HOROVITZ RUDOY& ROTEMAN LLC

Transcription

1 HOROVITZ RUDOY& ROTEMAN LLC CERTIFIED p UBLIC ACCOUNTANTS AND BUSINESS ADVISORS INDEPENDENT AUDITORS' REPORT September 8, 2016 To the Board of Directors SRUF Campus Housing Inc. Slippery Rock, Pennsylvania We have audited the accompanying consolidated financial statements of SRUF Campus Housing Inc. (a nonprofit organization) and subsidiary, which comprise the consolidated statement of financial position as of June 30, 2016 and the related consolidated statements of activities and cash flows from September 10, 2015 (date of inception) to June 30, 2016, and the related notes to the consolidated financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated 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 consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SRUF Campus Housing Inc. and subsidiary as of June 30, 2016 and the changes in net assets and its cash flows from September 10, 2015 (date of inception) to June 30, 2016 in accordance with accounting principles generally accepted in the United States of America. Koppers Building, Sixth Floor 436 Seventh Avenue Pittsburgh, PA Fax: team@hrrcpa.com Member American and Pennsylvania Institutes of Certified Public Accountants Member of CPA Associates International

2 Report on Supplementary Information Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The schedules of consolidating statement of financial position and activities on pages 12 to 13 are presented for purposes of additional analysis and are not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the 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 is fairly stated in all material respects in relation to the consolidated financial statements as a whole.

3 CONSOLIDATED STATEMENT OF FINANCIAL POSITION JUNE 30, 2016 ASSETS CURRENT ASSETS Cash and cash equivalents $ 4,176,105 PROPERTY AND OTHER ASSETS Restricted cash for mortgage loan repayment and capital improvements Land, building and equipment, net $ 11,467,258 I 03,505,323 TOTAL PROPERTY AND OTHER ASSETS 114,972,581 TOT AL ASSETS $ 119,148,686 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable Accrued interest payable Due to affiliate Current portion of debt $ 2, , ,720 3,456,933 TOTAL CURRENT LIABILITIES LONG-TERM DEBT, LESS CURRENT PORTION $ 4,602, ,195,212 TOT AL LIABILITIES TOT AL UNRESTRICTED NET ASSETS TOT AL LIABILITIES AND NET ASSETS 117,797,531 1,351, 155 $ 119,148,686 The accompanying notes are an integral part of the financial statements Page 3

4 CONSOLIDATED ST A TEMENT OF ACTIVITIES FROM SEPTEMBER 10, 2015 (DATE OF INCEPTION) TO JUNE 30, 2016 Unrestricted REVENUE AND OTHER SUPPORT Contributions Student housing rental income Other income $ 695,360 7,284,134 3,004 TOTAL REVENUE AND OTHER SUPPORT $ 7,982,498 STUDENT HOUSING EXPENSES BEFORE DEPRECIATION Professional fees Bank fees Personnel expense Professional services Administrative expense Telephone expense Custodial services Utilities Maintenance & Repairs PASSHE expenses Insurance expenses Furniture lease Base ground rent Management fee Percentage rent 7, ,850 35,792 61, ,416 93, , ,008 36, ,588 2,143 22, , ,997 TOT AL STUDENT HOUSING EXPENSES BEFORE DEPRECIATION OTHER EXPENSES Registration fee Interest expense 2,804, ,729,317 TOT AL STUDENT HOUSING EXPENSES AND OTHER EXPENSES BEFORE DEPRECIATION CHANGE IN NET ASSETS BEFORE DEPRECIATION Depreciation expense 4,534,874 3,447,624 2,096,469 CHANGE IN NET ASSETS 1,351,155 NET ASSETS - BEGINNING NET ASSETS - ENDING $ 1,351,155 The accompanying notes are an integral part of the financial statements Page4

