HomeMy WebLinkAboutDenton Audit 08-31-13TEXAS STUDENT HOUSING AUTHORITY
THE RIDGE AT NORTH TEXAS PROJECT
FINANCIAL REPORT
AUGUST 31, 2013
TEXAS STUDENT HOUSING AUTHORITY
THE RIDGE AT NORTH TEXAS PROJECT
TABLE OF CONTENTS
AUGUST 31, 2013
Page
Number
FINANCIAL SECTION
Independent Auditors’ Report ............................................................................................. 1 – 3
Management’s Discussion and Analysis ............................................................................ 4 – 6
Financial Statements:
Statement of Net Position ................................................................................................ 7
Statement of Revenues, Expenses and Changes in Net Position ..................................... 8
Statement of Cash Flows ................................................................................................. 9
Notes to Financial Statements .......................................................................................... 10 – 18
SUPPLEMENTAL SCHEDULES
Schedule I – Schedule of Revenues and Expenses ............................................................. 19
Schedule II – Certificate of the Fixed Charges Coverage Ratio ......................................... 20
THIS PAGE LEFT BLANK INTENTIONALLY
FINANCIAL SECTION
THIS PAGE LEFT BLANK INTENTIONALLY
INDEPENDENT AUDITORS’ REPORT
To the Board of Directors
Texas Student Housing Authority –
The Ridge at North Texas Project
Westlake, Texas
We have audited the accompanying financial statements of Texas Student Housing Authority –
The Ridge at North Texas Project (the “Project”), as of and for the year ended August 31, 2013, and the
related notes to the financial statements, which collectively comprise the Project’s basic financial
statements as listed in the table of contents. Texas Student Housing Authority – The Ridge at North
Texas Project is a component unit of the Town of Westlake.
Management’s Responsibility for the Financial Statements
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.
1
401 WEST HIGHWAY 6 P. O. BOX 20725 WACO, TX 76702-0725 (254) 772-4901 FAX: (254) 772-4920 www.pbhcpa.com
AFFILIATE OFFICES: BROWNSVILLE, TX (956) 544-7778 HILLSBORO, TX (254) 582-2583
TEMPLE, TX (254) 791-3460 ALBUQUERQUE, NM (505) 266-5904
2
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.
Opinions
In our opinion, the financial statements referred to above present fairly, in all material respects,
the respective financial position of the Project as of August 31, 2013 and the respective changes in
financial position and, where applicable, cash flows thereof 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 I to the financial statements, the Project is in default
on its bonds. 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 I. 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 pages3 through 5 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 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 of the limited procedures do
not provide us with sufficient evidence to express an opinion or provide any assurance.
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 accompanying supplemental
information is presented for purposes of additional analysis and is not a required part of the basic
financial statements.
The supplemental information is the responsibility of management and was derived from and
relates 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
information are fairly stated, in all material respects, in relation to the basic financial statements as a
whole.
January 14, 2014
THIS PAGE LEFT BLANK INTENTIONALLY
MANAGEMENT’S
DISCUSSION AND ANALYSIS
THIS PAGE LEFT BLANK INTENTIONALLY
4
MANAGEMENT’S DISCUSSION AND ANALYSIS
As staff of the Texas Student Housing Authority (the “Authority”) – The Ridge at North Texas 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, 2013. We
encourage readers to consider the information presented herein in conjunction with the Project’s
financial statements which follow this section. As the Authority is a component unit of the Town of
Westlake and is thus considered a governmental entity, Governmental Accounting Standards Board
Statement 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and
Local Governments has been implemented. The reader should note that this financial report addresses
only the financial condition of the Project itself.
FINANCIAL HIGHLIGHTS
The liabilities of the Project exceeded its assets at the close of the fiscal year by
$13,061,778, a decrease of $1,544,595 over the prior year.
Operating revenue of $4,161,796 is $512,046 less than budget. Operating expense is
$193,018 less than budget. Major components of the expense variance were
personnel and utilities as compared to budget.
At the end of the current fiscal year, the total cash balances were $381,265 in
unrestricted cash and $1,949,197 in restricted cash.
OVERVIEW OF THE FINANCIAL STATEMENTS
This discussion and analysis is intended to serve as an introduction to the Project’s basic financial
statements. The Project’s report consists of three parts, Management’s Discussion and Analysis, the
basic financial statements, and notes to financial statements. The basic financial statements include a
statement of net position, statement of revenues, expenses and changes in net position, a statement of
cash flows and supplemental schedules.
