Description
Corporate Development refers to the planning and execution of a wide range of strategies to meet specific organizational objectives.
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MARYLAND ECONOMIC
DEVELOPMENT CORPORATION
Management's Discussion and
Analysis and Financial Statements
Together With Independent Auditors' Report
For the Years Ended June 30, 2011 and 2010
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MARYLAND ECONOMIC
DEVELOPMENT CORPORATION (MEDeO)
TABLE OF CONTENTS
Management's Discussion and Analysis
Independent Auditors' Report
Financial Statements:
Balance Sheets as of June 30, 2011 and 2010
Statements of Revenues, Expenses, and Changes in Net Deficit
for the Years Ended June 30,2011 and 2010
Statements of Cash Flows for the Years Ended June 30,2011 and 2010
Notes to Financial Statements
Page
1-6
7
8
9
10
11-20
MORGAN VIEW STUDENT :HOUSING,
A PROJECT OF MEDeo
Management's Discussion and Analysis
For the Years Ended June 30, 2011 and 2010
As management of Morgan View Student Housing (the Project), a project of Maryland Economic Development
Corporation (MEDCO), we offer readers of the Project's financial statements this narrative overview and
analysis of the financial activities of the Project for the fiscal years ended June 30, 2011 and 2010.
Management's Discussion and Analysis (MD&A) is designed to (a) assist the reader in focusing on significant
financial issues, (b) provide an overview of the Project's financial activity, and (c) identify changes in the
Project's financial position. We encourage readers to consider the information presented here in conjunction with
the Project's financial statements and accompanying notes.
Financial Highlights
The financial highlights of the Project for the year ended June 30, 2011 were as follows:
• The liabilities of the Project exceeded its assets as of June 30, 2011 by $6,957,000 (net deficit) as a result
of the excess of non-operating expenses, primarily interest expense, over operating income on an annual
basis.
• After recording its first excess of operating income over net non-operating expenses last year, the project
once again incurred an excess of net non-operating expenses over operating income in 2011 as a result of
recording its first ground rent liability in the amount of $855,000. Payment of the ground rent will be
deferred until the Series B bonds and accrued interest have been retired and deferred management fees
have been paid.
• Occupancy ranged between 95.1 % during the summer term to 99.5% during the regular academic year
and averaged 98.5% for the fiscal year.
• Operating revenue increased 4.4% as a result of a 3-4% increase in base rents, depending on unit type,
and an increase in occupancy.
• Bad debt expense decreased an additional $62,000 as a result of on-site management's continuing efforts
to collect rents directly from the university for students receiving fmancial assistance.
The financial highlights of the Project for the year ended June 30, 2010 were as follows:
• The liabilities of the Project exceeded its assets as ofJune 30,2010 by $6,352,000 (net deficit) as a result
of the excess of non-operating expenses, primarily interest expense, over operating income on an annual
basis through 2009.
• The Project recorded its first excess of operating income over net non-operating expenses in 2010.
• Operating revenue increased 2.9% as a result of a 5% increase in base rents.
• Occupancy ranged between 94.3% during the summer term to 99.2% during the regular academic year
and averaged 97.7% for the fiscal year.
1
Financial Highlights - continued
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDeo
Management's Discussion and Analysis
For the Years Ended June 30, 2011 and 2010
• Bad debt expense decreased $75,000 as a result of on-site management's continuing efforts to collect
rents directly from the university for students receiving financial assistance.
Overview of the Financial Statements
This MD&A is intended to serve as an introduction to the Project's financial statements. The Project is intended
to be a self-supporting entity and follows enterprise fund reporting; accordingly, the financial statements are
presented using the economic resources measurement focus and the accrual basis of accounting. Enterprise fund
statements offer short-term and long-term financial information about the activities and operations of the Project.
These statements are presented in a manner similar to a private business such as a commercial real estate project.
The Project's statements consist of two parts: the financial statements and notes to the financial statements.
The Financial Statements
The Project's financial statements are designed to provide readers with a broad overview of its finances, in a
manner similar to a private-sector business.
The balance sheets present information on all of the Project's assets and liabilities, with the difference between
the two reported as net deficit. MEDCO issued limited obligation revenue bonds to provide capital financing for
construction of student housing for Morgan State University. The proceeds were deposited with a trustee and
invested, generally in United States government or agency securities, guaranteed investment contracts or
repurchase agreements, until disbursed for the acquisition or construction of capital assets or retained for the
establishment of certain required reserves. The revenue bonds were issued in MEDCO's name; however,
MEDCO has no obligation for the bonds beyond the resources of the Project.
The statements of revenues, expenses and changes in net deficit present the operating activities of the Project and
sources of non-operating revenues and expenses.
The statements of cash flows present summarized sources and uses of funds for the Project. Cash flows from
operating activities generally represent the results of licensing and operating the Project, exclusive of interest
income and expense. Cash flows from capital and related fmancing and investing activities generally reflect the
incurrence of debt obligations, the subsequent investment of debt proceeds in the Project, periodic principal and
interest payments on the debt and earnings on investments.
The Project is owned by MEDCO; however, at the end of the ground lease, ownership of the Project will revert
to Morgan State University.
2
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDCO
Management's Discussion and Analysis
For the Years Ended June 30, 2011 and 2010
Notes to the Financial Statements
The notes provide additional information that is essential to a full understanding of the data provided in the
financial statements. The notes to the financial statements can be found on pages 11 - 20 of this repOli.
Financial Analysis of Morgan View Student Housing
The following table summarizes the Project's financial position as of June 30:
2011 2010 2009
Current assets $ 2,470,595 $ 2,838,456 $ 2,370,895
Net capital assets 24,133,423 25,060,130 25,972,611
Other assets 5,006,277 4,427,836 4,304,003
Total Assets $ 31,610,295 $ 32,326,422 $ 32,647,509
Current liabilities $ 4,687,187 $ 4,145,197 $ 3,946,400
Non-current liabilities 33,880,024 34,532,915 35,153,937
Total Liabilities $ 38,567,211 $ 38,678,112 $ 39,100,337
Invested in capital assets, net of related debt $ (10,288,053) $ (9,950,940) $ (9,598,617)
Restricted under trust indenture 3,331,137 3,599,250 3,145,789
Total Net Deficit $ (6,956,916) $ (6,351,690) $ (6,452,828)
Significant factors in the changes in the Project's financial position for the year ended June 30,2011 include:
• Current assets decreased $368,000 from a $382,000 decrease in the management fees fund of the trust
resulting from payment of deferred management fees.
• Net capital assets decreased $927,000 due to depreciation of $1,119,000, partially offset by costs of
replacement furniture, carpeting and compressors and a fitness center upgrade.
• Other assets increased $578,000 from a $604,000 increase in deposits to the surplus fund of the trust.
• Current liabilities increased $542,000 as a result of an $855,000 accrual for ground rent offset by a
$385,000 decrease in accounts payable and accrued expenses.
• Non-current liabilities decreased $653,000 from payments of bond principal and capital lease payments
due.
• Net deficit increased $605,000 due to the excess of non-operating expenses over operating income.
3
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDCO
Management's Discussion and Analysis
For the Years Ended June 30,2011 and 2010
Financial Analysis of Morgan View Student Housing - continued
Significant factors in the changes in the Project's financial position for the year ended June 30, 2010 include:
• Net capital assets decreased $912,000 due to depreciation of $1,083,000, partially offset by costs of
replacement furniture and carpeting and a computer lab upgrade.
• Non-current liabilities decreased $621,000 from payments of bond principal and capital lease payments
due.
• Net deficit decreased $101,000 due to the excess of operating income over non-operating expenses.
The following table summarizes the Project's revenues and expenses for the years ended June 30:
2011 2010 2009
Operating Revenues:
Apartment rentals $ 5,956,140 $ 5,638,772 $ 5,448,867
Service fees 76,712 121,820 115,102
Other 187,250 194,674 220,867
Total Operating Revenues 6,220,102 5,955,266 5,784,836
Operating Expenses:
Property operating costs 2,131,314 1,982,721 1,982,169
Management and service fees 271,785 258,634 295,651
Administrative and general 249,450 296,597 370,615
Sales and marketing 33,138 30,657 35,218
Ground rent 854,620
Depreciation 1,119,451 1,083,348 1,084,678
Total Operating Expenses 4,659,758 3,651,957 3,768,331
Operating Income 1,560,344 2,303,309 2,016,505
Net Non-operating Expense (2,165,570) (2,202,171 ) (2,119,537)
Decrease (Increase) in Net Deficit (605,226) 101,138 (103,032)
Net Deficit, beginning of year (6,351,690) (6,452,828) (6,349,796)
Net Deficit, end of year $ (6,956,916) $ (6,351,690) $ (6,452,828)
4
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDeo
Management's Discussion and Analysis
For the Years Ended June 30, 2011 and 2010
Financial Analysis of Morgan View Student Housing - continued
Significant factors in the results for the year ended June 30, 2011 include:
• Occupancy ranged between 95.1% during the summer term to 99.5% during the regular academic year
and averaged 98.5% for the fiscal year.
• Operating revenue increased 4.4% as a result of a 3-4% increase in base rents, depending on unit type.
• Property operating costs increased $149,000 from a $106,000 increase in cleaning costs relating to a
switch to a contractual cleaning service from in-house cleaning, partially offset by a $41,000 decrease in
related payroll.
• Ground rent expense was recognized for the first time in the amount of $855,000.
