HomeMy WebLinkAboutCambridge Audit 08-31-18 TEXAS STUDENT HOUSING AUTHORITY —
COLLEGE STATION 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 Authority—College Station Project
Report on the Financial Statements
We have audited the accompanying statement of net position of Texas Student Housing
Authority - College Station Project (the Project), a component unit of Town of Westlake, as of
August 31, 2018, 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.
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 Authority -
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, 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 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.
Emphasis of Matter Regarding Contingency
As discussed in Note 10, the Project asserts that the Trustee's depositing of over $1 million of
Project monies into a fund solely controlled by the Trustee constitutes wrongful misapplication of
Project monies which the Project intends to attempt recovery of by filing suit in the near future.
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.
Texas Student Housing Authority -
College Station Project
Page 3
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.
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 AUTHORITY—COLLEGE STATION PROJECT
MANAGEMENT'S DISCUSSION AND ANALYSIS
YEAR ENDED AUGUST 31, 2018
(unaudited)
As staff of the Texas Student Housing Authority — 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, 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
$29,658,801 (net position), a $5,237,349 reduction from the prior year, primarily the
result of$ 3,165,657 of interest expense and $ 1,013,285 of indemnity expense.
• At the end of the current fiscal year, the total cash balances were $920,116 in
unrestricted cash and $1,282,832 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.
4
TEXAS STUDENT HOUSING AUTHORITY—COLLEGE STATION 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 $ 2,381,913 $ 4,175,997
Capital assets 17,584,976 18,565,925
Total assets 19,966,889 22,741,922
Current liabilities 49,625,690 47,163,374
Net Position
Net investment in capital assets (10,620,024) (9,853,275)
Unrestricted (19,038,777) (14,568,177)
Total net position $ (29,658,801) $ (24,421,452)
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 revenue $ 3,331,791 $ 3,944,039
Total operating expenses (4,390,198) (4,434,768)
Total operating income (1,058,407) (490,729)
Indemnity expense (1,013,285) -
Interest expense (3,165,657) (2,930,216)
Total nonoperating expenses (4,178,942) (2,930,216)
CHANGE IN NET POSITION (5,237,349) (3,420,945)
NET POSITION, BEGINNING (24,421,452) (21,000,507)
NET POSITION, ENDING $ (29,658,801) $ (24,421,452)
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TEXAS STUDENT HOUSING AUTHORITY—COLLEGE STATION 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:
Replacement Fund $ 993,915
Series A Principal Fund 4,937
Series B Interest Fund 39,131
Series B Principal Fund 190,059
Transaction Costs Payment Fund 32,670
Utility Deposits 5,000
Administrative Fee Fund 17,120
Total $ 1,282,832
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 $ 15,135,000
Series B 2,870,000
Series C 4,820,000
Series D 5,380,000
Total $ 28,205,000
6
TEXAS STUDENT HOUSING AUTHORITY—COLLEGE STATION PROJECT
MANAGEMENT'S DISCUSSION AND ANALYSIS
YEAR ENDED AUGUST 31, 2018
(unaudited)
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 -0.03 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.
BUDGETARY ANALYSIS
Revenues and other support of $3,331,791 is $80,257 more than budgeted. Operating
expenses (not including depreciation and amortization and interest expense) of $3,409,249 is
$238,074 less than budgeted.
ECONOMIC FACTORS AND NEXT YEAR'S BUDGET
Leases at the Project have a duration that encompasses the school year, primarily the months
of August through May. The June and July revenue is dependent on the Projects' ability to
attract various summer camps and 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, 2019 is projected at 50%.
Texas A&M has added over 3,000 new beds to the campus and thus has had an adverse effect
on the student occupancy at The Cambridge.
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 Harrow at
(817) 430-5874.
7
BASIC FINANCIAL STATEMENTS
TEXAS STUDENT HOUSING AUTHORITY—COLLEGE STATION PROJECT
STATEMENT OF NET POSITION
AUGUST 31, 2018
ASSETS
CURRENT ASSETS
Cash $ 920,116
Restricted cash 1,282,832
Prepaid expenses 1,003
Accounts receivable 177,962
Total current assets 2,381,913
CAPITAL ASSETS
Land 2,899,597
Other capital assets, net of accumulated depreciation 14,685,379
Total capital assets 17,584,976
TOTAL ASSETS 19,966,889
LIABILITIES
CURRENT LIABILITIES
Accounts payable 122,058
Accrued interest payable 20,826,252
Unearned revenue and prepaid rent 472,380
Revenue certificates payable 28,205,000
Total current liabilities 49,625,690
NET POSITION
Net investment in capital assets (10,620,024)
Unrestricted (19,038,777)
Total net position $ (29,658,801)
The Notes to Financial Statements are
an integral part of this statement.
