Temple University Japan: Where is the rent shown?

In the 2009 annual report of Temple University, Temple Japan is called “Temple Educational Support Services” (TESS).

As I’ve been saying for months, Temple Japan’s operations in Tokyo are carried out with the rental cost for the campus itself hidden in Philadelphia expenses. The annual report purports to show Temple Japan as breakeven. But in fact, I strongly believe it loses money year after year—probably in the millions.

(CLICK TO ENLARGE ANY OF THESE.)

Here is a snapshot of the PDF file you will find at the 2009 annual report link. Notice the total expense number of $810,025,000 (numbers are in thousands on it). This is educational and general for all of Temple.

On this next screen shot, which is “Note O”, notice that TESS/Temple Japan’s share of that $810,025,000 is $24,456,000. (The ones circled.)

As you will see from the longer screen shot I took of TESS’ numbers for 2009, that $24 million is about everything Temple says is an expense for TESS. But nowhere in the larger $800 million number do you see anything about “rent”. In fact, you wouldn’t—it’s not an educational or general expense.

Here is a long screenshot. Everything, all the way down. What you notice is, that there really isn’t anything itemized for rent. Why? Because they keep it hidden, somewhere else. It looks like Temple Japan breaks even, but it doesn’t. In fact, it loses millions over the years.

This is Pennsylvania tax money being funneled through Temple to Japan. The Pennsylvanians pay $180 million through their taxes to support Temple. Temple turns around and sets up a “Japan campus”, and then hides the fact that they have to pay rent for the facilities in Tokyo. It looks to anyone who analyzes TESS, that it’s breakeven. But in fact, there is a rental charge that’s hidden.

Now, where is it?

It’s left in the balance sheet of Temple. For example, on the balance sheet, there is an item for capital leases. Capital leases are long-term leases that U.S. rules allow to be treated as something akin to ownership. [Later note: it isn’t the capital lease. It’s buried deeper.] So, in fairness, they are allowed to be reported as an item on the Balance Sheet, not the Income Statement.

What do we find? Yes, Temple overall does happen to have capital leases, (Note G), just not ones that you would report on the income statement—which is where you would see any TESS/Japan activity. So how much of these capital leases belong to Japan operations? The Annual Report is silent. They don’t say. Based off their information, we really don’t know.

My own feeling is that there is a $1 million or $2 million charge that is left off the TESS breakdown. I’ve been blogging about this for a year, and no one at Temple (who vists the site, of course) has bothered to correct me.

I just want to know how much the rent is for Temple Japan, and where it appears on the Annual Report. That’s not a lot to ask, is it?

[Update: Per Mutant Frog‘s Joe Jones’ comment below, I want to add a screen shot of the listed affiliated corporations Temple provides on page 28 of their annual report. He’s got me wondering whether the TESS figures aren’t just all an allocation to Japan, in which case, we may never figure out how deep the sinkhole really is. ]

3 thoughts on “Temple University Japan: Where is the rent shown?

  1. I think you may be mistaken in confusing TESS with TUJ. TESS is a legal entity which Temple University set up in order to do certain things that required a Japanese company. There was a big sigh of relief at TUJ around 2005 or 2006, when the Japanese government allowed foreign universities to set up “branches” in Japan (I think these are separate Japanese legal entities rather than corporate “branches”), and I am pretty sure that they restructured their operations shortly after that to take many functions out of the for-profit corporation entity.

    If you poke around TUJ’s website, you will find that corporate education students currently pay their tuition to a TESS bank account, but degree program and audit students pay their tuition to a TUJ bank account that isn’t in the name of TESS. I suspect that this is because the non-profit/tax-exempt TUJ entity can’t do non-university education.

    It also appears that TUJ borrowed money to secure its campus property, which indicates that it is a long-term lease at best. See here for instance:
    http://temple-news.com/2006/09/26/79m-set-for-building-funding/
    If I were a Japanese landlord, I would expect an enormous or possibly even full prepayment before entering a lease with a foreign sovereign-affiliated entity of any kind, since they could possibly claim immunity and be unevictable in the future. Minato-ku landlords are VERY savvy to this fact since there are so many diplomatic missions in that area.

