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Discussion
What financial statement disclosure format is most useful to lenders and other financial statement readers
for disclosing information about a not-for-profit organizations commitments and contingencies? What
are the most common types of commitments and contingencies included in this disclosure?
For additional guidance related to presentation of commitments and contingencies, see Financial
Reporting Best Practices Paper Topic 17, Commitments, Contingencies and Guarantees, available on the
STRENGTH MATTERS website.
GAAP Requirements
Commitments
A not-for-profit organizations audited financial statement should disclose the combined or consolidated
organizations commitments that are not already included as liabilities on the balance sheet, including but
not limited to:
Commitments are distinct from contingencies since there is no uncertainty related to the existence of the
obligation.
Contingencies
Disclosures should also be made of contingencies, including but not limited to the following:
Contingent losses that are probable and estimable should be accrued, for example a projected loss
on the guaranty of a master lease obligation;
Contingent losses that are not accrued and yet there is a reasonable possibility that a loss may
have been incurred, should be disclosed, such as litigation as defendant;
Contingent gains are not accrued, but disclosure should be made, while avoiding misleading
implications as to the likelihood of the gain, such as litigation as plaintiff;
Guarantees require disclosure of the liability recognized (fair value of the guarantee at inception),
the maximum potential future payments that could be required by the guarantee; and/or
Contingencies resulting from noncompliance with program requirements which could result in
repayment to a funding agency of disallowed costs.
1
This document is a product of STRENGTH MATTERS, a collaborative initiative among national and local organizations in the
affordable housing field, co-sponsored by NeighborWorks America, Housing Partnership Network and Stewards of Affordable
Housing for the Future.
www.strengthmatters.net
Analysis/Input
The consolidated financial statements should disclose commitments, contingencies and guarantees that
can or will result in obligations to entities outside of the consolidated group.
Lenders find it informative to see a disclosure of the parent companys commitments, contingencies and
guarantees to affiliates included in the consolidated financial statement. For example, a parent company
may guarantee repayment of a subsidiarys debt to a third-party lender, but since the debt obligation exists
on the consolidated financial statement, disclosure of the guarantee wouldnt be required. Nevertheless,
lenders see value in learning about the parent companys guarantees since the lenders often read the
consolidated financial statements in order to underwrite a loan to the parent company.
A table format is recommended for presentation of a large number of guarantees. The table could identify
each guaranty by entity name, although this may not be practical for a long list of guarantees.
Organizations may find it informative to distinguish the contingencies that could result in future losses
from other contingent liabilities, for example contingencies that could result in future advances or
investments in real estate. While funding contingencies such as these utilizes cash flow, it would not
necessarily result in a reduction of the organizations net assets.
Disclosures regarding ongoing litigation are generally not too detailed, although lenders have expressed
interest in reading more informative disclosures about the likely exposure to loss and the amount of
available insurance coverage.
Lenders also find it useful to see a disclosure of the amount of payments made to date arising from all
outstanding guarantee agreements.
Organizations generally prefer to include a statement that various loan covenants are in effect and are
being complied with, rather than providing details regarding each covenant since there are often a large
number of covenants that each consolidated affiliate has entered into. However, organizations may use
the loan covenant disclosure as an opportunity to show performance achievements beyond the covenants
when they want to highlight noteworthy financial performance.
2
This document is a product of STRENGTH MATTERS, a collaborative initiative among national and local organizations in the
affordable housing field, co-sponsored by NeighborWorks America, Housing Partnership Network and Stewards of Affordable
Housing for the Future.
www.strengthmatters.net
Commitments:
Rental Payments under Non-cancelable Operating Leases
Office Space
ABC, Inc. has leases for office space in New York, which expire between April 2013 and March
2014. The following is a schedule, by year, of the future minimum rental payments under the
office space leases:
Year ended December 31,
2013
2014
$767,000
192,000
959,000
Rent costs totaled approximately $946,000 and $965,000 for 2012 and 2011, respectively.
Property-Related Leases
ABC and affiliates lease property land, facilities, and commercial space under leases ranging
from 30 to 55 years. Rent expense totaled approximately $3,489,000 and $3,350,000 for 2012 and
2011, respectively.
Certain ground lease payments are subject to changes in net cash flow, which is a contingency
that cannot be reasonably estimated. Minimum future lease expenses under the foregoing leases
are:
Year ended December 31,
2013
2014
2015
2016
2017
Thereafter
352,000
352,000
352,000
353,000
353,000
13,253,000
15,015,000
3
This document is a product of STRENGTH MATTERS, a collaborative initiative among national and local organizations in the
affordable housing field, co-sponsored by NeighborWorks America, Housing Partnership Network and Stewards of Affordable
Housing for the Future.
www.strengthmatters.net
Capital Commitments
Various affiliates have entered into construction contracts with unrelated parties, in the amount of
$14,750,000 (including change orders), for the construction or rehabilitation of various real properties. At
December 31, 2012, $11,375,000 of such contract commitments had not yet been incurred.
Property Management
Property management on certain properties is contracted with non-affiliated entities for annual amounts
subject to yearly increases. The term of such non-cancelable contracts is generally for one-year.
Contingencies:
Guarantees
ABC and affiliates issue a variety of guarantees in the course of developing properties. The guarantees are
generally issued in favor of limited partner investors or lenders. Guarantees as of December 31, 2012 and
2011 consist of the following:
2012
2011
$ 11,717,000 $ 13,486,000
72,480,000
92,551,000
159,130,000
198,099,000
6,128,000
6,128,000
Total
$ 249,455,000 $ 310,264,000
4
This document is a product of STRENGTH MATTERS, a collaborative initiative among national and local organizations in the
affordable housing field, co-sponsored by NeighborWorks America, Housing Partnership Network and Stewards of Affordable
Housing for the Future.
www.strengthmatters.net
ABC, Inc. also guarantees the debt of affiliated organizations that are accounted for as equity-method
investments and not consolidated herein. Those guarantees amounted to $500,000 and $400,000 as of
December 31, 2012 and 2011, respectively.
Litigation
ABC and affiliates are named in various claims and legal actions in the normal course of its activities.
Based upon counsel and managements opinion, the outcome of such matters is not expected to have a
material adverse effect on ABC and affiliates financial position or changes in net assets.
An affiliate of ABC, Inc. is a plaintiff in a dispute regarding construction defects. The dispute is expected
to be resolved in 2014 and the outcome is not expected to have a material impact on the combined
financial statements.
Letters of Credit
As of December 31, 2012 and 2011, ABC and affiliates had not drawn upon any letters of credit, which
have been issued in the maximum amount of $15,000,000 for repayment of bond obligations.
Surety Bonds
In connection with certain project developments, ABC and affiliates enter into surety bond agreements,
which bind ABC and affiliates to repay the surety company if the contractor is unable to successfully
perform on the contract. As of December 31, 2012 and 2011, ABC and affiliates have outstanding a
maximum of $11,394,000 and $7,270,000, respectively, in surety bonds.
Grants and Loans
In connection with various federal, state and city grants and loan programs, ABC and affiliates are
obligated to operate in accordance with those grant and loan requirements and is subject to audit by those
agencies. In cases of noncompliance, the agencies involved may require that ABC and affiliates refund
payment of program funds. The amount, if any, of expenses which may be disallowed by the agencies
cannot be determined at this time, although ABC and affiliates expect such amounts, if any, to be
immaterial.
Contingent Loans Receivable
ABC and affiliates provided deferred-repayment loans through subordinate deeds of trust in order to make
single-family homes affordable to eligible families. Outstanding notes of $285,000 as of December 31,
2012 and 2011, and accrued interest of $74,841 and $66,291 as of December 31, 2012 and 2011,
respectively, are not reflected in the accompanying combined statements of financial position since it is
anticipated that the notes will be automatically forgiven on the 30th anniversary of the original sale.
6
This document is a product of STRENGTH MATTERS, a collaborative initiative among national and local organizations in the
affordable housing field, co-sponsored by NeighborWorks America, Housing Partnership Network and Stewards of Affordable
Housing for the Future.
www.strengthmatters.net
Acknowledgements
STRENGTH MATTERS gratefully acknowledges the work of S. Scott Seamands from Lindquist, von
Husen & Joyce LLP and the following individuals that contributed to this paper:
Denise DeMaio, Consultant, F. B. Heron Foundation, New York, NY
Art Fatum, Chief Financial Officer, MidPen Housing Corporation, Foster City, CA
Caroline Horton, Chief Financial Officer, Aeon, Minneapolis, MN
David Keene, Director of Finance and Operations, The Neighborhood Developers, Chelsea, MA
John Maneval, Director of Lending, NeighborWorks Capital Corporation, Silver Spring, MD
Timothy Martin, Chief Credit Officer, Enterprise Community Loan Fund, Columbia, MD
Mary White Vasys, Principal, Vasys Consulting Ltd, Chicago, IL
Last Updated: December 2013
DISCLAIMER
This paper contains certain recommended financial statement presentation best practices for nonprofit affordable
housing organizations that develop and own affordable housing in the United States. This paper was developed
by a working group comprised of chief financial officers from certain leading nonprofit affordable housing
organizations active in the networks of NeighborWorks America, Housing Partnership Network and Stewards of
Affordable Housing for the Future, as well as representatives of socially responsible lenders, working in
conjunction with a representative from Lindquist, von Husen & Joyce LLP, an independent public accounting firm.