The Project is being treated as a going concern. The Project is in default on its bonds and is not
financially able to make scheduled principal and interest payments on its outstanding debt. They are
considered an event of default by the Trustee, which gives the bondholders the right to accelerate and
demand payment of the bonds in full. Management and the property manager are in the process of
developing plans to increase occupancy and rental rates at the property to improve its financial
performance.
5
The statement of net position presents information on all of the Project’s assets and liabilities with the
difference between the two reported as net position.
20132012
Current and other assets2,939,706$ 3,428,317$
Capital assets 17,346,967 18,212,297
Total assets 20,286,673 21,640,614
Current liabilities 33,348,451 33,157,797
Total liabilities 33,348,451 33,157,797
Netposition:
Net investment
in capital assets9,703,194)( 9,485,379)(
Unrestricted 3,358,584)( 2,031,804)(
Total net position 13,061,778)$( 11,517,183)$(
Business-type Activities
TABLE 1
TEXAS STUDENT HOUSING AUTHORITY -
THE RIDGE AT NORTH TEXAS PROJECT
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.
20132012
Total operating revenue4,154,003$ 4,634,578$
Total operating expenses2,949,621)( 3,087,084)(
Total operating income1,204,382 1,547,494
Interest income7,793 22,433
Interest expense2,756,770)( 2,703,839)(
Total nonoperating loss2,748,977)( 2,681,406)(
CHANGE IN NET POSITION 1,544,595)( 1,133,912)(
NET POSITION, BEGINNING 11,517,183)( 10,383,271)(
NET POSITION, ENDING 13,061,778)$( 11,517,183)$(
TABLE 2
TEXAS STUDENT HOUSING AUTHORITY -
THE RIDGE AT NORTH TEXAS PROJECT
CHANGES IN NET POSITION
Business-type Activities
The statement of cash flows recaps how cash changed from year to year.
6
FINANCIAL ANALYSIS OF THE PROJECT’S FUNDS
Notes to financial statements. The notes provide additional information that is essential to a full
understanding of the data provided in the financial statements.
Restricted cash. Restricted cash represents monies held in escrow by the trustee and are restricted for
the payment of expenses as outlined in the Trust Indenture. As of August 31, 2013, these balances were
as follows:
Revenue Fund-$
Bond Fund - Series 2001A277,836
Bond Fund - Series 2001B-
Debt Service Reserve Fund - A6
Debt Reserve Fund - CD1,610,588
Debt Service Reserve Fund - B365
Repair and Replacement Fund13
Series B Principal Fund3
Denton (UNT) Operating Reserve7
Denton (UNT) Ser A Princ 60,379
Total 1,949,197$
Nonrestricted cash. Nonrestricted cash is available for general use of the Project.
Bonds payable. As of August 31, 2013, since the bonds are in default, all amounts are considered due
immediately.
2001A Bonds24,445,000$
2001B Bonds3,240,000
Less discounts 634,839)(
Total 27,050,161$
For the fiscal year ending August 31, 2013, the total principal and interest payment is calculated at
$2,618,255. A total of $685,000 in principal was paid during 2013.
ECONOMIC FACTORS AND NEXT YEAR’S BUDGET
Leases at the Project are primarily 12-month leases, however, due to competitive and market conditions,
a relatively minor number of 6 and 10-month leases exist. These leases do bring a monthly premium
over the 12-month leases. Occupancy for the fiscal year ending August 31, 2013, forecasts at 100%.
Rental rates will see a small increase. This is exacerbated by the fact that University of North Texas
does not allow freshmen to live in off-campus housing.
CONTACTING THE PROJECT’S FINANCIAL MANAGEMENT
This financial report is designed to provide the reader with a general overview of the Project’s finances
and to demonstrate the Project’s accountability for the money it receives. If you have any questions
about this report, or need additional information, please contact Pete Ehrenberg at (817) 490-5723.
THIS PAGE LEFT BLANK INTENTIONALLY
FINANCIAL STATEMENTS
THIS PAGE LEFT BLANK INTENTIONALLY
ASSETS
Current assets:
Cash 381,265$
Restricted cash 1,949,197
Accounts receivable, net reserve of $2,857 3,872
Total current assets 2,334,334
Capital assets:
Land 2,200,000
Other capital assets, net of accumulated depreciation 15,146,967
Total capital assets 17,346,967
Other assets:
Deferred financing costs, net of amortization 605,372
Total other assets 605,372
Total assets 20,286,673
LIABILITIES
Current liabilities:
Trade accounts payable 367,672
Accrued liabilities 13,818
Unearned revenue and prepaid rent245,906
Accrued interest 5,670,894
Bonds payable 27,050,161
Total current liabilities 33,348,451
NET POSITION
Net investment in capital assets9,703,194)(
Unrestricted 3,358,584)(
Total net position 13,061,778)$(
The accompanying notes are an integral part of these financial statements.