    1. Joe, thanks for your comment. Let me take each point separately:

      I think you may be mistaken in confusing TESS with TUJ. TESS is a legal entity which Temple University set up in order to do certain things that required a Japanese company. There was a big sigh of relief at TUJ around 2005 or 2006, when the Japanese government allowed foreign universities to set up “branches” in Japan (I think these are separate Japanese legal entities rather than corporate “branches”), and I am pretty sure that they restructured their operations shortly after that to take many functions out of the for-profit corporation entity.

      The wiki (not that that’s authoritative) puts a little bit differently:

      After extended negotiations involving the U.S. and Japanese governments, in February 2005 TUJ became the first recognized foreign university campus (外国大学日本校, gaikoku daigaku nihonkō) in Japan. As a result, its credits and degrees are recognized as being equivalent to those of Japanese universities (while still being regular Temple University credits and degrees) and it can sponsor visas for international students.

      I have reviewed the Temple University annual reports going all the way back to 1996. All along the way, there is Temple Educational Support Services, Ltd. (TESS). For the year ending June 30, 2009, TESS is claiming $25 million in tuition revenue. They must still be doing business through for-profit entity, despite what was claimed in the 2006 Temple Times News article. The same article quote former Law School Dean Robert Reinstein as saying:

      “TUJ now has $3 million in surpluses. Within two years, we are expecting $4 million in surpluses,” said board member Robert Reinstein, who is also the Dean of the School of Law and Vice President of International Programs.

      But if you look at Note O on the Temple annual financials, TESS’s net assets were negative $3 million in 2005, and now are negative $4 million. Bob Reinstein was saying surplus, but where is the surplus? If TESS was running a surplus, wouldn’t that have been showing on the financials between 1996 and 2009? (I can send you the file if you like.)


      If you poke around TUJ’s website, you will find that corporate education students currently pay their tuition to a TESS bank account, but degree program and audit students pay their tuition to a TUJ bank account that isn’t in the name of TESS. I suspect that this is because the non-profit/tax-exempt TUJ entity can’t do non-university education.

      I am still wondering how TESS got to show over $25 million in revenue for the fiscal year ending June 30, 2009 (Note O of the Temple annual financial report). That’s a lot of corporate and continuing ed.


      It also appears that TUJ borrowed money to secure its campus property, which indicates that it is a long-term lease at best. See here for instance:

      http://temple-news.com/2006/09/26/79m-set-for-building-funding/

      The article is a bit confusing to say the least. The $79 million talked about concerns building Alter Hall, which is in Philadelphia, and renovating Speakman Hall, which is also on the Main Campus (and needed renovating in 1988 from what I remember). The piece then talks a bit about Temple University Japan’s debt:

      The debt of Temple Japan was also discussed during the meeting. In order to pay off loans for the campus abroad, the Budget and Finance Committee and the Executive Committee approved the establishment of a not-for-profit Japanese company to replace the current for-profit company, Temple Educational Support Services, Ltd., hoping it will be a resolution to the debt.

      I don’t understand how that would work. If it’s the debt of a for-profit corporation, when it receives a transfer from the non-profit company, wouldn’t that be considered taxable income? Or if it transfers its debt over to the non-profit entity, doesn’t it receive income in form of debt cancellation? I really don’t know if there’s tricks to be employed under the Japanese system; and I really feel like the article was missing something. Every company with debt would be setting up a non-profit educational unit to retire their debts.

      If I were a Japanese landlord, I would expect an enormous or possibly even full prepayment before entering a lease with a foreign sovereign-affiliated entity of any kind, since they could possibly claim immunity and be unevictable in the future. Minato-ku landlords are VERY savvy to this fact since there are so many diplomatic missions in that area.

      Joe, I obviously don’t have the answers, and the Temple Controller’s office isn’t about to dialogue with me about it, apparently. But my guess today is that Temple in Philadelphia entered into the rent deal with the Japanese landlord, and they somehow got Deloitte to agree to treat the whole transaction as a capital lease on Philadelphia’s books. Possibly this was because, as you suggest, the landlord didn’t want to deal with a “sovereign”–even though Temple is a private corporation set up by the state. But in order to secure the lease, the Philadelphia entity had to put up some capital and pledge to make good in the event that TESS didn’t pay.

      Now sitting as a capital lease [nah, that ain’t it either, it’s buried deeper], it avoids the TESS income statement. There is no line for depreciation per se on the Temple annual Income Statement, only an adjustment made on the Balance Sheet. (Payments on a capital lease would have an offset to depreciation expense, but as you can see from the financials, depreciation is only mentioned in the footnotes as an adjustment to net.)

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