5 CONSOLIDATED STATEMENT OF CASH FLOWS FROM SEPTEMBER 10, 2015 (DATE OF INCEPTION) TO JUNE 30, 2016 CASH FLOWS FROM OPERA TING ACTIVITIES CHANGE IN NET ASSETS ADJUSTMENTS TO RECONCILE CHANGE IN NET ASSETS TO NET CASH PROVIDED BY OPERA TING ACTIVITIES Amortization of debt issuance costs charged to interest expense Depreciation Increase in accounts payable Increase in accrued interest expense Increase in due to affiliate $ 1,351,155 51,720 2,096,469 2, , ,720 NET CASH PROVIDED BY OPERA TING ACTIVITIES $ 4,644,730 CASH FLOWS FROM FINANCING ACTIVITIES Payment of debt issuance costs Change in cash restricted for mortgage loan repayment and capital expenditures Principal payments on long term debt (1,958,726) 2,930,950 ( 1,440,849) NET CASH USED BY FINANCING ACTIVITIES (468,625) INCREASE IN CASH AND CASH EQUIVALENTS 4,176,105 CASH AND CASH EQUIVALENTS - BEGINNING CASH AND CASH EQUIVALENTS - ENDING $ 4,176,105 SUPPLEMENT AL DISCLOSURE Buildings and equipment acquired with debt Cash reserves acquired with debt Debt to acquire assets Interest paid on long-term debt $ 105,601,792 14,398,208 $ 120,000,000 $ 1,523, 181 The accompanying notes are an integral part of the financial statements Page 5

6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Summary of Significant Accounting Policies Nature of Operations: SRUF Campus Housing Inc. (the "Corporation") was organized exclusively for educational, community and general charitable purposes, including such purposes as to provide on-campus housing at Slippery Rock University of Pennsylvania (the "University") and for the making contributions to organizations that qualify as exempt organizations under Section 50l(c)(3) of the Internal Revenue Code. SRUF Campus Housing Inc. was incorporated under the laws of the Commonwealth of Pennsylvania on September I 0, 2015, and is a non-profit organization as described in Section 50 I (c)(3) of the Internal Revenue Code. SRUF Student Housing LLC (the "LLC") is a single member LLC with SRUF Campus Housing Inc. as the sole managing member. The LLC was formed for the purpose of owning and operating student housing for the students of Slippery Rock University of Pennsylvania. Principles of Consolidation: The consolidated financial statements include the accounts of SRUF Campus Housing Inc. and its wholly owned subsidiary SRUF Student Housing LLC. All significant inter-organization accounts and transactions have been eliminated in the consolidated financial statements. Basis of Accounting: The consolidated financial statements of SRUF Campus Housing Inc. and subsidiary have been prepared on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles and accordingly reflect all significant receivables, payables, and other liabilities. Basis of Presentation: The Organization reports information regarding its financial pos1t10n and activities according to three classes of net assets that are based upon the existence or absence of restrictions on use that are placed by its donors: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. There are no temporarily or permanently restricted net assets as of the financial statement date. Unrestricted net assets are resources available to support operations. The only limits on the use of unrestricted net assets are the broad limits resulting from the nature of the Organization, the environment in which it operates, the purposes specified in it corporate documents and its application for tax-exempt status, and any limits resulting from contractual agreements with creditors and others that are entered into in the course of its operations. 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 the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents: For purposes of the statement of cash flows, SRUF Campus Housing Inc. considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Restricted cash is limited in use to establish a reserve fund for twelve months of principal and interest payments on the USDA loan, and for future capital improvements. Property and Equipment: Property and equipment are carried at cost or, if donated, at the approximate fair value at the date of donation. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets. Expenditures for major additions and improvements are capitalized. Repairs and maintenance that do not extend the lives of the applicable assets are charged to expense as incurred. Gain or loss from the retirement or other disposition of assets is included in income. Page 6

7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Summary of Significant Accounting Policies (continued) The estimated useful lives for significant property and equipment categories are as follows: Land improvements Buildings and building improvements Furniture and equipment Expense Allocation: All costs are for the student housing project and are therefore classified as program expenses. Income Taxes: SRUF Campus Housing Inc. is exempt from federal income tax under Section 50l(c)(3) of the Internal Revenue Code. However, income from certain activities not directly related to the Organization's taxexempt purpose is subject to taxation as unrelated business income. In addition, the Organization qualifies for the charitable contribution deduction under Section l 70(b )(I )(A) and has been classified as an organization other than a private foundation under Section 509(a)(2). The LLC is disregarded for federal tax purposes, as such, it is included in the return of the Corporation. The Organization may recognize the tax benefit from a tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities based on the technical merits of the position. Examples of tax positions include the tax-exempt status of the Organization and various positions related to the potential sources of unrelated business taxable income (UBIT). The Organization has analyzed its tax positions taken for filings with the Internal Revenue Service and the state of Pennsylvania. The Organization believes that its income tax filing positions will be sustained upon examination and does not anticipate any adjustments that would result in a material adverse effect on the Organization's financial condition, results of operations, or cash flows. Note 2 - Related Party Transactions The following related party transactions occurred between SRUF Student Housing LLC and the University as of June 30, 2016: Student Housing Base rent expense Percentage rent expense Management fee expense Furniture and telephone lease expense $ 22, , ,937 2,143 The LLC has a payable to the University for expenses associated with the student housing project in the amount of $988,720 as of June 30, Slippery Rock University Foundation made an unrestricted contribution to SRUF Student Housing LLC in the amount of $695,360 as of June 30, Additionally, the LLC purchased the Student Housing project from Slippery Rock University Foundation, Inc. as further detailed in Notes 3, 5, and 6. Page 7