This publication should not be construed as accounting or other advice on any specific facts or circumstances.
The contents of this paper are intended for general informational purposes only, and you are urged to consult your
accountants and other professional advisors concerning your specific situation and any financial reporting or
accounting questions you may have.
For further information, contact info@STRENGTHMATTERS.net.
7
This document is a product of STRENGTH MATTERS, a collaborative initiative among national and local organizations in the
affordable housing field, co-sponsored by NeighborWorks America, Housing Partnership Network and Stewards of Affordable
Housing for the Future.
www.strengthmatters.net
2012
2011
$ 44,519,999
24,596,330
(934,436)
68,181,893
494,273
219,158
$ 42,307,460
20,894,961
(2,091,952)
61,110,469
446,567
244,698
$ 68,895,324
$ 61,801,734
25
26
2013
2012
$ 47,724,188
25,869,239
(1,287,669)
72,305,758
476,415
429,818
$ 44,519,999
24,596,330
(934,436)
68,181,893
494,273
175,652
$ 73,211,991
$ 68,851,818
34
Single-Family Homes
In 2004, MidPen provided deferred loans through second deeds of trust in order to make single-family homes
affordable to eligible families. Outstanding notes of $285,000 at December 31, 2013 and 2012, and accrued interest of
$83,391 and $74,841 at December 31, 2013 and 2012, respectively, are not reflected in the accompanying combined
statements of financial position as it is anticipated that the notes will be automatically forgiven on the 30th anniversary
of the original sale in 2034.
Residual Receipts Recapture
In August 2012, HUD issued a regulation under HUD Notice 2012-14 which requires that projects receiving
Project-Based Section 8 Housing Assistance Payments (HAP) must draw down their excess residual receipts reserve to
offset HAP until the reserve has reached an amount equal to $250 per unit. The total amount approved by HUD for
recapture for the year ended December 31, 2013 was $198,659 for two of the Corporations HUD properties, and is
included in other financial expenses.
NOTE 14 LEGAL MATTERS
An affiliated partnership of MidPen is a plaintiff in a lawsuit with the general contractor regarding construction
defects at its property. The lawsuit is expected to be resolved in 2014. As of December 31, 2013, the amount of
potential recovery cannot be reasonably estimated.
The Corporation is named in various claims and legal actions in the normal course of its operations. As of
December 31, 2013, the amount of potential exposure cannot be reasonably estimated. Based upon counsel and
managements opinion, the losses resulting from these lawsuits, if any, will be covered by insurance and will not have a
material adverse effect on the financial position or changes in net assets of the Corporation.
35
Analysis/Input
Lenders find it useful to understand more about the consolidated enterprise than the minimum GAAP
requirements for disclosure, such as:
Providing this information may involve a lengthy disclosure for affordable housing developers. Not-forprofit developers with a large portfolio of properties generally present information about the entities that
are combined or consolidated in a table format that is designed to provide lenders and other readers with
the most meaningful summarized information about each entity and property in their portfolio.
Smaller organizations may choose to write a short narrative about each entity or property in paragraph
form. Such narratives can provide more information than a table, but require more time to formulate and
read. Since much of the relevant data about each property lends itself to a table format, the table is
considered a best practice, to be supplemented by narrative paragraphs as necessary.
The structure of this disclosure, as well as the amount of information provided about each affiliate, varies
in practice. A best practice is to first describe the separate legal entities that operate business lines, such
as the developer and its affiliated companies, including those that provide property management, resident
services, construction, lending or other lines of business.
This document is a product of STRENGTH MATTERS , a collaborative initiative among national and local organizations in the
affordable housing field, co-sponsored by NeighborWorks America, Housing Partnership Network and Stewards of Affordable
Housing for the Future.
www.strengthmatters.net
Sample Real Estate Properties are Owned by Parent Company and by Affiliates
(Note: The sample below omits the first paragraph, which provides an overview of the entity, its mission
and total size of its portfolio.)
NOTE 1 ORGANIZATION AND NATURE OF ACTIVITIES
ABC, Inc. (ABC) is affiliated through common board control or majority board control with other notfor-profit corporations. ABC also owns and controls subsidiary entities. All affiliates are supporting
entities to ABC, or are instruments to further ABCs organizational objectives. These entities are included
in the combined financial statements of ABC in accordance with generally accepted accounting principles
(GAAP):
This document is a product of STRENGTH MATTERS , a collaborative initiative among national and local organizations in the
affordable housing field, co-sponsored by NeighborWorks America, Housing Partnership Network and Stewards of Affordable
Housing for the Future.
www.strengthmatters.net
Entity
Type
Relationship
Property
Location
LP
(1)
LP
LP
NPO
NPO
(1)
(1)
(4)
(5)
ABC, Inc.
NPO
(8)
Crestview Partners
Happy Valley
Associates
ABC Housing V, L.P.
Lonestar LLC
ABC Housing VI, L.P.
LP
LP
(6)
(6)
San Francisco,
CA
Fremont, CA
San Diego, CA
Austin, TX
New Orleans,
LA
Los Angeles,
CA
New York, NY
Memphis, TN
LP
LLC
LP
(2)
(7)
(3)
Honolulu, HI
Dallas, TX
Minneapolis,
MN
Property
Placed in
Service
Date
1998
Property
Size
Property
Type
130 units
Multi-family
1998
1999
2000
2001
102 units
78 units
96 units
85 units
Multi-family
Senior
Senior
Multi-family
2003
44 units
Multi-family
2004
2006
80,000 sq. ft
150 units
Commercial
Multi-family
2008
2011
Est 2014
212 units
224 units
162 units
Multi-family
Multi-family
Senior
Entity types in the table above consist of limited partnerships (LP), not-for-profit organizations (NPO)
and limited liability companies (LLC). Relationships are as follows:
(1) ABC directly owns managing general partner interests ranging between .01% and 1% of each
limited partnership.
This document is a product of STRENGTH MATTERS , a collaborative initiative among national and local organizations in the
affordable housing field, co-sponsored by NeighborWorks America, Housing Partnership Network and Stewards of Affordable
Housing for the Future.
www.strengthmatters.net
ABC forms subsidiaries to hold partner interests in the partnerships listed above, to own land leased to
affiliated entities listed above and to perform other functions. These entities are also included in the
combined financial statements of ABC and affiliates in accordance with generally accepted accounting
principles (GAAP) because of common or majority board control of the not-for-profit organizations, or
because ABC is the sole member of the limited liability companies:
An alternative to the table format is to use a paragraph describing each property such as the following
example:
ABC Housing III, LP was formed in 1999 to develop a 78-unit property located in San Diego, California.
The 99.99% limited partnership interest was sold in 1999 to raise tax credit equity for the project. The
project costs, totaling approximately $7,850,000 were financed by the tax credit equity, loans from the
City of San Diego and a conventional lender.
This document is a product of STRENGTH MATTERS , a collaborative initiative among national and local organizations in the
affordable housing field, co-sponsored by NeighborWorks America, Housing Partnership Network and Stewards of Affordable
Housing for the Future.
www.strengthmatters.net
affordable housing organizations active in the networks of NeighborWorks America, Housing Partnership
Network and Stewards of Affordable Housing for the Future, as well as representatives of socially
responsible lenders, working in conjunction with a representative from Lindquist, von Husen & Joyce LLP,
an independent public accounting firm. This publication should not be construed as accounting or other
advice on any specific facts or circumstances. The contents of this paper are intended for general
informational purposes only, and you are urged to consult your accountants and other professional advisors
concerning your specific situation and any financial reporting or accounting questions you may have.
For further information, contact info@STRENGTHMATTERS.net.
This document is a product of STRENGTH MATTERS , a collaborative initiative among national and local organizations in the
affordable housing field, co-sponsored by NeighborWorks America, Housing Partnership Network and Stewards of Affordable
Housing for the Future.
www.strengthmatters.net
MidPen Management, a California nonprofit public benefit corporation, which was incorporated in November
1970 to provide property management services that include the oversight of housing programs for low-income
individuals and families, including elderly and disabled persons, in accordance with requirements of the U.S.
Department of Housing and Urban Development, the California Housing Finance Agency, the State of
California Tax Credit Allocation Committee, and other governmental agencies.
