HomeMy WebLinkAboutDenton Audit 08-31-18 TEXAS STUDENT HOUSING CORPORATION —
DENTON PROJECT
A Component Unit of the Town of Westlake
FINANCIAL REPORT
AUGUST 31, 2018
CONTENTS
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......................20
Schedule II — Certificate of the Fixed Charges Coverage Ratio......................................21
weaverAustin I Conroe I Dallas I Fort Worth I Houston
Assurance• Tax-Advisory
Los Angeles I Midland I New York City I San Antonio
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Texas Student Housing Corporation - Denton Project
Report on the Financial Statements
We have audited the accompanying financial statements of Texas Student Housing Corporation
- Denton Project (the Project), a component unit of Town of Westlake, as of and for the year
ended August 31, 2018, 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 and the standards applicable to financial audits contained in Government
Auditing Standards, issued by the Comptroller General of the United States. 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
entity'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.
Weaver and Tidwell, L.L.P.
2300 North Field Street,Suite 1000 1 Dallas,Texas 75201
Main:972.490.1970 1 Fax:972.702.8321
CPAs AND ADVISORS I WEAVER.COM
Texas Student Housing Corporation -
Denton 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, 2018, 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 failure to make principal and interest payments when due and
payable. This gives the bondholders the right to accelerate and demand payment on the bonds
in full. These conditions raise substantial doubt about the Project's ability to continue as a going
concern. Management's plans 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 -
Denton 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
January 21, 2019
MANAGEMENT'S DISCUSSION AND ANALYSIS
(unaudited)
TEXAS STUDENT HOUSING CORPORATION —
DENTON PROJECT
MANAGEMENT'S DISCUSSION AND ANALYSIS
YEAR ENDED AUGUST 31, 2018
(unaudited)
As staff of the Texas Student Housing Corporation — Denton 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, 2018. 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
$16,662,493, a decrease of$507,633 from the prior year.
• At the end of the current fiscal year, the total cash balances were $294,000 in
unrestricted cash and $2,092,565 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 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. The Project is in default on its bonds and is not
financially able to make scheduled principal and interest payments on its outstanding debt. This
is 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.
The statement of net position presents information on 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.
4
TEXAS STUDENT HOUSING CORPORATION —
DENTON PROJECT
MANAGEMENT'S DISCUSSION AND ANALYSIS
YEAR ENDED AUGUST 31, 2018
(unaudited)
Table 1 provides a summary of the statement of net position for the current and prior fiscal
years:
TABLE 1 - NET POSITION
Business-type Activities
2018 2017
Current and other assets $ 2,563,855 $ 2,797,566
Capital assets 13,020,552 13,885,835
Total assets 15,584,407 16,683,401
Current liabilities 32,246,900 32,838,261
Net position
Net investment in capital assets (10,012,034) (10,064,266)
Unrestricted (6,650,459) (6,090,594)
Total net position $ (16,662,493) $ (16,154,860)
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
Business-type Activities
2018 2017
Total operating revenues $ 5,438,873 $ 5,371,657
Total operating expenses (3,363,762) (3,023,050)
Total operating income 2,075,111 2,348,607
Interest income 35,471 12,844
Interest expense (2,618,215) (2,612,795)
Total nonoperating income (expense) (2,582,744) (2,599,951)
CHANGE IN NET POSITION (507,633) (251,344)
NET POSITION, BEGINNING (16,154,860) (15,903,516)
NET POSITION, ENDING $ (16,662,493) $ (16,154,860)
5
TEXAS STUDENT HOUSING CORPORATION —
DENTON PROJECT
MANAGEMENT'S DISCUSSION AND ANALYSIS
YEAR ENDED AUGUST 31, 2018
(unaudited)
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, 2018,
these balances were as follows:
Revenue Fund $ 5
Bond Fund - Series 2001A 230,530
Bond Fund - Series 2001 B 27,154
Repair and Replacement Fund 13
Series A Principal Fund 135,348
Series B Principal Fund 3
Insurance and Condemnation Fund 46,375
Operating Reserve Fund 7
Debt Service Reserve 2001A Account 1,652,758
Debt Service Reserve 2001 B Account 372
Total $ 2,092,565
Non-Restricted Cash
Non-restricted cash is available for general use of the Project.