8
TEXAS STUDENT HOUSING AUTHORITY—COLLEGE STATION PROJECT
STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION
FOR THE YEAR ENDED AUGUST 31, 2018
OPERATING REVENUES
Rental income $ 2,786,605
Other 545,186
Total operating revenues 3,331,791
OPERATING EXPENSES
Management fees 572,795
Administration and marketing 1,177,564
Cafeteria 352,887
Utilities 584,429
Repairs and maintenance 657,382
Insurance 64,192
Depreciation expense 980,949
Total operating expenses 4,390,198
OPERATING LOSS (1,058,407)
NON-OPERATING REVENUES (EXPENSES)
Indemnity expense (1,013,285)
Interest expense (3,165,657)
TOTAL NON-OPERATING REVENUE (EXPENSES) (4,178,942)
CHANGE IN NET POSITION (5,237,349)
NET POSITION, BEGINNING (24,421,452)
NET POSITION,ENDING $ (29,658,801)
The Notes to Financial Statements are
an integral part of this statement.
9
TEXAS STUDENT HOUSING AUTHORITY—COLLEGE STATION PROJECT
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED AUGUST 31, 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from tenants $ 2,712,941
Other operating revenues 545,186
Cash paid to suppliers (3,303,073)
Net cash used in operating activities (44,946)
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES
Payments on revenue certificates payable (214,200)
Interest paid (276,729)
Net cash used in capital and related financing activities (490,929)
Net change in cash and cash equivalents (1,549,160)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,752,108
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,202,948
Cash $ 920,116
Restricted cash 1,282,832
Total cash and cash equivalents $ 2,202,948
RECONCILIATION OF OPERATING LOSS TO
NET CASH USED IN OPERATING ACTIVITIES
Operating loss $ (1,058,407)
Adjustments to reconcile operating loss to
net cash used in operating activities:
Depreciation 980,949
Changes in operating assets and liabilities:
Accounts receivable 194,014
Prepaid expenses 50,910
Accounts payable 55,366
Unearned revenue and prepaid rent (267,678)
Net cash used in operating activities $ (44,946)
The Notes to Financial Statements are
an integral part of this statement.
10
TEXAS STUDENT HOUSING AUTHORITY—COLLEGE STATION PROJECT
NOTES TO FINANCIAL STATEMENTS
NOTE 1. GENERAL STATEMENT
Operations
Texas Student Housing Authority — 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.
11
TEXAS STUDENT HOUSING AUTHORITY—COLLEGE STATION PROJECT
NOTES TO FINANCIAL STATEMENTS
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, 2018, management has
determined that all accounts doubtful of collection have been charged to operations and
an allowance is not required.
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TEXAS STUDENT HOUSING AUTHORITY—COLLEGE STATION PROJECT
NOTES TO FINANCIAL STATEMENTS
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, 2018 were $147,991.
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,
2018, and up through January 21, 2019, 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, 2018,
restricted cash consists of the following:
Replacement Fund $ 993,915
Series A Principal Fund 4,937
Series B Interest Fund 39,131
Series B Principal Fund 190,059
Transaction Costs Payment Fund 32,670
Utility Deposits 5,000
Administrative Fee Fund 17,120
Total $ 1,282,832
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TEXAS STUDENT HOUSING AUTHORITY—COLLEGE STATION PROJECT
NOTES TO FINANCIAL STATEMENTS
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 8 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 8 Interest Fund— Amounts in the Series B Interest Fund are used to accumulate
funds to pay interest on the Series B certificates.
Series 8 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.
Administrative Fee Fund— Amounts in the Administrative Fee Fund are used to pay for
administrative fees.
Debt Service Fund—Amounts in the Debt Service Fund are used to accumulate funds to
pay principal and interest as they become due.
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TEXAS STUDENT HOUSING AUTHORITY—COLLEGE STATION PROJECT
NOTES TO FINANCIAL STATEMENTS
NOTE 3. CASH AND INVESTMENTS — CONTINUED
Restricted Cash — Continued
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 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, 2018, the Project held all of its restricted cash balances with the
trustee, which represents 58.2% of the total cash and investments held at August 31,
2018.
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.
15
TEXAS STUDENT HOUSING AUTHORITY—COLLEGE STATION PROJECT
NOTES TO FINANCIAL STATEMENTS
NOTE 3. CASH AND INVESTMENTS — CONTINUED
Custodial Credit Risk
As of August 31, 2018, the Project's $2,232,614 bank balance was entirely collateralized
with a Bank Deposit Guarantee Bond from the Project's depository. The remaining
balance, $250,000, was covered by FDIC insurance.