8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 3 - Property and Equipment Property and equipment consist of the following as of June 30, 2016: Building and building improvements Furniture and equipment Other Improvements Accumulated depreciation $ I 01,478,595 3,276, , ,601,792 2,096,469 Property and equipment - net $ The Organization's real property and equipment are pledged as collateral for the USDA loans payable. For the period ended June 30, 2016, depreciation expense amounted to $2,096,469. Note 4 - Concentrations of Risk The Organization received approximately 91 % of its total revenues and support from rental income from the student housing project for the period ended June 30, The Organization maintains its cash balances in one financial institution located in Slippery Rock, PA. The balances are insured by the Federal Deposit Insurance Corporation up to $250,000. At June 30, 2016, the Organization's uninsured cash balances total $15,393,362. Note 5- Debt On January 13, 2016 the Student Housing Project was purchased from SRU Foundation for $120,000,000. SRUF Student Housing LLC financed the acquisition with $120,000,000 in loans from the United States Department of Agriculture (the "USDA"). The notes are secured by the LLC's real property, equipment and furniture, and a pledge of all revenues and receivables. The notes are payable in monthly installments totaling $592,806, including interest at 3.125%, with a maturity date of February 13, The debt service reserve fund is subject to a deposit control agreement with the USDA. Debt issuance costs: The Organization adopted the requirements in F ASB to present debt issuance costs as a reduction of the carrying amount of the related debt rather than as an asset. Amortization of the debt issuance costs is reported as interest expense in the statement of activities. Long-term debt at June 30, 2016, consists of the following: Notes payable USDA $ 118,559,151 Less: Unamortized debt issuance costs 1.907,006 Long Term debt, less unamortized debt issuance costs 116,652,145 Less: Current portion 3,456,933 Total long-term debt, less current portion $ Page 8

9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 5 - Debt (continued) Detail of the debt by note: Creditor Interest rate Monthly installment Balance I USDA 3.125% $ 39,520 $ 7,903,944 2 USDA 3.125% 39,570 7,913,822 3 USDA 3.125% 39,619 7,923,704 4 USDA 3.125% 39,669 7,933,581 5 USDA 3.125% 39,718 7,943,463 6 USDA 3.125% 39,767 7,953,345 7 USDA 3.125% 39,817 7,963,222 8 USDA 3.125% 39,866 7,973,104 9 USDA 3.125% 39,916 7,982, USDA 3.125% 39,965 7,992, USDA 3.125% 40,014 8,002, USDA 3.125% 40,064 8,012, USDA 3.125% 40,113 8,022, USDA 3.125% 40, 163 8,032, USDA 3.125% 35,025 7,004,870 Total $ $ For the year ended June 30, 2016, interest expense amounted to $1,729,317, which amortization of debt issuance costs. includes $51, 720 Estimated maturities of long-term debt are as follows: 2017 $ 3,456, ,566, ,679, ,796, ,916,582 Thereafter 100,143,291 Total $ I 18,552,151 Page 9

10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 6 - Student Housing Facility Project SRUF Student Housing LLC (the "LLC") was formed for the purpose of owning and operating the student housing facilities for the students attending Slippery Rock University. The student housing project consists of six buildings containing 2, 136 beds originally built by the Slippery Rock University Foundation, Inc. (SRU Foundation). The student housing project was purchased from SRU Foundation by the LLC for $120,000,000 on January 13, The purchase price of$120,000,000 was allocated as follows: $14,398,207 to cash reserves and $105,601,793 to real property, furniture, and equipment. The LLC has a contract with the University to collect room and other charges from students and remit such room fees, net of0.5% service fee, to the LLC. The land for the project is leased throughout the term of the debt from the University at $45,947 per year (base rent) with a 2% increase per year throughout the lease term. In addition to the base rent, the LLC is also liable for percentage rent of 30% of the net available cash flow for the year ending June 30, 2016 and 20% for the subsequent years through the remainder of the ground lease term. The lease expires on February 1, 2040; however, when all leasehold mortgages are satisfied in full, the ground lease shall terminate at that date. The following is a schedule of future minimum rental payments required under the above operating lease as of June 30, 2016: Thereafter Total $ 46,866 47,803 48,759 49,734 50, $ Note 7 - Cash and Restricted Cash Under the terms of the loan agreement with USDA, the LLC is required to establish various accounts for the collection of revenue; payment of operating expenses, principal and interest; and for capital reserves and debt service reserves. The capital reserve fund is to be funded on June 25, 2016 at an amount equal to $ for each of the 2,122 beds in the Project. This amount increases 2% annually. The debt service reserve fund is to be funded each month until the amount accumulated is $7, 113,700 (twelve months of principal and interest payments). Cash available for current unrestricted use is reported with cash available with restrictions that is also available for current use in the statement of financial position as cash and cash equivalents. Page 10