MidPen Services, a California nonprofit public benefit corporation, which was incorporated in November 2000
to provide direct educational and social services to residents of housing developments managed by MidPen
Management. In addition, MidPen Services coordinates extensive additional services provided to MidPen
residents by over 300 partner not-for-profit organizations.
Italian Gardens, Inc., a California nonprofit public benefit corporation, was formed in January 2005 to acquire
a condominium interest in certain real property located in Foster City, California, and leases the property to
MidPen for use as its corporate office. In 2010, Italian Gardens, Inc. acquired an additional condominium
interest in the same real property.
Two subsidiaries, MP Land Holdings, LLC and St. Matthew San Mateo, Inc., of which MidPen is the sole
member. MP Land Holdings, LLC wholly owned a piece of land in Las Lomas which was sold in 2012.
Three developments, East Palo Alto Homes, Los Gatos Fourplex, and Willow Terrace, are wholly-owned by
MidPen.
M.C. Homes, Inc., a sole member of Vineyard Place, LLC which was established to build single-family homes
within the City of American Canyon. The houses were marketed under a Below Market Rate (BMR) program
with the City of American Canyon. As of December 31, 2012, there were two unsold homes, currently being
leased to low-income tenants.
Mid-Peninsula The Farm, Inc., a sole member of Sunny Meadows LLC was formed in June 2010 to acquire
and rehabilitate a 200-unit apartment complex in Freedom, California. The project was sold to MP Sunny
Meadows Assoicates, L.P. in 2012. Mid-Peninsula The Farm, Inc. is a separate and independent legal entity
whose board members are appointed by the board of directors of MidPen.
MP Preservation, Inc., a managing member of Marymead Affordable Housing, LLC, which is the general
partner of Marymead Affordable Housing, LP.
Mid-Peninsula Coastside, Inc., a sole member of MP Union City TOD Garage LLC which was established to
own a 117-space public garage in Union City, California, with an option to sell the public garage to the City of
Union City.
Single-purpose not-for-profit corporations holding a controlling general partner interest (ranging from .005%
to 51.000%) in their respective limited partnerships that provide affordable housing:
Not-For-Profit Corporation
Limited Partnership(s)
Ownership
0.010%
0.010%
1.000%
0.010%
0.010%
0.010%
0.010%
0.010%
0.010%
0.010%
0.010%
0.010%
1.000%
0.100%
0.010%
0.010%
0.010%
1.000%
0.100%
0.010%
0.010%
0.100%
0.100%
Not-For-Profit Corporation
MP Preservation, Inc.
Limited Partnership(s)
Ownership
Bridgeway East LP
Fremont Main Street Village, L.P.
MP Homestead Park Associates
MP Runnymede Associates
MP Tice Oaks Associates
MP Tyrella Associates
Laureola Oaks Associates
Mid-Peninsula San Pedro Associates
Arbor Park Community, LP
MP Italian Gardens Associates
Riverwood Grove Associates, L.P.
Riverwood Place Associates, L.P.
MP Vineyard Crossing, LP
MP New Communities Associates
MP Scotts Valley Associates
MP Shoreline Associates
St. Matthew Associates, L.P.
MP Parkhurst Associates
MP San Andreas Associates
MP Transit Center Associates
Mid-Peninsula Castroville Associates
MP Hillsdale Townhouses L.P.
0.005%
51.000%
0.100%
0.100%
0.100%
0.010%
1.000%
0.010%
0.010%
0.100%
0.009%
0.009%
0.010%
0.010%
0.010%
1.000%
1.000%
0.010%
0.010%
0.010%
0.010%
0.010%
0.010%
0.010%
0.010%
Single-purpose not-for-profit corporations holding a controlling general partner interest (ranging from 0.010%
to 99.000%) in their respective limited partnerships for future development of affordable housing:
Not-For-Profit Corporation
Half Moon Village I LLC (Sole member is MidPeninsula Half Moon Bay, Inc.)
MP Delaware Pacific LLC (Sole member is MidPeninsula Greenridge, Inc.)
MP Laguna Commons LLC (Sole member is
Mid-Peninsula Pickering, Inc.)
MP Land Holdings, LLC (Sole member is
MidPen Housing Corporation)
MP Manteca Affordable Housing LLC (Sole
member is Mid-Peninsula Scotts Valley,
Inc.)
Mid-Peninsula The Farm, Inc.
Limited Partnership(s)
Ownership
0.010%
0.010%
0.510%
99.000%
1.000%
0.010%
0.010%
0.010%
Affordable housing limited partnerships that are wholly owned by MidPen affiliated entities:
General Partner
Limited Partner
Mid-Peninsula San Ramon
Corporation
MP Carroll Inn LLC (Sole member is
Mid-Peninsula Baker Park, Inc.)
Limited Partnership
Aster Park Limited Partnership
Carroll Street Associates
MP Central Park Associates, L.P.
(Phase I)
Mid-Peninsula Century Village
Associates
EPA Woodlands Associates
Ginzton Associates
Gloria Way Associates
Hermanas Associates
Holy Family Associates
MP Morse Court Associates
MP Murphys Associates
Open Doors Associates
Pickering Associates
MP Redwood Court Associates
Mid-Peninsula Sharmon Palms
Associates
The Farm Associates
Willow Gardens Housing Associates
Not-for-profit corporations, which are recipients of capital advances, mortgages, or insured loans from the U.S.
Department of Housing and Urban Development (HUD) for the development of affordable housing:
Mid-Peninsula Colma Ridge, Inc.
Homeport, Inc.
Mid-Peninsula Horizons, Inc.
Milagro Independent Living, Inc.
Mid-Peninsula Oroysom Senior Housing, Inc.
Mid-Peninsula Page Mill Court, Inc.
San Veron Park Corporation
Saratoga Court, Inc.
Vivente 1, Inc.
Vivente 2, Inc.
10
SR Senior Housing Inc., a single-purpose not-for-profit corporation holding a general partner interest of 1% in
SR Fountains Limited Partnership.
SR Fountains Limited Partnership, of which MidPen is a limited partner holding 33% of partnership interest.
MidPens investment is accounted for under the equity method of accounting.
11
MidPen Management, a California non-profit public benefit corporation, which was incorporated in November
1970 to provide property management services that include the oversight of housing programs for low-income
individuals and families, including elderly and disabled persons, in accordance with requirements of the U.S.
Department of Housing and Urban Development, the California Department of Housing and Community
Development, the California Housing Finance Agency, the State of California Tax Credit Allocation
Committee, and other governmental agencies.
MidPen Services, a California non-profit public benefit corporation, which was incorporated in November
2000 to provide direct educational and social services to residents of housing developments managed by
MidPen Management. In addition, MidPen Services coordinates extensive additional services provided to
MidPen residents in partnership with nearly 650 third-party organizations.
Italian Gardens, Inc., a California non-profit public benefit corporation, was formed in January 2005 to acquire
a condominium interest in certain real property located in Foster City, California, and leases the property to
MidPen for use as its corporate office.
Two subsidiaries, MP Land Holdings, LLC, whose sole member is MidPen, and St. Matthew San Mateo, Inc.
MP Land Holdings, LLC owned a piece of land in Las Lomas which was sold in 2012. St. Matthew San
Mateo, Inc. owns and operates St. Matthew Retail, a building consisting of 3,527 square feet of commercial
space.
Two developments, Los Gatos Fourplex (4 residential units) and Willow Terrace (31 residential units), which
are wholly-owned by MidPen. The East Palo Alto Homes development (1 residential unit), which was also
wholly-owned by MidPen, was sold in 2013.
M.C. Homes, Inc., a sole member of Vineyard Place, LLC which was established to build single-family homes
within the City of American Canyon. The houses were marketed under a Below Market Rate program with the
City of American Canyon. As of December 31, 2013, there were two unsold homes, currently being leased to
low-income tenants.
Mid-Peninsula The Farm, Inc., a sole member of Sunny Meadows LLC which was formed in June 2010 to
acquire and rehabilitate a 200-unit apartment complex in Freedom, California. The project was sold to MP
Sunny Meadows Associates, L.P. in 2012. Mid-Peninsula The Farm, Inc. is a separate and independent legal
entity whose board members are appointed by the board of directors of MidPen.
Mid-Peninsula Coastside, Inc., a sole member of MP Union City TOD Garage LLC which was established to
own a 117-space public garage in Union City, California, with an option to sell the public garage to the City of
Union City (See Note 9).
Affordable housing limited partnerships with single-purpose non-profit corporations holding controlling general partner interests:
Entity Name
Property Name
General Partner
Ownership
Property Location
Property Size
Residential
Commercial
Units
Square Feet
Property Type(s)
Arbor Park
0.01%
San Jose, CA
75
2,100
Baker Park
1.00%
San Jose, CA
98
N/A
Family
Rotary Bridgeway
MP Preservation, Inc.