Significant factors in the results for the year ended June 30,2010 include:
• Occupancy ranged between 94.3% during the summer term to 99.2% during the regular academic year
and averaged 97.7% for the fiscal year.
• Operating revenues increased $170,000 as a result of a 5% increase in base rents.
• Administrative and general expenses decreased $74,000, primarily as a result of the Project changing
from a lease agreement to a license agreement in 2009. This change expedited the eviction process and
resulted in a $75,000 decrease in bad debt expense in the current year
Capital Asset and Debt Administration
Capital Assets
In 2002, MEDeo was requested to assist in the development of a student housing project for Morgan State
University through issuance of its tax-exempt revenue bonds. The proceeds of the bonds were used for the initial
design, construction and furnishing of the Project.
The most significant capital asset events during the year ended June 30, 2011 were the replacement of carpeting
and certain furnishings totaling $125,000, replacement of air conditioning compressors totaling $17,000 and an
upgrade to the fitness center totaling $55,000. The most significant capital asset events during the year ended
June 30,2010 were the replacement of carpeting and certain furnishings totaling $132,000 and an upgrade to the
computer lab totaling $39,000.
5
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDCO
Management's Discussion and Analysis
For the Years Ended June 30, 2011 and 2010
Capital Asset and Debt Administration- continued
Debt
As of June 30, 2011 and 2010, the Project had total bond debt outstanding, net of unamortized bond discount, of
$35,104,000 and $35,694,000, respectively. None of this debt is backed by the full faith and credit of the State of
Maryland or MEDCO. The debt is secured solely by the revenues and assets of the Project. The capital lease
debt of $44,000 and $75,000 as of June 30, 2011 and 2010, respectively, is backed by MEDCO.
There were no major debt activities for the years ended June 30, 2011 and 2010.
Contacting Management of MEDCO
This report is designed to provide Maryland citizens and taxpayers, and our customers, clients, investors and
creditors, with a general overview of the finances of Morgan View Student Housing. If you have questions about
this report or need additional information, contact Maryland Economic Development Corporation, 100 North
Charles Street, Suite 630, Baltimore, MD 21201.
6
Independent Auditors' Report
To the Board of Directors of
Maryland Economic Development Corporation:
STOUT, CAUSEY &
HORNING, P.A.
910 Ridgebrook Road
Sparks, MD 21152
We have audited the accompanying balance sheets of Morgan View Student Housing (the Project), a
project of Maryland Economic Development Corporation (MEDCO), as of June 30, 2011 and 2010, and
the related statements of revenues, expenses, and changes in net deficit and cash flows for the years then
ended. These financial statements are the responsibility of management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits 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 misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Project's
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
As discussed in Note 1, the accompanying financial statements present only the financial position, changes
in financial position and cash flows of the Project and do not purport to, and do not, present the fmancial
position of MEDCO as of June 30, 2011 and 2010, and the changes in its financial position and its cash
flows for the years then ended in conformity with accounting principles generally accepted in the United
States of America.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of Morgan View Student Housing, a project ofMEDCO, as of June 30,2011 and 2010,
and the changes in its financial position and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
The management's discussion and analysis on pages 1 through 6 is not a required part of the basic financial
statements but is supplementary information required by accounting principles generally accepted in the
United States of America. We have applied certain limited procedures, which consisted principally of
inquiries of management regarding the methods of measurement and presentation of the required
supplementary information. However, we did not audit the information and express no opinion on it.
Cc.vs
O
4; fA
September 21, 2011
A Member of SC&H Group, LLC
Phone: (410) 403-1500. Toll Free: (800) 832-3008. Fax: (410) 403-1570. Web: www.SCandH.com
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDCO
Balance Sheets
As o[June 30, 2011 2010
Assets
Current Assets:
Cash and cash equivalents $ 174,528 $ 124,139
Tenant security deposits 214,888 226,388
Deposits with bond trustee - restricted 1,895,215 2,262,270
Accounts receivable, net of allowance for doubtful accounts of$174,000
and $197,000, respectively 109,808 162,497
Interest receivable 19,871 16,421
PreEaid eXEenses and other assets 56,285 46,741
Total Current Assets 2,470,595 2,838,456
Non-current Assets:
Deposits with bond trustee - restricted 4,223,261 3,601,937
Prepaid expense 7,396 16,355
Capital assets:
Buildings and improvements 29,752,792 29,740,751
Fumishinl1,s and eguiEment 4,123,507 4,085,630
33,876,299 33,826,381
Less: Accumulated deEreciation 9,742,876 8,766,251
Net Capital Assets 24,133,423 25,060,130
Deferred financing costs, net of accumulated amortization of
$289,483 and $257,903, respectively 726,335 757,915
PreEaid issuer's fee 49,285 51,629
Total Non-current Assets 29,139,700 29,487,966
Total Assets $ 31,610,295 $ 32,326,422
Liabilities and Net Deficit
Current Liabilities:
Accounts payable and other accrued expenses $ 411,256 $ 796,818
Accrued interest 1,386,269 1,354,204
Rents and fees collected in advance 543,793 548,441
Tenant security deposits 223,462 209,664
Accrued ground rent 854,620
Capital lease obligation 29,787 28,070
Bonds Eaxable 1,238,000 1,208,000
Total Current Liabilities 4,687,187 4,145,197
Non-current Liabilities:
Capital lease obligation 14,085 46,500
Bonds Eayable 33,865,939 34,486,415
Total Non-current Liabilities 33,880,024 34,532,915
Total Liabilities 38,567,211 38,678,112
Commitments (Note 5)
Net Deficit:
Invested in capital assets, net of related debt (10,288,053) (9,950,940)
Restricted under trust indenture 3,331,137 3,599,250
Total Net Deficit (6,956,916) (6,351,690)
Total Liabilities and Net Deficit $ 31,610,295 $ 32,326,422
The accompanying notes are an integral part of these financial statements.
8
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDCO
Statements of Revenues, Expenses, and Changes in Net Deficit
For the Years Ended June 30, 2011 2010
Operating Revenues:
Apartment rentals
Service fees
Other
Total Operating Revenues
Operating Expenses:
Property operating costs
Management and service fees
Administrative and general
Sales and marketing
Ground rent
Depreciation
Total Operating Expenses
Operating Income
Non-operating Revenues (Expenses):
Interest income
Interest expense
Loss on retirement of assets
Net Non-operating Expense
(Increase) Decrease in Net Deficit
Net Deficit, beginning of year
Net Deficit, end of year
$ 5,956,140
76,712
187,250
6,220,102
2,131,314
271,785
249,450
33,138
854,620
1,119,451
4,659,758
1,560,344
40,379
(2,201,409)
(4,540)
(2,165,570)
(605,226)
(6,351,690)
$ 5,638,772
121,820
194,674
5,955,266
1,982,721
258,634
296,597
30,657
1,083,348
3,651,957
2,303,309
34,309
(2,236,480)
(2,202,171 )
101,138
(6,452,828)
$ (6,956,916) $ (6,351,690)
The accompanying notes are an integral part oj these jinancial statements.
9
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDCO
Statements of Cash Flows
For the Years Ended June 30, 2011 2010
Cash Flows from Operating Activities:
Cash received from tenants $ 6,182,605 $ 5,817,174
Cash paid for operating eXEenses (2,958,654) (2,511 ,980)
Net Cash Provided by Operating Activities 3,223,951 3,305,194
Cash Flows from Capital and Related Financing Activities:
Construction, development and equipment expenditures (197,284) (170,867)
Interest paid (2,113,240) (2,147,500)
Principal payments on capital lease obligation (30,698) (31,263)
PrinciEal payments on bonds pal:able (615,000) (585,000)
Net Cash Used in Capital and Related Financing Activities (2,956,222) (2,934,630)
Cash Flows from Investing Activities:
Net purchases of deposits with bond trustee - restricted (254,269) (637,071)
Interest received 36,929 90,37 I
Net Cash Used in Investing Activities (217,340) (546,700)
Net Increase (Decrease) in Cash and Cash Equivalents 50,389 (176,136)
Cash and Cash Equivalents, beginning of year 124,139 300,275
Cash and Cash Equivalents, end of year $ 174,528 $ 124,139
Reconciliation of operating income to net cash provided
by operating activities:
Operating income $ 1,560,344 $ 2,303,309
Adjustment to reconcile operating income to net
cash provided by operating activities:
Depreciation 1,119,451 1,083,348
Provision for doubtful accounts 110,836 172,929
Changes in operating assets and liabilities
Tenant security deposits 11,500 (167,421)
Accounts receivable (58,147) (191,616)
Prepaid expenses and other current assets (585) (34,336)
Deferred management fees 2,344 2,343
Accounts payable and other accrued expenses (385,562) (84,307)
Rents and fees collected in advance (4,648) 218,384
Tenant security deposits 13,798 2,561
Accrued ground rent 854,620
Net cash provided by operating activities $ 3,223,951 $ 3,305,194
Non-cash capital and related financing activities:
Amortization of deferred fmancing costs $ 31,580 $ 31,580
Amortization of issue discount 24,524 24,525
Loss on retirement of assets 4,540
Total non-cash capital and related fmancing activities $ 60,644 $ 56,105
The accompanying notes are an integral part of these financial statements.
10
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDeo
Notes to Financial Statements
For the Years Ended June 30, 2011 and 2010
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
Ownership and Management
Morgan View Student Housing (the Project), located in Baltimore City, Maryland, is a project of the
Maryland Economic Development Corporation (MEDCO). The Project consists of apartments with 794 beds
and is located on land leased from the State of Maryland on behalf of Morgan State University (MSU). The
Project accepted its first residents in August 2003.
