-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VYS9pEOzEVtlpLABtN+oh5E4jMB3eJvggLoNzvjRXzDzl+vG1lMtw4+c0K0y0FWq I2JK+HXRaUg3/p1kFgFvdw== 0000950144-98-005749.txt : 19980512 0000950144-98-005749.hdr.sgml : 19980512 ACCESSION NUMBER: 0000950144-98-005749 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980511 SROS: AMEX SROS: CSX FILER: COMPANY DATA: COMPANY CONFORMED NAME: KOGER EQUITY INC CENTRAL INDEX KEY: 0000835664 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 592898045 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-20975 FILM NUMBER: 98614801 BUSINESS ADDRESS: STREET 1: 3986 BLVD CTR DR STE 101 CITY: JACKSONVILLE STATE: FL ZIP: 32207 BUSINESS PHONE: 9043983403 MAIL ADDRESS: STREET 1: 3986 BLVD CTR DR STREET 2: SUITE 101 CITY: JACKSONVILLE STATE: FL ZIP: 32207 10-Q 1 KOGER EQUITY, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES --- EXCHANGE ACT OF 1934 For the quarterly period ended MARCH 31, 1998 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES --- EXCHANGE ACT OF 1934 For the transition period from to ----------- ----------- Commission File Number 1-9997 KOGER EQUITY, INC. (Exact name of registrant as specified in its charter) FLORIDA 59-2898045 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3986 BOULEVARD CENTER DRIVE, SUITE 101 JACKSONVILLE, FLORIDA 32207 (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code: (904) 398-3403 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at April 30, 1998 Common Stock, $.01 par value 26,509,629 shares 2 KOGER EQUITY, INC. AND SUBSIDIARIES INDEX
PAGE NO. PART I. FINANCIAL INFORMATION Independent Accountants' Report................................... 2 Item 1. Financial Statements: Condensed Consolidated Balance Sheets March 31, 1998 and December 31, 1997........................... 3 Condensed Consolidated Statements of Operations for the Three Month Periods Ended March 31, 1998 and 1997........................................ 4 Condensed Consolidated Statement of Changes in Shareholders' Equity for the Three Month Period Ended March 31, 1998........................................... 5 Condensed Consolidated Statements of Cash Flows for the Three Month Periods Ended March 31, 1998 and 1997...... 6 Notes to Condensed Consolidated Financial Statements for the Three Month Periods Ended March 31, 1998 and 1997.................................. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................... 9 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................................ 12 Item 5. Other Information................................................ 13 Item 6. Exhibits and Reports on Form 8-K................................. 16 Signatures................................................................ 17
1 3 INDEPENDENT ACCOUNTANTS' REPORT To the Board of Directors and Shareholders of Koger Equity, Inc. Jacksonville, Florida We have reviewed the accompanying condensed consolidated balance sheet of Koger Equity, Inc. and subsidiaries (the "Company") as of March 31, 1998, and the related condensed consolidated statements of operations for the three month periods ended March 31, 1998 and 1997, the condensed consolidated statement of changes in shareholders' equity for the three month period ended March 31, 1998 and the condensed consolidated statements of cash flows for the three month periods ended March 31, 1998 and 1997. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such condensed consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of the Company as of December 31, 1997, and the related consolidated statements of operations, changes in shareholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated February 23, 1998, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1997 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. DELOITTE & TOUCHE LLP Jacksonville, Florida April 24 , 1998 2 4 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS KOGER EQUITY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED - SEE INDEPENDENT ACCOUNTANTS' REPORT) (IN THOUSANDS)
