Consolidated Financial Statements of Georgia Tech Foundation, Inc., Study notes of Financial Management

Download Consolidated Financial Statements of Georgia Tech Foundation, Inc. and more Study notes Financial Management in PDF only on Docsity! GEORGIA TECH FOUNDATION, INC. Consolidated Financial Statements June 30, 2021 and 2020 (With Independent Auditors’ Report Thereon) GEORGIA TECH FOUNDATION, INC. Table of Contents Independent Auditors’ Report Consolidated Financial Statements: Consolidated Statements of Financial Position Consolidated Statements of Activities Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Page(s) 5-39 Revenues, gains, and losses: Gift income Lease revenue Investment income, net of fees Net realized/unrealized gain on investments Change in value of trusts and annuities Other Provision for doubtful contributions Net assets released from restrictions (note 13) Total revenues Expenses (note 17): Program services General and administrative (note 17) Fundraising Total expenses Change in net assets Net assets, beginning of year Net assets, end of year $ GEORGIA TECH FOUNDATION, INC. Consolidated Statements of Activities Years ended June 30, 2021 and 2020 (In thousands) 2021 2020 Without donor = With donor Without donor = With donor restriction restriction Total restriction restriction Total 12,319 89,272 101,591 7,090 65,637 72,727 22,156 (73) 22,083 27,784 1,552 29,336 7,374 24,819 32,193 2,086 7,668 9,754 147,514 496,746 644,260 4,647 13,922 18,569 12 4,482 4,494 (3) (1,321) (1,324) 1,116 317 1,433 1,313 155 1,468 — (876) (876) — (801) (801) 78,743 (78,743) — 76,551 (76,551) = 269,234 535,944 805,178 119,468 10,261 129,729 87,220 _- 87,220 84,479 _- 84,479 28,440 _- 28,440 22,226 _- 22,226 3,900 = 3,900 3,682 = 3,682 119,560 = 119,560 110,387 = 110,387 149,674 535,944 685,618 9,081 10,261 19,342 202,177 1,599,128 1,801,305 193,096 1,588,867 1,781,963 351,851 2,135,072 2,486,923 202,177 1,599,128 1,801,305 See accompanying notes to consolidated financial statements. GEORGIA TECH FOUNDATION, INC. Consolidated Statements of Cash Flows Years ended June 30, 2021 and 2020 (In thousands) Cash flows from operating activities: Change in net assets Adjustments to reconcile change in net assets to net cash used in operating activities: Depreciation and amortization Amortization of bond discount and premium and issuance costs Provision for doubtful contributions Net realized/unrealized gain on investments Actuarial (gain) loss on trusts and annuities In-kind contributions Proceeds from gifts restricted for long-term investment Proceeds from sale of donated securities not restricted for long-term investment Decrease in contributions receivable Decrease (increase) in other assets Decrease in accounts payable Decrease in commitment payable Increase in other liabilities Net cash used in operating activities Cash flows from investing activities: Proceeds from the sales and maturities of investments Purchases of investments Increase in funds held on behalf of other organizations Proceeds from principal payments of leases receivable Purchase of capital assets Net cash (used in) provided by investing activities Cash flows from financing activities: Proceeds from lines of credit Repayments of lines of credit Principal repayments of bonds payable Proceeds from issuance of bonds and notes payable Payments of bond issuance costs Receipt of cash from trusts Payments to life income beneficiaries Proceeds from gifts restricted for long-term investment Net cash provided by financing activities Increase in cash and cash equivalents Cash and cash equivalents, restricted cash, and capital reserve funds, beginning of year Cash and cash equivalents, restricted cash, and capital reserve funds, end of year Reconciliation of cash and cash equivalents and restricted cash: Cash and cash equivalents Restricted cash Capital reserve funds Total cash and cash equivalents and restricted cash Supplemental disclosure of cash flow information: Cash paid for interest Noncash activities: Contribution of charitable trusts and annuities Contributions of securities See accompanying notes to consolidated financial statements. $ 2021 685,618 4,892 (1,725) 876 (644,260) (4,494) (9,622) (49,129) 4,362 897 6,826 (1,036) (613) 4,691 5,727) 787,094 (871,722) 60,551 7,787 (7,166) (23,456) (1,510) (14,113) 675 207 (911) 49,129 33,477 4,294 29,447 33,741 20,158 1,626 11,957 33,741 14,313 1,625 7,997 2020 19,342 4,257 (1,866) 801 (18,569) 1,324 (23,166) (39,697) 5,529 20,261 (8,478) (621) (693) 427 41,049) 4,342,670 (1,328,106) 4,799 7,372 (91) 23,644 16,100 (40,687) (39,912) 51,730 (621) 181 (873) 39,697 25,615 8,210 21,237 29,447 17,655 4,141 10,651 29,447 18,362 525 22,641 GEORGIA TECH FOUNDATION, INC. Notes to Consolidated Financial Statements June 30, 2021 and 2020 (Dollars in thousands) (1) Summary of Significant Accounting Policies (a) Organization The Georgia Tech Foundation, Inc. (the Foundation) was incorporated in the state of Georgia in 1932 as a not-for-profit corporation. The purposes of the Foundation are to promote higher education in the state of Georgia, to receive and manage financial donations for the support and enhancement of the Georgia Institute of Technology (the Institute), and to assist the Institute in its role as a leading educational and research institution. Although the Foundation operates to support the Institute, the Foundation is an entity independent of the Institute and is not legally controlled, directly or indirectly, by the Institute. The Board of Trustees (Board) of the Foundation makes all decisions regarding the business and affairs of the Foundation. The Institute is a component unit of the University System of Georgia and is governed by the Board of Regents of the University System of Georgia (BOR). (i) Wholly Owned Subsidiaries The following organizations are all wholly owned subsidiaries of the Foundation and are included in the consolidated financial statements of the Foundation, with all material intercompany accounts and transactions eliminated in consolidation: The Georgia Tech Foundation Real Estate Holding Corporation (GTFREHC) was incorporated as a not-for-profit corporation in 1990 to hold title to real estate and similar property donated to the Foundation. The Georgia Tech Foundation Funding Corporation (GTFFC) was incorporated as a not-for-profit corporation in 2000 to serve as the borrower of a portion of Foundation debt. The Fifth Street Hotel, LLC was formed as a single-member limited liability corporation in 2002 to serve as the holder of the land and building for the Georgia Tech Hotel and Conference Center, the activities of which are subject to unrelated business income tax. Technology Square, LLC was formed as a single-member limited liability corporation in 2002 to serve as the holder of all other land and buildings of the Technology Square project, which are leased to the BOR and to a third