Effective July 1,2006, MEDCO entered into a management agreement with ACC SC Management LLC to
provide management, licensing and administrative services for the Project. The agreement had a term of
three years and provided for a fixed fee of $11,070 per month (the Fixed Fee) and an amount (the Variable
Fee Amount) equal to the lesser of 2.5% of gross revenues, as defined, earned during the previous calendar
month or the Fixed Fee amount. The Fixed Fee was subject to a Consumer Price Index change on August 1
of each year and was payable monthly. Effective September 1,2008 and 2007, the Fixed Fee was increased
to $12,321 and $11,288, respectively. The Variable Fee Amount is subordinated to all payments on the
Series A bonds and deposits to the Repair and Replacement Fund.
Effective July 1, 2009, the management agreement was extended for an additional term of three years,
expiring on June 30,2012, and provides for a fixed fee of$12,670 per month (the Fixed Fee) and an amount
(the Variable Fee Amount) by which four percent (4%) of the Rental Revenues collected during such
semester exceeds the Fixed Amount paid during such semester. Management fee expense was $244,442 and
$231,293 for the years ended June 30, 2011 and 2010, respectively.
Pursuant to the trust indenture, MEDCO is entitled to a service fee for administrative support and other
services provided. The service fee was $50,000 for each of the first two years and $25,000 each year
thereafter. Service fee expense was $27,343 for the years ended June 30,2011 and 2010.
Basis of Presentation
The accompanying financial statements present the financial position, changes in financial position, and cash
flows ofthe Project based on amounts specifically identifiable in MEDCO's accounting records. The Project
is a project of MEDCO and, as such, all financial data presented herein is also included in the financial
statements of MEDCO as of and for the years ended June 30,2011 and 2010. However, the accompanying
financial statements present only the Project and do not purport to, and do not present the financial position
ofMEDCO as of June 30,2011 and 2010, and the changes in its financial position and its cash flows for the
years then ended in conformity with accounting principles generally accepted in the United States of
America. MEDCO utilizes the economic resources measurement focus and the accrual basis of accounting in
preparing these financial statements, wherein revenues are recognized when earned and expenses are
recognized when incurred. Also, in preparing these financial statements, MEDCO has adopted paragraph 6
of Statement No. 20 of the Governmental Accounting Standards Board (GASB), Accounting and Financial
Reporting for Proprietary Funds and Other Governmental Entities that use Proprietary Fund Accounting,
under which MEDCO has applied only the applicable Financial Accounting Standards Board
pronouncements issued on or before November 30, 1989, unless they conflict with GASB pronouncements.
11
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDCO
Notes to Financial Statements
For the Years Ended June 30, 2011 and 2010
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
AND RELATED MATTERS - continued
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, the disclosure of contingent assets and liabilities as of the date of the
financial statements and the reported amounts of revenues and expenses recognized during the reporting
period. Actual results may differ from those estimates.
Cash and Cash Equivalents
Short-term investments with maturities of three months or less at date of purchase are classified as cash
equivalents, except that any such investments purchased with funds on deposit with the bond trustee are
classified with such deposits.
Through December 31,2012 all non-interest bearing transaction accounts are fully insured, regardless of the
balance of the account, at all Federal Deposit Insurance Corporation (FDIC) insured institutions. Interest
bearing accounts at all FDIC insured institutions are insured up to $250,000. Periodically, the Project's cash
balances that are maintained with a single financial institution exceed the FDIC insured limits. Management
believes this to be a normal business risk as the deposits are further protected through collateralization as
described below.
The Project is required by Section 22(a) of Article 95 of the Annotated Code of Maryland to collateralize
deposits in banks in excess of federal deposit insurance. Satisfactory collateral is enumerated at Section 6-
202 of the State Finance and Procurement Article of the Annotated Code of Maryland. Bank deposits were
properly collateralized as of June 30,2011 and 2010.
Tenant Security Deposits
Tenant security deposits are held in a money market account and represent tenant security deposits restricted
under state law. As of June 30, 2011, tenant security deposits were underfunded by $8,574. As of June 30,
2010, tenant security deposits were overfunded by $16,724. The over and underfundings are a result of the
timing of receipts and refunds that are transacted in the operating account of the Project. Periodically, funds
are transferred from cash and cash equivalents to tenant security deposits in order to meet the minimum
funding requirements.
Accounts Receivable
Accounts receivable represent past-due rent and various fees charged to residents. The Project provides an
allowance for doubtful accounts based on the estimated collectability of resident accounts. Management's
evaluation is based upon an analysis of past-due accounts and historical collection experience. The
allowance for doubtful accounts was $174,000 and $197,000 as of June 30,2011 and 2010, respectively.
12
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDCO
Notes to Financial Statements
For the Years Ended June 30,2011 and 2010
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
AND RELATED MATTERS - continued
Accounts Receivable - continued
Accounts receivable are written off when it is determined that amounts are uncollectible. Bad debt expense
for the years ended June 30,2011 and 2010 totaled $111,000 and $173,000, respectively.
Capital Assets and Depreciation
Capital assets are carried at cost including interest, carrying charges, salaries and related costs, and
preconstruction costs associated with the development of the Project.
Capital assets are evaluated for impairment on an annual basis under GASB Statement No. 42, Accounting
and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries (GASB No. 42).
GASB No. 42 requires an evaluation of prominent events or changes in circumstances affecting capital assets
to determine whether impairment of a capital asset has occurred. Such events or changes in circumstances
that may be indicative of impairment include evidence of physical damage, enactment or approval of laws or
regulations or other changes in environmental factors, technological changes or evidence of obsolescence,
changes in the manner or duration of use of a capital asset, and construction stoppage. As of June 30, 2011
and 2010, management does not believe that the capital assets of the Project meet the criteria for impairment
as set forth in GASB No. 42.
Depreciation of buildings and improvements is computed using the straight-line method over a useful life of
39 years. Furnishings and equipment are depreciated over three to ten years using the straight-line method.
Deferred Financing Costs
Deferred financing costs represent issuance and other costs associated with the issuance of the bonds. These
costs are amortized to interest expense using the straight-line method over the term of the bonds, which is not
materially different from the effective interest method.
Rents and Fees Collected in Advance
Rents and fees collected in advance represent amounts received for future rental periods on licenses in effect
as of year-end.
Tenant Security Deposits
A security deposit is collected from each tenant upon signing a license agreement. The security deposit is
refunded to the tenant with interest upon termination of the license provided there are no damages or charges
outstanding on the tenant's account. Security deposits payable as of June 30, 2011 and 2010 totaled $223,462
and $209,664, respectively.
13
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDCO
Notes to Financial Statements
For the Years Ended June 30, 2011 and 2010
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
AND RELATED MATTERS - continued
Net Deficit
Net deficit is presented as either invested in capital assets, net of related debt or restricted under the trust
indenture. Net deficit invested in capital assets, net of related debt, represents the difference between capital
assets including deferred financing costs and the related debt obligations. Net deficit restricted under trust
indenture represents the difference between net deficit invested in capital assets, net of related debt and total
net deficit, as all other funds are restricted as to their use under the terms of the trust indenture.
Revenue Recognition
The Project's revenues are derived primarily from licensing of apartments. Revenues are recognized monthly
over the terms of the respective licenses.
Classification of Revenues and Expenses
Revenues and expenses related to the day-to-day activities of the Project are reported as operating revenues
and expenses. Other revenues and expenses, consisting primarily of interest income and interest expense, are
reported as non-operating revenues and expenses.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expenses were $33,138 and $30,657 during the years
ended June 30, 2011 and 2010, respectively.
Income Taxes
MEDCO qualifies for tax-exempt status under Section 501(c)(4) of the Internal Revenue Code and Section
10-104 of the Tax-General Article of the Annotated Code of Maryland. Accordingly, no provision or benefit
for income taxes is included in the accompanying financial statements.
14
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDCO
2. DEPOSITS WITH BOND TRUSTEE
Notes to Financial Statements
For the Years Ended June 30, 2011 and 2010
Pursuant to the provisions of the trust indenture relating to the bonds payable (see Note 4), deposits with
bond trustee include the following reserve funds and restricted accounts as of June 30:
Current assets:
Senior interest fund
Principal fund
Management fees fund
Current portion
Non-current assets:
Debt service reserve fund
Repair and replacement fund
Surplus fund
Non-current portion
Total Deposits with Bond Trustee
$
$
2011 2010
1,046,627 $ ·1,062,121
645,000 615,007
203,588 585,142
1,895,215 2,262,270
2,742,100 2,742,100
757,319 739,638
723,842 120,199
4,223,261 3,601,937
6,118,476 $ 5,864,207
The trust indenture authorizes MEDCO or its trustee bank to invest the deposits as detailed under Credit Risk
below. Interest earned on these investments was approximately $40,000 and $34,000 for the years ended June
30, 2011 and 2010, respectively. Investments of deposits with trustee are carried at fair value, except the non-
participating investment contracts (i.e., contracts which are not able to realize market-based increases or
decreases in value under any circumstance), which are carried at cost. Investments of deposits with trustee
are summarized as follows as of June 30:
Investment agreement with Trinity Plus Funding
Company, LLC bearing interest at 1.464%
and maturing on February 4,2013
Cash
Mutual funds
2011
$ 2,742,100
3,376,376
$ 6,118,476
2010
$ 2,742,100
120,199
3,001,908
$ 5,864,207
MBIA was rated Ba3 by a major credit rating agency at June 30, 2009. As a result of this unfavorable credit
rating, MEDCO terminated the contract at its face value on August 14,2009 and invested the funds in a U.S.
government money market fund. A new investment agreement was negotiated with Trinity Plus Funding
Company, LLC (Trinity) effective February 4, 2010. Trinity is rated Aa2 by Moody and AA+ by Standard
and Poor's as of June 30,2011.