0.005%
Fremont, CA
18
N/A
Coastside Associates
Moonridge I
0.01%
80
3,727
Main Street
MP Preservation, Inc.
51.00%
Fremont, CA
64
3,527
0.01%
Sunnyvale, CA
20
N/A
Family
0.01%
28
N/A
Family
Laureola Oaks
1.00%
San Carlos, CA
16
N/A
Family
Marymead
MP Preservation, Inc.
0.0067%
Marysville, CA
68
N/A
Family
MP Mezes, Inc.
0.10%
Redwood City, CA
81
1,030
Cynara Court
0.01%
Castroville, CA
58
750
0.01%
Colma, CA
74
1,990
Mixed-Use, Senior
Moonridge Associates
Moonridge II
0.01%
80
N/A
Family
0.01%
Mountain View, CA
104
N/A
Senior
Delaware Pacific
0.01%
San Mateo, CA
60
N/A
Family
0.01%
Sunnyvale, CA
124
N/A
Senior
Hillsdale Townhouses
0.01%
San Jose, CA
48
N/A
Family
Homestead Park
MP Preservation, Inc.
0.10%
Sunnyvale, CA
211
N/A
Family
Italian Gardens
0.10%
San Jose, CA
148
N/A
Family
MP Latham Associates
MP Mezes, Inc.
1.00%
Mountain View, CA
74
N/A
Family
MP Manzanita Associates
Manzanita Place
0.01%
East Garrison, CA
66
N/A
Family
Entity Name
Property Size
Residential
Commercial
Units
Square Feet
Property Name
General Partner
Ownership
Property Location
DeVries Place
0.01%
Milpitas, CA
0.01%
Watsonville, CA
88
N/A
Family
MP Mission Associates
Mission Gateway
0.01%
Union City, CA
121
2,481
0.01%
Mountain View, CA
150
N/A
Senior
0.01%
Watsonville, CA
51
N/A
Family
Oroysom Village
0.10%
Fremont, CA
60
N/A
Family
0.10%
Palo Alto, CA
156
N/A
Family, Senior
Family
103
N/A
Property Type(s)
Senior
MP Parkhurst Associates
Parkhurst Terrace
0.01%
Aptos, CA
68
N/A
MP Runnymede Associates
Runnymede Gardens
MP Preservation, Inc.
0.10%
78
N/A
Senior
San Andreas
0.01%
Watsonville, CA
43
N/A
Family
Peninsula Station
MP Mezes, Inc.
0.01%
San Mateo, CA
68
1,886
Emerald Hill
0.01%
Scotts Valley, CA
46
N/A
Family
MP Shoreline Associates
Shorebreeze
1.00%
Mountain View, CA
120
N/A
Family, Senior
636 El Camino B
0.01%
47
N/A
Family
636 El Camino A
0.01%
62
5,735
Tice Oaks
MP Preservation, Inc.
0.10%
Walnut Creek, CA
91
N/A
Senior
MP Timberwood Associates
Timberwood
0.01%
San Jose, CA
286
N/A
Family
0.01%
Watsonville, CA
40
N/A
Family
MP Tyrella Associates
Tyrella Gardens
MP Preservation, Inc.
0.01%
Mountain View, CA
56
N/A
Family
0.01%
Union City, CA
100
8,400
0.01%
Union City, CA
57
N/A
Family
Vineyard Crossings
0.01%
American Canyon, CA
145
N/A
Family
0.01%
Fremont, CA
100
N/A
Family
Family, Senior
Moulton Plaza
0.01%
Sunnyvale, CA
66
N/A
Riverwood Grove
0.009%
Santa Clara, CA
71
N/A
Family
Riverwood Place
0.009%
Santa Clara, CA
148
N/A
Sunset Creek
1.00%
Fairfield, CA
76
1,980
Vista Meadows
0.01%
Hollister, CA
72
N/A
Senior
10
Affordable housing limited partnerships that are wholly owned by MidPen affiliated entities:
Property Size
Residential
Commercial
Units
Square Feet
Entity Name
Property Name
Property Location
Aster Park
Sunnyvale, CA
95
N/A
Family
Carroll Inn
Sunnyvale, CA
122
N/A
Mountain View, CA
149
N/A
Senior
Willow Court
Menlo Park, CA
N/A
Family
Ginzton Associates
Ginzton Terrace
Mountain View, CA
107
N/A
Senior
MP Can Do Inc. /
Bay Oaks LLC (Sole member is MP Can Do, Inc.)
38
N/A
Family
36
N/A
Family
Santa Familia
San Jose, CA
79
N/A
Family
MP Greenridge Associates
Greenridge
34
N/A
Family
Morse Court
Sunnyvale, CA
35
N/A
Family
MP Murphy's Associates
Watsonville, CA
18
N/A
Family
Open Doors
Los Gatos, CA
64
N/A
Family
Pickering Associates
Pickering Place
Fremont, CA
43
N/A
Family
Redwood Court
Redwood City, CA
27
N/A
Family
Palms
Campbell, CA
24
N/A
Family
San Mateo, CA
56
N/A
Soquel, CA
39
2,178
Willow Gardens
36
N/A
Family
11
Property Type(s)
Entity Name
Property Name
Property Location
Crescent Terrace
Sunnyvale, CA
48
N/A
Senior
Le Beaulieu
Cupertino, CA
27
N/A
Special Needs
Homeport, Inc.
Homeport
San Jose, CA
15
N/A
Special Needs
Gateway Apartments
Menlo Park, CA
130
N/A
Family
Horizons
Belmont, CA
24
N/A
Special Needs
Jessie Street
Santa Cruz, CA
14
N/A
Special Needs
Sundial
11
3,303
Colma Ridge
Colma, CA
20
N/A
Special Needs
Country Hills
San Jose, CA
152
N/A
Family
Dent Commons
San Jose, CA
23
N/A
Special Needs
Avelina
Fremont, CA
41
N/A
Senior
Palo Alto, CA
24
N/A
Special Needs
Sharmon Palms
Campbell, CA
36
N/A
Family
Milagro Independent
San Jose, CA
15
N/A
Special Needs
Mountain View, CA
32
N/A
Family
Saratoga Court
Saratoga, CA
20
N/A
Senior
Vivente I, Inc.
Vivente I
San Jose, CA
29
N/A
Special Needs
Vivente 2, Inc.
Vivente II
San Jose, CA
29
N/A
Special Needs
12
Property Type(s)
Entity Name
Property Name
Ownership
Property Location
Aptos Blue
0.01%
Aptos, CA
40
N/A
Family
51.00%
46
N/A
Senior
Donner Lofts
99.00%
San Jose, CA
102
N/A
Special Needs
Armory Apartments
99.00%
Sunnyvale, CA
57
N/A
0.01%
45
N/A
Senior
99.00%
115
N/A
Senior
Laguna Commons
51.00%
Fremont, CA
64
N/A
Main Street Park I LLC (sole member is MidPeninsula Half Moon Bay, Inc.)
99.00%
36
N/A
Family
N/A
100.00%
Daly City, CA
52
N/A
Family
Foster Square
N/A
100.00%
Foster City, CA
66
N/A
Senior
Kottinger Place
N/A
100.00%
Pleasanton, CA
174
N/A
Senior
Sonoma Springs
N/A
100.00%
Sonoma, CA
60
N/A
Family
St. Stephens
N/A
100.00%
Santa Cruz, CA
40
N/A
Senior
99.00%
Campbell, CA
60
N/A
Family
Sunny Meadows
0.01%
Freedom, CA
200
N/A
Family
Pippin Lane
N/A
100.00%
Watsonville, CA
46
N/A
Woodlands Newell
0.01%
49
N/A
Family
13
Property Type(s)
SR Senior Housing Inc., a single-purpose non-profit corporation holding a general partner interest of 1% in SR Fountains Limited Partnership.
SR Fountains Limited Partnership, of which MidPen is a limited partner holding 33% of partnership interest.
14
Discussion
What financial statement disclosure format is most useful to lenders and other financial statement readers
for disclosing information about a not-for-profit organizations temporarily or permanently restricted net
assets? What disclosure is most useful regarding unrestricted board-designated net assets?
For additional guidance related to presentation of net assets, see Financial Reporting Best Practices Paper
Topic 7, Net Assets Section of the Statement of Financial Position, available on the Strength Matters
website.
GAAP Requirements
A not-for-profit organizations audited financial statement should disclose the combined or consolidated
organizations temporarily and permanently restricted net asset balances, and the nature and amounts of
the different types of restrictions. Internal designations of unrestricted net assets by the organizations
board of directors should also be disclosed.