party. Cypress Academy LLC was formed as a single-member limited liability corporation in 2009 to serve as the holder of land near the Institute's campus. Georgia Tech Foundation Properties, LLC was formed as a single-member limited liability corporation in 2013 to receive and manage gifts of real estate property. Biltmore Technology Square LLC was formed as a single-member limited liability corporation in 2016 to serve as the holder of land, an office building, and a parking deck, known as the Biltmore, the activities of which are subject to unrelated business income tax. GTF 1052, LLC was formed as a single-member limited liability corporation in 2017 to serve as the holder of a building and land near the Institute’s campus, the activities of which are subject to unrelated business income tax. 5 (Continued) GEORGIA TECH FOUNDATION, INC. Notes to Consolidated Financial Statements June 30, 2021 and 2020 (Dollars in thousands) (h) Contributions Receivable, Net () The Foundation records commitments from donors to make future contributions, recognizing these promises to give as gift income in the period the commitments are made, discounted to their present value at a risk-adjusted market interest rate. An allowance for uncollectible contributions receivable is provided based upon management's judgment, considering such factors as prior collection history, type of contribution, relationship with donor, potential impacts of the COVID-19 pandemic, and other relevant factors. Investments Investments consist predominantly of marketable securities, privately held limited partnerships, and real estate. Investments in equity securities with readily determinable fair values and all investments in debt securities are reported at fair value, with realized and unrealized gains and losses included in the consolidated statements of activities. Donated gifts of securities are recorded based on estimated fair value at the date the donation is received. Investment income, gains, and losses are presented in the accompanying consolidated statements of activities net of investment fees. Investments in private partnership interests are valued using the net asset value (NAV) provided by the general partner as of June 30 of each fiscal year. The change in net assets related to partnership interests is presented as realized and unrealized gain and loss based upon the estimated fair value of each partnership as determined by the general partner. General partners of partnerships that invest in privately held companies (such as leveraged buyout and venture capital funds) typically value their assets at cost as adjusted based on recent arm’s-length transactions. Partnerships investing in public companies use quoted market prices and exchange rates for the underlying assets, if applicable. General partners of marketable alternative investments provide values based on quoted market prices and exchange rates for publicly held securities and valuation estimates of derivative instruments. General partners of oil and gas partnerships, real estate partnerships, and similar funds value their assets based on periodic appraisals conducted by third-party appraisers. The Foundation uses NAV per share or its equivalent as a practical expedient to estimate fair value, although NAV in many instances may not equal fair value. The NAV per share or its equivalent was applied to certain investments that do not have readily determinable fair values, including hedge funds, private equity, real estate, and natural resources. Valuation processes and methodologies utilized by the general partners and investment managers are reviewed by Foundation management. Derivatives are used by the Foundation and external investment managers to manage market risks. A derivative is a financial instrument created from, or whose value is derived from, the value of one or more underlying assets, reference rates, indexes, or asset values. These instruments may include forwards, futures, options, and currency and interest rate swaps and are recorded at their respective fair value. The Foundation utilizes various external investment managers to identify specific investment funds and limited partnerships that meet asset allocation and investment management objectives. These managers and related funds are utilized to increase the yield and return on the investment portfolio given the available alternative investment opportunities and to diversify its asset holdings. 8 (Continued) 0 (k) GEORGIA TECH FOUNDATION, INC. Notes to Consolidated Financial Statements June 30, 2021 and 2020 (Dollars in thousands) Certain of these investments expose the Foundation to market risk by trading or holding direct and indirect derivative securities and by leveraging the securities in the fund. The market risk is similar to holding actual securities equivalent to the notional value of the derivatives. The risk is mitigated by ensuring sufficient collateral is being held to offset adverse market moves. (i) Indirect Derivatives Indirect derivatives held by the Foundation (i.e., derivatives held by external investment managers) are primarily used to manage portfolio risk. The Foundation’s managers use derivatives primarily to hedge underlying positions or to gain exposure to specific markets in an effort to be more efficient, inexpensive, liquid, and diversified. By holding derivatives, the Foundation could be exposed to interest rate risk, credit risk, concentration of credit risk, and foreign currency risk. The Foundation considers the risk associated with these holdings to be prudent. (ii) Direct Derivatives The Foundation directly invests in derivatives associated with market risk. The purpose of these investment derivatives is to gain additional exposure to U.S. and foreign fixed income and equity markets. Futures and forward contracts obligate the buyer to purchase an asset (and the seller to sell an asset), such as a physical commodity or a financial instrument, at a predetermined future price. Charitable Remainder Trusts The Foundation has been named the beneficiary of cash and property under charitable remainder trust, charitable lead trust, and charitable gift annuity agreements. For trusts where the Foundation is the trustee, assets are recorded at their fair values when received and an annuity payment liability is recognized at the present value of future cash flows expected to be paid to the donor or other designee. This liability is estimated by the Foundation using actuarial assumptions and the Internal Revenue Service discount rate at the time of the donation. For charitable remainder trust agreements where the Foundation is not the trustee, a contribution receivable is recorded based on the present value of estimated future distributions expected to be received over the term of the agreement. A discount rate commensurate with the risk involved is estimated as of June 30 of each fiscal year. Capital Assets Capital assets are stated at cost at the date of acquisition less accumulated depreciation. The Foundation capitalizes interest cost as a component of construction in progress. Depreciation is provided on a straight-line basis over the useful lives of the assets, which range from 3 to 50 years. Capital assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. 