TEXAS STUDENT HOUSING AUTHORITY
THE RIDGE AT NORTH TEXAS PROJECT
STATEMENT OF NET POSITION
AUGUST 31, 2013
7
THIS PAGE LEFT BLANK INTENTIONALLY
OPERATING REVENUES
Rental 4,008,449$
Other 145,554
Total operating revenues 4,154,003
OPERATING EXPENSES
Personnel 342,029
Contract services 87,631
Utilities 724,438
Repairs and maintenance153,975
Turnover 324,003
Advertising and promotion101,398
Administration 142,757
Management fees 132,000
Depreciation and amortization936,754
Travel 4,636
Total operating expenses 2,949,621
OPERATING INCOME 1,204,382
NONOPERATING REVENUES (EXPENSES)
Interest income 7,793
Interest expense 2,756,770)(
Total nonoperating revenues (expenses)2,748,977)(
CHANGE IN NET POSITION 1,544,595)(
NET POSITION, BEGINNING 11,517,183)(
NET POSITION, ENDING 13,061,778)$(
The accompanying notes are an integral part of these financial statements.
TEXAS STUDENT HOUSING AUTHORITY
THE RIDGE AT NORTH TEXAS PROJECT
STATEMENT OF REVENUES, EXPENSES
FOR THE YEAR ENDED AUGUST 31, 2013
AND CHANGES IN NET POSITION
8
THIS PAGE LEFT BLANK INTENTIONALLY
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from tenants 4,087,658$
Cash paid to employees 338,666)(
Cash paid to suppliers 1,706,714)(
Net cash provided by operating activities 2,042,278
CASH FLOWS FROM CAPITAL AND RELATED
FINANCING ACTIVITIES
Payments on bonds payable 685,000)(
Interest paid 1,713,255)(
Net cash used in capital and related financing activities 2,398,255)(
CASH FLOWS FROM INVESTING ACTIVITIES
Interest on investments 7,793
Net cash provided by investing activities 7,793
NET CHANGE IN CASH AND CASH EQUIVALENTS 348,184)(
CASH AND CASH EQUIVALENTS, BEGINNING 2,678,646
CASH AND CASH EQUIVALENTS, ENDING 2,330,462$
Cash 381,265$
Restricted cash 1,949,197
Total cash and cash equivalents 2,330,462$
RECONCILIATION OF OPERATING INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
Operating income 1,204,382$
Adjustments to reconcile operating income to
net cash provided by operating activities:
Depreciation and amortization936,754
Changes in operating assets and liabilities:
Accounts receivable 106,488
Prepaid expenses -
Trade accounts payable 35,876)(
Deferred revenue 172,833)(
Other current liabilities 3,363
Net cash provided by operating activities 2,042,278$
The accompanying notes are an integral part of these financial statements.
TEXAS STUDENT HOUSING AUTHORITY
THE RIDGE AT NORTH TEXAS PROJECT
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED AUGUST 31, 2013
9
THIS PAGE LEFT BLANK INTENTIONALLY
10
TEXAS STUDENT HOUSING AUTHORITY
THE RIDGE AT NORTH TEXAS PROJECT
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2013
I. GENERAL STATEMENT
Texas Student Housing Authority – The Ridge at North Texas (the “Project”), a Texas nonprofit
organization, was incorporated on May 17, 2001, 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 Texas Student Housing Authority – 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 Authority – Denton Project
Texas Student Housing Revenue Bonds (University of North Texas Project), Series 2001A and
Subordinate Series 2001B (the “Bonds”). The Bonds were issued through a Trust Indenture (the
“Trust Indenture”) by and between the Authority and The Bank of New York (the “Trustee”). The
Series 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 was operated and managed under the terms of the (a) Property Management and
Leasing Agreement by and between the Authority and JPI Campus Quarters Management, L.P.
(“JPI”) and (b) the Asset Management Agreement by and between the Authority and JPI
Apartment Management, L.P., up until September 30, 2004. The Project subsequent to September
30, 2004, is managed and operated by Asset Campus Housing under the terms of a Property
Management and Leasing Agreement.