MARCH 31, DECEMBER 31, 1998 1997 --------- ------------ ASSETS Real Estate Investments: Operating properties: Land $ 115,176 $ 111,697 Buildings 591,827 567,332 Furniture and equipment 2,272 2,220 Accumulated depreciation (110,779) (104,700) --------- --------- Operating properties - net 598,496 576,549 Properties under construction: Land 9,395 8,978 Buildings 23,321 18,608 Undeveloped land held for investment 13,927 13,249 Undeveloped land held for sale 1,263 1,512 Cash and temporary investments 25,159 16,955 Accounts receivable, net of allowance for uncollectible accounts of $240 and $250 4,802 5,646 Investment in Koger Realty Services, Inc. 810 472 Cost in excess of fair value of net assets acquired, net of accumulated amortization of $728 and $685 1,828 1,870 Other assets 13,751 12,258 --------- --------- TOTAL ASSETS $ 692,752 $ 656,097 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Mortgages and loans payable $ 199,772 $ 181,963 Accounts payable 5,620 8,802 Accrued real estate taxes payable 3,100 3,294 Accrued liabilities - other 5,405 6,623 Dividends payable 6,627 6,352 Advance rents and security deposits 5,835 4,801 --------- --------- Total Liabilities 226,359 211,835 --------- --------- Commitments and Contingencies Shareholders' Equity: Common stock 285 284 Capital in excess of par value 454,188 441,451 Retained earnings 31,984 30,947 Treasury stock, at cost (20,064) (28,420) --------- --------- Total Shareholders' Equity 466,393 444,262 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 692,752 $ 656,097 ========= =========
See Notes to Condensed Consolidated Financial Statements. 3 5 KOGER EQUITY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED - SEE INDEPENDENT ACCOUNTANTS' REPORT) (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTH PERIOD ENDED MARCH 31, 1998 1997 -------- -------- REVENUES Rental and other rental services $ 30,335 $ 25,512 Management fees 485 641 Interest 183 534 Income from Koger Realty Services, Inc. 414 210 Gain on TKPL note to Southeast 46 -------- -------- Total revenues 31,417 26,943 -------- -------- EXPENSES Property operations 11,614 9,968 Depreciation and amortization 6,680 5,493 Mortgage and loan interest 3,282 4,159 General and administrative 1,501 1,363 Direct cost of management fees 299 517 Undeveloped land costs 94 114 Recovery of loss on land held for sale (381) -------- -------- Total expenses 23,470 21,233 -------- -------- INCOME BEFORE INCOME TAXES 7,947 5,710 Income taxes 283 17 -------- -------- NET INCOME $ 7,664 $ 5,693 ======== ======== EARNINGS PER COMMON SHARE AND COMMON EQUIVALENT SHARE: Basic $ 0.30 $ 0.27 ======== ======== Diluted $ 0.29 $ 0.25 ======== ======== WEIGHTED AVERAGE COMMON SHARES AND COMMON EQUIVALENT SHARES OUTSTANDING: Basic 25,504 20,962 ======== ======== Diluted 26,279 22,360 ======== ========
See Notes to Condensed Consolidated Financial Statements. 4 6 KOGER EQUITY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED - SEE INDEPENDENT ACCOUNTANTS' REPORT) (IN THOUSANDS)
COMMON STOCK TOTAL ------------ CAPITAL IN TREASURY STOCK SHARE- PAR EXCESS OF RETAINED -------------------- HOLDERS' SHARES VALUE PAR VALUE EARNINGS SHARES COST EQUITY ------ ----- --------- -------- ------ ---- ------ Balance, December 31, 1997 28,389 $ 284 $441,451 $ 30,947 2,982 $(28,420) $444,262 Common stock sold 11,940 (1,005) 8,289 20,229 401(k) Plan contribution 126 (9) 76 202 Stock options exercised 86 1 671 1 (9) 663 Dividends declared (6,627) (6,627) Net income 7,664 7,664 -------- -------- -------- -------- -------- -------- -------- Balance, March 31, 1998 28,475 $ 285 $454,188 $ 31,984 1,969 $(20,064) $466,393 ======== ======== ======== ======== ======== ======== ========
See Notes to Condensed Consolidated Financial Statements. 5 7 KOGER EQUITY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED - SEE INDEPENDENT ACCOUNTANTS' REPORT) (IN THOUSANDS)
THREE MONTH PERIOD ENDED MARCH 31, 1998 1997 -------- -------- OPERATING ACTIVITIES Net income $ 7,664 $ 5,693 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,680 5,493 Recovery of loss on land held for sale (381) Income from Koger Realty Services, Inc. (414) (210) Provision for uncollectible accounts 56 37 Amortization of mortgage discounts 24 Decrease in accounts payable, accrued liabilities and other liabilities (3,284) (2,145) (Increase) decrease in receivables and other assets (746) 1,073 -------- -------- Net cash provided by operating activities 9,956 9,584 -------- -------- INVESTING ACTIVITIES Property acquisitions (12,493) Building construction expenditures (10,549) (2,380) Tenant improvements to first generation space (137) Tenant improvements to existing properties (1,571) (1,630) Building improvements to existing properties (282) (328) Energy management improvements (361) Deferred tenant costs (413) (172) Additions to furniture and equipment (52) (61) Proceeds from sale of assets 2,910 Dividends received from Koger Realty Services, Inc. 76 76 -------- -------- Net cash used in investing activities (25,421) (1,946) -------- -------- FINANCING ACTIVITIES Proceeds from exercise of warrants and stock options 589 363 Proceeds from sale of common stock 20,229 75 Proceeds from mortgages and loans 15,000 Dividends paid (6,352) (1,046) Principal payments on mortgages and loans (5,692) (818) Financing costs (105) (78) -------- -------- Net cash provided by (used in) financing activities 23,669 (1,504) -------- -------- Net increase in cash and cash equivalents 8,204 6,134 Cash and cash equivalents - beginning of period 16,955 35,715 -------- -------- Cash and cash equivalents - end of period $ 25,159 $ 41,849 ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the period for interest, net of amount capitalized $ 3,235 $ 4,134 ======== ======== Cash paid during the period for income taxes $ 260 $ 0 ======== ========
See Notes to Condensed Consolidated Financial Statements. 6 8 KOGER EQUITY, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED - SEE INDEPENDENT ACCOUNTANTS' REPORT) 1. BASIS OF PRESENTATION. The condensed consolidated financial statements include the accounts of Koger Equity, Inc. and its wholly-owned subsidiaries (the "Company"). All material intercompany transactions have been eliminated. The financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission related to interim financial statements. The financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 1997, included in the Company's Form 10-K Annual Report for the year ended December 31, 1997. The balance sheet at December 31, 1997, has been derived from the audited financial statements at that date and is condensed. All adjustments of a normal recurring nature which, in the opinion of management, are necessary to present a fair statement of the results for the interim periods have been made. Results of operations for the three month period ended March 31, 1998, are not necessarily indicative of the results to be expected for the full year. Certain 1997 amounts have been reclassified to conform with 1998 presentation. 2. ORGANIZATION. Koger Equity, Inc. ("KE"), a Florida corporation, was incorporated in 1988 for the purpose of investing in the ownership of income producing properties, primarily commercial office buildings. KE is totally self-administered and self-managed. In addition to managing its own properties, KE, through certain related entities, provides property management services to third parties. In conjunction with Koger Real Estate Services, Inc. ("KRES"), a Florida corporation and a wholly-owned subsidiary of KE, KE manages 21 office buildings owned by Centoff Realty Company, Inc. ("Centoff"), a subsidiary of Morgan Guaranty Trust Company of New York. 3. FEDERAL INCOME TAXES. The Company is operated in a manner so as to qualify and has elected tax treatment as a real estate investment trust under the Code (a "REIT"). As a REIT, the Company is required to distribute annually at least 95 percent of its REIT taxable income to its shareholders. Since the Company had no REIT taxable income during 1997 and does not expect to have REIT taxable income during 1998, no provision has been made for Federal income taxes. To the extent that the Company pays dividends equal to 100 percent of REIT taxable income, the earnings of the Company are not taxed at the corporate level. However, the use of net operating loss carryforwards, which may reduce REIT taxable income to zero, are limited for alternative minimum tax purposes. 4. STATEMENTS OF CASH FLOWS. Cash in excess of daily requirements is invested in short-term monetary securities. Such temporary cash investments have an original maturity date of less than three months and are deemed to be cash equivalents for purposes of the statements of cash flows. During the three month period ended March 31, 1998, the Company contributed 9,197 shares of common stock to the Company's 401(k) Plan. These shares had a value of 7 9 approximately $202,000 based on the closing price of the Company's common stock on the American Stock Exchange on December 31, 1997. During January, 1998, the Company assumed a mortgage loan with an outstanding balance of approximately $8,501,000 in conjunction with the acquisition of an office building. During the three month period ended March 31, 1997, the Company contributed 23,657 shares of common stock to the Company's 401(k) Plan. These shares had a value of approximately $444,000 based on the closing price of the Company's common stock on the American Stock Exchange on December 31, 1996. In addition, the Company issued 15,455 shares of common stock as payment for certain 1996 bonuses for senior management. These shares had a value of approximately $278,000 based on the closing price of the Company's common stock on the American Stock Exchange on January 6, 1997. 