Bonds Payable
As of August 31, 2018, the following amounts on the Series 2001A and Series 2001B were
payable:
2001A Bonds $ 20,240,000
2001B Bonds 3,240,000
Less discounts on bonds issued (447,414)
Total $ 23,032,586
For the fiscal year ending August 31, 2018, total principal and interest payments were
$3,024,605, of which $955,000 was principal.
6
TEXAS STUDENT HOUSING CORPORATION —
DENTON PROJECT
MANAGEMENT'S DISCUSSION AND ANALYSIS
YEAR ENDED AUGUST 31, 2018
(unaudited)
BUDGETARY ANALYSIS
Revenues and other support of $5,474,344 is $227,199 less than budget. Operating expenses
(not including depreciation and amortization and interest expense) of $2,498,479 is $89,284
more than budgeted.
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 six and ten-month leases exist. These leases bring a
monthly premium over the 12-month leases. Occupancy for the fiscal year ending August 2019
is forecasted to be at 97%. Rental rates will see a small increase. No capital expenditures have
been planned for FY 2019. Exterior painting of The Ridge and a new roof were completed in FY
2018. There are three new student housing properties coming online in Denton in 2019. These
are high-end apartments with rental premiums $50-$125 per month more than The Ridge. We
should be able to maintain competitiveness in the market for student housing.
CONTACTING THE AUTHORITY'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 Harrow at
(817) 430-5874.
7
BASIC FINANCIAL STATEMENTS
TEXAS STUDENT HOUSING CORPORATION — DENTON PROJECT
STATEMENT OF NET POSITION
AUGUST 31, 2018
ASSETS
Current Assets
Cash $ 294,000
Restricted cash 2,092,565
Accounts receivable 111,492
Prepaid expenses 65,798
Total current assets 2,563,855
Capital Assets
Land 2,200,000
Other capital assets, net of accumulated depreciation 10,820,552
Total capital assets 13,020,552
Total Assets 15,584,407
LIABILITIES
Current Liabilities
Accounts payable 79,396
Unearned revenue and prepaid rent 159,500
Accrued interest 8,975,418
Bonds payable 23,032,586
Total current liabilities 32,246,900
Total liabilities 32,246,900
NET POSITION
Net investment in capital assets (10,012,034)
Unrestricted (6,650,459)
Total net position $ (16,662,493)
The Notes to Financial Statements are
an integral part of this statement.
8
TEXAS STUDENT HOUSING CORPORATION — DENTON PROJECT
STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION
FOR THE YEAR ENDED AUGUST 31, 2018
OPERATING REVENUES
Rental income $ 5,224,067
Other income 214,806
Total operating revenues 5,438,873
OPERATING EXPENSES
Personnel expenses 451,742
Contract services 109,859
Utilities 812,249
Repairs and maintenance 193,038
Turnover expense 474,326
Advertising and promotion 92,647
Administration expense 152,517
Management fees 211,032
Depreciation 865,283
Travel 1,069
Total operating expenses 3,363,762
OPERATING INCOME 2,075,111
NONOPERATING REVENUES (EXPENSES)
Interest income 35,471
Interest expense (2,618,215)
TOTAL NONOPERATING EXPENSES (2,582,744)
CHANGE IN NET POSITION (507,633)
NET POSITION, BEGINNING (16,154,860)
NET POSITION, ENDING $ (16,662,493)
The Notes to Financial Statements are
an integral part of this statement.
