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HomeMy WebLinkAboutDenton Audit 2002 DENTON PROJECT FINANCIAL STATEMENTS Year Ended June 30, 2002 and the Period from Inception (May 17, 2001) through June 30, 2002 witli Report of Independent Auditors TEXAS STET ENT HOUSING CORPORATION— ENTON PROJECT For the Year Ended June 30, 2002 and the Period from Inception (May 17, 2001) through June 30, 2002 Report of Independent Auditors................................................................................................... Financial Statements: Statement of Financial Position...................................................................................... Statement of Activities and Changes in Net Assets.............. .................................... Statementof Cash Flow................................................................................................... Notes to Financial Statements.................. ..................................................................................... Supplemental Schedules. Schedule I—Schedule of Revenues and Expenses........................ Schedule II—Certification of the Fixed Charges Coverage Ratio.................................... 1 2 3 4 5 12 13 To the Board of Directors of Texas Student Housing Corporation—Denton Project We have audited the accompanying statement of financial position of Texas Student Housing Corporation—Denton Project (the "Corporation") as of June 30, 2002, and the related statements of activities and changes in net assets and cash flows for the period from inception (May 17, 2001) through June 30, 2002. These financial statements are the responsibility of the corporation's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Texas Student Housing Corporation — Denton Project as of June 30, 2002, and the changes in its net assets and its cash flows for the period from inception (May 17, 2001) through June 30, 2002 in conformity with accounting principles generally accepted in the United States of America. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedules I and II are presented for purposes of additional analysis and are not required as part of the basic financial statements. Such information has been subjected to auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. f Fort Worth, Texas August 30, 2002 Dallas:5420 LB) Freeway,Suite 1440•Dallas,Texas 75240• (972)392-6600•fax(972)392-6601 Fort Worth:1701 River Run Road,Suite 507•Fort Worth,Texas 76107• (817)258-9100•fax(817)877-3036 Mid-Cities:86o West Airport Freeway,Suite 601 •Hurst,Texas 76054•(817)258-9100•fax(817)656-4013 www.wpcpo.com TEXAS STUDENT HOUSING CORPORATION-DENTON PROJECT STATEMENT OF FINANCIAL POSITION 1. it Assets Cash $ 178,118 Restricted cash 5,001,903 Accounts receivable 261,069 5,441,090 Property and equipment: Land 2,200,000 Furniture, fixtures and equipment 1,140,550 Building 25,705,000 29,045.550 Less accumulated depreciation 1,038,439 28,007,111 Intangible assets. Deferred financing costs 1,018,171 Discounts on bonds payable 1,088,287 2,106,458 Less accumulated amortization 70,215 2,036,243 Total assets $ 35,484,444 Liabilities and Net Assets Liabilities: Accounts payable and accrued liabilities 1,462,979 Management fees payable 168,857 Property management advance 123,914 Deferred revenue 203,078 Tenant security deposits 63,853 Bonds payable 34,355,000 Total liabilities 36,377,681 Net assets: Temporarily restricted (893,237) Total liabilities and net assets $ 35,484,444 See accompanying notes. 2 t 1111 151111 t t For the Period from Inception (May 17,2001) through June 30,2002 Temporarily Unrestricted Restricted Total Revenue and Other Support Rental income $ - $ 3,470,561 $ 3,470,561 Other income - 521,727 521,727 Total - 3,992,288 3,992,288 Net assets released from restriction 4,885,525 (4,885,525) - Total Revenue and Other Support 4,885,525 (893,237) 3,992,288 Expenses: Program services - - - Support services 4,885,525 - 4,885,525 Total Expenses 4,885,525 - 4,885,525 Change in Net Assets - (893,237) (893,237) Net assets at beginning of year - - - Net assets at end of year $ - $ (893,237) $ (893,237) See accompanying notes. 3 STUDENT TEXAS t USING CORPORATION-DENTt STATEMENTS OF CASH FLOWS I Cash at beginning of year - Cash at end of year $ 178,118 Supplemental disclosures of cash flow information: Cash paid during year for interest $ 1,118,488 See accompanying notes. 4 For the Period from Inception (May 17, 2001)through June 30,2002 Cash flows from operating activties: Changes in net assets $ (893,237) Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation 1,038,439 Amortization 70,215 Changes in operating assets and liabilities Restricted cash (5,001,903) Accounts receivable (261,069) Intangible assets (2,106,458) Accounts payable and accrued liabilities 1,462,979 Management fees payable 168,857 Property management advance 123,91A Deferred revenue 203,078 Tenant security deposits 63,853 Net cash provided by operating activities (5,131,332) Cash flows from investing activities: Purchase of property and equipment (29,045,550) Net cash used by investing activities (29,045,550) Cash flows from financing activities: Proceeds from bonds payable 34,355,000 Repayments of bonds payable - Net cash (used by) provided by financing activities 34,355,000 Net(decrease) increase in cash and cash equivalents 178,118 Cash at beginning of year - Cash at end of year $ 178,118 Supplemental disclosures of cash flow information: Cash paid during year for interest $ 1,118,488 See accompanying notes. 