5. EARNINGS PER COMMON SHARE. Earnings per common share have been computed based on the weighted average number of shares of common stock and common stock equivalents outstanding during the applicable periods. 6. MORTGAGES AND LOANS PAYABLE. At March 31, 1998, the Company had $199,772,000 of loans outstanding, which are collateralized by mortgages on certain operating properties. Annual maturities for mortgages and loans payable are as follows (in thousands):
YEAR ENDING DECEMBER 31, 1998 $ 1,950 1999 12,868 2000 3,113 2001 3,382 2002 11,375 Subsequent Years 167,084 -------- Total $199,772 ========
7. DIVIDENDS. The Company paid a quarterly dividend of $0.25 per share on February 4, 1998, to shareholders of record on December 31, 1997. During the quarter ended March 31, 1998, the Company's Board of Directors declared a quarterly dividend of $0.25 per share payable on May 6, 1998, to shareholders of record on March 31, 1998. The Company currently expects that all dividends paid during 1998 will be treated as ordinary income for income tax purposes. 8. STOCK OPTIONS. During the quarter ended March 31, 1998, the Company granted options to purchase 447,500 shares of its common stock. All options were granted with an exercise price equal to the market value at the date of grant. 9. SUBSEQUENT EVENTS. On April 22, 1998, the Company acquired an office and retail complex consisting of (i) four office buildings containing approximately 326,000 gross square feet, (ii) a retail development consisting of seven buildings containing approximately 112,000 gross square feet and (iii) approximately 22 acres of developable land. These properties were acquired for a purchase price of approximately $58.23 million and are located in Birmingham, Alabama. This acquisition was partially funded by drawing $49 million from the Company's secured revolving credit facility. 8 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the condensed consolidated financial statements and related notes appearing elsewhere in this Form 10-Q, and the Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Annual Report on Form 10-K for the period ended December 31, 1997. RESULTS OF OPERATIONS. Rental and other rental services revenues totaled $30,335,000 for the quarter ended March 31, 1998, compared to $25,512,000 for the quarter ended March 31, 1997. The increase in rental revenues resulted primarily from (i) the increase in the Company's average rental rate and (ii) rental revenues from the properties acquired and construction completed during 1997 and 1998 ($3,011,000). At March 31, 1998, the Company's buildings were on average 92 percent leased with an average rental rate of $15.17. Management fee revenues totaled $485,000 for the quarter ended March 31, 1998, compared to $641,000 for the quarter ended March 31, 1997. This decrease was due primarily to a leasing commission earned by KRES during 1997. Property operations expense includes such charges as utilities, real estate taxes, janitorial, maintenance, property insurance, provision for uncollectible rents and management costs. The amount of property operations expense and its percentage of total rental revenues for the applicable periods are as follows:
PERCENT OF TOTAL RENTAL PERIOD AMOUNT REVENUES ------------------------ ----------- ------------ March 31, 1998 - Quarter $11,614,000 38.3% March 31, 1997 - Quarter $ 9,968,000 39.1%
Property operations expense increased primarily due to (i) increase in accruals for real estate taxes and (ii) operations expenses for the properties acquired and construction completed during 1997 and 1998 ($1,462,000). Depreciation expense has been calculated on the straight line method based upon the useful lives of the Company's depreciable assets, generally 3 to 40 years. Depreciation expense increased $952,000 for the three month period ended March 31, 1998, compared to the same period last year, due to (i) improvements made to the Company's existing properties during 1997 and (ii) the properties acquired and construction completed during 1997 and 1998 ($627,000). Amortization expense increased $235,000 for the three month period ended March 31, 1998, compared to the same period last year, due primarily to deferred financing costs which were incurred during 1997 for the secured revolving credit facility. Interest expense decreased by $877,000, during the three month period ended March 31, 1998, compared to the same period last year, primarily due to (i) the reduction in the average balance of mortgages and loans payable and (ii) the interest capitalized due to the Company's construction of office buildings. At March 31, 1998, the weighted average interest rate on the Company's outstanding debt was approximately 8.2 percent. 