GAAP requires organizations with endowment funds to provide additional disclosures pertaining to the
Uniform Prudent Management of Institutional Funds Act (UPMIFA), such as the portion of the
endowment fund that is not classified as permanently restricted (net income and appreciation are now
classified as temporarily restricted net assets), spending and investment policies.
Analysis/Input
Unrestricted Designated Net Assets
Designations are voluntary board-approved segregations of unrestricted net assets for specific purposes.
Because designations are voluntary and may be reversed by the governing board at any time, designated
portions of net assets are not considered restricted. Disclosure of designations of unrestricted net assets is
required. The designated portion of unrestricted net assets is generally displayed on a separate line in the
net asset section of the organizations balance sheet, with a footnote disclosure that explains the nature of
the designation(s). Other limits, such as limits resulting from loan covenants, are also required to be
disclosed, which are generally described in a footnote.
Temporarily Restricted Net Assets
Inconsistencies are noted in organizations disclosure of the nature of restrictions. In some cases, the
names of donors are used instead of the nature of the restriction. A best practice is to group restricted
contributions for similar purposes onto one line, although identifying the major donor names may also be
useful. Time restrictions should be grouped together by length of the restricted period. It is recommended
that a table format is used, summarizing the beginning-of-year balance, restricted contributions received,
releases from restrictions and the end-of-year balance.
Lenders are interested in the amount of an organizations operating cash account that is included in
temporarily restricted net assets. This may not be evident from the balance sheet since GAAP only
requires restricted cash to be separated from operating cash if it will be used for long-term purposes, such
as purchasing a fixed asset or if it will be held longer than one year. A suggested supplementary cash
composition table can be found in Strength Matters Financial Reporting Best Practice Paper 15, Cash
Presentation. An alternative is to include a disclosure of the amount of temporarily restricted net assets
held in either the operating or the restricted cash account.
Permanently Restricted Net Assets
Most organizations disclosures of permanently restricted net assets are in paragraph form, since there are
usually a small number of such restrictions. Contributions with restrictions on use that last into perpetuity
are generally either endowment funds or land.
While some donors require disclosure of the balance sheet accounts that comprise the permanently
restricted net assets, this level of detail is not required by GAAP. The nature of the underlying asset is
usually described in the disclosure, along with the terms of the permanent restriction.
A donor may modify their intent, which could result in the release of a permanent restriction.
Sample Financial Statement Disclosures
NOTE __ BOARD-DESIGNATED UNRESTRICTED NET ASSETS
The Board of Directors of ABC, Inc. designated $500,000 as a general operating reserve.
NOTE __ TEMPORARILY RESTRICTED NET ASSETS
Temporarily restricted net assets consist of the following:
Capital Improvements:
HUD Capital Advances (1)
ARRA Recoverable Grants (2)
Resident Services Programs:
XYZ Foundation
Other Program Support
Multi-year pledges and grants: (3)
EFG Foundation Grant
Individuals and Others
Total
12/31/11
Contributions
8,199,046
21,466,540
251,971
-
105,796
9,600
15,000
5,000
$ 29,917,557
135,396
Releases
$
12/31/12
(312,312) $ 7,886,734
(1,589,321)
19,877,219
(126,224)
-
231,543
9,600
15,000
5,000
$ (2,027,857) $ 28,025,096
Capital Improvements:
HUD Capital Advances (1)
ARRA Recoverable Grants (2)
Resident Services Programs:
XYZ Foundation
Total
12/31/10
Contributions
8,511,358
11,080,490
11,177,014
Releases
$
(312,312)
(790,964)
12/31/11
$
8,199,046
21,466,540
168,818
149,453
(66,300)
251,971
$ 19,760,666
$ 11,326,467
$ (1,169,576)
$ 29,917,557
(1)
HUD Capital Advances HUD has granted capital advances to certain multi-family properties under the
Section 202 or Section 811 programs. These advances are secured by deeds of trust with assignment of rents.
The capital advances bear no interest and shall be repayable if the properties do not remain available for very
low-income housing through specific terms or the notes become due and payable by reason of default under the
regulatory agreements. In the event of noncompliance with affordability provisions as described in the notes,
interest and principal are payable on demand. Otherwise, the capital advances will not otherwise have to be
repaid. Since it is expected that the capital advances will be forgiven, they are released over 40 years from
temporarily restricted net assets to unrestricted net assets.
(2)
ARRA Recoverable Grants The federal recoverable grants were awarded to qualifying multi-family
properties. These recoverable grants shall be repayable if the properties do not remain available for very lowincome housing through specific terms or the recoverable grants become due and payable by reason of default
under the recoverable grant agreements. In the event of noncompliance as described in the recoverable grant
agreements, the recoverable grants will be payable on demand. Otherwise, they will not need to be repaid.
Since the properties are expected to comply with the recoverable grant provisions, the recoverable grants will be
released over 15 years from temporarily restricted net assets to unrestricted net assets.
(3)
Multi-year pledges are for unrestricted purposes for use in the following years:
2013
2014
$12,500
7,500
Acknowledgements
STRENGTH MATTERS gratefully acknowledges the work of S. Scott Seamands from Lindquist, von
Husen & Joyce LLP and the following individuals that contributed to this paper:
Denise DeMaio, Consultant, F. B. Heron Foundation, New York, NY
Art Fatum, Chief Financial Officer, MidPen Housing Corporation, Foster City, CA
Caroline Horton, Chief Financial Officer, Aeon, Minneapolis, MN
David Keene, Director of Finance and Operations, The Neighborhood Developers, Chelsea, MA
John Maneval, Director of Lending, NeighborWorks Capital Corporation, Silver Spring, MD
Timothy Martin, Chief Credit Officer, Enterprise Community Loan Fund, Columbia, MD
Mary White Vasys, Principal, Vasys Consulting Ltd, Chicago, IL
Last Updated: November 2013
DISCLAIMER
This paper contains certain recommended financial statement presentation best practices for nonprofit
affordable housing organizations that develop and own affordable housing in the United States. This paper
was developed by a working group comprised of chief financial officers from certain leading nonprofit
affordable housing organizations active in the networks of NeighborWorks America, Housing Partnership
Network and Stewards of Affordable Housing for the Future, as well as representatives of socially
responsible lenders, working in conjunction with a representative from Lindquist, von Husen & Joyce LLP,
an independent public accounting firm. This publication should not be construed as accounting or other
advice on any specific facts or circumstances. The contents of this paper are intended for general
informational purposes only, and you are urged to consult your accountants and other professional advisors
concerning your specific situation and any financial reporting or accounting questions you may have.
For further information, contact info@STRENGTHMATTERS.net.
The derivative financial instruments held by BRIDGE and affiliates are stated at fair value using a quoted price
provided by the counter party banks. Counter party banks valuation uses various approaches which involve using
quoted prices for economically equivalent instruments, or valuation methodologies, assumptions and inputs, which in
the case of projected future cash flows, discount such cash flows to a single net present value amount. The valuation is
either based on Level 1 inputs directly, or based on the application of valuation models, which may be proprietary, that
take into account Level 1, Level 2 and Level 3 inputs. Level 1 and Level 2 inputs are market-based utilizing observable
market data including swap rates, basis rates and currency exchange rate from sources believed to be reliable but which
counter party banks have not independently verified. Level 3 inputs may be used if counter party banks determine that
Level 1 and Level 2 inputs are unavailable, or in illiquid or dislocated markets, unreliable. In general, those inputs are
used to construct interest rate, currency exchange rate, commodity price or other curves that are placed into proprietary
valuation models to compute for fair value.
Management reviews reasonableness of counter party banks valuations by calculating the net present value of
projected future cash flows using the US Daily Interest Rate Data for interest rate swaps as of the valuation date.
Significant assumptions follow:
Term of swap arrangements
Average projected variable rate through 2026
Discount rate
14 38 years
1.14% to 2.54%
1%
NOTE 16 TEMPORARILY RESTRICTED NET ASSETS AND NET ASSETS RELEASED FROM
RESTRICTIONS
The major programs for which BRIDGE has received restricted contributions are as follows:
HUD Capital Advances HUD has granted capital advances to certain multi-family properties under the
Multifamily Property Disposition Upfront Grant or the Section 202 program. These advances are secured by
deeds of trust with assignment of rents. The capital advances bear no interest and shall be repayable if the
properties do not remain available for very low-income housing through a specific term or the notes become
due and payable by reason of default under the notes, mortgages or regulatory agreements. In the event of
noncompliance with affordability provisions as described in the notes, interest and principal will be payable on
demand. The capital advances will not otherwise have to be repaid. Since the capital advances are expected to
be forgiven, they are released over 40 years from temporary restricted net assets to unrestricted net assets.
Development Restricted Proceeds Various companies and agencies have awarded grants to certain properties
for the development of affordable housing. These grants are not secured, bear no interest and are not repayable
unless the properties do not remain available as low-income housing. These grants are released as the restricted
use is met either upon home sales or over the useful life of the property.