11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 7 - Cash and Restricted Cash (continued) Cash and restricted cash as of June 30, 2016 are as follows: Cash and cash equivalents Cash - unrestricted Restricted cash - Revenue fund Restricted cash - Debt service account Restricted cash - Operations and maintenance account Total cash and cash equivalents Restricted cash for mortgage loan repayments and capital improvements Debt service reserve fund Capital reserve fund Total restricted cash for mortgage loan repayments and Capital improvements $ 695,360 2,865, , $ 4,I:Z6,1Q5 $ 7,115,062 4,352,196 $ ,258 Note 8 - Subsequent Events The Corporation has evaluated all subsequent events through the date of the independent auditors' report, which is the date the financial statements were available to be issued. Page 11

12 CONSOLIDATING STATEMENT OF FINANCIAL POSITION JUNE 30, 2016 ASSETS SRUFCampus SRUF Student Housing Inc. Housing LLC Eliminations Total CURRENT ASSETS Cash and cash equivalents $ $ 4,176,105 $ $ 4,176,105 Accounts receivable 1,066,327 (1,066,327) TOT AL CURRENT ASSETS 1,066,327 4,176,105 ( 1,066,327) 4,176,105 PROPERTY AND OTHER ASSETS Restricted cash for mortgage loan repayment and capital improvements 11,467,258 11,467,258 Investment in affiliate 285,678 (285,678) Land, building and equipment, net I 03,505,323 I 03,505,323 TOT AL PROPERTY AND OTHER ASSETS 285, ,972,581 (285,678) 114,972,581 TOT AL ASSETS $ 1,352,005 $ 119,148,686 $ (1,352,005) $ 119,148,686 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable $ 850 $ 1,400 $ $ 2,250 Accrued interest payable 154, ,416 Due to affiliate 2,055,047 (1,066,327) 988,720 Current portion of debt 3,456,933 3,456,933 TOT AL CURRENT LIABILITIES 850 5,667,796 (1,066,327) 4,602,319 LONG-TERM DEBT, LESS CURRENT PORTION 113,195, ,195,212 TOT AL LIABILITIES ,863,008 (1,066,327) 117,797,531 UNRESTRICTED NET ASSETS 1,351, ,678 (285,678) 1,351,155 TOTAL LIABILITIES AND NET ASSETS $ 1,352,005 $ 119,148,686 $ ~1,352,005) $ 119,148,686 See accompanying accountants' report Page 12

13 CONSOLIDATING STATEMENT OF ACTIVITIES FROM SEPTEMBER 10, 2015 (DATE OF INCEPTION) TO JUNE 30, 2016 SRUFCampus SRUF Student Housing Inc. Housing LLC Eliminations Total REVENUE AND OTHER SUPPORT Contributions $ 1,066,327 $ 695,360 $ ( 1,066,327) $ 695,360 Student housing rental income 7,284,134 7,284,134 Other income 3,004 3,004 TOT AL REVENUE AND OTHER SUPPORT 1,066,327 7,982,498 ( 1,066,327) 7,982,498 STUDENT HOUSING EXPENSES BEFORE DEPRECIATION Professional fees 7,520 7,520 Bank fees 5I 51 Personnel expense 597, ,850 Professional services 35,792 35,792 Administrative expense 61,453 61,453 Telephone expense 289, ,416 Custodial services 93,562 93,562 Utilities 379, ,382 Maintenance & Repairs 336, ,008 PASSHE expenses 36,035 36,035 Insurance expenses 231, ,588 Furniture lease 2,143 2,143 Base ground rent 22,973 22,973 Management fee 253, ,937 Percentage rent 456, ,997 TOT AL STUDENT HOUSING EXPENSES BEFORE DEPRECIATION 2,804,707 2,804,707 OTHER (INCOME) EXPENSES Registration fee Interest expense 1,729,317 1,729,317 Earnings in affiliate (285,678) 285,678 Contribution 1,066,327 (1,066,327) TOT AL STUDENT HOUSING EXPENSES AND OTHER (INCOME) EXPENSES BEFORE DEPRECIATION (284,828) 5,600,351 (780,649) 4,534,874 CHANGE IN NET ASSETS BEFORE DEPRECIATION 1,351,155 2,382,147 (285,678) 3,447,624 Depreciation expense 2,096,469 2,096,469 CHANGE IN NET ASSETS 1,351, ,678 (285,678) 1,351,155 NET ASSETS - BEGINNING NET ASSETS - ENDING $ 1,351,155 $ 285,678 $ ~285,678) $ 1,351,155 See accompanying accountants' report Page 13