9 (Continued) GEORGIA TECH FOUNDATION, INC. Notes to Consolidated Financial Statements June 30, 2021 and 2020 (Dollars in thousands) (l) Endowment Interpretation of Relevant Law The Foundation management has interpreted the Georgia Uniform Prudent Management of Institutional Funds Act of 2008 (UPMIFA or the Act) as providing, among other things, expanded spending flexibility by allowing, subject to a standard of prudence, the institution to spend from an endowment fund without regard to the book value of the corpus of the fund. This flexibility under UPMIFA allows an expenditure that lowers the value of the corpus of an endowment fund below its book value, which was previously not allowed. As a result of this interpretation, the Foundation classifies as net assets with donor restrictions (a) the original value of gifts donated to the endowment, (b) the original value of subsequent gifts to the endowment, and (c) accumulations to the endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The donor-restricted endowment fund is classified as net assets with donor-imposed restriction until those amounts are appropriated for expenditure by the Foundation in a manner consistent with the standard of prudence prescribed by the Act. In accordance with the Act, the Foundation considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: 1. The duration and preservation of the fund The purposes of the Foundation and the donor-restricted endowment fund General economic conditions The expected total return from income and appreciation of investments 2 3. 4. The possible effect of inflation and deflation 5. 6. Other resources of the Foundation 7. The investment policies of the Foundation. (m) Use of Estimates The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the determination of fair value of certain investments without readily determinable fair values, the allowance for contributions receivable, and the assumptions made in recording liabilities to life beneficiaries. (n) Tax Status The Foundation and GTFFC are recognized as organizations exempt from federal income tax under Section 501(a) as an entity described in Section 501 (c)(3) of the U.S. Internal Revenue Code, except 10 (Continued) GEORGIA TECH FOUNDATION, INC. Notes to Consolidated Financial Statements June 30, 2021 and 2020 (Dollars in thousands) (3) Investments Investments at June 30, 2021 and 2020 are summarized as follows: Fiscal year 2021 Fiscal year 2020 Percentage Amount Percentage Amount Cash and cash equivalents (a) 5.2% $ 137,481 3.6% $ 68,101 Domestic equities (b) 12.5 329,342 13.8 261,839 Intemational equities (b) 19.2 505,528 17.3 328,069 Bonds and bond funds (c) 0.9 22,767 3.3 63,635 Derivatives 0.3 7,825 (0.2) (3,685) Hedge funds (d): Long-short funds 1.4 37,221 5.0 93,850 Multi-strategy funds 26.8 705,404 29.2 552,136 Private equities (e): Buyout funds 5.4 142,020 3.8 71,509 Venture funds 13.5 352,365 7.7 145,207 Growth equity 49 129,166 5.0 93,895 Distressed securities funds 2.2 58,170 25 47,325 Real estate and real estate funds (e) 46 121,373 5.7 108,435 Natural resources (f) 3.1 82,100 3.3 63,473 100.0% $ 2,630,762 100.0% $ 1,893,789 (a) This category includes assets that are cash or readily convertible to cash, such as money market funds. (b) These categories include investments in funds that take long positions in publicly traded equity securities. Approximately, 50% of the investments are in U.S. companies and 50% are in non-U.S. companies. A range of styles, market caps, and geographic focuses is included. The public nature of the securities makes this category very liquid. (c) This category includes investments in funds that take primarily long positions in corporate bonds, senior loans, private loans, government bonds, and long and short positions in derivatives thereof. It also includes one fund in fiscal years 2021 and 2020, representing 0% and 2% of the category, respectively, that invests in both long and short fixed income securities. (d) This category includes investments in hedge funds that take long and short positions primarily in equity securities, credit securities, index derivatives, and event-driven situations. Managers vary in style, market cap focus, geographic focus, sectors of focus, and types of securities, with some having considerable flexibility in each of these areas. The funds also vary in net long/short positioning with most equity funds generally maintaining a low net long position and little or no leverage. Most credit funds generally maintain a moderate net long position and little or no leverage. 13 (Continued) GEORGIA TECH FOUNDATION, INC. Notes to Consolidated Financial Statements June 30, 2021 and 2020 (Dollars in thousands) (e) This category includes investments in direct real estate investments and real estate equity funds. Direct investments in real estate include investments in land and buildings purchased in the midtown Atlanta, Georgia area. These direct investments are acquired with equity from the investment portfolio and financed with debt under certain parameters approved by the Board, and are carried at fair value based on third-party appraisals. The investments in real estate equity funds take ownership of properties ranging from office, retail, multifamily, land, and hotel. These are investments that cannot be redeemed since the investment is distributed as the underlying investments are liquidated, which generally takes 5-10 years. There are currently no plans to sell any of these investments prior to their liquidation so the assets are carried at NAV as estimated by the manager. (f) These categories include private equity funds that provide growth equity or take full ownership of the companies in which they invest. Venture funds take ownership positions in startup or early stage companies largely in the technology or healthcare spaces. These are private investments, including natural resource investments, that cannot be redeemed since the investment is distributed as the underlying investments are liquidated, which generally takes 4-8 years. There are currently no plans to sell any of these investments prior to their liquidation so the assets are carried at NAV as estimated by the fund manager. The Foundation has investments, as a limited partner, in 149 and 155 partnerships at June 30, 2021 and 2020, respectively. These partnerships invest in a wide variety of assets, including international equities, venture capital, buyout funds, distressed securities, real estate, fixed income, and diversifying strategies. At June 30, 2021, the Foundation’s