BEAUMONT MULTI-FAMILY HOUSING DEVELOPMENT CORPORATION LEXINGTON ON THE LAKES AUDITED FINANCIAL STATEMENTS September 30,2013 Goldie Roberts Certified Public Accountant 8518 S Kays Chapel Rd Fredericksburg, IN 47120 812-472-3527 870 Cinderella Court Decatur, GA 30033 404-297-9881
BEAUMONT MULTI-FAMILY HOUSING DEVELOPMENT CORPORATION September 30, 2013
TABLE OF CONTENTS Page Independent Auditor's Report 1 FINANCIAL STATEMENTS Statement of Net Position Statement of Changes in Net Position Statement of Cash Flows Notes to Financial Statements 2 4 5 6
Goldie Roberts Certified Public Accountant 8518 S Kays Chapel Rd Fredericksburg, Indiana 47120 Independent Auditors' Report To t he Members of t he Beaumont Multi - Family Housing Development Corporation I have audited t he accompanying financial statements of Beaumont Multi-Family Housing Development Corporation, which comprise the Statement of Net Position as of September 30, 2013, and the relat ed Statement of Changes in Net Position and cash flows for the year then ended, and the related notes t o the financial stat ements. Management's Responsibility For The Financial Statements Management is respons i ble for the preparation a nd fair presentation of t hese financial statements in accordance with accounting principals generally accepted in the Uni t ed States of America; this includes the design, i mplementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free form material mi sstatement, whether due to fraud or error. Auditor's Responsibility My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that I plan and perform the audits to obtain reasonable assurance about whether the financial stat ements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the a ssessment of the risks of material misstatement of the financial statements, whether due to fraud or error. I n making those risk assessments the audit or considers internal control relevant to the entity's preparation a nd fair pr esentation of the financial statements in order to design audit procedures that are appr opriate in the cir cumstances I but not for the pur pose of expressing an opinion of the effectiveness of the entity' s internal control. Accordingly, I express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and t he reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statement s. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion. Opinion In my opinion, the financial statements referred to above present fairl y, in all material respects, the financial position of Beaumont Mul ti-family Housing Devel opment Corporation as of September 30, 2013, and the results of i ts operati ons and changes in partners ' capital, and its cash f lows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Fredericksburg, Indiana November 13, 2013 qrid il l±>ws Certified Public Accountant
FINANCIAL STATEMENTS
BEAUMONT MULTI-FAMILY HOUSING DEVELOPMENT CORPORATION STATEMENT OF NET POSITION SEPTEMBER 30, 2013 LEXINGTON ON THE LAKES ASSETS Current assets Cash and cash equivalents $ Tenant accounts receivable, net Prepaid e xpenses 36, 956 3, 027 33, 3 60 Total current assets 73, 3 43 Property and equipment Assets not being deprec i a ted : Land 42 9,866 Assets being depreci ated: Furniture a nd e qui pment Buildi ngs Accumul ated de preci ation Ne t assets being dep r eciated: 52, 157 6, 970,609 (3, 081, 150) 3, 94 1, 616 Total property and equipment 4,371,482 Other assets Restricted cash and investments Bond issue cost s, net 1, 252, 82 8 2 78, 489 Total other assets 1, 531, 317 TOTAL ASSETS $ 5, 976, 142 The accompanying notes are an integr a l part of t hese financi al statements 2
BEAUMONT MULTI-FAMILY HOUSING DEVELOPMENT CORPORATION STATEMENT OF NET POSITION SEPTEMBER 30, 2013 LEXINGTON ON THE LAKES LIABILITIES AND NET POSITION Current liabilities Accounts payable Tenant security deposits Accrued expenses Bond interest Deferred revenue CUrrent portion of long term debt $ 44,112 43,296 167,429 9,931 220,000 Total current liabilities 484,768 Long-term Liabilities Bonds payable Less current portion 6,685,000 (220,000) Total long term liabilities 6,465,000 TOTAL LIABILITIES 6,949,768 Net position (deficit): (973,626) TOTAL LIABILITIES AND NET POSITION (DEFICIT) $ 5,976,142 The accompanying notes are an integral part of these financial statements 3
BEAUMONT MULTI-FAMILY HOUSING DEVELOPMENT CORPORATION STATEMENT OF CHANGES IN NET POSITION FOR THE YEAR ENDED SEPTEMBER 30, 2013 LEXINGTON ON THE LAKES INCOME Rental income Other income $ 1,090,390 30,478 TOTAL INCOME 1,120,868 EXPENSES: Administrative Utilities Ordinary maintenance and operation Taxes and insurance Other general expense Depreciation and amortization 91,581 99,057 214,221 69,731 28,774 254,214 TOTAL EXPENSES 757,578 NET OPERATING INCOME 363,290 OTHER INCOME (EXPENSE): I nterest income Interest expense 2 (504,765) NET OTHER INCOME (EXPENSE) (504,763) NET INCOME (141,473) NET POSITION AT BEGINNING OF YEAR (832,153) NET POSITION AT END OF YEAR $===(",,9=7=3~, 6~2",,6~) The accompanying notes are an integral part of these financial statements 4