14 HOROVITZ RUDOY & ROTEMAN LLC CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS ADVISORS INDEPENDENT AUDITORS' REPORT October 18, 2016 Board of Directors SRUF Campus Housing Inc. Slippery Rock, Pennsylvania Report on the Schedule of Expenditures of Federal Awards We have audited the accompanying schedule of expenditures of federal awards of SRUF Campus Housing Inc. and subsidiary from September 10, 2015 (date of inception) to June 30, 2016, and the related notes. Management's Responsibility Management is responsible for the preparation and fair presentation of this financial statement 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 a financial statement that is free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Unifonn Guidance). Those standards and the Unifonn Guidance require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statement. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statement, 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 statement 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 statement. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statement referred to above presents fairly, in all material respects, the expenditures of federal awards of SRUF Campus Housing Inc. and subsidiary for from September 10, 2015 (date of inception) to June 30, 2016, in accordance with accounting pdnciples genernlly accepted in thj~~tat-;;.m:ri~ t-<-<- Ho~, Rudfj Roteman LLC Koppers Building, Sixth Floor 436 Seventh Avenue Pittsburgh, PA Fax: team@hrrcpa.com Member Americon and Pennsylvania Institutes of Certified Public Accountants Member of CPA Associates International

15 SRUF CAMPUS HOUSING INC. AND SUBSIDIARY SCHEDULE OF EXPENDITURES OF FEDERAL AW ARDS FROM SEPTEMBER IO, 2015 (DATE OF INCEPTION) TO JUNE 30, 2016 FEDERAL GRANTO RIP ASS-TROUGH GRANTOR/PROGRAM U.S. Department of Agriculture Community Facilities Loans and Grants Federal CFDA Number Federal Expenditures $ I Page 2

16 SRUF CAMPUS HOUSING INC. AND SUBSIDIARY NOTES TO THE SCHEDULE OF EXPENDITURES OF FEDERAL AW ARDS FROM SEPTEMBER 10, 2015 (DATE OF INCEPTION) TO JUNE 30, 2016 Note A - Basis of Presentation The accompanying schedule of expenditures of federal awards (the Schedule) includes the federal award activity of SRUF Campus Housing Inc. and subsidiary under programs of the federal government from September 10, 2015( date of inception) to June 30, The information in this Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of the operations of SRUF Campus Housing Inc. and subsidiary, it is not intended to and does not present the financial position, changes in net assets, or cash flows of SRUF Campus Housing Inc. and subsidiary. Note B - Summary of Significant Accounting Policies Expenditures reported on the Schedule are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. Note C - Community Facilities Loans and Grants Loan proceeds received from the United States Department of Agriculture are included in the federal expenditures presented in the Schedule. The loan proceeds were used to purchase the Student Housing Project from SRU Foundation. The proceeds of $120,000,000 were used to purchase the cash reserves, real property, and furniture of the student housing project. The USDA has a first lien position on the real property and furniture, and a pledge of all revenues and receivables. The debt service reserve fund is subject to a deposit control agreement with the USDA. The balance of USDA loans outstanding as of June 30, 2016 amounted to $118,559, 15 l. The loans are for a term of24 years, and mature on February 13, Interest accrues on the outstanding principal balance at 3.125% per year. Page 3