largest ownership interest in a single partnership was 10% of that partnership’s assets. No individual partnership investment exceeds 2% of the Foundation’s assets. The values of the Foundation’s partnership investments, as furnished by the general partners, are reviewed by Foundation management, and management believes the values recorded at June 30, 2021 and 2020 are reasonable. The Foundation’s investments are exposed to several risks, such as changes in interest rates, currency fluctuations, market fluctuations, credit risks, and risks associated with the geographic concentration of direct ownership of real estate investments. Changes in financial markets occur daily, and it is quite likely that changes in the carrying values of investments will occur. Such changes could materially affect the amounts reported in the Foundation’s consolidated financial statements. The limitations and restrictions on the Foundation’s ability to redeem or sell hedge funds and private investments vary by investment. Notice periods are required for hedge funds. Private investments typically have specified terms at inception (generally 8-10 years) (note 11). Distributions from each private investment will be received as the underlying investments of the funds are liquidated by the general partner. As of June 30, 2021, management estimates the average remaining life of the private investments is approximately 4 years. 14 (Continued) (4) GEORGIA TECH FOUNDATION, INC. Notes to Consolidated Financial Statements June 30, 2021 and 2020 (Dollars in thousands) As of June 30, 2021 and 2020, the Foundation’s remaining outstanding commitments to private investments, which are projected to be paid over the succeeding six years, totaled $304,423 and $302,317, respectively, in the following investment strategies: 2021 2020 Private equities: Venture capital $ 82,201 59,788 Growth equity 49,109 20,891 Buyout 59,148 82,171 Distressed securities 20,122 26,714 Real estate 75,630 89,681 Natural resources 18,213 23,072 $ 304,423 302,317 Investments in private equity, natural resources, and real estate funds are generally made through limited partnerships. Under the terms of these partnership agreements, the Foundation is obligated to remit additional funding periodically as capital or liquidity calls are exercised by the general partner. These partnerships have a limited existence and under such agreements may provide for annual extensions for the purpose of disposing portfolio positions and returning capital to investors. However, depending on market conditions, the inability to execute the fund’s strategy, or other factors, the general partner may extend the terms or request an extension of terms of a fund beyond its originally anticipated existence or may wind the fund down prematurely. The Foundation cannot anticipate such changes because they are based on unforeseen events. As a result, the timing of future capital calls or distributions in any particular year are not certain. The Foundation charges expenses of its internal investment operation to the investment accounts. During 2021 and 2020, these expenses totaled $4,615 and $3,525, respectively, and are reported as a reduction of investment income in the accompanying consolidated statements of activities. Leases (a) Capital Leases (i) Campus Recreation Center Lease In support of the Institute, the Foundation borrowed funds and constructed and placed into service the CRC in 2004. It then leased the facility to the BOR under an annual lease that expires on February 28 of each year but is renewable on a year-by-year basis at the option of the BOR until 2031. Under the terms of the lease, payments are used to retire the related debt incurred by the Foundation and provide for a capital replacement reserve. The likelihood of the BOP’s failure to exercise its renewal options through 2031 has been determined to be remote, and thus, a lease receivable has been recorded totaling $26,141 and $28,579 as of June 30, 2021 and 2020, respectively. The debt outstanding on the Series 2011A and the CRC portion of 2017B Bonds totaled $24,745 and $26,715 as of June 30, 2021 and 2020, respectively. 15 (Continued) GEORGIA TECH FOUNDATION, INC. Notes to Consolidated Financial Statements June 30, 2021 and 2020 (Dollars in thousands) (ii) CODA The Foundation leased approximately 2.2 acres of land adjacent to Technology Square to a third party in November 2016. Improvements on the land currently include a mixed-use development consisting of office space, retail space, parking and associated amenities. The lease is a 99-year operating lease, and the Foundation recognizes revenue from the lease on a straight-line basis over the term of the lease. The Foundation recognized $3,343 and $3,444 in lease income in 2021 and 2020, respectively. The Foundation recorded a rent receivable of $13,126 and $10,814 as of June 30, 2021 and 2020, respectively, which is included in other assets in the accompanying consolidated statements of financial position. Future contractual rental income due from leases under noncancelable operating leases are $1,197, $1,221, $1,246, $1,270, $1,296, and $322,168 for fiscal years 2022, 2023, 2024, 2025, 2026, and thereafter, respectively. (iv) Atlanta Technology Center In September 2018, the Foundation acquired the ATC, which is a 19 acre office park near the Georgia Tech campus. The property has four office buildings leased to third parties. The Foundation recognizes contractual revenues from leases on a straight-line basis over the terms of the respective leases. Future contractual rental income due from leases under noncancelable operating leases are $3,165, $3,415, $3,132, $2,948, $2,730, and $9,775 for fiscal years 2022, 2023, 2024, 2025, 2026, and thereafter, respectively. The Foundation holds this property as an investment asset and records it at fair value. (c) Capital Reserve Funds At June 30, 2021 and 2020, the Foundation held funds restricted for the purpose of capital replacement for the CRC, Technology Square, the Biltmore, ATC, and the Georgia Tech Hotel and Conference Center totaling $11,957 and $10,651, respectively. Capital reserve funds held for the Institute for capital replacement for Technology Square and the CRC are included in other liabilities in the accompanying consolidated statements of financial position. The Foundation’s capital reserve funds are as follows: June 30 2021 2020 Campus Recreation Center $ 1,609 712 Atlanta Technology Center 329 637 Technology Square 9,754 9,113 Biltmore 202 181 Georgia Tech Hotel and Conference Center 63 8 Total capital reserve funds $ 11,957 10,651 18 (Continued) (5) (6) (7) GEORGIA TECH FOUNDATION, INC. Notes to Consolidated Financial Statements June 30, 2021 and 2020 (Dollars in thousands) Capital Assets The Foundation’s buildings consist of the Georgia Tech Hotel and Conference Center, including the retail space within the Georgia Tech Hotel and