9 11 General and administrative expenses for the three month periods ended March 31, 1998 and 1997, totaled $1,501,000 and $1,363,000, respectively, which is 0.8 percent and 0.9 percent (annualized) of average invested assets. This increase is primarily due to (i) the increase in group insurance costs for employees and (ii) increases in payroll costs. Direct costs of management contracts decreased $218,000 for the three month period ended March 31, 1998, compared to the same period last year, due to decreased costs associated with providing property management services for all management contracts. Based on the proceeds received from the sale of the Miami land parcel and the Company's analysis of the fair value of the remaining land parcels held for sale during the three months ended March 31, 1997, the Company reversed $381,000 of the provision for loss on land held for sale which had been previously recorded. Net income totaled $7,664,000 for the quarter ended March 31, 1998, compared to net income of $5,693,000 for the corresponding period of 1997. This improvement is due to the increase in rental revenues and the reduction in interest expense. These items were partially offset by the increases in (i) property operations expense and (ii) depreciation and amortization expense. LIQUIDITY AND CAPITAL RESOURCES. OPERATING ACTIVITIES - During the three months ended March 31, 1998, the Company generated approximately $10 million in net cash from operating activities. The Company's primary internal sources of cash are (i) the collection of rents from buildings owned by the Company and (ii) the receipt of management fees paid to the Company in respect of properties managed on behalf of Centoff and others. As a REIT for Federal income tax purposes, the Company is required to pay out annually, as dividends, 95 percent of its REIT taxable income (which, due to non-cash charges, including depreciation and net operating loss carryforwards, may be substantially less than cash flow). In the past, the Company has paid out dividends in amounts at least equal to its REIT taxable income. The Company believes that its cash provided by operating activities will be sufficient to cover debt service payments and to pay the dividends required to maintain REIT status through 1998. The level of cash flow generated by rents depends primarily on the occupancy rates of the Company's buildings and changes in rental rates on new and renewed leases and under escalation provisions in existing leases. At March 31, 1998, leases representing approximately 22.3 percent of the gross annualized rent from the Company's properties, without regard to the exercise of options to renew, were due to expire during the remainder of 1998. This represents 893 leases for space in buildings located in 22 of the 23 centers or locations in which the Company owns buildings. Certain of these tenants may not renew their leases or may reduce their demand for space. During the three months ended March 31, 1998, leases were renewed on approximately 68 percent of the Company's net rentable square feet which were scheduled to expire during the three month period. For those leases which renewed during the three months ended March 31, 1998, the average rental rate increased from $15.14 to $15.72. However, current market conditions in certain markets may 10 12 require that rental rates at which leases are renewed or at which vacated space is leased be lower than rental rates under existing leases. Based upon the significant number of leases which will expire during 1998 and the competition for tenants in the markets in which the Company operates, the Company has and expects to continue to offer incentives to certain new and renewal tenants. These incentives may include the payment of tenant improvements costs and in certain markets reduced rents during initial lease periods. The Company continues to benefit from improving economic conditions and reduced vacancy levels for office buildings in many of the metropolitan areas in which the Company owns buildings. The Company believes