15
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDCO
2. DEPOSITS WITH BOND TRUSTEE- continued
Notes to Financial Statements
For the Years Ended June 30, 2011 and 2010
The Deposits with Bond Trustee are subject to certain risks including the following:
Interest Rate Risk- The trustee has limited investments to money market and mutual funds that invest in U.S.
government securities that can be liquidated at any time to meet the cash flow requirements of the Project and
a fixed rate investment contract that is guaranteed as to the face of the investment as a means of managing
interest rate risk. As a result, the Project is not subject to interest rate risk.
Credit Risk - The Project's trust indenture limits MEDCO's investments to government obligations;
obligations of federal agencies; certificates of deposit issued by and time deposits with commercial banks,
trust companies, or savings and loan associations; repurchase agreements for government obligations;
obligations issued by the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation;
senior debt obligations of the Federal Home Loan Bank System; commercial paper; U.S. dollar denominated
deposit accounts; money market funds; public sector investment pools so long as MEDCO's deposit does not
exceed 5% of the aggregate pool balance at any time; bonds or other obligations of any state of the United
States of America, agency, instrumentality or local government unit of any such state which are not callable
at the option of the obligor prior to maturity; general obligations of states; and investment agreements. As
defined in the trust indenture, certain investments listed above must meet specific requirements to be a
qualifying investment, such as high rating qualifications based on information from the major rating agencies,
collateralization requirements, guaranteed repayment, and maturity requirements. The Project's investments
were in compliance with these limitations at June 30, 2011 and 2010.
Concentrations of Credit Risk- MEDCO's investment policy does not limit the amount that may be invested
in anyone issuer except for public sector pool funds as described under Credit Risk above. The Project held
no investments in public sector pool funds or commercial paper as of June 30,2011 and 2010.
Custodial Risk - MEDCO is not subject to custodial risk because mutual funds are not evidenced by
securities that exist in physical form and all other deposits are held in the Project's name.
The trust indenture requires the Project to fund the Repair and Replacement Fund $185 per bed per year
increasing 3% per year from cash flows for future capital repairs and replacement of furnishings and
equipment. These funds are to be segregated in a separate account within the trust. The Repair and
Replacement Fund was fully funded as of June 30, 2011 and June 30, 2010.
16
3. CAPITAL ASSETS
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDCO
Notes to Financial Statements
For the Years Ended June 30, 2011 and 2010
Capital assets activity for the years ended June 30, 2011 and 2010 is summarized as follows:
Beginning Ending
2011 balance Additions Retirements balance
Buildings and improvements $ 29,740,751 $ 12,041 $ $ 29,752,792
Furnishings and equipment 4,085,630 185,243 (147,366) 4,123,507
33,826,381 197,284 (147,366) 33,876,299
Less: Accumulated depreciation
Buildings and improvements (5,571,428) (813,173) (6,384,601)
Furnishings and equipment (3,194,823) (306,278) 142,826 (3,358,275)
(8,766,251) (1,119,451) 142,826 (9,742,876)
Net Capital Assets $ 25,060,130 $ (922,167) $ (4,540) $ 24,133,423
Beginning Ending
2010 balance Additions Retirements balance
Buildings and improvements $ 29,740,757 $ (6) $ $ 29,740,751
Furnishings and equipment 4,065,772 170,873 (151,015) 4,085,630
33,806,529 170,867 (151,015) 33,826,381
Less: Accumulated depreciation
Buildings and improvements (4,758,448) (812,980) (5,571,428)
Furnishings and equipment (3,075,4 70) (270,368) 151,015 (3,194,823)
(7,833,918) (1,083,348) 151,015 (8,766,251)
Net Capital Assets $ 25,972,611 $ (912,481) $ $ 25,060,130
17
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDCO
Notes to Financial Statements
For the Years Ended June 30, 2011 and 2010
4. BONDS PAYABLE AND CAPITAL LEASE OBLIGATION
Bonds payable consists of the following as of June 30:
2011 2010
Series 2002 Serial bonds bearing interest at rates ranging
from 4.80% to 5.20% and maturing from July 1,2009
through July 1,2012 $ 1,325,000 $ 1,940,000
Series 2002 Term bonds bearing interest at 6.00% and
payable in annual sinking fund installments from July 1,
2013 through July 1,2034 33,750,000 33,750,000
Series 2002 B bonds bearing interest at 8.00% and
maturing May 1, 2009 593,000 593,000
Unamortized issue discount (564,061) (588,585)
Total bonds payable 35,103,939 35,694,415
Less current portion (1,238,000) (1,208,000)
Bonds payable, less current portion $ 33,865,939 $ 34,486,415
The bonds are secured by a deed of trust on the Project and a general assignment of related revenues and
deposits. They are limited obligations of MEDeo and are payable solely from the Project's revenues, as
defined in the trust indenture. Interest on the Series 2002 Serial and Term bonds are payable semiannually on
January 1 and July 1 and aggregated approximately $2,093,000 and $2,124,000 for the years ended June 30,
2011 and 2010, respectively. The issue discount is being amortized on a straight-line basis over the term of
the bonds, which is not materially different from the effective interest method.
Interest on the Series 2002 B bonds is payable from available funds, if any, on deposit in the surplus fund.
Interest expense on the Series B bonds was approximately $47,000 for the years ended June 30, 2011 and
2010. Payment of the principal on the Series 2002 B bonds maturing May 1, 2009 was not made due to
insufficient funds. This does not constitute an event of default under the trust indenture covering the bonds.
The Series 2002 B bonds will continue to accrue interest until there are sufficient funds to pay the accrued
interest and principal.
In accordance with the trust indenture, the Project is required to produce a coverage ratio, as defined, of not
less than 1.2 as of the last day of each fiscal year. The Project met the coverage ratio as of June 30, 2011 and
2010.
18
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDCO
Notes to Financial Statements
For the Years Ended June 30, 2011 and 2010
4. BONDS PAYABLE AND CAPITAL LEASE OBLIGATION - continued
Future payments on bonds payable are due as follows as of June 30, 2011:
Total Principal Interest
Year ending June 30:
2012 $ 3,298,360 $ 1,238,000 $ 2,060,360
2013 2,705,000 680,000 2,025,000
2014 2,697,100 715,000 1,982,100
2015 2,696,500 760,000 1,936,500
2016 2,693,200 805,000 1,888,200
2017 - 2021 13,406,800 4,795,000 8,611,800
2022 - 2026 13,311,900 6,420,000 6,891,900
2027 - 2031 13,184,400 8,595,000 4,589,400
2032 -2035 12,995,000 11,660,000 1,335,000
66,988,260 35,668,000 31,320,260
Less: unamortized bond discount (564,061) (564,061)
$ 66,424,199 $ 35,103,939 $ 31,320,260
The Project is obligated under a capital lease agreement for equipment expiring in 2013. The cost of
equipment under the capital lease is included in the accompanying balance sheets as furnishings and
equipment and was $147,336 at June 30,2011 and 2010. Accumulated amortization of the leased equipment
at June 30, 2011 and 2010 was $117,415 and $87,927, respectively. Amortization of assets under capital
leases is included in depreciation expense.
Future minimum payments under the agreement at June 30, 2011 are summarized as follows:
2012
2013
Less: amounts representing interest
Present value of future minimum payments under
capital lease obligations
$ 31,449
14,295
45,744
1,872
$ ===4::::3,=8=72=
19
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDCO
Notes to Financial Statements
For the Years Ended June 30, 2011 and 2010
4. BONDS PAYABLE AND CAPITAL LEASE OBLIGATION - continued
Activity in bonds payable and capital lease obligations for the years ended June 30, 2011 and 2010 is
summarized as follows:
Bonds Capital
Payable Lease
Balance June 30, 2009 $ 36,254,890 $ 105,833
Additions
Amortization of bond discount 24,525
Principal payments (585,000) (31,263)
Balance June 30, 2010 35,694,415 74,570
Additions
Amortization of bond discount 24,524
Principal payments (615,000) (30,698)
Balance June 30, 2011 $ 35,103,939 $ 43,872
Due within one year $ 1,238,000 $ 29,787
5. GROUND LEASE
The land underlying the Project is leased from the State of Maryland under a non-cancelable operating lease
expiring on the earlier to occur of April 30, 2042 or the date on which the bonds have been fully repaid. Rent
payable under the lease is equal to "net revenues," as defined. Payment of the rent is subordinated to all
payments required under the bonds payable and related trust indenture. Ground rent expense was $854,620
and $-0- in for the years ended June 30, 2011 and 2010, respectively.
The lease provides various conditions and restrictions on the use, operation and maintenance of the Project
and provides the State of Maryland on behalf of Morgan State University an option to purchase the Project
improvements for a price of $1 plus the outstanding balance of the bonds payable (or other permitted debt)
at any time during the lease term. Title to the Project improvements will revert to Morgan State University
upon termination ofthe lease.
20
doc_636328097.pdf
Corporate Development refers to the planning and execution of a wide range of strategies to meet specific organizational objectives.