Conference Center building (collectively, the Hotel and Conference Center), and the Biltmore. The Hotel and Conference Center is located in Technology Square on the Institute’s campus and was placed into service in 2004. The Biltmore is located adjacent to Technology Square and was placed into service in 2017. The Foundation’s capital assets are as follows: June 30 2021 2020 Land $ 68,154 68, 154 Buildings 93,554 93,497 Furniture and equipment 16,317 11,236 Less accumulated depreciation (29,911) (28,367) Total capital assets $ 148,114 144,520 Depreciation expense totaling $3,572 and $2,968 was recognized during 2021 and 2020, respectively. The furniture and equipment are depreciated over useful lives of 3 to 10 years. The buildings are depreciated over useful lives of 40 to 50 years. The Biltmore acquisition also included in-place leases and below-market leases totaling $6,227. Those in- place leases and below-market leases total $1,314 and $2,351, net of $4,913 and $3,875 of accumulated amortization as of June 30, 2021 and 2020, respectively, and are included in other assets in the accompanying consolidated statements of financial position. Both in-place leases and below market leases for the Biltmore are amortized over six years. Total amortization for in-place leases and below-market leases was $1,038 for both years ended June 30, 2021 and 2020. Accounts Payable The Foundation’s accounts payable as of June 30, 2021 and 2020 consist of the following: June 30 2021 2020 Institute $ 5,309 8,790 Other 4,925 2,480 $___ 10,284 11,270 Commitment Payable During 2010, the Foundation agreed to guarantee and pay, through a commitment of support, a $10,555 bond obligation (2010B Bond) issued by GT Facilities during 2010 to refund the 2008C Bonds that were 19 (Continued) (8) GEORGIA TECH FOUNDATION, INC. Notes to Consolidated Financial Statements June 30, 2021 and 2020 (Dollars in thousands) used to finance campus construction and the purchase of campus real estate as well as to provide funds in the amount of $1,560, to terminate an interest rate swap associated with the 2008C Bonds. The bonds mature on November 1, 2027 and require mandatory principal and interest payments until maturity. At June 30, 2021 and 2020, respectively, GT Facilities had $4,835 and $5,448 outstanding on the 2010B Bond, including accrued interest. Foundation payments to GT Facilities during 2021 and 2020, to satisfy GT Facilities’ debt service requirements, totaled $799 and $798, respectively. At June 30, 2021, amounts due in less than one year, in one to five years, and in more than five years totaled $625, $2,690, and $1,490, respectively. In June 2002, the GT Athletic Association executed a promissory note to the Foundation for $1,080 at an interest rate of 5.07%, with payments to be made through September 1, 2027. The Foundation has recorded a related note receivable (included in other assets) for the GT Athletic Association that totals $437 and $488 as of June 30, 2021 and 2020, respectively. In June 2004, the Foundation entered into an agreement with the GT Athletic Association, whereby the GT Athletic Association committed to pay the Foundation $137 per year as long as the GT Facilities’ 1997A (now 2010B) Bond is outstanding. The payments received were used to pay GT Facilities for a portion of the commitment to fund the 2010B Bond. The payments remaining to be received total $893 and $1,031 as of June 30, 2021 and 2020, respectively. The Foundation has recorded a contribution receivable, discounted to give effect to the future cash flows from the GT Athletic Association, in the amount of $321 and $350 as of June 30, 2021 and 2020, respectively. Debt (a) Lines of Credit Lines of credit as of June 30, 2021 and 2020 consist of the following: Line of Outstanding as of June 30 Borrowing entity Maturity credit limit 2021 2020 GTFFC November 2021 $ 26,000 16,590 18,100 Foundation July 2021 25,000 - _ Foundation May 2022 25,000 = $ 16,590 18,100 The Foundation guaranteed a line of credit in the name of the GTFFC in 2021 and 2020 totaling $26,000. The Foundation had two lines of credit in 2021 totaling $50,000 and one line of credit in 2020 totaling $25,000. During July 2021, the Foundation executed an extension of the maturity of one line of credit from July 2021 to July 2023. Interest is calculated using LIBOR. The average effective interest rate for the lines of credit was 0.75% and 2.96% at June 30, 2021 and 2020, respectively. 20 (Continued) GEORGIA TECH FOUNDATION, INC. Notes to Consolidated Financial Statements June 30, 2021 and 2020 (Dollars in thousands) which is being amortized and had a balance of $10,010 and $11,619 as of June 30, 2021 and 2020, respectively. (vi) Series 2019 Bonds During December 2019, the taxable Series 2019 Bonds were issued in the amount of $51,730 with proceeds used to refinance the remaining outstanding principal amount of the callable Series 2009B Bonds, to refinance a portion of the lines of credit, to pay the final installment of a note payable and to pay certain cost of issuance. The Series 2019 Bonds are general unsecured obligations of the Foundation. The following represents the mandatory principal redemptions on bonds until maturity: Campus Recreation Center Bonds _ Technology Square Bonds ries Ties ries Series Series Series Series 20118 20028 20124 2016 2017 20178 2019 Total Fiscaly ear $ 2,070 3710 4,635 265 300 - 3,000 13,980 2023 - 2,300 - 295 355 6.500 3,055 12,505 2024 - 2.465 - 325 395 6.840 3,105 13,130 2025 2,410 2635 - 355 435 4.995 3,165 13,995 2026 2.540 2.820 - 3,090 495 5245 = 14,190 Thereatter = 21.485 = 25,770 30,830 51,300 36,460 165,845 $ 7,020 35.415 4,635 30,100 32,810 74,880 48,785 233,645 (9) Notes Payable Notes payable at June 30, 2021 and 2020 consist of the following: Notes payable: Biltmore property Midtown property Atlanta Technology Center Total notes payable, gross Unamortized debt issuance costs Total notes payable, net (a) Biltmore Property Note Payable Interest Original Outstanding as of June 30 rates — fixed issue 1 5.037% $ 36,000 33,002 33,628 4.750% 13,000 11,776 12,097 4.750% 29,152 25,737 25,062 70,515 70,787 294 352 $ 70,221 70,435 In October 2016, Biltmore Technology Square, LLC entered into a loan assumption and substitution agreement with the previous borrower and assumed a note payable (Biltmore note payable) from a third-party lender under terms of the existing loan agreement. Biltmore Technology Square, LLC assumed the $35,711 note with a maturity date of February 6, 2024. The Biltmore note payable is a 23 (Continued) GEORGIA TECH FOUNDATION, INC. Notes to Consolidated Financial Statements June 30, 2021 and 2020 (Dollars in thousands) nonrecourse loan, is secured by a first mortgage on the Biltmore property, and bears a fixed interest rate of 5.037%. (b) Midtown Property Note Payable In May 2017, GTF 1052, LLC entered into a loan agreement with a bank, borrowing $13,000, the