BEAUMONT MULTI-FAMILY HOUSING DEVELOPMENT CORPORATION STATEMENT OF CASH FLOWS FOR THE YEAR ENDED SEPTEMBER 30, 2013 LEXINGTON ON THE LAKES CASH FLOWS FROM OPERATING ACTIVITIES Net change in net position Ad j ustments to reconcile net income to net cash Provided by operat ing acti vities Add back non-cash items: Depreciation and amortization Changes in operating assets and liabilities $ (141,473) 254,214 (Increase) Decrease in: Accounts receivable Prepaid expenses ( 651) 24,108 Increase (Decrease) in: Accrued expenses (4,954) Accounts payable 1,524 Deferred revenue 5,404 Tenant security deposits (1,596) Net Cash Flows Provided (Used) by Operating Activities 136,576 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investments (21,047) Net Cash Flows Provided (Used) by Investing Activities (21,047) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Purchase of capital assets Payments on Mortgage (105,000) Net Cash (Used) in Capital and Related Financing Activities (105,000) Net Increase (Decrease) in Cash 10,529 BEGINNING CASH ENDING CASH $ 26,425 36,956 Supplemental Data: Interest on Mortgage for the year $ 504,765 The accompanying notes are an integral part of these financial statements 5
BEAUMONT MULTI-FAMILY HOUSING DEVELOPMENT CORPORATION NOTES TO FINANCIAL STATEMENTS September 30, 2013 1. Summary of significant accounting policies Organization - The Beaumont Multi-Famil y Housing Development Corporation, (the "Corporation") is a corporate government entity organized under the Texas Housing Finance Corporation Act, Chapter 394, Local Government Code, as amended, to act on behalf of the Housing Authority of the City of (the "City"). The Corporation was established in 1998 and is to continue as long as bonds or other obligations of the Corporation are outstanding. The Corporation was created to provide a means of financing the cost of residential development that will provide decent, safe and sanitary housi ng for persons of low and moderate income. The Corporation has financed significant amounts o f its activities through the issuance of tax-exempt revenue bonds. The bonds of the Corporation are not debts of the Housing Authority of the City of Beaumont. The Corporation does not participate in any federal government awards programs. The Lexington on the Lakes Project - The Lexington on the Lakes Project (the "Project"), the Corporation's sole project, began in December, 1998, with proceeds from a tax-exempt revenue bond issued by the Corporation, and began significant operati ons. in May, 2000. The project has 152 units, consisting of 40-1br; 76-2br; and 36-3br. Basis of accounting and financial statement presentation - The Corporation maintains its accounts on the accrual basis of accounting, wherein revenues are recorded when earned and expenses are recorded when incurred. The financial statements have been prepared in accordance with generally accepted accounting principals in the United States of America. These standards may differ from those required under governmental accounting standards, and no adjustment s have been made in contempl ation of any such d i fferences. Cash and cash equivalents - In the normal course of doing business, the Corporation may have cash in excess of $100,000 on deposit in indivi dual banks. The Federal Deposit I nsurance Corporation (FDIC) insures only the first $100,000 of funds at member banks. For purposes of the statement of.cash flows, the Corporation considers all highly liquid investments with an original maturity of less than one year to be cash equivalent. Restricted cash - Certain proceeds of the Corporation' s bonds, as well as certain resources set aside for their repayment, are classified as restricted on the financial statements because their use is limited by appl icable bond covenants. Additionally, security deposits received from tenants are placed in separate bank accounts. This money is restricted to use as payment of the final monthly rent or damages or returned to the tenant upon final inspection. Tenant Receivables - Receivabl es for rentals and service charges are r eported net of an allowance for doubtful accounts. The management takes quarterly action as required to write off specific uncol lectible accounts receivable balances. Property and equipment - Property and equipment purchased by the corp~ration is recorded at cost. Maintenance and repairs that do not extend the useful 11fe are expensed as incurred. Additions and improvements, unless minor in amount, are capitalized. Depreciation is calculated using the straight line method over the estimated useful lives of t he depreciable assets, which range from seven to thirty years. 6
