,703,325 2,348,325 720,000 1,650,637 2,370,637 775,000 1,592,890 2,367,890 3,320,000 7,109,570 10,429,570 3,575,000 5,912,733 9,487,733 5,155,000 4,275,367 9,430,367 13,769,200 1,854,218 15,623,418 Total 29,429,200$ 40,747,861$ 70,177,061$ Year Ending August 31, 2016 2017 2018 2019 Past Due 2020 2021-2025 2026-2030 2031-2035 2036-2040 The certificates are in default and the property does not generate enough revenue to pay the debt obligations. Each class has certain rights and privileges, as contained in the private placement memorandum. As a part of the offering, the Project entered into a trust agreement with J. P. Morgan Trust Company, N.A. (the Trustee) for the purpose of determining that each class is paid in accordance with the private placement memorandum. As of August 31, 2015, the Project was not in compliance with the fixed charge coverage ratio. As a result, the lender may accelerate the maturity of the unpaid portion of the principal payable under the installment sale agreement. However, the Authority does not anticipate this event will occur, since foreclosure by private interests would result in the loss of tax-exempt status for the Project. GAAP requires that if events of default such as this occur, the liability should be disclosed as current on the financial statements. TEXAS STUDENT HOUSING CORPORATION –COLLEGE STATION PROJECT NOTES TO FINANCIAL STATEMENTS 18 NOTE 6. NET POSITION Net position represents the residual assets after liabilities are deducted. Net position is reported in the following categories: Net Investment in Capital Assets – The component of net position 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. Unrestricted Net Position – The difference between the assets and liabilities that is not reported in net position net investment in capital assets. NOTE 7. RELATED PARTY TRANSACTIONS Administration and marketing expenses include $106,137 for administrative fees earned by the Authority. There were no administrative fees included in accounts payable as of August 31, 2015. NOTE 8. CONCENTRATION The Project consists of one property in College Station, Texas, and is dependent upon the College Station area and the higher education facilities in the College Station area for revenues. NOTE 9. GOING CONCERN The 2015 financial statements were prepared assuming the Project will continue as a going concern. The Project’s bonds payable are considered to be in default due to not making full principal and interest payments and failure to maintain a fixed charges ratio of 1.10 or higher, and, therefore, are reported as current liabilities. These are considered events of default by the Trustee, which gives the bondholders the right to accelerate and demand payment of the bonds in full. This condition raises substantial doubt about the Project’s ability to continue as a going concern. Management and the property manager are in the process of developing and implementing plans to increase occupancy at the property to improve its financial performance. SUPPLEMENTAL INFORMATION TEXAS STUDENT HOUSING CORPORATION – COLLEGE STATION PROJECT SCHEDULE I – SCHEDULE OF REVENUES AND EXPENSES – BUDGET AND ACTUAL FOR THE YEAR ENDED AUGUST 31, 2015 19 Original and Final Budget Actual Variance Revenues and other support: Rental 5,407,480$ 5,492,237$ 84,757$ Other 520,018 514,519 (5,499) Interest - 818 818 Total revenues and other support 5,927,498 6,007,574 80,076 Operating expenses Administration and marketing 2,064,531 1,243,999 820,532 Management fees 280,800 386,938 (106,138) Cafeteria 539,452 527,379 12,073 Utilities 649,335 620,200 29,135 Repairs and maintenance 267,455 616,089 (348,634) Insurance 66,420 63,357 3,063 Total operating expenses 3,867,993 3,457,962 410,031 Revenues available for debt coverage 2,059,505 2,549,612 490,107 Other expenses Depreciation expense - 981,250 (981,250) Interest expense - 3,615,462 (3,615,462) Total other expenses - 4,596,712 (4,596,712) Excess (Deficiency) of revenues over (under) expenses 2,059,505$ 2,047,100)($ (4,106,605)$ TEXAS STUDENT HOUSING CORPORATION – COLLEGE STATION PROJECT SCHEDULE II – CERTIFICATE OF THE FIXED CHARGES COVERAGE RATIO FOR THE YEAR ENDED AUGUST 31, 2015 20 CALCULATION OF FIXED CHARGES COVERAGE RATIO Total gross revenue 6,007,574$ Total expenses (8,054,674) Add: Interest 3,615,462 Depreciation and amortization 981,250 Adjusted expenses (3,457,962) Adjusted net operating income available to pay fixed charges 2,549,612$ Fixed charges/maximum principal and interest for fiscal year 2,350,820$ Fixed charges coverage ratio 1.08 Required ratio 1.10 Pass or fail Fail