proceeds of which were used to refund lines of credit, which were used for the acquisition of a property located in midtown Atlanta (Midtown property). The note is a nonrecourse loan, is secured by a first mortgage on the Midtown property, and bears a fixed interest rate of 4.75%. The loan matures on June 1, 2024. (c) Atlanta Technology Center In September 2018, GTF ATC, LLC entered into a loan agreement with a bank, borrowing $25,062. The proceeds were used to acquire the ATC. The note is a nonrecourse loan, is secured by a first mortgage on the property, and bears a fixed interest rate of 4.75%. GTF ATC, LLC may borrow an additional $4,090, increasing the loan to $29,152, for renovation and improvements to the property. In March 2021, GTF ATC, LLC borrowed an additional $675 under the terms of the loan agreement. The loan matures on August 31, 2028. The principal payments due on the notes payable as of June 30, 2020 are as follows: Atlanta Biltmore Midtown Technology property property Center Total Fiscal year: 2022 $ 659 337 _ 996 2023 693 354 410 1,457 2024 31,650 11,085 570 43,305 2025 _ _ 598 598 2026 _— _— 627 627 Thereafter = 23,532 23,532 $ 33,002 11,776 25,737 70,515 (10) Funds Held on Behalf of Other Organizations The Foundation manages certain investments on behalf of GT Athletic Association and GT Alumni Association. The carrying value of funds held on behalf of other organizations approximates the fair value of these underlying investments. These investments total $170,946 and $110,395 at June 30, 2021 and 2020, respectively, and are recorded in the accompanying consolidated statements of financial position as funds held on behalf of other organizations. Investment income, fees, gains, and losses earned on the funds held on behalf of the GT Athletic Association and the GT Alumni Association (collectively, GTAA funds) are allocated on a quarterly basis, based on the value of GTAA funds as a share of the pooled investments. The Foundation’s agreement with GT Athletic Association stipulates that a six-month notification of intent to redeem is required. The Foundation’s agreement with the GT Alumni Association 24 (Continued) (11) GEORGIA TECH FOUNDATION, INC. Notes to Consolidated Financial Statements June 30, 2021 and 2020 (Dollars in thousands) stipulates that a three-month notification of intent to redeem is required. The funds will be distributed to GT Athletic Association and the GT Alumni Association at the values determined by the Foundation at the end of the next quarter after the six-month and three-month notification periods, respectively. Activity of the funds held on behalf of GT Athletic Association for the years ended June 30, 2021 and 2020 is as follows: 2021 2020 Balance, beginning of year $ 110,095 108,300 Additions 30,098 12,289 Investment income, gains, net of fees attributable to balances 43,349 1,165 Withdrawals 14,434 11,659) Balance, end of year $ 169,108 110,095 Activity of the funds held on behalf of the GT Alumni Association for the years ended June 30, 2021 and 2020 is as follows: 2021 2020 Balance, beginning of year $ 300 296 Additions 1,068 _ Investment income, gains, net of fees attributable to balances 470 4 Withdrawals = —__—_ Balance, end of year $ 1,838 300 Fair Value Measurements The Foundation’s estimates of fair value for financial assets and liabilities are based on the framework established in the FASB ASC Topic 820, Fair Value Measurement. The framework is based on the inputs used in valuation and gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates in the hierarchy is based on whether the significant inputs into the valuation are observable. In determining the level of the hierarchy in which the estimate is disclosed, the highest level, Level 1, is given to unadjusted quoted prices in active markets and the lowest level, Level 3, to unobservable inputs that reflect the Foundation’s significant market assumptions. The three levels of the fair value hierarchy are as follows: Level 1 — Valuations based on unadjusted quoted market prices for identical assets or liabilities in active markets that the Foundation has the ability to access at fiscal year-end. 25 (Continued) GEORGIA TECH FOUNDATION, INC. Notes to Consolidated Financial Statements June 30, 2021 and 2020 (Dollars in thousands) The following table presents for each level within the fair value hierarchy, the Foundation’s recurring and nonrecurring fair value measurements for assets and liabilities as of June 30, 2020: Investments measured Redemption Level 1 Level 2 Level 3 at NAV Total or liquidation Days notice Assets: Cash and cash equivalents $ 17,655 - - - 17,655 Daily 1 Restricted cash 1,141 _ _ _ 1,141 Daily 1 Capital reserve funds 10,651 - - - 10,651 Daily 1 Investments: Cash and cash equivalents 68,101 - - = 68,101 Daily 1 Domestic equities 238,451 - - 363 238,814 See note (a) See note (a) Domestic equities-hedge funds = - - 23,025 23,025 See note (b) See note (b) International equities 238,266 - - - 238,266 Daily 3-10 International equities— commingled funds 54,710 - - 16,255 70,965 Monthly 310 International equities— hedge funds = - - 18,838 18,838 See note (b) See note (b) Bond and bond funds 62,598 - - 62 62,660 Daily 1-3 Bond and bond funds— hedge fund = - - 975 975 See note (b) See note (b) Derivatives (3,685) - - = (3,685) Daily 1-3 Hedge funds = - - 645,986 645,986 See note (b) See note (b) Private equities - - - 357,936 357,936 liquid NA Real estate and realestate funds - - 66,000 " 42,435 108,435 liquid NA Natural resources = = 1160 "62,313 63,473 liquid NA Total investments 658,441 - 67,160 1,168,188 ‘1,893,789. Contributions receivable from remainder trusts - 13,774 - - 13,74 NA NA Charitable remainder trusts = 14.914 = = 14,914 NA NA Total $_ 687,888 28,688 67.160 _1,168,188_ _1,951,924 ‘) Real estate and real estate funds balance consists of tw o funds, both at fair value determined based on a combination of the income approach (direct capitalization) and sales comparison approach. The first property w as valued with a capitaization rate of 6% and a valuation range of $659 to $790 psf. The second property was valued with a capitalization rate of 7% and a valuation range of $195 to $196 psf. ® Natural resources balance consists of three funds at fair value determined based on the consideration of the discounted cash flow method valuation technique and discount rate of 10%. Note (a) — Domestic Equities (June 30, 2020): Certain investments in domestic equities have restrictions around the liquidation of those equities based on the availability of a potential buyer. The fair values of these domestic equities totaled $363. The fair value of domestic equities that are redeemable daily with a one-to-five-day notice period totaled $238,451. Note (b) — Hedge Funds (June 30, 2020): Certain investments in hedge funds may be redeemed upon a five-to-ninety-day notice to the fund manager and permit a