The 2013 financial statements were prepared assuming the Project will continue as a going
concern. The Project’s bonds payable are considered to be in default due to the discontinuance of
principal and interest payments. These are considered an event of default by the Trustee, which
gives the bondholders the right to accelerate and demand payment of the bonds in full.
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.
11
II. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Project’s significant accounting policies consistently applied in the preparation
of the accompanying financial statements follows:
A. Reporting Entity
For financial reporting purposes, management has considered all potential component units.
The decision to include a potential component unit in the reporting entity was made by
applying the criteria set forth in GASB Statement No. 14 as amended by GASB Statement
Nos. 39 and 61. The criteria used is as follows:
Financial Accountability – The primary government is deemed to be financially
accountable if it appoints a voting majority of the organization’s governing body and
1) is able to impose its will on that organization; or 2) there is a potential for the
organization to provide specific financial benefits to, or impose specific financial
burdens on, the primary government. Additionally, the primary government may be
financially accountable if an organization is fiscally dependent on the primary
government regardless of whether the organization has a separately elected
governing board appointed by a higher level of government or a jointly appointed
board.
B. 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 Authority 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 present increases (revenues) and decreases (expenses) in net total
assets under the accrual basis of accounting, revenues are recognized when earned, and
expenses are recognized at the time the liability is incurred.
Private-sector standards of accounting and financial reporting issued prior to December 1,
1989, generally are followed in both the government-wide and proprietary fund financial
statements to the extent that those standards do not conflict with or contradict guidance of the
Governmental Accounting Standards Board. Governments also have the option of following
subsequent private-sector guidance for their business-type activities and Enterprise Funds,
subject to this same limitation. The government has elected not to follow subsequent private-
sector guidance.
C. Assets, Liabilities and Net Position or Equity
Income Taxes
The Project is an instrumentality of the Town and, therefore, its income is not subject to
federal income taxation pursuant to Section 115 of the Internal Revenue Code.
12
Cash and Cash Equivalents
The Project considers all highly liquid investments with maturity of three months or less
when purchased to be cash equivalents. At August 31, 2013, the Project had no such
investments included in cash and cash equivalents.
In addition, the Project has restricted cash of $1,949,197 that is held by the Trustee for the
bonds payable under provisions of the Trust Indenture. During the year ended August 31,
2013, the investment income received from cash was $7,793. See Note III for risk
disclosures and breakdown of restricted cash accounts.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and
assumptions that affect certain reported amounts in the financial statements and
accompanying notes. Actual results could differ from these estimates and assumptions.
Accounts Receivable
Accounts receivable are stated at amounts management expects to collect from outstanding
balances. Management writes off uncollectible amounts through a charge to expenses and a
credit to accounts receivable based on its assessment of the outstanding receivables. At year-
end, management assesses the accounts receivable balance and establishes a valuation
allowance based on historical experience and an evaluation of the outstanding balances. As
of August 31, 2013, management has determined that all accounts doubtful of collection have
been charged to operations and an allowance is not required.
Deferred Financing Costs
Costs associated with the issuance of bonds are deferred and amortized over the term of the
bonds.
Advertising Costs
All adverting costs are expensed as they are incurred. Advertising costs for the year ended
August 31, 2013, were approximately $101,398.
Capital Assets
Property and equipment have been recorded at the date of acquisition at cost. Routine
maintenance and repair costs to ready the units for the next period are expensed as incurred.
Expenditures directly related to the improvement of property are capitalized at cost. The
Project capitalizes the cost of roof replacements and expenditures for other major property
improvements.
13
Depreciation is computed using the straight-line method over the estimated useful lives as
follows:
Estimated
Asset ClassUseful Lives
Building30 years
Furniture and fixtures3-20 years
III. DETAILED NOTES ON ALL FUNDS
A. Cash and Investments
At August 31, 2013, the carrying amount of Texas Student Housing Authority – The Ridge at
North Texas Project deposits (cash with interest bearing accounts and restricted cash held in
interest bearing accounts) was in total $2,330,462 of which $1,949,197 represented restricted
cash.