9
TEXAS STUDENT HOUSING CORPORATION — DENTON PROJECT
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED AUGUST 31, 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from tenants $ 5,356,048
Cash paid to suppliers (2,630,179)
Net cash provided by operating activities 2,725,869
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES
Payments on bonds payable (955,000)
Interest paid (2,069,605)
Net cash used in capital and related financing activities (3,024,605)
CASH FLOWS FROM INVESTING ACTIVITIES
Interest received 35,471
Net change in cash and cash equivalents (263,265)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,649,830
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,386,565
Cash $ 294,000
Restricted cash 2,092,565
Total cash and cash equivalents $ 2,386,565
RECONCILIATION OF OPERATING INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
Operating income $ 2,075,111
Adjustments to reconcile operating income to
net cash provided by operating activities:
Depreciation 865,283
Changes in operating assets and liabilities:
Accounts receivable (73,195)
Prepaid expenses 43,641
Accounts payable (175,341)
Unearned revenue and prepaid rent (9,630)
Net cash provided by operating activities $ 2,725,869
The Notes to Financial Statements are
an integral part of this statement.
10
TEXAS STUDENT HOUSING CORPORATION — DENTON PROJECT
NOTES TO FINANCIAL STATEMENTS
NOTE 1. GENERAL STATEMENT
Texas Student Housing Corporation — Denton Project (the Project), a Texas nonprofit
organization, was incorporated on May 17, 2001 as a component unit of the Town of
Westlake, Texas (the Town) pursuant to Section 53.35(b) of the Texas Education Code, as
amended (the Act). The Project's primary purpose is to purchase, own, and operate a
student housing facility known as The Ridge at North Texas.
The Project was purchased from Jefferson Commons — Denton, L.P. on July 1, 2001. The
Project obtained its financing through the issuance of Texas Student Housing Corporation —
Denton Project Texas Student Housing Revenue Bonds (University of North Texas Project),
Series 2001A and Subordinate Series 2001 B (the Bonds). The Bonds were issued through a
Trust Indenture (the Indenture) by and between the Texas Student Housing Authority (the
Authority) and The Bank of New York (the Trustee). The Series 2001A and Subordinate
Series 2001B bonds were issued in the face amounts of $29,105,000 and $5,250,000,
respectively. The accompanying financial statements present the operations of the Project,
whose revenue streams are pledged for the bonds described herein.
The Authority was also established to acquire educational facilities and housing facilities to
be used by the students, faculty and staff of institutions of higher education and facilities
incidental, subordinate or related thereto or appropriate within the State of Texas.
The Project is managed and operated by Asset Campus Housing (ACH) under the terms of
a Property Management and Leasing Agreement dated March 1, 2005.
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.
11
TEXAS STUDENT HOUSING CORPORATION — DENTON PROJECT
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — CONTINUED
Reporting Entity— Continued
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.
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 total 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 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. As of August 31, 2018, the Project had no such
investments included in cash and cash equivalents.
In addition, the Project has restricted cash that is held by the Trustee for the Bonds
payable under provisions of the Indenture. During the year ended August 31, 2018, the
investment income received from cash was $35,471. See Note 3 for risk disclosures and
breakdown of restricted cash accounts.
12
TEXAS STUDENT HOUSING CORPORATION — DENTON PROJECT
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — CONTINUED
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, 2018, management has
determined that all accounts doubtful of collection have been charged to operations and
an allowance is not required.
Advertising Costs
All advertising costs are expensed as they are incurred. Advertising costs for the year
ended August 31, 2018 were approximately $92,647.
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.
Expenses directly related to the improvement of property are capitalized at cost. The
Project capitalizes the cost of roof replacements and expenditures or other major
property improvements.
Depreciation is computed using the straight-line method over the estimated useful lives
as follows:
Estimated
Asset Class Useful Lives
Building 30 years
Furniture and fixtures 5-20 years
Subsequent Events
The Project has evaluated all events or transactions that occurred after August 31,
2018, and up through January 21, 2019, the date the financial statements were issued.