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MARYLAND ECONOMIC
DEVELOPMENT CORPORATION
Management's Discussion and
Analysis and Financial Statements
Together With Independent Auditors' Report
For the Years Ended June 30, 2011 and 2010
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MARYLAND ECONOMIC
DEVELOPMENT CORPORATION (MEDeO)
TABLE OF CONTENTS
Management's Discussion and Analysis
Independent Auditors' Report
Financial Statements:
Balance Sheets as of June 30, 2011 and 2010
Statements of Revenues, Expenses, and Changes in Net Deficit
for the Years Ended June 30,2011 and 2010
Statements of Cash Flows for the Years Ended June 30,2011 and 2010
Notes to Financial Statements
Page
1-6
7
8
9
10
11-20
MORGAN VIEW STUDENT :HOUSING,
A PROJECT OF MEDeo
Management's Discussion and Analysis
For the Years Ended June 30, 2011 and 2010
As management of Morgan View Student Housing (the Project), a project of Maryland Economic Development
Corporation (MEDCO), we offer readers of the Project's financial statements this narrative overview and
analysis of the financial activities of the Project for the fiscal years ended June 30, 2011 and 2010.
Management's Discussion and Analysis (MD&A) is designed to (a) assist the reader in focusing on significant
financial issues, (b) provide an overview of the Project's financial activity, and (c) identify changes in the
Project's financial position. We encourage readers to consider the information presented here in conjunction with
the Project's financial statements and accompanying notes.
Financial Highlights
The financial highlights of the Project for the year ended June 30, 2011 were as follows:
• The liabilities of the Project exceeded its assets as of June 30, 2011 by $6,957,000 (net deficit) as a result
of the excess of non-operating expenses, primarily interest expense, over operating income on an annual
basis.
• After recording its first excess of operating income over net non-operating expenses last year, the project
once again incurred an excess of net non-operating expenses over operating income in 2011 as a result of
recording its first ground rent liability in the amount of $855,000. Payment of the ground rent will be
deferred until the Series B bonds and accrued interest have been retired and deferred management fees
have been paid.
• Occupancy ranged between 95.1 % during the summer term to 99.5% during the regular academic year
and averaged 98.5% for the fiscal year.
• Operating revenue increased 4.4% as a result of a 3-4% increase in base rents, depending on unit type,
and an increase in occupancy.
• Bad debt expense decreased an additional $62,000 as a result of on-site management's continuing efforts
to collect rents directly from the university for students receiving fmancial assistance.
The financial highlights of the Project for the year ended June 30, 2010 were as follows:
• The liabilities of the Project exceeded its assets as ofJune 30,2010 by $6,352,000 (net deficit) as a result
of the excess of non-operating expenses, primarily interest expense, over operating income on an annual
basis through 2009.
• The Project recorded its first excess of operating income over net non-operating expenses in 2010.
• Operating revenue increased 2.9% as a result of a 5% increase in base rents.
• Occupancy ranged between 94.3% during the summer term to 99.2% during the regular academic year
and averaged 97.7% for the fiscal year.
1
Financial Highlights - continued
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDeo
Management's Discussion and Analysis
For the Years Ended June 30, 2011 and 2010
• Bad debt expense decreased $75,000 as a result of on-site management's continuing efforts to collect
rents directly from the university for students receiving financial assistance.
Overview of the Financial Statements
This MD&A is intended to serve as an introduction to the Project's financial statements. The Project is intended
to be a self-supporting entity and follows enterprise fund reporting; accordingly, the financial statements are
presented using the economic resources measurement focus and the accrual basis of accounting. Enterprise fund
statements offer short-term and long-term financial information about the activities and operations of the Project.
These statements are presented in a manner similar to a private business such as a commercial real estate project.
The Project's statements consist of two parts: the financial statements and notes to the financial statements.
The Financial Statements
The Project's financial statements are designed to provide readers with a broad overview of its finances, in a
manner similar to a private-sector business.
The balance sheets present information on all of the Project's assets and liabilities, with the difference between
the two reported as net deficit. MEDCO issued limited obligation revenue bonds to provide capital financing for
construction of student housing for Morgan State University. The proceeds were deposited with a trustee and
invested, generally in United States government or agency securities, guaranteed investment contracts or
repurchase agreements, until disbursed for the acquisition or construction of capital assets or retained for the
establishment of certain required reserves. The revenue bonds were issued in MEDCO's name; however,
MEDCO has no obligation for the bonds beyond the resources of the Project.
The statements of revenues, expenses and changes in net deficit present the operating activities of the Project and
sources of non-operating revenues and expenses.
The statements of cash flows present summarized sources and uses of funds for the Project. Cash flows from
operating activities generally represent the results of licensing and operating the Project, exclusive of interest
income and expense. Cash flows from capital and related fmancing and investing activities generally reflect the
incurrence of debt obligations, the subsequent investment of debt proceeds in the Project, periodic principal and
interest payments on the debt and earnings on investments.
The Project is owned by MEDCO; however, at the end of the ground lease, ownership of the Project will revert
to Morgan State University.
2
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDCO
Management's Discussion and Analysis
For the Years Ended June 30, 2011 and 2010
Notes to the Financial Statements
The notes provide additional information that is essential to a full understanding of the data provided in the
financial statements. The notes to the financial statements can be found on pages 11 - 20 of this repOli.
Financial Analysis of Morgan View Student Housing
The following table summarizes the Project's financial position as of June 30:
2011 2010 2009
Current assets $ 2,470,595 $ 2,838,456 $ 2,370,895
Net capital assets 24,133,423 25,060,130 25,972,611
Other assets 5,006,277 4,427,836 4,304,003
Total Assets $ 31,610,295 $ 32,326,422 $ 32,647,509
Current liabilities $ 4,687,187 $ 4,145,197 $ 3,946,400
Non-current liabilities 33,880,024 34,532,915 35,153,937
Total Liabilities $ 38,567,211 $ 38,678,112 $ 39,100,337
Invested in capital assets, net of related debt $ (10,288,053) $ (9,950,940) $ (9,598,617)
Restricted under trust indenture 3,331,137 3,599,250 3,145,789
Total Net Deficit $ (6,956,916) $ (6,351,690) $ (6,452,828)
Significant factors in the changes in the Project's financial position for the year ended June 30,2011 include:
• Current assets decreased $368,000 from a $382,000 decrease in the management fees fund of the trust
resulting from payment of deferred management fees.
• Net capital assets decreased $927,000 due to depreciation of $1,119,000, partially offset by costs of
replacement furniture, carpeting and compressors and a fitness center upgrade.
• Other assets increased $578,000 from a $604,000 increase in deposits to the surplus fund of the trust.
• Current liabilities increased $542,000 as a result of an $855,000 accrual for ground rent offset by a
$385,000 decrease in accounts payable and accrued expenses.
• Non-current liabilities decreased $653,000 from payments of bond principal and capital lease payments
due.
• Net deficit increased $605,000 due to the excess of non-operating expenses over operating income.
3
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDCO
Management's Discussion and Analysis
For the Years Ended June 30,2011 and 2010
Financial Analysis of Morgan View Student Housing - continued
Significant factors in the changes in the Project's financial position for the year ended June 30, 2010 include:
• Net capital assets decreased $912,000 due to depreciation of $1,083,000, partially offset by costs of
replacement furniture and carpeting and a computer lab upgrade.
• Non-current liabilities decreased $621,000 from payments of bond principal and capital lease payments
due.
• Net deficit decreased $101,000 due to the excess of operating income over non-operating expenses.
The following table summarizes the Project's revenues and expenses for the years ended June 30:
2011 2010 2009
Operating Revenues:
Apartment rentals $ 5,956,140 $ 5,638,772 $ 5,448,867
Service fees 76,712 121,820 115,102
Other 187,250 194,674 220,867
Total Operating Revenues 6,220,102 5,955,266 5,784,836
Operating Expenses:
Property operating costs 2,131,314 1,982,721 1,982,169
Management and service fees 271,785 258,634 295,651
Administrative and general 249,450 296,597 370,615
Sales and marketing 33,138 30,657 35,218
Ground rent 854,620
Depreciation 1,119,451 1,083,348 1,084,678
Total Operating Expenses 4,659,758 3,651,957 3,768,331
Operating Income 1,560,344 2,303,309 2,016,505
Net Non-operating Expense (2,165,570) (2,202,171 ) (2,119,537)
Decrease (Increase) in Net Deficit (605,226) 101,138 (103,032)
Net Deficit, beginning of year (6,351,690) (6,452,828) (6,349,796)
Net Deficit, end of year $ (6,956,916) $ (6,351,690) $ (6,452,828)
4
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDeo
Management's Discussion and Analysis
For the Years Ended June 30, 2011 and 2010
Financial Analysis of Morgan View Student Housing - continued
Significant factors in the results for the year ended June 30, 2011 include:
• Occupancy ranged between 95.1% during the summer term to 99.5% during the regular academic year
and averaged 98.5% for the fiscal year.
• Operating revenue increased 4.4% as a result of a 3-4% increase in base rents, depending on unit type.
• Property operating costs increased $149,000 from a $106,000 increase in cleaning costs relating to a
switch to a contractual cleaning service from in-house cleaning, partially offset by a $41,000 decrease in
related payroll.
• Ground rent expense was recognized for the first time in the amount of $855,000.