Stein Educational Assistance Program Provides scholarships or awards to qualified residents in BRIDGE
developments.
Homeownership Initiative Increases the number of new affordable homes for sale and ensures that
low-income, moderate-income and minority families have the proper level of support through services and
financial backing to purchase and sustain a new home.
Building and Technology Initiative Enabled BRIDGE to move to new, larger headquarters in 2004 and is
bringing greater operational efficiency and improved information technology systems to BRIDGE and its
properties throughout the State of California.
30
Neighborhood Partnership Initiative (NPI) Increases affordable housing and economic development in
low-income urban communities. NPI properties are ambitious, mixed-income, multi-use developments that
combine many elements of community revitalization. In addition to housing, NPI efforts also focus on creating
jobs, retail activity, services, and neighborhood facilities.
Temporarily restricted net assets were available for the following purposes:
2012
2011
$ 32,878,000
11,594,000
2,056,000
387,000
224,000
$ 34,086,000
12,022,000
1,856,000
259,000
273,000
Total
$ 47,139,000
$ 48,496,000
Net assets were released from restrictions for the years ended December 31, 2012 and 2011 as follows:
2012
2011
1,209,000
567,000
111,000
70,000
506,000
211,000
1,209,000
14,971,000
237,000
248,000
183,000
44,000
206,000
Total
2,674,000
$ 17,098,000
31
The following table for the years ended December 31, 2013 and 2012 sets forth the detailed changes in fair
value for BRIDGE and affiliates Level 3 derivative financial instrument:
2013
2012
Beginning balance
Unrealized gain on derivative financial instrument
$ (2,373,000)
800,000
$ (2,398,000)
25,000
Ending balance
$ (1,573,000)
$ (2,373,000)
The derivative financial instruments held by BRIDGE and affiliates are stated at fair value using a quoted price
provided by the counter party banks. Counter party banks valuation uses various approaches which involve using
quoted prices for economically equivalent instruments, or valuation methodologies, assumptions and inputs, which in
the case of projected future cash flows, discount such cash flows to a single net present value amount. The valuation is
either based on Level 1 inputs directly, or based on the application of valuation models, which may be proprietary, that
take into account Level 1, Level 2 and Level 3 inputs. Level 1 and Level 2 inputs are market-based utilizing observable
market data including swap rates, basis rates and currency exchange rate from sources believed to be reliable but which
counter party banks have not independently verified. Level 3 inputs may be used if counter party banks determine that
Level 1 and Level 2 inputs are unavailable, or in illiquid or dislocated markets, unreliable. In general, those inputs are
used to construct interest rate, currency exchange rate, commodity price or other curves that are placed into proprietary
valuation models to compute for fair value.
Management reviews reasonableness of counter party banks valuations by calculating the net present value of
projected future cash flows using the US Daily Interest Rate Data for interest rate swaps as of the valuation date.
Significant assumptions follow:
Term of swap arrangements
Average projected variable rate through 2026
Discount rate
13 to 38 years
1.14% to 3.23%
1%
NOTE 17 TEMPORARILY RESTRICTED NET ASSETS AND NET ASSETS RELEASED FROM
RESTRICTIONS
The major programs for which BRIDGE has received restricted contributions are as follows:
HUD Capital Advances HUD has granted capital advances to certain multi-family properties under the
Multifamily Property Disposition Upfront Grant or the Section 202 program. These advances are secured by
deeds of trust with assignment of rents. The capital advances bear no interest and shall be repayable if the
properties do not remain available for very low-income housing through a specific term or the notes become
due and payable by reason of default under the notes, mortgages or regulatory agreements. In the event of
noncompliance with affordability provisions as described in the notes, interest and principal will be payable on
demand. The capital advances will not otherwise have to be repaid. Since the capital advances are expected to
be forgiven, they are released over 40 years from temporary restricted net assets to unrestricted net assets.
Development Restricted Proceeds Various companies and agencies have awarded grants to certain properties
for the development of affordable housing. These grants are not secured, bear no interest and are not repayable
unless the properties do not remain available as low-income housing. These grants are released as the restricted
use is met either upon home sales or over the useful life of the property.
Stein Educational Assistance Program Provides scholarships or awards to qualified residents in BRIDGE
developments.
33
Homeownership Initiative Increases the number of new affordable homes for sale and ensures that
low-income, moderate-income and minority families have the proper level of support through services and
financial backing to purchase and sustain a new home.
Neighborhood Partnership Initiative (NPI) Increases affordable housing and economic development in
low-income urban communities. NPI properties are ambitious, mixed-income, multi-use developments that
combine many elements of community revitalization. In addition to housing, NPI efforts also focus on creating
jobs, retail activity, services, and neighborhood facilities.
Resident Service Program In 2013, BRIDGE celebrated its 30th anniversary and sponsored several events.
The proceeds net of fundraising related expenses are earmarked for future resident service programs.
Temporarily restricted net assets were available for the following purposes:
December 31,
2012
Contributions/
Interest Income/
Unrealized Gain
(Loss)
Releases
December 31,
2013
$ 32,878,000
11,552,000
2,056,000
387,000
266,000
149,000
903,000
1,003,000
690,000
$ (1,209,000)
(308,000)
(180,000)
(835,000)
(569,000)
(389,000)
$ 31,669,000
11,244,000
2,025,000
455,000
434,000
567,000
Total
$ 47,139,000
2,745,000
$ (3,490,000)
$ 46,394,000
Releases
December 31,
2012
$ (1,209,000)
(567,000)
(70,000)
(111,000)
(506,000)
(211,000)
$ 32,877,000
11,594,000
2,056,000
387,000
225,000
$ 47,139,000
December 31,
2011
Contributions/
Interest Income/
Unrealized Gain
(Loss)
$ 34,086,000
12,022,000
1,856,000
259,000
273,000
139,000
70,000
311,000
634,000
163,000
Total
$ 48,496,000
1,317,000
2,674,000
34
Analysis/Input
While the financial statements of individual affordable housing properties include disclosure of each note
payable, a consolidated financial statement typically groups similar loans and provides a summary
disclosure that meets the GAAP requirements for each category of long-term debt.
Lenders obtain the consolidated financial statements in order to assess the financial strength of the parent
company, so more details for parent company debt is very helpful. Lenders are particularly interested in
seeing more detail on unsecured parent company loans. The details could either be provided through a
separate section of the Note Payable disclosure or in a supplementary schedule of parent-only debt.
Lenders are also interested in guarantees provided by the parent company, even if the debt is included in
the consolidated notes payable listing, because the obligations of the parent company are considered when
evaluating the parent companys financial strength. Although GAAP doesnt require such disclosure since
obligations to affiliates would be eliminated in consolidation, it is considered a best practice to disclose
this information.
Categorizing Long Term Debt
Categories for grouping the long-term debt of consolidated affiliates vary in practice. Some organizations
group the loans into categories such as permanent loans, construction loans, bonds, city, county, state and
federal loans and disclose repayment terms for each grouping. Other organizations view the distinctions
between types of governmental debt as less significant than the terms of repayment. A best practice is to
group loans into categories such as mortgage loans due in monthly installments, permanent loans payable
annually from net cash flow, permanent loans due at maturity, and permanent loans with interest-only
2011
Interest
Payable
Principal
186
227,177
Principal
297
58,276
6,493,021
19,731,751
6,144,075
19,770,429
1,828,265
2,169,813
1,704,677
2,169,813
328,342
630,100
309,439
630,100
676,000
572,673
8,649,814
1,120,826
24,555,667
8,158,488
1,300,000
24,501,291
2012
Interest
Payable
Affiliates Loans:
Permanent conventional loans, bearing compound
interest from 5.95% to 6.9%, generally with
principal and interest due monthly, to be repaid in
full at various dates through 2036. Interest
expense was $750,785 and $753,656 in 2012 and
2011, respectively.
Predevelopment / construction loans, bearing
interest from 3% to 7%, generally with interestonly payments due monthly, to be repaid in full or
partially converted to permanent loans through
2070. Interest capitalized was $870,684 and
$854,228 in and , respectively. Interest expense
was $-0- and $234,524 in 2012 and 2011,
respectively.
Bond loans, bearing variable interest rates,
generally with principal and interest paid monthly,
to be repaid in full at various dates through 2036.
Principal payments are generally accumulated in a
principal fund held by a trustee. Interest expense
was $13,305 and $180,431 in 2012 and 2011,
respectively. See Note X regarding fixed-rate
swap arrangements.
Local agency loans, bearing interest from 0% to
10%, generally payable annually from property
net cash flow, if any, to be repaid in full at various
dates through 2065. Interest capitalized was
$539,880 and $488,815 in 2012 and 2011,
respectively. Interest expense was $3,122,578 and
$3,282,260 in 2012 and 2011, respectively.