13
TEXAS STUDENT HOUSING CORPORATION — DENTON PROJECT
NOTES TO FINANCIAL STATEMENTS
NOTE 3. CASH AND INVESTMENTS
At August 31, 2018, the carrying amount of the Texas Student Housing Corporation — Denton
Project deposits (cash with interest bearing accounts and restricted cash held in interest bearing
accounts) was in total, $2,386,565 of which $2,092,565 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 Indenture.
As of August 31, 2018, restricted cash consists of the following funds and accounts:
Fund/Account Description
Revenue Fund $ 5
Bond Fund - Series 2001A 230,530
Bond Fund - Series 2001 B 27,154
Repair and Replacement Fund 13
Series A Principal Fund 135,348
Series B Principal Fund 3
Insurance and Condemnation Fund 46,375
Operating Reserve Fund 7
Debt Service Reserve 2001A Account 1,652,758
Debt Service Reserve 2001 B Account 372
Total $ 2,092,565
The following is a brief description of the funds and accounts making up the restricted cash
balance at year end, as defined by the Indenture:
Revenue Fund — The revenue fund was established for monthly deposits from the
depository account that holds general revenues of the Project. All monies are deposited
in the revenue fund and then properly distributed to the other funds, as required by the
Trust Indenture. Amounts in the fund at year end represent amounts that have not been
distributed to the other funds due to timing of the interfund transfers.
Bond Fund - The Trustee makes monthly deposits in the bond fund pursuant to the
Indenture. Amounts in the Bond Fund shall be used solely to fund the payment of
principal and interest on the Bonds, for the redemption of the Bonds at or prior to
maturity, and to purchase Bonds on the open market. In the event of default, amounts
in this fund may pay the fees and expenses of the Trustee prior to making any payments
to the bondholders. This fund has two accounts, the Series 2001A and the Series
2001 B accounts.
Repair and Replacement Fund- Amounts in the repair and replacement fund may be (a)
used to pay the maintenance and repair costs related to the Denton Property, which the
Project is obligated to pay pursuant to the Indenture and (b) transferred to the bond fund
14
TEXAS STUDENT HOUSING CORPORATION — DENTON PROJECT
NOTES TO FINANCIAL STATEMENTS
NOTE 3. CASH AND INVESTMENTS — CONTINUED
Restricted Cash — Continued
to pay principal of or interest on the Bonds to the extent there are insufficient monies in
the bond fund.
Series A Principal Fund - Amounts in the Series A principal fund represent sinking fund
payments set aside for repayment of the principal balance on the Series A Bonds.
Series 8 Principal Fund - Amounts in the Series B principal fund represent sinking fund
payments set aside for repayment of the principal balance on the Series B Bonds.
Insurance and Condemnation Fund - Amounts in the insurance and condemnation fund
represent net insurance proceeds and/or net condemnation proceeds that are set aside
to be disbursed under certain circumstances in accordance with the indenture.
Operating Reserve Fund- Amounts in the operating reserve fund may be transferred to
the property manager to fund operations if the transfer from the revenue fund is not
sufficient to pay operating expenses. Amounts may also be transferred to the Bond
Fund to pay principal and interest on the Bonds to the extent there are insufficient
monies in the Bond Fund on any interest payment date.
Debt Service Reserve 2001A Account - The amounts on deposit in this account are to
be used for the purpose of paying principal and interest on the Series 2001A Bonds as
they become due in the event there should be insufficient funds in the Bond Fund.
Debt Service Reserve 20018 Account - The amounts on deposit in this account are to
be used for the purpose of paying principal and interest on the Series 2001 B Bonds as
they become due in the event there should be insufficient funds in the Bond Fund.
The Public Funds Investment Act (Government Code Chapter 2256) contains specific
provisions in the areas of investment practices, management reports and establishment of
appropriate policies relating to a governmental entity's cash and investments.
Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will adversely affect the
fair value of an instrument. Generally, the longer the maturity of an investment the
greater the sensitivity of its fair value to changes in market interest rates. 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 Trustee and commercial banks.
15
TEXAS STUDENT HOUSING CORPORATION — DENTON PROJECT
NOTES TO FINANCIAL STATEMENTS
Concentration of Credit Risk
The investment policy of the Project is subject to the Indenture of the Bonds. As of
August 31, 2018, the Project held all of its restricted cash balances with the Trustee,
which represents 87% of the total cash and investments held as of August 31, 2018.
NOTE 3. 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, 2018, the Project's unrestricted cash is $294,000 (bank balance
$453,736). When the bank balance exceeds $250,000 it is no longer covered by federal
depository insurance and the remaining portion is collateralized with a Bank Deposit
Guarantee Bond from the Project's primary depository. The Project's restricted cash
balance of $2,092,565 is fully collateralized and is held in escrow by the Trustee.
16
TEXAS STUDENT HOUSING CORPORATION — DENTON PROJECT
NOTES TO FINANCIAL STATEMENTS
NOTE 4. CAPITAL ASSETS
Capital asset activity for the Project for the year ended August 31, 2018 was as follows:
Beginning Ending
Balance Additions Deletions Balance
Capital assets, not being depreciated
Land $ 2,200,000 $ $ - $ 2,200,000
Total capital assets, not being depreciated 2,200,000 - 2,200,000
Capital assets, being depreciated
Building 25,705,000 - 25,705,000
Furniture and fixtures 1,253,841 - 1,253,841
Total capital assets, being depreciated 26,958,841 - 26,958,841
Less accumulated depreciation for:
Building (14,066,346) (856,833) - (14,923,179)
Furniture and fixtures (1,206,660) (8,450) - (1,215,110)
Total accumulated depreciation (15,273,006) (865,283) - (16,138,289)
Total capital assets, being depreciated, net 11,685,835 (865,283) - 10,820,552
Capital assets, net $13,885,835 $ (865,283) $ - $ 13,020,552
NOTE 5. 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 Indenture dated July 1, 2001. The Bonds are payable solely from the
revenues generated by the Denton Property and are secured by the revenues pledged and
assigned under the terms of the Indenture. The Town does not have any liability for the
payment of the bonds as the bonds are non-recourse to both the Town and the Authority.
Interest rates on the bonds range from 5.00% to 11.00% and are payable semi-annually on
July 1 and January 1 of each year thereafter.
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TEXAS STUDENT HOUSING CORPORATION — DENTON PROJECT
NOTES TO FINANCIAL STATEMENTS
NOTE 5. BONDS PAYABLE — CONTINUED
The following is a summary of long-term debt transactions of the Project for the year ended
August 31, 2018:
Amounts
Beginning Ending Due Within
Balance Increases Decreases Balance One Year
Revenue Bonds:
2001A Bonds $ 21,195,000 $ - $ (955,000) $ 20,240,000 $ 1,015,000
2001B Bonds 3,240,000 - - 3,240,000 1,430,000
Less discounts (484,899) - 37,485 (447,414) -
Total $ 23,950,101 $ - $ (917,515) $ 23,032,586 $ 2,445,000
The annual requirements to amortize all debts outstanding as of August 31, 2018 are as
follows:
Year Ending
August 31, Prinicpal Interest Total
Past Due $ 1,360,000 $ 8,710,421 $ 10,070,421
2019 1,085,000 1,589,980 2,674,980
2020 1,165,000 1,513,768 2,678,768
2021 1,250,000 1,431,730 2,681,730
2022 1,330,000 1,343,530 2,673,530
2023 1,430,000 1,248,483 2,678,483
2024-2028 8,860,000 4,543,880 13,403,880
2029-2031 7,000,000 1,039,228 8,039,228
$ 23,480,000 $ 21,421,020 $ 44,901,020
As of August 31, 2018, the Project was not in compliance with certain covenants of the
Indenture including insufficient funds in some of the required funds discussed in Note 3 and
a fixed charges ratio less than 1.25. In addition, all required principal payments on the
Series B bonds had not been made as of August 31, 2018. Upon certain events of default
either the Trustee, or owners of not less than 25% in aggregate principal of the bonds then
outstanding, may declare the principal and all interest then due to be immediately due and
payable. GAAP require that if the events of default occur, the liability should be disclosed as
current on the financial statements.