4 TEXAS ST'UDEN'T'MOUSING CORPORATION—DENTON PROTECT NOTES TO T'INANCIAT, STATEMENTS .Tame 30, 2002 A. Nature of Business Texas Student Housing Corporation — Denton Project (the "Corporation"), a Texas non-profit organization, was incorporated on May 17, 2001, as 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 Corporation's primary purpose was to purchase, own and operate a student housing facility known as Jefferson Commons (the"Denton Property") in Denton,Texas. The Denton Property was purchased from Jefferson Commons —Denton, L.P. ("JPI") on July 1, 2001. The Corporation obtained its financing through the issuance of Texas Student Housing Corporation — Denton Project 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 Corporation and The Bank of New York (the "Trustee"). The Series 2001A and Subordinate Series 2001B bonds were issued in the amounts of$29,105,000 and $5,250,000, respectively. The Corporation was also established to provide education and/or housing assistance to deserving students residing in the Keller Independent School District, the Carroll Independent School District, and the Northwest Independent School District at institutions of higher education that are aided by the Corporation (the "Student Assistant Program"). The Denton Property is operated and managed under the terms of the (a) Property Management and Leasing Agreement by and between the Corporation and JPI Campus Quarters Management, L.P. and (b) the Asset Management Agreement by and between the Corporation and JPI Apartment Development L.P., (collectively referred to as the "Agreements"). B. Summary of Significant Accounting Policies A summary of the Corporation's significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: Basis of Accounting The financial statements of the Corporation have been prepared on the accrual basis of accounting and accordingly reflect all significant receivables, payables, and other liabilities. The significant accounting policies followed are described below to enhance the usefulness of the financial statements to the reader. 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 and disclosures regarding certain types of assets and liabilities. Such estimates are primarily related to unsettled transactions and events as of the financial statement date. Accordingly, actual results could differ from estimated amounts. ! , ;# • KIRSWOU11 + B. Summary of Significant Accounting Policies—continued 1 For purposes of the statements of cash flows, the Corporation considers all investments and securities with original maturities of three months or less to be cash and cash equivalents. The Corporation had no such investments or securities at June 30, 2002. Restricted Cash Restricted cash represents amounts held by the Trustee, which are restricted for the payment of expenses as required by the Trust Indenture. Deferred Financing Costs and Amortization Deferred financing costs represent certain costs incurred in connection with the issuance of the Bonds. These costs are being amortized straight-line over the life of the Bonds or 30 years. Property and equipment have been recorded at the date of acquisition at cost. Routine maintenance and repair costs are expensed as incurred. As assets are retired or disposed of the associated cost of assets retired and the related accumulated depreciation are removed from the accounts. There were no retirements during the period from inception (May 17, 2001) through June 30, 2002. Expenditures directly related to the improvement of property are capitalized at cost. The Corporation capitalizes the cost of roof replacement, appliances, and expenditures for other major property improvements, as well as rehabilitation and repositioning costs incurred. Depreciation is computed using the straight-line method over the estimated useful lives as follows: Building 30 years Furniture, fixtures and equipment 3 to 20 _years Revenue Recognition Rental and other income are recorded on the accrual method of accounting and recognized as earned. Deferred Revenue The Corporation reports prepaid rental income as revenue when the rental income is due from the tenant. Such amounts received but not yet earned as of year end are reported as deferred revenue. 