State agency loans, bearing interest from 0% to
7.4%, generally payable annually from property
net cash flow, if any, to be repaid in full at various
dates through 2066. Interest expense was
$936,919 and $784,991 in 2012 and 2011,
respectively.
Federal agency loans, bearing interest from 0% to
3%, generally with principal and interest deferred
through 2065. Interest expense was $31,850 and
$31,849 in 2012 and 2011, respectively.
Subtotal Affiliates Loans
2011
Principal
Interest
Payable
Principal
50,766
10,452,944
32,121
11,092,312
484,912
17,868,803
350,051
15,798,867
13,770
7,774,498
14,334
8,175,000
30,237,864
149,053,343
27,049,205
148,688,645
3,718,146
29,050,553
3,111,604
27,757,907
321,941
34,827,399
61,466,419
275,666,560
290,120
30,847,435
50,868,810
262,381,541
Total loans
Less: current portion
(367,442)
Long-term portion
$ 43,109,771
2011
Interest
Principal
Payable
39,005,923
286,882,832
(2,298,913)
$ 297,923,314
(473,114)
(2,880,939)
$ 38,532,809
$ 284,001,893
Principal payments toward notes payable for the next five years are subject to changes in net cash flow,
which is a contingency that cannot be reasonably estimated. Minimum required payments are estimated as follows:
2013
Permanent
Construction (1)
Bonds
Local
State
Federal
Parent-only
2014
2015
2016
2017
(In thousands with $000 omitted)
Thereafter
1,923
255
121
1,926
275
131
2,026
285
156
1,304
295
53
51
1,275
1,500
305
12,000
1,000
466
192
1,774
17,869
6,359
137,000
28,000
61,000
22,681
2,299
2,332
2,467
2,978
15,463
$ 274,683
Total
$
10,453
17,869
7,774
149,053
29,051
61,466
24,556
$ 300,222
(1) Principal payments of construction loans for the next five years cannot be reasonably estimated since the
loans will be extended or repaid using funds already committed by permanent lenders and limited partners.
Principal payments due under refinanced construction loans within the next five years are not expected to
be significant. $200,000 of the construction loans payable will be repaid with limited partner capital
contributions.
2011
Interest
Payable
Principal
-
500,000
Principal
-
500,000
500,000
500,000
120,826
300,000
Total
1,120,826
1,300,000
Non-current portion
1,120,826
1,300,000
Sample Notes Payable Disclosure for Smaller Entity
NOTE ___ - NOTES PAYABLE
Notes payable are secured by real estate unless otherwise noted and are summarized as follows as of June
30, 20X1:
x.x% note payable to A Bank, principal and interest payable $x,xxx per month,
with a balloon payment due December 20X6
x.x% note payable to B Bank, principal and interest payable $x,xxx per month,
with final payment due August 20X5.
xxx,xxx
xxx,xxx
Prime interest rate (x.xx% over prime) line of credit to B Bank, secured
by accounts receivable, authorized limit of $xx,xxx, interest (currently xx.xx%) payable
monthly, principal due on demand.
Total
xxx,xxx
x,xxx
xx,xxx
$
xxx,xxx
7
Amount
$
xx,xxx
xx,xxx
xxx,xxx
xx,xxx
x,xxx
Interest paid was $xx,xxx during the year ended June 30, 20X1.
Sample Line of Credit Disclosure
NOTE __ - LINES OF CREDIT
In 2001, ABC Developer entered into an unsecured line of credit with West Coast Bank for $2.0 million. The line of
credit bears interest at LIBOR plus 3% (4% floor) with an expiration date of April 18, 2014. At December 31, 2012
and 2011, no amounts were drawn on the line of credit. At 12/31/12, a letter of credit of $1 million has been applied
towards the line of credits maximum borrowing limit.
In 2012, ABC Developer entered into an unsecured line of credit with Midwest National Bank for $3.5 million. The
line of credit bears interest at LIBOR plus 1.8% with an expiration date of October 1, 2014. At December 31, 2012
and 2011, no amounts were drawn on the line of credit.
STRENGTH MATTERS gratefully acknowledges the work of S. Scott Seamands from Lindquist, von
Husen & Joyce LLP and the following individuals that contributed to this paper:
Denise DeMaio, Consultant, F. B. Heron Foundation, New York, NY
Art Fatum, Chief Financial Officer, MidPen Housing Corporation, Foster City, CA
Caroline Horton, Chief Financial Officer, Aeon, Minneapolis, MN
David Keene, Director of Finance and Operations, The Neighborhood Developers, Chelsea, MA
John Maneval, Director of Lending, NeighborWorks Capital Corporation, Silver Spring, MD
Timothy Martin, Chief Credit Officer, Enterprise Community Loan Fund, Columbia, MD
Mary White Vasys, Principal, Vasys Consulting Ltd, Chicago, IL
Last Updated: September 2013
DISCLAIMER
This paper contains certain recommended financial statement presentation best practices for nonprofit
affordable housing organizations that develop and own affordable housing in the United States. This paper
was developed by a working group comprised of chief financial officers from certain leading nonprofit
affordable housing organizations active in the networks of NeighborWorks America, Housing Partnership
Network and Stewards of Affordable Housing for the Future, as well as representatives of socially
responsible lenders, working in conjunction with a representative from Lindquist, von Husen & Joyce LLP,
an independent public accounting firm. This publication should not be construed as accounting or other
advice on any specific facts or circumstances. The contents of this paper are intended for general
informational purposes only, and you are urged to consult your accountants and other professional advisors
concerning your specific situation and any financial reporting or accounting questions you may have.
For further information, contact info@STRENGTHMATTERS.net.
Principal
958,000
$ 191,501,000
4,313,000
$ 187,771,000
91,163,000
3,420,000
105,235,000
33,026,000
235,613,000
28,374,000
199,186,000
1,226,000
56,965,000
1,140,000
58,036,000
9,075,000
48,123,000
9,606,000
53,922,000
14,535,000
101,433,000
12,411,000
104,102,000
27
Principal
1,023,000
2011
Interest
Payable
2012
Interest
Payable
Federal loans, bearing no interest, with
principal payments generally deferred
through 2067, at which time outstanding
principal may be forgiven at the lenders
discretion.
2011
Interest
Payable
Principal
Principal
22,049,000
12,263,000
240,000
4,750,000
188,000
4,453,000
398,000
5,058,000
366,000
4,443,000
63,771,000
756,655,000
56,528,000
729,411,000
4,309,000
53,741,000
4,035,000
40,875,000
$ 59,462,000
$ 702,914,000
$ 52,493,000
$ 688,536,000
Total
Less: current portion
Non-current portion
Total interest expense was $24,101,000 and $24,137,000 for 2012 and 2011, respectively.
Principal payments toward notes payable for the next five years are subject to changes in net cash flow which
is a contingency that cannot be reasonably estimated. Minimum required payments are estimated as follows:
Year ended December 31,
2013
2014
2015
2016
2017
Thereafter
Principal
Payments
$ 53,741,000
7,232,000
8,808,000
7,643,000
8,044,000
671,187,000
$ 756,655,000
Summarized financial information for unconsolidated entities accounted for under the equity method, as of
December 31, 2013 and 2012, consist of the following:
Total assets
Total liabilities
Partners equity (1)
Income
Expenses
Results of operations
(1)
2013
2012
$ 63,214,000
70,175,000
(6,961,000)
$ 61,054,000
70,660,000
(9,606,000)
16,794,000
11,262,000
5,532,000
18,134,000
11,527,000
6,607,000
BRIDGEs share of the equity, as of December 31, 2013 and 2012, was $(1,275,000) and $(1,143,000),
respectively.
The following financial position and activity summarizes the entities that are not included in the combined
financial statements based on BRIDGEs board participation:
Total assets
Total liabilities
Net assets
Support and revenue
Expenses
Change in net assets
2013
2012
$ 54,392,000
53,041,000
1,351,000
$ 48,639,000
29,141,000
19,498,000
1,270,000
2,170,000
(901,000)
1,145,000
1,573,000
(428,000)
987,000
29
2012
Interest
Payable
Principal
$ 189,182,000
958,000
Principal
$ 191,501,000
2013
Interest
Payable
2012
Principal
Interest
Payable
Principal
2,785,000
148,970,000
4,313,000
91,163,000
1,339,000
55,598,000
1,226,000
56,965,000
474,000
4,983,000
398,000
5,058,000
5,585,000
398,733,000
6,895,000
344,687,000
35,382,000
225,113,000
33,026,000
235,613,000
11,534,000
55,996,000
9,075,000
48,123,000
19,487,000
106,373,000
14,535,000
101,433,000
30
2013
Interest
Payable
Ground leases, bearing interest from 0% to
7.5%, generally payable out of excess cash
annually in arrears, to be repaid in full
through 2080. Interest expense was
$114,000 and $111,000 for 2013 and
2012, respectively.