BEAUMONT MULTI-FAMILY HOUSING DEVELOPMENT CORPORATION NOTES TO FINANCIAL STATEMENTS September 30, 2013 (Continued) 1. Summary of significant accounting policies (Continued) Bond issuance costs - Bond issuance costs are amortized over the term of the bonds using the straight line method. The amortization of bond issuance costs is reported as amortization expense. Compensated Absences - Compensated absences are those absences for which employees will be paid, such as vacation and sick leave. A liability for compensated absences that is attributable to services already rendered and that are not contingent on a specific event that is outside the control of the entity and its employees, is accrued as employees earn t he rights to t he benefits. Compensated absences that relate to future services or that are contingent on a specific event that is outside the control of the Authority and its employees, are accounted for in the period in which such services are rendered or in which such events take place. 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 of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expense during the reporting period. Accordingly, actual results could differ from those estimates. 2. Accounts receivable Accounts receivable at September 30, 2013 consist of the following: Tenant's accounts receivable, net of allowance of $1,680 $ 3,027 The Company follows the practice of filing eviction notices on all tenants where collection problems arise in conformity with Texas laws. All uncollected rents will be reported to the crediting agencies and sent to a collections company. 3. Cash, restricted cash and investments Cash,restricted cash and investments as of September 30, 2013, consists of the following: Bond $ 412,883 Debt service fund 716,707 Operating maintenance fund Operating maintenance reserve Fund 32,054 Surplus fund 47,888 Tenant security deposits 43,296 Operating accounts 36,956 Total $ 1,289,784 Article X of the Trust Indenture establishes certain funds for restricted use. These funds invest e xclusively in U.S. Treasury bills, notes and other obligations issued or guaranteed by the U.S. Treasury, and repurchase agreements collateralized by such obligations. This investment is not insured or guaranteed by the FDIC or any other government agency. The carrying value of the investments approximates 7
BEAUMONT MULTI-FAMILY HOUSING DEVELOPMENT CORPORATION NOTES TO FINANCIAL STATEMENTS September 30, 2013 (Continued) 3. Restricted cash and investments (Continued) fair market value at September 30, 2013. The funds are invested by the Trustee, the Bank of New York Mellon and JP Morgan Institutional Trust Services, as of September 30, 2013, respectively. As of September 30, 2013, the funds were invested i n One Group Treasury Only Money Market Fund Class I investments. Bond and debt services fund - Amounts held in the bond fund and debt service fund are restricted for debt servi ce to the extent required by the Trust Indenture. The funds are invested by the Trustee, the Bank of New York Mellon and JP Morgan Institutional Trust Services, as of September 30, 20 13. As of September 30, 2013, the bond and debt service funds Are invested in One Group Treasury Money Market Fund Class I investments. Operating and maintenance fund - Amounts held in the operati ng maintenance fund are restricted for extraordinary maintenance and repair costs related to the Project. SUrplus Fund - Amounts held in the surplus fund are used to remedy any shortfall in the bond fund and any shortfall in t he operating maintenance fund, the debt services reserve fund or the operating maintenance reserve fund. 4. Prepaid Expenses Prepaid expenses at September 30, 2013 consist of the following: Prepaid insurance $ 33. 360 5. Capital assets Capital assets purchased are recorded as capital assets at the time of purchase. Such assets are recorded at cost. Donated assets are recorded at fair market value at the date of donation. Depreciation of property and equipment is computed by the str aight-line method based upon the estimated useful lives of the assets as fol lows: Class Buildings & improvements Furniture, Equipment & Machinery Life 5-40 years 3-7 years I t i s the pol i cy of the Corporation to capitalize assets costing $5,000 or more. 8
BEAUMONT MULTI-FAMILY HOUSI NG DEVELOPMENT CORPORATION NOTES TO FINANC I AL STATEMENTS September 3 0, 2013 (Cont i nued) 5. CaEi t a l a ssets (Continued) A summary in changes i n capital assets is as follows : Beginning Ending Balance Balance 9/30/12 Increases Decreases 9/30/13 Capital assets, not being depreciated : Land $ 429,866 $ $ 0 $ 429,866 Total Capital Assets, not being depreciated: 429,866 429,866 Capit al Assets, being depreciated: Build ings and Improvements 6, 970,609 Furniture, equ ipme nt & Machinery 52, 157 Total Capital Assets, being depreciated 7, 022,766 Less Accumulated Depreciation for : Bui ldings and Improvements ( 2,797,495) 234,687) Furniture, equipment & Machinery 46,233) 2,735) Total Accumulated Depreciation ( 2,843,728) 237,422) Total Capital Assets, being depreciated, net 4, 179,038 237,422) 6, 970, 609 52,157 7,022,766 (3, 032,182) 48,968) (3, 081, 150) 3, 941, 616 Capital Assets, Net ~ 4, 608, 904 ~ ( 237, 422) ~ ~ 4, 371,482 Depreciation e xpense of $237, 421 was incurred during the year. 6. Accounts payable Accounts payab le at September 30, 2013 consist of the following: Vendor ' Accounts payable $ 44, 112 7. Security de p osits Security deposits received from tenants are placed in a separate bank account with JP Morgan Chase Bank, NA. This money is restricted to use a s payme nt of the final monthly rent or damages or returned to the t e nant upon final i nspect ion. 9