0 TE) AS STUDENT HOUSING CORPORATION—DENTON PROJECT NOTES TO FINANCIAL STATEMENTS (continued) B. Summary of Significant Accounting Policies—continued Financial Statement Presentation The Corporation presents their financial statements in accordance with SFAS No. 117, "Financial Statements of Not-for-Profit Corporations". Under SFAS No. 117, the Corporation is required to report information regarding their financial position and activities according to three classes of net assets: unrestricted, temporarily restricted, and permanently restricted. In addition, the Corporation is required to present a statement of cash flows. Restriction of Revenue Rental income received from the operation of the Denton Property is restricted by terms of the Trust Indenture for the purpose of satisfying the amounts owed by the Corporation to the bondholders and for the payment of operating expenses incurred by the property. C. Restricted Cash Restricted cash are monies held by the Trustee as required by the Trust Indenture. At June 30, 2002, restricted cash consists of the following funds and accounts: 5,001,903 The following is a brief description of the fiends making up the restricted cash balance at year end, as defined by the Trust Indenture: Revenge Fund — The revenue fund was established for monthly deposits from the depository account that holds general revenues of the Corporation. All monies are deposited in the revenue fund and then properly distributed to the other funds, as required by the Trust Indenture. Amounts in this fund at year end represent amounts that have not been distributed to the other funds due to timing of the interfund transfers. 7 200' Revenue Fund $ 9,982 Bond Fund—Series 2001 A 972,797 Bond Fund—Series 2001 B 262,345 Project Fund 117,624 Debt Service Reserve Fund— Series 2001 A 2,466,326 Debt Service Reserve Fund— Series 2001 B 538,810 Repair and Replacement Fund 89,816 Surplus Fund 16 Trustee Fee Fund 4,186 Series B Principal Fund 540,001 5,001,903 The following is a brief description of the fiends making up the restricted cash balance at year end, as defined by the Trust Indenture: Revenge Fund — The revenue fund was established for monthly deposits from the depository account that holds general revenues of the Corporation. All monies are deposited in the revenue fund and then properly distributed to the other funds, as required by the Trust Indenture. Amounts in this fund at year end represent amounts that have not been distributed to the other funds due to timing of the interfund transfers. 7 TEXAS STUDENT HOUSING CORPORATION—DENT®N PROJECT NOTES TO FINANCIAL STATEMENTS (continued) C. Restricted Casio—continued 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 find 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. Project Fund — The project fund shall be used solely for the purposes of purchasing assets from the Seller. Debt Service Reserve Fznad—There are two accounts in the debt service reserve find; the "2001A Account" and the "200113 Account". The amounts on deposit in the debt service reserve fund are for the purpose of paying principal of and interest on the Series 2001A Bonds (solely from the 2001A Account) and the Series 2001B Bonds (solely from the 2001B Account) as amounts become due in the event there should be insufficient finds for said purposes in the bond fund. Repair and Replacement Fund—Amounts in the repair and replacement fund (a) may be used to pay the maintenance and repair costs related to the Denton Property, which the Corporation is obligated to pay pursuant to the Trust Indenture and (b) may be 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 Find—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 Corporation 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. The release tests are: (a) The fixed charge coverage ratio for the most recent fiscal year for which audited financial statements relating to the Corporation have been delivered to the Trustee was at least 1.15 for each fiscal year ending in or prior to 2006, and 1.25 for each fiscal year thereafter; and (b) The annual budget for the then current fiscal year has established rates, fees and charges such that the fixed charges coverage ratio for such current fiscal year is projected to be at least 1.15 for each fiscal year ending in or prior to 2006, and 1.25 for each fiscal year thereafter. Trustee Fee Fund—Amounts are set aside in the trustee fee fund on a monthly basis and are intended to pay the fees to the Trustee at year end. As of year end these fees have not been paid and are appropriately accrued in the Statement of Financial Position. .