Restricted Cash
Restricted cash represents amounts placed on deposit in accounts and held by the Trustee,
which are restricted for the payment of expenses as required by the Trust Indenture. At
August 31, 2013, restricted cash consists of the following funds and accounts:
Fund/Account Description
Revenue Funds-$
Bond Fund-Series 2001A 277,836
Bond Fund-Series 2001 B -
Debt Service Reserve Fund-A 6
Debt Reserve Fund - CD 1,610,588
Debt Service Reserve Fund-B 365
Repair and Replacement Fund 13
Series B Principal Fund 3
Denton (UNT) Oper Reserve 7
Denton (UNT) Ser A Princ 60,379
Total 1,949,197$
The following is a brief description of the funds and accounts making up the restricted cash
balance at year-end, as defined by the Trust Indenture:
Revenue Fund – The Revenue Fund was established for monthly deposits from
the depository account that holds general revenues of the Project. All monies are
deposited in the Revenue Fund and then properly distributed to the other funds, as
required by the Trust Indenture. Amounts in the fund at year-end represent
amounts that have not been distributed to the other funds due to timing of the
interfund transfers.
14
Bond Fund – The Trustee makes monthly deposits in the Bond Fund pursuant to
the Trust Indenture. Amounts in the Bond Fund shall be used solely to fund the
payment of principal and interest on the bonds, for the redemption of the bonds at
or prior to maturity, and to purchase bonds on the open market. 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 2001B 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 Project,
which the Project is obligated to pay pursuant to the Trust Indenture and (b)
transferred to the Bond Fund to pay principal of or interest on the bonds to the
extent there are insufficient monies in the Bond Fund.
Surplus Fund – The Trustee shall deposit any remaining amount in the Revenue
Fund into the Surplus Fund. Amounts on deposit in the Surplus Fund will be
released to the Project if certain release tests are satisfied. If the release tests are
not satisfied, the Trustee will retain the monies on deposit in the Surplus Fund.
Trustee Fee Fund – Amounts are deposited in the Trustee Fee Fund on a monthly
basis and are intended to pay the fees to the Trustee at year-end.
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 B 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.
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 playing 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 2001B Account – The amounts on deposit in this account
are to be used for the purpose of paying principal and interest on the Series 2001B
Bonds as they become due in the event there should be insufficient funds in the
Bond Fund.
15
The Public Funds Investment Act (Government Code Chapter 2256) contains specific
provisions in the areas of investment practices, management reports and establishment of
appropriate policies relating to a governmental entity’s cash and investments.
Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will adversely affect the fair
value of an instrument. Generally, the longer the maturity of an investment the greater the
sensitivity of its fair value to changes in market interest rates. Texas Student Housing
Authority – The Ridge at North Texas Project is not significantly exposed to interest rate risk
as all investments earn a variable rate.
Credit Risk
Generally, credit risk is the risk that an issuer of an investment will not fulfill its obligation to
the holder of the investment. This is measured by the assignment of a rating by a nationally
recognized statistical rating organization. The Public Funds Investment Act has a minimum
rating that is required for investments. Texas Student Housing Authority – The Ridge at North
Texas Project holds all of its cash and investments with the bond Trustee and commercial
banks.
Concentration of Credit Risk
The investment policy of Texas Student Housing Authority – The Ridge at North Texas
Project is subject to the indenture agreement of the bonds. As of August 31, 2013, the
Project held all of its restricted cash balances with the Trustee, which represents 83.6% of the
total cash and investments held at August 31, 2013.
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, 2013, the Project has unrestricted cash of $381,265(bank balance,
$372,277). Of the bank balances, $250,000 was covered by federal depository insurance
while the remaining $122,277 was collateralized by a Bank Deposit Guarantee Bond from
the Project’s depository in the amount of $1,606,872.
16
C. Capital Assets
Capital asset activity for the Project for the year ended August 31, 2013, was as follows:
BeginningDeletions/Ending
BalanceAdditionsReclassBalance
Capital assets, not being depreciated:
Land 2,200,000$ -$ -$ 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 9,782,181)( 856,833)( - 10,639,014)(
Furniture and fixtures 1,164,364)( 8,496)( - 1,172,860)(
Total accumulated depreciation 10,946,545)( 865,329)( - 11,811,874)(
Total capital assets,
being depreciated, net 16,012,296 865,329)( - 15,146,967
Capital assets, net 18,212,296$ 865,329)$( -$ 17,346,967$
D. Bonds Payable
The bonds are tax-exempt governmental obligations under the Internal Revenue Code. The
bonds payable represent amounts due to the bondholders, via the Trustee, and payable under
the terms of the Trust Indenture dated July 1, 2001. The Bonds are payable solely from the
revenues pledged and assigned under the terms of the Trust Indenture. The Town of
Westlake does not have any liability for the payment of the bonds, as the bonds are non-
recourse to both the Town of Westlake and Texas Student Housing Authority. 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.