BEAUMONT MULTI-FAMILY HOUSING DEVELOPMENT CORPORATION NOTES TO FINANCIAL STATEMENTS September 30, 2013 (Continued) 8. Deferred Revenue Deferred revenue at September 30, 2 013 consist of the following: Prepaid rent $ 9,931 9. Bonds payable Bonds payable consists of the following as of September 30, 2013: Beaumont Multi-Family Housing Revenue Bond Series 1 998 ("Series 1 998 Bonds"); due December 1, 2028; bearing inte rest at 7.5% per annum. Interest due semi-annually on December 1 and June 1, commencing December 1, 1998, through maturity. Less c urrent maturities $ 6,585,000 220,000) $ 6,365,000 Interest of $167,429 has been accrued on the bonds as of September 30, 2013. Interest payments are scheduled for De cember 1, 2013. price dates The Seri es 1998 bonds are subj ect to mandatory sinking fund redemption at a equal to the principal amount thereof, plus interest accrued to the redemption on the dates and i n the principal amounts set forth bel ow: 2014 2015 2016 2017 2018 2019-2023 2024-2028 2029 $ 220,000 240,000 255,000 275,000 300,000 1,880,000 2,735,000 680,000 Covenants of loan agreement $ 6,585,000 Payments of bonds - The Corporation will promptly pay when due the principal and interest on the Bonds at the places, on the dates, and in the manner provided in the Trust Indenture and in the Bonds; provided! however, that the Corporation is not obligated to pay the principal or interest on the Bonds except from the revenues and assets specifically pledged thereto pursuant to the Indenture and neither the faith and credit nor the taxing power of the State or City, i s pledged to the payment of the principal, or interest on the Bonds. Further, the Trustee shal l not provide funds or pay principal of or interest on the bonds except from the revenues and receipts derived from the Deed of Trust and the other securi ty therefore pledged under the I ndenture. No modifications of security: additional indebtedness - The Corporation shall not, without written consent of the Trustee, alter, modify, or cancel, or agree to consent to alter I modi fy or cancel any agreement which relates to or affects the security of the Bonds. The Corporation shall not incur any additional indebtedness prior to or on a parity with the Bonds, except as permitted by the Trustee. 10
BEAUMONT MULTI-FAMILY HOUSING DEVELOPMENT CORPORATION NOTES TO FINANCIAL STATEMENTS September 30, 2013 (Continued) Tax covenants - The Corporation shall not knowingly engage in any activities or take any action which might result in (a) any Bonds becoming an "arbitrage bond" within the meaning of Section 1 48 of the Code or (b) interest on any Bond otherwise becoming includible for federal income tax purpos es i n t h e gross income of the recipients t hereof. The Corporation shall not permit any non-governmental unit as that term is used in the Code to carryon a trade or business at the Project, to the extent that such trade or business would adversely affect the exclusion from gross income of the interest paid on the Bonds. The Corporation covenants that it will take no action that would cause the Series 1998 Bonds to be private activity bonds as described in section 141 of the Code and that it will not fail to take any action that would prevent the Series 1998 Bonds from being private activity bonds and the Corporation will establish reasonable procedures to comply with this covenant. No assignment - The Corporation shall not sell, transfer, assign, pledge, or otherwise dispose of or encumber all or any part of its interest in the Project or in Gross Revenues, except as expressly provided in the Deed of Trust. Insurance - During the term of the Indenture, the Corporation shall maintain or cause to be maintained insurance of such type, in such amounts, and against such risks as are appropriate for facilities of t he size and character as t he Project. All such insurance required by the casualty and liability insurance covenant shall be maintained with an "A" rating or better and a financial size categor y of XII or better from A.M. Best & Co. At the end of every fiscal year the Corporation, commencing with the fiscal year in 1999, the Corporation shall employ or cause to be employed an Insurance Consultant for the purpose of r eviewing the insurance coverage. Annual budget The Corporation shall cause an Annual Budget of all anticipated gross revenues and operating expenses with respect to the Project to be completed no later than March 1 of each year. Rate covenant - The Corporation covenants, s ubject to applicable law, to set rents, fees, and charges for the Project each year such that the income available for debt service after payment of all expenses (other than debt service on the Bonds) is at least 125% of the debt service for the year. 11