NOTE 4. CAPITAL ASSETS
Capital asset activity for the Project for the year ended August 31, 2018 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 assets,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 (11,541,705) (896,178) (12,437,883)
Furniture and fixtures (3,114,417) (84,771) (3,199,188)
Total accumulated depreciation ( 14,656,122) (980,949) ( 15,637,071)
Total capital assets,being depreciated,net 15,666,328 (980,949) 14,685,379
Capital assets,net $18,565,925 _L_L80,9491 $ $ $17,584,976
NOTE 5. REVENUE CERTIFICATES PAYABLE
The Project's revenue certificates payable are summarized as follows:
Interest
Lender/Security/Due Date Rate Balance
Cambridge Student Housing Financing Company, L.P.
secured by substantially all assets and assignment
of rents; due November 1, 2039. 8.00% $ 28,205,000
16
TEXAS STUDENT HOUSING AUTHORITY—COLLEGE STATION PROJECT
NOTES TO FINANCIAL STATEMENTS
NOTE 5. REVENUE CERTIFICATES PAYABLE — CONTINUED
The following is a summary of long-term debt transactions of the Project for the year ended
August 31, 2018:
Balance Increases Decreases Balance One Year
Revenue certificates $28,419,200 $ $ (214,200) $28,205,000 $ 1,610,800
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, 2018 are as follows:
Year Ending
August 31, Principal Interest Total
Past Due $ 890,800 $ 20,336,807 $ 21,227,607
2019 720,000 1,650,637 2,370,637
2020 775,000 1,592,890 2,367,890
2021 830,000 1,530,858 2,360,858
2022 895,000 1,464,122 2,359,122
2023 495,000 1,410,935 1,905,935
2024-2028 3,090,000 6,415,005 9,505,005
2029-2033 4,450,000 5,004,005 9,454,005
2034-2038 6,425,000 2,953,495 9,378,495
2039-2040 9,634,200 372,715 10,006,915
Total $ 28,205,000 $42,731,469 $ 70,936,469
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, 2018, 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.
The Town and the Authority have no liability on the long-term obligations of the Project.
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TEXAS STUDENT HOUSING AUTHORITY—COLLEGE STATION 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 position net investment in capital assets.
NOTE 7. RELATED PARTY TRANSACTIONS
Management fees expense include $64,294 for administrative fees and $268,500 for
scholarship fees earned by the Authority. There were no administrative fees and scholarship
fees included in accrued liabilities as of August 31, 2018.
NOTE 8. CONCENTRATION
The Project consists of one property in College Station, Texas, and is dependent upon the
market for student housing in the College Station area for its revenues.
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 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.
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TEXAS STUDENT HOUSING AUTHORITY—COLLEGE STATION PROJECT
NOTES TO FINANCIAL STATEMENTS
NOTE 10. CONTINGENCY
TSHA asserts that the Trustee's unilateral establishment of a "Risk Management Fund", into
which the Trustee deposited over $1 million of the Project revenues in late 2017 and 2018,
constitutes a wrongful misapplication of Project monies. That "Fund" is (i) solely controlled
by the Trustee; (ii) not provided for in any of the operative documents for the Project; (iii)
was not approved by TSHA; and (iv) was designed by the Trustee for the sole purpose of
creating a pool of money from which the Trustee can seek to recover its attorney's fees and
expenses in the ITG Suit which it claims to be owed under an indemnity agreement. TSHA
asserts that the Trustee is not entitled at this time to any monies in that "Fund" under any
indemnity agreement with TSHA. TSHA plans to file suit in the near future to recover those
funds for the benefit of the Project, as well as all other resulting damages caused to the
Project by the Trustee.
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SUPPLEMENTAL INFORMATION
TEXAS STUDENT HOUSING AUTHORITY—
COLLEGE STATION 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 $ 2,618,514 $ 2,786,605 $ 168,091
Other 633,020 545,186 (87,834)
Total revenues and other support 3,251,534 3,331,791 80,257
Operating expenses
Administration and marketing 1,702,513 1,177,564 524,949
Management fees 305,031 572,795 (267,764)
Cafeteria 371,835 352,887 18,948
Utilities 599,462 584,429 15,033
Repairs and maintenance 609,598 657,382 (47,784)
Insurance 58,884 64,192 (5,308)
Total operating expenses 3,647,323 3,409,249 238,074
Revenues available for debt coverage ($ 395,789) ($ 77,458) $ 318,331
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TEXAS STUDENT HOUSING AUTHORITY—
COLLEGE STATION PROJECT
SCHEDULE II — CERTIFICATE OF THE FIXED CHARGES COVERAGE RATIO
FOR THE YEAR ENDED AUGUST 31, 2018
CALCULATION OF FIXED CHARGES COVERAGE RATIO
Total gross revenue $ 3,331,791
Total expenses (8,569,140)
Add:
Interest 3,165,657
Indemnity expense 1,013,285
Depreciation and amortization 980,949
Adjusted expenses (3,409,249)
Adjusted net operating income available to pay fixed charges $ (77,458)
Fixed charges/maximum principal and interest for
fiscal year $ 2,370,637
Fixed charges coverage ratio -0.03
Required ratio 1.10
Pass or fail Fail
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