monthly or quarterly exit from the fund. The fair values of these hedge funds totaled $378,881. Certain other hedge funds have semiannual or annual exit dates, which occur more than 90 days after the 28 (Continued) (12) GEORGIA TECH FOUNDATION, INC. Notes to Consolidated Financial Statements June 30, 2021 and 2020 (Dollars in thousands) Foundation’s fiscal year-end. The fair value of these hedge funds, with a notice and a redemption period exceeding 90 days, which could be redeemed during 2021, totals $239,867. Six hedge funds, including one in the bond fund category, with a fair value of $70,076, contain provisions that they may be redeemed after a one- to three-year period upon notification to the fund manager. During 2021 and 2020, the activity of assets classified as Level 3 in the fair value hierarchy was as follows: Natural resources Real estate Balance as of June 30, 2019 $ 1,600 61,600 Investment earings, net of fees 72 2,055 Realized and unrealized (losses) gains (246) 3,298 Additions during year — — Withdrawals during year (266 (953) Balance as of June 30, 2020 1,160 66,000 Investment loss, net of fees _ (8) Realized and unrealized gains 59 2,150 Additions during year — — Withdrawals during year (285) (92) Balance as of June 30, 2021 $ 934 68,050 Derivative Financial Instruments The Foundation directly invests in derivatives associated with market risk, as defined in note 1(i). The purpose of these investment derivatives is to gain additional exposure to U.S. and foreign fixed income and equity markets. Futures and forward contracts obligate the buyer to purchase an asset (and the seller to sell an asset), such as a physical commodity or a financial instrument, at a predetermined future price. 29 (Continued) (13) GEORGIA TECH FOUNDATION, INC. Notes to Consolidated Financial Statements June 30, 2021 and 2020 (Dollars in thousands) During 2021, the Foundation recognized net realized/unrealized gains and losses on direct positions in Equity Index Futures derivatives and U.S. Treasury Futures derivatives of $28,272 and $(7,314), respectively. As of June 30, 2021, the Foundation held direct positions in derivatives as shown in the following table: Fair value at Notional Investment June 30, 2021 exposure Equity Index Futures $ 7,333 54,710 U.S. Treasury Futures 492 119,988 Total $ 7,825 174,698 During 2020, the Foundation recognized net realized/unrealized gains on direct positions in Equity Index Futures derivatives and U.S. Treasury Futures derivatives of $5,754 and $24,206, respectively. As of June 30, 2020, the Foundation held direct positions in derivatives as shown in the following table: Fair value at Notional Investment June 30, 2020 exposure Equity Index Futures $ (141) 101,098 U.S. Treasury Futures (3,544) 89,818 Total $ (3, 685) 190,916 Net Assets Released from Restrictions The Foundation reports gifts of cash and other assets as restricted support if they are received with donor stipulations that limit the use of the donated assets. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, donor net assets with donor restrictions are reclassified to net assets without donor restrictions and reported in the consolidated statements of activities as net assets released from restrictions. The Foundation reports gifts of land, buildings, and equipment as support without donor restriction unless explicit donor stipulations specify how the donated assets must be used. Gifts of long-lived assets with explicit restrictions that specify how the assets are to be used and gifts of cash or other assets that must be used to acquire long-lived assets are reported as restricted support. Absent explicit donor stipulations about how long those long-lived assets must be maintained, the Foundation reports expirations of donor restrictions when the acquired long-lived assets are placed in service. 30 (Continued) GEORGIA TECH FOUNDATION, INC. Notes to Consolidated Financial Statements June 30, 2021 and 2020 (Dollars in thousands) 2021 2020 Endowments: Subject to endowment spending policy and appropriation: Faculty support $ 542,226 388,868 Student support 521,712 373,015 General use 346,124 260,105 Academic support 277,286 206,615 Program enrichment 154,967 110,482 Facilities and construction 9,624 7,214 Perpetual trusts 897 788 Charitable remainder trusts and gift annuities 16,307 9,847 1,869, 143 1,356,934 Contributions receivable restricted to endowment by donors 28,116 36,705 $ 2,135,072 1,599,128 (15) Endowment Net Assets Endowment net assets for the year ended June 30, 2021 are as follows: Without donor With donor restrictions restrictions Total Donor-restricted endowment funds $ - 1,869,143 1,869,143 Board-designated endowment funds 147,358 _ 147,358 Total endowed net assets $ 147,358 1,869,143 2,016,501 Endowment net assets for the year ended June 30, 2020 are as follows: Without donor With donor restrictions restrictions Total Donor-restricted endowment funds $ _- 1,356,934 1,356,934 Board-designated endowment funds 104,201 = 104,201 Total endowed net assets $ 104,201 1,356,934 1,461,135 The Foundation’s endowment consists of approximately 3,000 individual funds established for a variety of purposes, including both donor-restricted endowment funds and funds designated by the Board to function as endowments. Net assets associated with endowment funds, including funds designated by the Board to 33 (Continued) GEORGIA TECH FOUNDATION, INC. Notes to Consolidated Financial Statements June 30, 2021 and 2020 (Dollars in thousands) function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions. (a) Return Objectives and Risk Parameters The primary long-term financial investment objectives are to preserve the real purchasing power of the endowment and to earn an average annual real total return of at least 5.0% per year, net of management fees, over the long term, defined as rolling five-year periods. (b) Strategies Employed for Achieving Objectives (c) (a) To satisfy its long-term rate-of-return objectives, the Foundation relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The Foundation utilizes a diversified asset allocation strategy designed to achieve its long-term return objectives while minimizing risk. As part of this strategy, the Foundation invests a portion of its funds in assets that have desirable return and/or diversification characteristics but which may be less liquid than other investment assets. The Foundation management constantly monitors its liquidity position to ensure that it has the funds necessary to meet its obligations. Spending Policy The Foundation has a policy of appropriating for expenditure, on an annual basis, up to 6.00% of the trailing 12-quarter average market value of its endowment funds. In 2021 and 2020, the Foundation appropriated 4.15% of the 12-quarter trailing average market value of its endowment funds. The amount appropriated for expenditure includes an administrative fee of 0.72% for