Significant factors in the results for the year ended June 30,2010 include:
• Occupancy ranged between 94.3% during the summer term to 99.2% during the regular academic year
and averaged 97.7% for the fiscal year.
• Operating revenues increased $170,000 as a result of a 5% increase in base rents.
• Administrative and general expenses decreased $74,000, primarily as a result of the Project changing
from a lease agreement to a license agreement in 2009. This change expedited the eviction process and
resulted in a $75,000 decrease in bad debt expense in the current year
Capital Asset and Debt Administration
Capital Assets
In 2002, MEDeo was requested to assist in the development of a student housing project for Morgan State
University through issuance of its tax-exempt revenue bonds. The proceeds of the bonds were used for the initial
design, construction and furnishing of the Project.
The most significant capital asset events during the year ended June 30, 2011 were the replacement of carpeting
and certain furnishings totaling $125,000, replacement of air conditioning compressors totaling $17,000 and an
upgrade to the fitness center totaling $55,000. The most significant capital asset events during the year ended
June 30,2010 were the replacement of carpeting and certain furnishings totaling $132,000 and an upgrade to the
computer lab totaling $39,000.
5
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDCO
Management's Discussion and Analysis
For the Years Ended June 30, 2011 and 2010
Capital Asset and Debt Administration- continued
Debt
As of June 30, 2011 and 2010, the Project had total bond debt outstanding, net of unamortized bond discount, of
$35,104,000 and $35,694,000, respectively. None of this debt is backed by the full faith and credit of the State of
Maryland or MEDCO. The debt is secured solely by the revenues and assets of the Project. The capital lease
debt of $44,000 and $75,000 as of June 30, 2011 and 2010, respectively, is backed by MEDCO.
There were no major debt activities for the years ended June 30, 2011 and 2010.
Contacting Management of MEDCO
This report is designed to provide Maryland citizens and taxpayers, and our customers, clients, investors and
creditors, with a general overview of the finances of Morgan View Student Housing. If you have questions about
this report or need additional information, contact Maryland Economic Development Corporation, 100 North
Charles Street, Suite 630, Baltimore, MD 21201.
6
Independent Auditors' Report
To the Board of Directors of
Maryland Economic Development Corporation:
STOUT, CAUSEY &
HORNING, P.A.
910 Ridgebrook Road
Sparks, MD 21152
We have audited the accompanying balance sheets of Morgan View Student Housing (the Project), a
project of Maryland Economic Development Corporation (MEDCO), as of June 30, 2011 and 2010, and
the related statements of revenues, expenses, and changes in net deficit and cash flows for the years then
ended. These financial statements are the responsibility of management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits 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 misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Project's
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
As discussed in Note 1, the accompanying financial statements present only the financial position, changes
in financial position and cash flows of the Project and do not purport to, and do not, present the fmancial
position of MEDCO as of June 30, 2011 and 2010, and the changes in its financial position and its cash
flows for the years then ended in conformity with accounting principles generally accepted in the United
States of America.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of Morgan View Student Housing, a project ofMEDCO, as of June 30,2011 and 2010,
and the changes in its financial position and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
The management's discussion and analysis on pages 1 through 6 is not a required part of the basic financial
statements but is supplementary information required by accounting principles generally accepted in the
United States of America. We have applied certain limited procedures, which consisted principally of
inquiries of management regarding the methods of measurement and presentation of the required
supplementary information. However, we did not audit the information and express no opinion on it.
Cc.vs
O
4; fA
September 21, 2011
A Member of SC&H Group, LLC
Phone: (410) 403-1500. Toll Free: (800) 832-3008. Fax: (410) 403-1570. Web: www.SCandH.com
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDCO
Balance Sheets
As o[June 30, 2011 2010
Assets
Current Assets:
Cash and cash equivalents $ 174,528 $ 124,139
Tenant security deposits 214,888 226,388
Deposits with bond trustee - restricted 1,895,215 2,262,270
Accounts receivable, net of allowance for doubtful accounts of$174,000
and $197,000, respectively 109,808 162,497
Interest receivable 19,871 16,421
PreEaid eXEenses and other assets 56,285 46,741
Total Current Assets 2,470,595 2,838,456
Non-current Assets:
Deposits with bond trustee - restricted 4,223,261 3,601,937
Prepaid expense 7,396 16,355
Capital assets:
Buildings and improvements 29,752,792 29,740,751
Fumishinl1,s and eguiEment 4,123,507 4,085,630
33,876,299 33,826,381
Less: Accumulated deEreciation 9,742,876 8,766,251
Net Capital Assets 24,133,423 25,060,130
Deferred financing costs, net of accumulated amortization of
$289,483 and $257,903, respectively 726,335 757,915
PreEaid issuer's fee 49,285 51,629
Total Non-current Assets 29,139,700 29,487,966
Total Assets $ 31,610,295 $ 32,326,422
Liabilities and Net Deficit
Current Liabilities:
Accounts payable and other accrued expenses $ 411,256 $ 796,818
Accrued interest 1,386,269 1,354,204
Rents and fees collected in advance 543,793 548,441
Tenant security deposits 223,462 209,664
Accrued ground rent 854,620
Capital lease obligation 29,787 28,070
Bonds Eaxable 1,238,000 1,208,000
Total Current Liabilities 4,687,187 4,145,197
Non-current Liabilities:
Capital lease obligation 14,085 46,500
Bonds Eayable 33,865,939 34,486,415
Total Non-current Liabilities 33,880,024 34,532,915
Total Liabilities 38,567,211 38,678,112
Commitments (Note 5)
Net Deficit:
Invested in capital assets, net of related debt (10,288,053) (9,950,940)
Restricted under trust indenture 3,331,137 3,599,250
Total Net Deficit (6,956,916) (6,351,690)
Total Liabilities and Net Deficit $ 31,610,295 $ 32,326,422
The accompanying notes are an integral part of these financial statements.
8
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDCO
Statements of Revenues, Expenses, and Changes in Net Deficit
For the Years Ended June 30, 2011 2010
Operating Revenues:
Apartment rentals
Service fees
Other
Total Operating Revenues
Operating Expenses:
Property operating costs
Management and service fees
Administrative and general
Sales and marketing
Ground rent
Depreciation
Total Operating Expenses
Operating Income
Non-operating Revenues (Expenses):
Interest income
Interest expense
Loss on retirement of assets
Net Non-operating Expense
(Increase) Decrease in Net Deficit
Net Deficit, beginning of year
Net Deficit, end of year
$ 5,956,140
76,712
187,250
6,220,102
2,131,314
271,785
249,450
33,138
854,620
1,119,451
4,659,758
1,560,344
40,379
(2,201,409)
(4,540)
(2,165,570)
(605,226)
(6,351,690)
$ 5,638,772
121,820
194,674
5,955,266
1,982,721
258,634
296,597
30,657
1,083,348
3,651,957
2,303,309
34,309
(2,236,480)
(2,202,171 )
101,138
(6,452,828)
$ (6,956,916) $ (6,351,690)
The accompanying notes are an integral part oj these jinancial statements.
9
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDCO
Statements of Cash Flows
For the Years Ended June 30, 2011 2010
Cash Flows from Operating Activities:
Cash received from tenants $ 6,182,605 $ 5,817,174
Cash paid for operating eXEenses (2,958,654) (2,511 ,980)
Net Cash Provided by Operating Activities 3,223,951 3,305,194
Cash Flows from Capital and Related Financing Activities:
Construction, development and equipment expenditures (197,284) (170,867)
Interest paid (2,113,240) (2,147,500)
Principal payments on capital lease obligation (30,698) (31,263)
PrinciEal payments on bonds pal:able (615,000) (585,000)
Net Cash Used in Capital and Related Financing Activities (2,956,222) (2,934,630)
Cash Flows from Investing Activities:
Net purchases of deposits with bond trustee - restricted (254,269) (637,071)
Interest received 36,929 90,37 I
Net Cash Used in Investing Activities (217,340) (546,700)
Net Increase (Decrease) in Cash and Cash Equivalents 50,389 (176,136)
Cash and Cash Equivalents, beginning of year 124,139 300,275
Cash and Cash Equivalents, end of year $ 174,528 $ 124,139
Reconciliation of operating income to net cash provided
by operating activities:
Operating income $ 1,560,344 $ 2,303,309
Adjustment to reconcile operating income to net
cash provided by operating activities:
Depreciation 1,119,451 1,083,348
Provision for doubtful accounts 110,836 172,929
Changes in operating assets and liabilities
Tenant security deposits 11,500 (167,421)
Accounts receivable (58,147) (191,616)
Prepaid expenses and other current assets (585) (34,336)
Deferred management fees 2,344 2,343
Accounts payable and other accrued expenses (385,562) (84,307)
Rents and fees collected in advance (4,648) 218,384
Tenant security deposits 13,798 2,561
Accrued ground rent 854,620
Net cash provided by operating activities $ 3,223,951 $ 3,305,194
Non-cash capital and related financing activities:
Amortization of deferred fmancing costs $ 31,580 $ 31,580
Amortization of issue discount 24,524 24,525
Loss on retirement of assets 4,540
Total non-cash capital and related fmancing activities $ 60,644 $ 56,105
The accompanying notes are an integral part of these financial statements.
10
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDeo
Notes to Financial Statements
For the Years Ended June 30, 2011 and 2010
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
Ownership and Management
Morgan View Student Housing (the Project), located in Baltimore City, Maryland, is a project of the
Maryland Economic Development Corporation (MEDCO). The Project consists of apartments with 794 beds
and is located on land leased from the State of Maryland on behalf of Morgan State University (MSU). The
Project accepted its first residents in August 2003.