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TEXAS STUDENT HOUSING CORPORATION — DENTON PROJECT
NOTES TO FINANCIAL STATEMENTS
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 investment in capital assets and restricted net position.
NOTE 7. RELATED PARTY TRANSACTIONS
During the year ending August 31, 2018, the Project incurred management fees of$117,731
and scholarship fees of$93,301 to the Authority.
NOTE 8. CONCENTRATIONS
The Project consists of one property in Denton, Texas and is dependent upon the Denton
area and the higher education facilities in the Denton area for revenue.
NOTE 9. GOING CONCERN
The 2018 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 and failure to maintain a fixed charges
ratio of at least 1.25. 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. 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 and rental rates at the property to improve its financial
performance.
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SUPPLEMENTAL INFORMATION
TEXAS STUDENT HOUSING CORPORATION — DENTON PROJECT
SCHEDULE I — SCHEDULE OF REVENUES AND EXPENSES -
BUDGET AND ACTUAL
FOR THE YEAR ENDED AUGUST 31, 2018
Original and Final
Budget Actual Variance
Revenues and Other Support:
Rental income $ 5,393,131 $ 5,224,067 ($ 169,064)
Other income 308,412 214,806 (93,606)
Interest income - 35,471 35,471
Total revenues and other support 5,701,543 5,474,344 (227,199)
Operating Expenses
Personnel expenses 484,448 451,742 32,706
Contract services 117,200 109,859 7,341
Utilities 938,348 812,249 126,099
Repairs and maintenance 193,481 193,038 443
Turnover expense 223,523 474,326 (250,803)
Advertising and promotion 90,773 92,647 (1,874)
Administration expenses 142,791 152,517 (9,726)
Travel 2,600 1,069 1,531
Management fees 216,031 211,032 4,999
Total operating expenses 2,409,195 2,498,479 (89,284)
Revenue available for fixed charges $ 3,292,348 $ 2,975,865 $ (316,483)
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TEXAS STUDENT HOUSING CORPORATION — DENTON PROJECT
SCHEDULE II - CERTIFICATE OF THE FIXED CHARGES COVERAGE RATIO
We are providing this letter, as required by the Trust Indenture by and between Texas Student
Housing Corporation — Denton Project (the Project) and The Bank of New York (the Trustee),
dated July 1, 2001, as amended on March 22, 2005, relating to Texas Student Housing
Corporation — Denton Project Texas Student Housing Revenue Bonds (University of North
Texas project) the "Indenture," to certify the fixed charges coverage ratio as of August 31, 2018.
The fixed charges coverage ratio is defined in the Indenture as the ratio of revenue available for
fixed charges to fixed charges. Further, fixed charges are defined in the Indenture as the sum of
all cash outflows related to the Project that the Issuer cannot avoid without violating long-term
contractual or legal obligations (those obligations which extend for a period greater than one
year), including, but not limited to, (i) interest on indebtedness other than short-term
indebtedness, and (ii) scheduled payments of principal on indebtedness other than short-term
indebtedness, provided that maximum annual debt service shall be used for purposes of
computing (i) and (ii) above.
The audited financial statements indicate revenue available for fixed charges for the year ended
August 31, 2018, to be $2,975,865.
Based on the above revenues available and fixed charges of $2,674,980, we calculate that the
fixed charges coverage ratio as of August 31, 2018, to be 1.11, which is based on one year of
operations and is not in compliance with the Indenture.
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