general overhead costs incurred in connection with the support and management of its endowment funds. In setting the annual appropriation percentage, the Foundation considers both historic and expected returns on its endowment assets, including the effect of inflation. In addition, the Foundation considers providing an appropriate flow of income to the Institute while preserving the future purchasing power of the endowment assets in perpetuity. The appropriation percentage is approved by the Board as part of the Foundation’s annual budget process. Funds with Deficiencies From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or the Act requires the Foundation to retain as a fund of perpetual duration. Deficiencies of this nature that are reported in net assets with donor restrictions were $0 and $377, with an original gift value of $0 and $15,515, as of June 30, 2021 and 2020, respectively. These deficiencies resulted from unfavorable market fluctuations that occurred shortly after the investment of certain recently restricted contributions and continued appropriation for certain programs that were deemed prudent by the Board. Subsequent gains that restore the fair value of the assets of the endowment fund to the required level will be classified as an increase in net assets with donor restrictions. 34 (Continued) GEORGIA TECH FOUNDATION, INC. Notes to Consolidated Financial Statements June 30, 2021 and 2020 (Dollars in thousands) Changes in endowment net assets for the year ended June 30, 2021 are as follows: Endowment net assets, July 1, 2020 Investment return: Investment income Net realized/unrealized loss Total investment return Contributions Other (loss) income Change in value of trusts and annuities Appropriation of endowment assets for expenditure Additions to board-designated funds, net Endowment net assets, June 30, 2021 Changes in endowment net assets for the year ended June 30, 2020 are as follows: Endowment net assets, July 1, 2019 Investment return: Investment income Net realized/unrealized loss Total investment return Contributions Other income Change in value of trusts and annuities Appropriation of endowment assets for expenditure Additions to board-designated funds, net Endowment net assets, June 30, 2020 $ $ $ $ 35 Without donor With donor restriction restriction Total 104,201 1,356,934 1,461,135 1,916 24,709 26,625 38,056 494,228 532,284 39,972 518,937 558,909 5,416 52,122 57,538 (6) 245 239 _ 1,043 1,043 (4,455) (60,138) (64,593) 2,230 = 2,230 147,358 1,869,143 2,016,501 Without donor With donor restriction restriction Total 105,522 1,349,513 1,455,035 545 7,628 8,173 1,062 13,831 14,893 1,607 21,459 23,066 868 41,904 42,772 114 1,683 1,797 - (970) (970) (4,080) (56,655) (60,735) 170 = 170 104,201 1,356,934 1,461,135 (Continued) GEORGIA TECH FOUNDATION, INC. Notes to Consolidated Financial Statements June 30, 2021 and 2020 (Dollars in thousands) (19) Liquidity and Availability Financial assets available to meet cash needs for general expenditures, without donor or other restrictions limiting their use, within one year of the financial reporting date, are comprised of the following: 2021 2020 Cash $ 20,158 17,655 Restricted cash 1,626 1,141 Capital reserve funds 11,957 10,651 Contributions receivable, net 71,388 73,161 Investments 2,630,762 1,893,789 Lease receivable 106,796 116,873 Contributions receivable from charitable remainder trusts 17,140 13,774 Charitable remainder trusts 23,498 14,914 Total financial assets, at year-end 2,883,325 2,141,958 Less financial assets not available for general expenditures, due to nature: Restricted cash (1,626) (1,141) Capital reserve funds (11,957) (10,651) Lease receivable (106,796) (116,873) Contributions receivable from charitable remainder trusts (17,140) (13,774) Charitable remainder trusts (23,498) (14,914) Less financial assets not available for general expenditures within one year: Contributions receivable, net (27,709) (18,852) Less contractual or donor-imposed restrictions: Endowments funds (1,869,143) (1,356,934) Contributions receivable, net restricted for endowment (28,116) (36,705) Funds held on behalf of other organizations (170,946) (110,395) Less board-designated quasi endowment funds (147,358) (104,201) Less other board-designated funds. (10,791 (11,811 Financial assets available to meet cash needs for general expenditures within one year $ 468,245 345,707 38 (Continued) (20) (21) (22) GEORGIA TECH FOUNDATION, INC. Notes to Consolidated Financial Statements June 30, 2021 and 2020 (Dollars in thousands) Donor restricted endowments, which total $1,869,143 and $1,356,934 as of June 30, 2021 and 2020, respectively, are not available for general expenditures until appropriated by the Board. The funds held on behalf of other organizations are not available for general expenditures of the Foundation. The Board-designated quasi endowment funds total $147,358 and $104,201 at June 30, 2021 and 2020, respectively. Although the Foundation does not intend to spend from the Board-designated quasi endowment, other than amount appropriated as part of the Board’s annual budget approval and appropriations, these amounts could be made available, if necessary, for general expenditures. In addition, the net assets of other Board-designated funds total $10,791 and $11,811 at June 30, 2021 and 2020, respectively, and have been designated as real estate reserves, but could be made available, if necessary, for general expenditures. Commitments and Contingencies In June 2020, the Foundation approved $27,476 of funds without donor restrictions to the Institute for support of the Institute’s program and development operations, with a condition that the funds are to be expended during 2021 and 2022. If the funds are not expended by June 30, 2022, the remainder is retained by the Foundation. As of June 30, 2021, the Foundation expended a total of $21,123 and $6,353 remained as a commitment. In June 2006, the Foundation entered into a limited guaranty agreement with a bank in the amount of $4,800 to support a letter of credit pertaining to an obligation GATV has under a rental agreement. The letter of credit was scheduled to expire in June 2021, but was amended to expire in June 2022. As consideration for the limited guaranty agreement, GATV pays the Foundation 0.20% of the limited guaranty amount annually. Tax Matters The Foundation does not have any material unrecognized tax positions that should be recognized in the consolidated financial statements for 2021 or 2020. Subsequent Events In connection with the preparation of the consolidated financial statements, the Foundation management reviewed subsequent events after June 30, 2021 through September 15, 2021, which was the date the consolidated financial statements were available to be issued, and determined that there were no significant subsequent events requiring disclosure in the consolidated financial statements. 39