Effective July 1,2006, MEDCO entered into a management agreement with ACC SC Management LLC to
provide management, licensing and administrative services for the Project. The agreement had a term of
three years and provided for a fixed fee of $11,070 per month (the Fixed Fee) and an amount (the Variable
Fee Amount) equal to the lesser of 2.5% of gross revenues, as defined, earned during the previous calendar
month or the Fixed Fee amount. The Fixed Fee was subject to a Consumer Price Index change on August 1
of each year and was payable monthly. Effective September 1,2008 and 2007, the Fixed Fee was increased
to $12,321 and $11,288, respectively. The Variable Fee Amount is subordinated to all payments on the
Series A bonds and deposits to the Repair and Replacement Fund.
Effective July 1, 2009, the management agreement was extended for an additional term of three years,
expiring on June 30,2012, and provides for a fixed fee of$12,670 per month (the Fixed Fee) and an amount
(the Variable Fee Amount) by which four percent (4%) of the Rental Revenues collected during such
semester exceeds the Fixed Amount paid during such semester. Management fee expense was $244,442 and
$231,293 for the years ended June 30, 2011 and 2010, respectively.
Pursuant to the trust indenture, MEDCO is entitled to a service fee for administrative support and other
services provided. The service fee was $50,000 for each of the first two years and $25,000 each year
thereafter. Service fee expense was $27,343 for the years ended June 30,2011 and 2010.
Basis of Presentation
The accompanying financial statements present the financial position, changes in financial position, and cash
flows ofthe Project based on amounts specifically identifiable in MEDCO's accounting records. The Project
is a project of MEDCO and, as such, all financial data presented herein is also included in the financial
statements of MEDCO as of and for the years ended June 30,2011 and 2010. However, the accompanying
financial statements present only the Project and do not purport to, and do not present the financial position
ofMEDCO as of June 30,2011 and 2010, and the changes in its financial position and its cash flows for the
years then ended in conformity with accounting principles generally accepted in the United States of
America. MEDCO utilizes the economic resources measurement focus and the accrual basis of accounting in
preparing these financial statements, wherein revenues are recognized when earned and expenses are
recognized when incurred. Also, in preparing these financial statements, MEDCO has adopted paragraph 6
of Statement No. 20 of the Governmental Accounting Standards Board (GASB), Accounting and Financial
Reporting for Proprietary Funds and Other Governmental Entities that use Proprietary Fund Accounting,
under which MEDCO has applied only the applicable Financial Accounting Standards Board
pronouncements issued on or before November 30, 1989, unless they conflict with GASB pronouncements.
11
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDCO
Notes to Financial Statements
For the Years Ended June 30, 2011 and 2010
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
AND RELATED MATTERS - continued
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, the disclosure of contingent assets and liabilities as of the date of the
financial statements and the reported amounts of revenues and expenses recognized during the reporting
period. Actual results may differ from those estimates.
Cash and Cash Equivalents
Short-term investments with maturities of three months or less at date of purchase are classified as cash
equivalents, except that any such investments purchased with funds on deposit with the bond trustee are
classified with such deposits.
Through December 31,2012 all non-interest bearing transaction accounts are fully insured, regardless of the
balance of the account, at all Federal Deposit Insurance Corporation (FDIC) insured institutions. Interest
bearing accounts at all FDIC insured institutions are insured up to $250,000. Periodically, the Project's cash
balances that are maintained with a single financial institution exceed the FDIC insured limits. Management
believes this to be a normal business risk as the deposits are further protected through collateralization as
described below.
The Project is required by Section 22(a) of Article 95 of the Annotated Code of Maryland to collateralize
deposits in banks in excess of federal deposit insurance. Satisfactory collateral is enumerated at Section 6-
202 of the State Finance and Procurement Article of the Annotated Code of Maryland. Bank deposits were
properly collateralized as of June 30,2011 and 2010.
Tenant Security Deposits
Tenant security deposits are held in a money market account and represent tenant security deposits restricted
under state law. As of June 30, 2011, tenant security deposits were underfunded by $8,574. As of June 30,
2010, tenant security deposits were overfunded by $16,724. The over and underfundings are a result of the
timing of receipts and refunds that are transacted in the operating account of the Project. Periodically, funds
are transferred from cash and cash equivalents to tenant security deposits in order to meet the minimum
funding requirements.
Accounts Receivable
Accounts receivable represent past-due rent and various fees charged to residents. The Project provides an
allowance for doubtful accounts based on the estimated collectability of resident accounts. Management's
evaluation is based upon an analysis of past-due accounts and historical collection experience. The
allowance for doubtful accounts was $174,000 and $197,000 as of June 30,2011 and 2010, respectively.
12
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDCO
Notes to Financial Statements
For the Years Ended June 30,2011 and 2010
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
AND RELATED MATTERS - continued
Accounts Receivable - continued
Accounts receivable are written off when it is determined that amounts are uncollectible. Bad debt expense
for the years ended June 30,2011 and 2010 totaled $111,000 and $173,000, respectively.
Capital Assets and Depreciation
Capital assets are carried at cost including interest, carrying charges, salaries and related costs, and
preconstruction costs associated with the development of the Project.
Capital assets are evaluated for impairment on an annual basis under GASB Statement No. 42, Accounting
and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries (GASB No. 42).
GASB No. 42 requires an evaluation of prominent events or changes in circumstances affecting capital assets
to determine whether impairment of a capital asset has occurred. Such events or changes in circumstances
that may be indicative of impairment include evidence of physical damage, enactment or approval of laws or
regulations or other changes in environmental factors, technological changes or evidence of obsolescence,
changes in the manner or duration of use of a capital asset, and construction stoppage. As of June 30, 2011
and 2010, management does not believe that the capital assets of the Project meet the criteria for impairment
as set forth in GASB No. 42.
Depreciation of buildings and improvements is computed using the straight-line method over a useful life of
39 years. Furnishings and equipment are depreciated over three to ten years using the straight-line method.
Deferred Financing Costs
Deferred financing costs represent issuance and other costs associated with the issuance of the bonds. These
costs are amortized to interest expense using the straight-line method over the term of the bonds, which is not
materially different from the effective interest method.
Rents and Fees Collected in Advance
Rents and fees collected in advance represent amounts received for future rental periods on licenses in effect
as of year-end.
Tenant Security Deposits
A security deposit is collected from each tenant upon signing a license agreement. The security deposit is
refunded to the tenant with interest upon termination of the license provided there are no damages or charges
outstanding on the tenant's account. Security deposits payable as of June 30, 2011 and 2010 totaled $223,462
and $209,664, respectively.
13
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDCO
Notes to Financial Statements
For the Years Ended June 30, 2011 and 2010
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
AND RELATED MATTERS - continued
Net Deficit
Net deficit is presented as either invested in capital assets, net of related debt or restricted under the trust
indenture. Net deficit invested in capital assets, net of related debt, represents the difference between capital
assets including deferred financing costs and the related debt obligations. Net deficit restricted under trust
indenture represents the difference between net deficit invested in capital assets, net of related debt and total
net deficit, as all other funds are restricted as to their use under the terms of the trust indenture.
Revenue Recognition
The Project's revenues are derived primarily from licensing of apartments. Revenues are recognized monthly
over the terms of the respective licenses.
Classification of Revenues and Expenses
Revenues and expenses related to the day-to-day activities of the Project are reported as operating revenues
and expenses. Other revenues and expenses, consisting primarily of interest income and interest expense, are
reported as non-operating revenues and expenses.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expenses were $33,138 and $30,657 during the years
ended June 30, 2011 and 2010, respectively.
Income Taxes
MEDCO qualifies for tax-exempt status under Section 501(c)(4) of the Internal Revenue Code and Section
10-104 of the Tax-General Article of the Annotated Code of Maryland. Accordingly, no provision or benefit
for income taxes is included in the accompanying financial statements.
14
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDCO
2. DEPOSITS WITH BOND TRUSTEE
Notes to Financial Statements
For the Years Ended June 30, 2011 and 2010
Pursuant to the provisions of the trust indenture relating to the bonds payable (see Note 4), deposits with
bond trustee include the following reserve funds and restricted accounts as of June 30:
Current assets:
Senior interest fund
Principal fund
Management fees fund
Current portion
Non-current assets:
Debt service reserve fund
Repair and replacement fund
Surplus fund
Non-current portion
Total Deposits with Bond Trustee
$
$
2011 2010
1,046,627 $ ·1,062,121
645,000 615,007
203,588 585,142
1,895,215 2,262,270
2,742,100 2,742,100
757,319 739,638
723,842 120,199
4,223,261 3,601,937
6,118,476 $ 5,864,207
The trust indenture authorizes MEDCO or its trustee bank to invest the deposits as detailed under Credit Risk
below. Interest earned on these investments was approximately $40,000 and $34,000 for the years ended June
30, 2011 and 2010, respectively. Investments of deposits with trustee are carried at fair value, except the non-
participating investment contracts (i.e., contracts which are not able to realize market-based increases or
decreases in value under any circumstance), which are carried at cost. Investments of deposits with trustee
are summarized as follows as of June 30:
Investment agreement with Trinity Plus Funding
Company, LLC bearing interest at 1.464%
and maturing on February 4,2013
Cash
Mutual funds
2011
$ 2,742,100
3,376,376
$ 6,118,476
2010
$ 2,742,100
120,199
3,001,908
$ 5,864,207
MBIA was rated Ba3 by a major credit rating agency at June 30, 2009. As a result of this unfavorable credit
rating, MEDCO terminated the contract at its face value on August 14,2009 and invested the funds in a U.S.
government money market fund. A new investment agreement was negotiated with Trinity Plus Funding
Company, LLC (Trinity) effective February 4, 2010. Trinity is rated Aa2 by Moody and AA+ by Standard
and Poor's as of June 30,2011.