17 HOROVITZ RUDOY& ROTEMAN LLC CERTIFIED PUBLIC ACCOUNTANTS AND BUSINESS ADVISORS INDEPENDENT AUDITORS' REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS October 18, 2016 Board of Directors SRUF Campus Housing Inc. Slippery Rock, Pennsylvania We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the consolidated financial statements of SRUF Campus Housing Inc. and subsidiary (a nonprofit organization), which comprise the consolidated statement of financial position as of June 30, 2016, and the related consolidated statements of activities, functional expenses, and cash flows from September 10, 2015 (date of inception) to June 30, 2016, and the related notes to the financial statements, and have issued our report thereon dated September 8, Internal Control over Financial Reporting In planning and performing our audit of the consolidated financial statements, we considered SRUF Campus Housing Inc. and subsidiary's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the consolidated financial statements, but not for the purpose of expressing an opinion on the effectiveness of SRUF Campus Housing Inc. and subsidiary's internal control. Accordingly, we do not express an opinion on the effectiveness of the Organization's internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether SRUF Campus Housing Inc. and subsidiary's financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Koppers Building, Sixth Floor 436 Seventh Avenue Pittsburgh, PA Fax: team@hrrcpa.com Member American and Pennsylvania Institutes of Certified Public Accountants Member of CPA Associates International

18 Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the organization's internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the organization's internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

19 HOROVITZ RUDOY& ROTEMAN LLC CERTIFIED p UBLIC ACCOUNTANTS AND BUSINESS ADVISORS INDEPENDENT AUDITORS' REPORT ON COMPLIANCE FOR EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE REQUIRED BY THE UNIFORM GUIDANCE October 18, 2016 Board of Directors SRUF Campus Housing Inc. Slippery Rock, Pennsylvania Report on Compliance for Each Major Federal Program We have audited SRUF Campus Housing Inc. and subsidiary's compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of SRUF Campus Housing Inc. and subsidiary's major federal programs from September 10, 2015 (date of inception) to June 30, SRUF Campus Housing Inc. and subsidiary's major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Management's Responsibility Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs. Auditors' Responsibility Our responsibility is to express an opinion on compliance for each of SRUF Campus Housing Inc. and subsidiary's major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administratroe Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about SRUF Campus Housing Inc. and subsidiary's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of SRUF Campus Housing Inc. and subsidiary's compliance. Opinion on Each Major Federal Program In our opinion, SRUF Campus Housing Inc. and subsidiary complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended June 30, Koppers Building, Sixth Floor 436 Seventh Avenue Pittsburgh, PA Fax: team@hrrcpa.com Member American and Pennsylvania Institutes of Certified Public Accountants Member of CPA Associates International

20 Report on Internal Control over Compliance Management of SRUF Campus Housing Inc. and subsidiary is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered SRUF Campus Housing Inc. and subsidiary's internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of SRUF Campus Housing Inc. and subsidiary's internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose.

21 SRUF CAMPUS HOUSING INC. AND SUBSIDIARY SCHEDULE OF FINDINGS AND QUESTIONED COSTS FROM SEPTEMBER IO, 2015 (DATE OF INCEPTION) TO JUNE 30, 2016 SUMMARY OF AUDITORS' RESULTS I. The auditors' report expresses an unmodified opinion on the financial statements of SRUF Campus Housing Inc. and subsidiary. 2. No significant deficiencies relating to the audit of the consolidated financial statements are reported in the Independent Auditors' Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Perfonned in Accordance with Government Auditing Standards. 3. No instances of noncompliance material to the consolidated financial statements of SRUF Campus Housing Inc. and subsidiary which would be required to be reported in accordance with Government Auditing Standards were disclosed during the audit. 4. No significant deficiencies or material weaknesses relating to internal control over major federal programs are reported in the Independent Auditors' Report on Compliance for each Major Program and on Internal Control over Compliance Required by the Unifonn Guidance. 5. The auditors' report on compliance for the major federal award programs for SRUF Campus Housing Inc. and subsidiary expresses an unmodified opinion on all major federal programs. 6. Audit findings that are required to be reported in accordance with 2 CFR section I 6(a) are reported in this Schedule. 7. The program tested as a major programs was: Community Facilities Loans and Grants, CFDA #I The threshold used for distinguishing between Type A and B programs was $750, SRUF Campus Housing Inc. and subsidiary was not detennined to be a low-risk auditee. FINDINGS - FINANCIAL ST A TEMENT AUDIT There are no financial statement findings from September 10, 2015 (date of inception) to June 30, FINDINGS AND QUESTIONED COSTS - MAJOR FEDERAL AW ARD PROGRAMS AUDIT There are no federal award findings or questioned costs reported from September 10, 2015 (date of inception) to June 30, Page 8