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. TEXAS STUDENT HOUSING CORPORATION—DENTON PROJECT NOTES '. i D. Temporarily Restricted Net Assets Temporarily restricted net assets represent excess of expenses over revenues in the amount of 5769,323 for 2002. Temporarily restricted net assets are restricted for the operations of the Denton Property and the repayment of principal and interest associated with the Trust Indenture entered into by the Corporation and the Trustee. E. Income Taxes The Corporation is exempt from federal income taxes pursuant to the Act. WIWMIMrM The Bonds are Tax-Exempt Governmental Obligations under the Internal Revenue Code. The bonds payable represents 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 generated by the Denton Property and are secured by, the revenues pledged and assigned under the teens of the Trust Indenture. Future payments for principal are as follows: June 30, 2003 June 30, 2004 June 30, 2005 June 30, 2006 June 30, 2007 Thereafter 9 Principal Payment $ 540,000 590,000 695,000 805,000 1,235,000 30,490,000 34.355.000 TEXAS STUDENT HOUSING CORPORATION—DENTON PROJECT NOTES TO FINANCIAL STATEMENTS (continued) F. Bonds Pavable—continued The Bonds bear interest at the rates per annum, as described below, computed on the basis of a 360-day year consisting of twelve 30-day months, payable semi-annually beginning January 1, 2002, and payable on July 1 and January 1 of each year thereafter. Interest rates for the Bonds are as follows: Maturity Series 2001A Bonds Interest Year Principal Amount Rate 2007 $ 1,100,000 5.000% 2011 2,230,000 6.000% 2016 3,685,000 6.750% 2021 5,110,000 6.750% 2031 16,980,000 6.850% Maturity Series 2001B Bonds interest Year Principal Amount Rate 2006 $ 3,250,000 9.375% 2031 2,000,000 11.000% Interest expense incurred on the Bonds for the period from inception (May 17, 2001) through June 30, 2002, was approximately$2,350,000. G. Employee Benefit Plan Employees of the Denton Property are eligible to participate in the JPI 401(lc) Profit Sharing Retirement Plan (the "Plan"). Employee salary deferrals into the Plan are matched by the Corporation up to 3% of employee compensation as defined by the Plan. The Corporation's contributions to the Plan were approximately $200 for the period from inception (May 17, 2001) through June 30, 2002. H. Management fees The Corporation pays JPI property and asset management fees for the management of the Denton Property. The Corporation recorded property and asset management fees of approximately $224,000 and $52,000, respectively for the period from inception (May 17, 2001) through June 30, 2002. At June 30, 2002, the Corporation has recorded unpaid Property and Asset Management Fees of approximately $170,000. 10 TEXAS STUDENT HOUSING CORPORATION—DENTON PROJECT NOTES TO FINANCIAL STATEMENTS (continued) I. Contingencies During the period from inception (May 17, 2001) through June 30, 2002, JPI advanced approximately $124,000 to the Corporation according to the teens of the Property Management and Leasing Agreement ("Agreement) dated July 1, 2001. In the terms of the Agreement, JPI is required to obtain approval from the Board of Directors of the Corporation prior to advance of funds. The Board of Directors of the Corporation are currently disputing this advance with JPI and the associated loan documents due to JPI not obtaining advance approval from the Board of Directors of the Corporation. The outcome of the dispute is unknown; therefore the liability has been included in the accompanying financial statements of the Corporation at June 30, 2002. 11 � � � l TEXAS STUDENT HOUSING C0RyQ&TD}N'DENT0NPROJECT SCHEDULE l-SCHEDULE{}F REVENUES AND EXPENSES | For the Period from Inception (May 17`20UD through June 3O,ZO02 Actual Budaet Variance | Revenue and Other Support: | ' Rental income S 3,470.561 S 3.847,312 (376.751) Other income 359,811 396,642 | 3,830,372 --� -�� 4243 V54 ---� ��—�' 8 ---������- i Operating Expenses: Property management 333.853 345,754 (12,701) General and administrative 240.117 86.258 153,859 � Repairs and maintenance 252,211 148.769 111,442 DdUbos 321,762 405.855 (84.093) Property management fees 223.858 244.200 (20.358) � Asset management fees 52,250 57.000 (4,750) Depreciation and amortization 1,108,654 -_ 1,108,654 i 2,531,897 l 27V_—_� ���_X36 1,252,061 _--�c ���_ | Excess of revenue over expense from operations 1.298.475 2`964,118 (1.665.643) < Other(inonme) and expense Interest income (161.916) ' (161'916) Interest expense 2,353,628 2,353,628 ) / 2l9ic �7l2 —_� - 2,191,712 �-�-�--- | Bxrexso[expenses over revenue S S 2,964,118 S 12 Texas Student Housing Corporation—Denton Project Schedule 11—Certification 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 ("Corporation") and the Bank of New York ('`Trustee"), dated July 1, 2001, relating to Texas Student Housing Corporation — Denton Project Student Housing Revenue Bonds (University of North Testing Project - the `'Indenture"), to certify the Fixed Charges Coverage Ratio as of June 30, 2002. 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 (1) and(ii) above. The audited financial statements indicate revenue available for fixed charges for the period from Inception (May 17, 2001) though June 30, 2002, to be $3,019,960. The maximum annual debt service for the bonds is $3,465,280. Based on the above revenues and fixed charges, we hereby certify that the Fixed Charges Coverage Ratio as of June 30, 2002 is 0.87, which is not in compliance with the Indenture. 13