At August 31, 2013, the Project was not in compliance with certain covenants of the
Indenture including insufficient funds in some of the required funds discussed in Note II and
the fixed charge ratio. 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. Generally accepted accounting
principles require that if the events of default occur, the liability should be disclosed as
current on the financial statements. In addition, all required principal payments on the Series
B bonds had not been made at August 31, 2013.
17
The following is a summary of long-term debt transactions of the Project for the year ended
August 31, 2013:
Amounts
BeginningEndingDue Within Interest
BalanceIncreasesDecreasesBalanceOne Year Paid
Revenue Bonds:
2001A Bonds25,130,000$ -$ 685,000)$( 24,445,000$ 735,000$ 1,713,255$
2001B Bonds3,240,000 - - 3,240,000 - -
Trustee Fee Payable5,000 - - 5,000 -
Less discounts 672,324)( - 37,485 634,839)( 37,485)( -
Total 27,702,676$ -$ 647,515)$( 27,055,161$ 697,515$ 1,713,255$
The debt originally was to be amortized through 2031 with varying monthly principal
payment amounts ranging from $2,618,093 to $3,465,280 for interest and principal. The
annual requirements to amortize all debts outstanding as of August 31, 2013, are as follows
and have not been adjusted for the default of the bonds. Under the original terms of the
Indenture, a total of $685,000 in principal and $1,933,255 in interest is due in fiscal 2013.
The total interest to be paid will depend on the ultimate maturities of the bonds.
Year Ending
August 31,PrincipalInterestTotal
2013 27,685,000$ 21,609,085$ 49,294,085$
E. Net Position
Net position represents the residual assets after liabilities are deducted. These assets are
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.
Restricted for Debt Service – The component of net position calculated by reducing
the carrying value of restricted assets by the amount of any related debt outstanding.
Unrestricted – The difference between the assets and liabilities that is not
reported in net position invested in net investment in capital assets and restricted
net position.
F. 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.
18
G. Commitments and Contingencies
The Project has yet to have an arbitrage calculation performed for its outstanding debt. After
that analysis, the Project may incur a liability for interest earned in accordance with Internal
Revenue Service regulations.
THIS PAGE LEFT BLANK INTENTIONALLY
SUPPLEMENTAL SCHEDULES
THIS PAGE LEFT BLANK INTENTIONALLY
BudgetActualVariance
REVENUES AND OTHER SUPPORT
Rental 4,424,290$ 4,008,449$ 415,841)$(
Other 249,552 145,554 103,998)(
Interest - 7,793 7,793
Total revenues and other support 4,673,842 4,161,796 512,046)(
OPERATING EXPENSES
Personnel361,232 342,029 19,203
Contract services101,560 87,631 13,929
Utilities902,750 724,438 178,312
Repairs and maintenance147,350 153,975 6,625)(
Turnover300,665 324,003 23,338)(
Advertising and promotion99,100 101,398 2,298)(
Management fees132,000 132,000 -
Administration161,228 142,757 18,471
Travel - 4,636 4,636)(
Total operating expenses 2,205,885 2,012,867 193,018
REVENUES AVAILABLE FOR
FIXED CHARGES 2,467,957 2,148,929 319,028)(
OTHER EXPENSES
Depreciation and amortization- 936,754 936,754)(
Interest expense - 2,756,770 2,756,770)(
Total other expenses - 3,693,524 3,693,524)(
EXCESS OF EXPENSES OVER REVENUES 2,467,957$ 1,544,595)$( 4,012,552)$(
FOR THE YEAR ENDED AUGUST 31, 2013
TEXAS STUDENT HOUSING AUTHORITY
THE RIDGE AT NORTH TEXAS PROJECT
SCHEDULE I - SCHEDULE OF REVENUES AND EXPENSES
BUDGET AND ACTUAL
19
THIS PAGE LEFT BLANK INTENTIONALLY
20
TEXAS STUDENT HOUSING AUTHORITY
THE RIDGE AT NORTH TEXAS PROJECT
SCHEDULE II – CERTIFICATE OF THE FIXED CHARGES COVERAGE RATIO
FOR THE YEAR ENDED AUGUST 31, 2013
We are providing this letter, as required by the Trust Indenture by and between Texas Student Housing
Authority – The Ridge at North Texas (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 Authority – 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, 2013.
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, 2013, to be $2,148,929.
Based on the above revenues and fixed charges, we calculate that the fixed charges coverage ratio as of
August 31, 2013, to be .56, which is based on one year of operations and is not in compliance with the
Indenture.
THIS PAGE LEFT BLANK INTENTIONALLY