2012
Principal
Interest
Payable
Principal
308,000
5,684,000
240,000
4,750,000
66,711,000
393,166,000
56,876,000
389,919,000
120,000
24,409,000
22,049,000
72,416,000
816,308,000
63,771,000
756,655,000
4,169,000
13,206,000
4,309,000
29,741,000
$ 68,247,000
$ 803,102,000
$ 59,462,000
$ 726,914,000
Total interest expense was $24,162,000 and $24,101,000 for 2013 and 2012, respectively.
Construction loans are generally refinanced with permanent debt or repaid from investor capital contributions.
BRIDGE and affiliates obtained written commitments from refinance lenders and/or investors, and represented the
balances as part of the long-term debt accordingly.
Principal payments toward notes payable for the next five years are subject to changes in net cash flow which
is a contingency that cannot be reasonably estimated. Minimum required payments are estimated as follows:
Year ended December 31,
Principal
Payments
2014
2015
2016
2017
2018
Thereafter
$ 13,206,000
8,275,000
10,134,000
8,989,000
11,220,000
764,484,000
Total
$ 816,308,000
31
2012
$ 45,107,000
23,178,000
5,769,000
74,054,000
1,164,000
$ 20,309,000
14,403,000
2,617,000
37,329,000
911,000
Non-current portion
$ 72,890,000
$ 36,418,000
Development proceeds
Development and restructuring fees net
Other
In connection with the development of certain affordable housing projects, BRIDGE and affiliates received
financing proceeds to pay for related development costs. If all conditions specified in the financing agreements are met,
no payments are required. Until then, BRIDGE and affiliates recorded these proceeds as deferred revenue.
BRIDGE and affiliates accounted for the profit portion of the developer fees as deferred revenue. Starting the
year after the affordable housing project is placed in service, the profit portion of the developer fees is amortized over
40 years to offset the depreciation expense related to the fees originally capitalized as real property costs.
Residents of one of the leased properties purchased a leasehold condominium interest in the building by
entering into a membership agreement. Total initial membership sales proceeds amounted to $57,455,000 net of related
deferred project costs of $5,139,000 and were being deferred and amortized over the lease term. Effective January 1,
2012, the lease was modified in exchange for fee simple interest being transferred to the residents. BRIDGE and
affiliates recognized the remaining deferred revenue of $22,235,000 as income in 2012.
NOTE 16 DERIVATIVE FINANCIAL INSTRUMENT
BRIDGE and affiliates entered into various interest rate cap/swap master agreements to potentially minimize
the effect of changes in the variable interest rate of the loans.
32
(1)
Represents estimate of the year of completion, except for 2012 which represents completion of development.
(2)
(3)
Project under pre-development; owned by Mid-Peninsula The Farm Inc. as of December 31, 2012.
(4)
Principal
322,163
$ 70,247,707
105,316
$ 56,071,181
54,496,744
207,430
62,716,546
158,482
42,046,602
161,124
43,045,863
25,097,669
174,425,151
23,877,130
164,363,734
7,394,247
54,149,664
6,350,310
41,032,394
15,592,392
173,163,963
13,632,168
147,093,078
55,977
14,476,064
53,565
13,405,718
22
Principal
293,114
2011
Interest
Payable
2012
Interest
Payable
Other loans, bearing interest from 0.00% to
4.50%, generally payable out of excess
cash annually in arrears, to be repaid in
full through June 2065.
2011
Interest
Payable
Principal
Principal
126,988
1,985,004
283,965
7,168,458
Total
48,853,234
584,990,899
44,858,806
534,896,972
(2,501,652)
(2,028,063)
(14,680,586)
Non-current portion
(1)
$ 46,351,582
(8,776,831)
$ 576,214,068
$ 42,830,743
$ 520,216,386
Principal payments of construction loans for the next five years cannot be reasonably estimated since the loans will
be extended or repaid using funds from permanent lenders and limited partners.
Principal payments on notes payable for the next five year are subject to changes in net cash flow and are
estimated as follows:
2013
Permanent
Construction
Bonds
City
County
State
Federal
Other
2014
2015
2016
2017
(In thousands with $000 omitted)
Thereafter
Total
2,439
1,994
1,648
446
2,174
76
-
2,587
1,249
18
18
1,882
86
-
3,722
4,721
3,236
53
1,875
93
-
2,896
1,162
19
1,520
2,870
102
300
2,768
1,203
20
2,457
2,010
112
-
55,836
54,496
31,717
169,484
49,655
162,352
14,009
1,685
8,777
5,840
13,700
8,869
8,570
$ 539,234
70,248
54,496
42,046
174,425
54,149
173,163
14,478
1,985
$ 584,990
Lender
Expiration Date
Maximum
Amount
Union Bank
Union Bank
Citibank
September 2022
July 2022
December 2014
$ 13,000,000
18,415,000
6,200,000
23
Outstanding
Balance
$
2012
Interest
Payable
Principal
Principal
MidPen
City of Mountain View, funded under the
Community Development Block Program
(CDBG), in the original amount of
$1,200,000, bears 3% simple interest, due
in full in July 2034, nonrecourse, secured
by a lien against the land acquired by
MidPen for the Central Park Apartments
Phase I project.
555,200
1,200,000
519,200
1,200,000
254
17,245
1,715
101,872
367,289
367,289
178,727
500,000
500,000
27
2013
Interest
Payable
2012
Principal
Interest
Payable
Principal
421,832
209,254
158,080
158,080
227,165
227,165
26,512
20,738
28
2013
Interest
Payable
2012
Interest
Payable
Principal
Principal
985,817
1,304
87,149
149,779
93,341
144,178
93,341
19,138
80,000
29,906
80,000
490
97,993
507
101,351
6,480
29
2013
Interest
Payable
Wells Fargo Community Development
Corporation, in the original amount of
$1,000,000, bears 2% interest, quarterly
payments of interest, due in full in January
2015, nonrecourse, unsecured.
2012
Principal
Interest
Payable
Principal
1,000,000
1,000,000
724,861
5,354,001
696,810
4,152,719
126,964
76,355,971
105,316
54,496,744
434,570
83,237,797
374,544
69,146,355
154,336
41,137,827
158,482
42,046,602
15,762
167,139
14,830
191,531
109,281
201,920
106,374
214,796
319,725
64,072,362
327,795
65,751,760
22,339
2,953,932
22,931
3,032,115
30
2013
Interest
Payable
City loans, bearing interest from 0.00% to
7.00%, generally payable out of excess
cash annually in arrears, to be repaid in
full through February 2070, nonrecourse,
secured by the properties.
2012
Principal
Interest
Payable
Principal
23,416,704
142,544,032
20,805,639
143,844,509
6,556,300
47,641,070
5,366,396
43,548,225
16,469,896
88,242,564
14,538,208
87,148,557
3,190,453
25,992,378
3,313,890
26,069,149
1,714,054
9,171,725
1,718,680
7,093,166
983,178
22,634,171
719,386
20,081,577
36,000
11,094,132
34,525
11,353,949
440,655
2,575,320
375,021
2,575,320
9,307
1,986,749
1,986,749
31
2013
Interest
Payable
2012
Interest
Payable
Principal
Principal
182,069
182,069
90,000
90,000
132,149
1,772,215
174,407
1,985,007
54,131,673
622,053,373
48,156,424
580,838,180
Total
54,856,534
627,407,374
48,853,234
584,990,899
(1,836,004)
Non-current portion
(1)
$ 53,020,530
(8,492,253)
$ 618,915,121
(2,501,652)
$ 46,351,582
(8,776,831)
$ 576,214,068
The current portion of construction loans have been excluded from current liabilities since the loans will be
extended, converted in permanent loans and/or repaid with capital contributions from limited partners. In addition,
principal payments of construction loans for the next five years cannot be reasonably estimated due to these
circumstances.
Principal payments on notes payable for the next five year are subject to changes in net cash flow and are
estimated as follows:
2014
MidPen
Construction
Permanent
Bonds
City
County
State
Federal
Other
2015
2016
2017
2018
(In thousands with $000 omitted)
Thereafter
4
2,851
2,196
1,275
98
1,982
86
-
1,044
2,953
1,142
3,236
13
1,947
94
-
4
3,246
1,180
19
1,520
2,940
103
-
4
3,105
1,228
20
1,093
2,083
112
-
5
3,253
1,257
21
446
3,777
213
-
8,492
10,429
9,012
7,645
8,972
$ 582,857
32
4,293
76,356
67,830
34,135
166,708
55,831
162,402
13,530
1,772
Total
$
5,354
76,356
83,238
41,138
171,279
59,001
175,131
14,138
1,772
$ 627,407