15
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDCO
2. DEPOSITS WITH BOND TRUSTEE- continued
Notes to Financial Statements
For the Years Ended June 30, 2011 and 2010
The Deposits with Bond Trustee are subject to certain risks including the following:
Interest Rate Risk- The trustee has limited investments to money market and mutual funds that invest in U.S.
government securities that can be liquidated at any time to meet the cash flow requirements of the Project and
a fixed rate investment contract that is guaranteed as to the face of the investment as a means of managing
interest rate risk. As a result, the Project is not subject to interest rate risk.
Credit Risk - The Project's trust indenture limits MEDCO's investments to government obligations;
obligations of federal agencies; certificates of deposit issued by and time deposits with commercial banks,
trust companies, or savings and loan associations; repurchase agreements for government obligations;
obligations issued by the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation;
senior debt obligations of the Federal Home Loan Bank System; commercial paper; U.S. dollar denominated
deposit accounts; money market funds; public sector investment pools so long as MEDCO's deposit does not
exceed 5% of the aggregate pool balance at any time; bonds or other obligations of any state of the United
States of America, agency, instrumentality or local government unit of any such state which are not callable
at the option of the obligor prior to maturity; general obligations of states; and investment agreements. As
defined in the trust indenture, certain investments listed above must meet specific requirements to be a
qualifying investment, such as high rating qualifications based on information from the major rating agencies,
collateralization requirements, guaranteed repayment, and maturity requirements. The Project's investments
were in compliance with these limitations at June 30, 2011 and 2010.
Concentrations of Credit Risk- MEDCO's investment policy does not limit the amount that may be invested
in anyone issuer except for public sector pool funds as described under Credit Risk above. The Project held
no investments in public sector pool funds or commercial paper as of June 30,2011 and 2010.
Custodial Risk - MEDCO is not subject to custodial risk because mutual funds are not evidenced by
securities that exist in physical form and all other deposits are held in the Project's name.
The trust indenture requires the Project to fund the Repair and Replacement Fund $185 per bed per year
increasing 3% per year from cash flows for future capital repairs and replacement of furnishings and
equipment. These funds are to be segregated in a separate account within the trust. The Repair and
Replacement Fund was fully funded as of June 30, 2011 and June 30, 2010.
16
3. CAPITAL ASSETS
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDCO
Notes to Financial Statements
For the Years Ended June 30, 2011 and 2010
Capital assets activity for the years ended June 30, 2011 and 2010 is summarized as follows:
Beginning Ending
2011 balance Additions Retirements balance
Buildings and improvements $ 29,740,751 $ 12,041 $ $ 29,752,792
Furnishings and equipment 4,085,630 185,243 (147,366) 4,123,507
33,826,381 197,284 (147,366) 33,876,299
Less: Accumulated depreciation
Buildings and improvements (5,571,428) (813,173) (6,384,601)
Furnishings and equipment (3,194,823) (306,278) 142,826 (3,358,275)
(8,766,251) (1,119,451) 142,826 (9,742,876)
Net Capital Assets $ 25,060,130 $ (922,167) $ (4,540) $ 24,133,423
Beginning Ending
2010 balance Additions Retirements balance
Buildings and improvements $ 29,740,757 $ (6) $ $ 29,740,751
Furnishings and equipment 4,065,772 170,873 (151,015) 4,085,630
33,806,529 170,867 (151,015) 33,826,381
Less: Accumulated depreciation
Buildings and improvements (4,758,448) (812,980) (5,571,428)
Furnishings and equipment (3,075,4 70) (270,368) 151,015 (3,194,823)
(7,833,918) (1,083,348) 151,015 (8,766,251)
Net Capital Assets $ 25,972,611 $ (912,481) $ $ 25,060,130
17
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDCO
Notes to Financial Statements
For the Years Ended June 30, 2011 and 2010
4. BONDS PAYABLE AND CAPITAL LEASE OBLIGATION
Bonds payable consists of the following as of June 30:
2011 2010
Series 2002 Serial bonds bearing interest at rates ranging
from 4.80% to 5.20% and maturing from July 1,2009
through July 1,2012 $ 1,325,000 $ 1,940,000
Series 2002 Term bonds bearing interest at 6.00% and
payable in annual sinking fund installments from July 1,
2013 through July 1,2034 33,750,000 33,750,000
Series 2002 B bonds bearing interest at 8.00% and
maturing May 1, 2009 593,000 593,000
Unamortized issue discount (564,061) (588,585)
Total bonds payable 35,103,939 35,694,415
Less current portion (1,238,000) (1,208,000)
Bonds payable, less current portion $ 33,865,939 $ 34,486,415
The bonds are secured by a deed of trust on the Project and a general assignment of related revenues and
deposits. They are limited obligations of MEDeo and are payable solely from the Project's revenues, as
defined in the trust indenture. Interest on the Series 2002 Serial and Term bonds are payable semiannually on
January 1 and July 1 and aggregated approximately $2,093,000 and $2,124,000 for the years ended June 30,
2011 and 2010, respectively. The issue discount is being amortized on a straight-line basis over the term of
the bonds, which is not materially different from the effective interest method.
Interest on the Series 2002 B bonds is payable from available funds, if any, on deposit in the surplus fund.
Interest expense on the Series B bonds was approximately $47,000 for the years ended June 30, 2011 and
2010. Payment of the principal on the Series 2002 B bonds maturing May 1, 2009 was not made due to
insufficient funds. This does not constitute an event of default under the trust indenture covering the bonds.
The Series 2002 B bonds will continue to accrue interest until there are sufficient funds to pay the accrued
interest and principal.
In accordance with the trust indenture, the Project is required to produce a coverage ratio, as defined, of not
less than 1.2 as of the last day of each fiscal year. The Project met the coverage ratio as of June 30, 2011 and
2010.
18
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDCO
Notes to Financial Statements
For the Years Ended June 30, 2011 and 2010
4. BONDS PAYABLE AND CAPITAL LEASE OBLIGATION - continued
Future payments on bonds payable are due as follows as of June 30, 2011:
Total Principal Interest
Year ending June 30:
2012 $ 3,298,360 $ 1,238,000 $ 2,060,360
2013 2,705,000 680,000 2,025,000
2014 2,697,100 715,000 1,982,100
2015 2,696,500 760,000 1,936,500
2016 2,693,200 805,000 1,888,200
2017 - 2021 13,406,800 4,795,000 8,611,800
2022 - 2026 13,311,900 6,420,000 6,891,900
2027 - 2031 13,184,400 8,595,000 4,589,400
2032 -2035 12,995,000 11,660,000 1,335,000
66,988,260 35,668,000 31,320,260
Less: unamortized bond discount (564,061) (564,061)
$ 66,424,199 $ 35,103,939 $ 31,320,260
The Project is obligated under a capital lease agreement for equipment expiring in 2013. The cost of
equipment under the capital lease is included in the accompanying balance sheets as furnishings and
equipment and was $147,336 at June 30,2011 and 2010. Accumulated amortization of the leased equipment
at June 30, 2011 and 2010 was $117,415 and $87,927, respectively. Amortization of assets under capital
leases is included in depreciation expense.
Future minimum payments under the agreement at June 30, 2011 are summarized as follows:
2012
2013
Less: amounts representing interest
Present value of future minimum payments under
capital lease obligations
$ 31,449
14,295
45,744
1,872
$ ===4::::3,=8=72=
19
MORGAN VIEW STUDENT HOUSING,
A PROJECT OF MEDCO
Notes to Financial Statements
For the Years Ended June 30, 2011 and 2010
4. BONDS PAYABLE AND CAPITAL LEASE OBLIGATION - continued
Activity in bonds payable and capital lease obligations for the years ended June 30, 2011 and 2010 is
summarized as follows:
Bonds Capital
Payable Lease
Balance June 30, 2009 $ 36,254,890 $ 105,833
Additions
Amortization of bond discount 24,525
Principal payments (585,000) (31,263)
Balance June 30, 2010 35,694,415 74,570
Additions
Amortization of bond discount 24,524
Principal payments (615,000) (30,698)
Balance June 30, 2011 $ 35,103,939 $ 43,872
Due within one year $ 1,238,000 $ 29,787
5. GROUND LEASE
The land underlying the Project is leased from the State of Maryland under a non-cancelable operating lease
expiring on the earlier to occur of April 30, 2042 or the date on which the bonds have been fully repaid. Rent
payable under the lease is equal to "net revenues," as defined. Payment of the rent is subordinated to all
payments required under the bonds payable and related trust indenture. Ground rent expense was $854,620
and $-0- in for the years ended June 30, 2011 and 2010, respectively.
The lease provides various conditions and restrictions on the use, operation and maintenance of the Project
and provides the State of Maryland on behalf of Morgan State University an option to purchase the Project
improvements for a price of $1 plus the outstanding balance of the bonds payable (or other permitted debt)
at any time during the lease term. Title to the Project improvements will revert to Morgan State University
upon termination ofthe lease.
20
doc_636328097.pdf