that the southeastern and southwestern regions of the United States provide significant economic growth potential due to their diverse regional economies, expanding metropolitan areas, skilled work force and moderate labor costs. However, the Company cannot predict whether such economic growth will continue. Cash flow from operations could be reduced if economic growth were not to continue in the Company's markets and if this resulted in lower occupancy rates for the Company's buildings. Governmental tenants (including the State of Florida and the United States Government) which account for approximately 21.7 percent of the Company's leased space at March 31, 1998, may be subject to budget reductions in times of recession and governmental austerity measures. Consequently, there can be no assurance that governmental appropriations for rents may not be reduced. Additionally, certain of the private sector tenants which have contributed to the Company's rent stream may reduce their current demands, or curtail their future need, for additional office space. INVESTING ACTIVITIES - At March 31, 1998, substantially all of the Company's invested assets were in real properties. Improvements to the Company's existing properties have been financed through internal operations. During the three month period ended March 31, 1998, the Company's expenditures for improvements to existing properties decreased $466,000 from the corresponding period of the prior year primarily due to the reduction in expenditures for energy management improvements. The Company has eight buildings under construction which will contain approximately 684,000 net rentable square feet. Expenditures for construction of these eight buildings are expected to total approximately $55.5 million, excluding land and tenant improvement costs. On January 30, 1998, the Company acquired a building, containing 127,700 net rentable square feet, located in Richmond, Virginia for a purchase price of $16.5 million. On February 1, 1998, the Company acquired a building, containing 20,000 net rentable square feet, located in Jacksonville, Florida for a purchase price of $2.0 million. On March 6, 1998, the Company acquired 14.41 acres of land located in Jacksonville, Florida for a purchase price of $2.3 million. FINANCING ACTIVITIES - The Company has a $100 million secured revolving credit facility ($10 million of which was outstanding on March 31, 1998) provided by First Union National Bank of Florida, Morgan Guaranty Trust Company of New York, AmSouth Bank, N.A. and Guaranty Federal Bank. In addition, the Company has a cash balance of $25.2 million at March 31, 1998. On March 27, 1998, the Company issued 1,000,000 shares of its common stock to Wheat First Securities, Inc. at a price per share of $20.246875. 11 13 Loan maturities and normal amortization of mortgages and loans payable are expected to total approximately $2.7 million over the next 12 months. Significant maturities of the Company's mortgages and loans payable do not begin to occur until 2006. The Company has filed shelf registration statements with respect to the possible issuance of up to $300 million of its common and/or preferred stock. The Company has issued $90.6 million of its common stock under such registration statements. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. 12 14 ITEM 5. OTHER INFORMATION (a) The following table sets forth, with respect to the Company's centers at March 31, 1998, number of buildings, net rentable square feet, percentage leased, and the average annual rent per net rentable square foot leased.
AVERAGE NET ANNUAL GROSS RENTABLE RENT PER SQUARE SQUARE PERCENT SQUARE KOGER CENTER/LOCATION FEET FEET LEASED(1) FOOT (2) - ---------------------- -------- --------- --------- --------- Atlanta Chamblee 1,158,200 948,100 96% $15.49 Atlanta Gwinnett 97,300 79,800 93% 16.26 Atlanta Perimeter 181,100 154,100 91% 16.88 Austin 458,400 370,900 98% 18.50 Charlotte Carmel 206,300 170,800 78% 17.44 Charlotte East 574,800 468,900 88% 13.59 El Paso 364,100 298,300 93% 15.26 Greensboro South 749,200 610,700 94% 14.64 Greenville Park Central 161,700 134,000 91% 16.82 Greenville Roper Mt. 357,400 290,500 95% 15.59 Jacksonville Baymeadows 681,100 571,800 97% 15.33 Jacksonville Central 828,200 666,000 90% 12.15 Jacksonville Deerwood 29,600 23,000 100% 16.48 Memphis Germantown 366,400 299,100 97% 17.96 Orlando Central 713,800 565,400 92% 14.90 Orlando University 194,600 159,600 98% 17.75 Richmond Paragon 154,300 127,700 92% 18.24 San Antonio Airport 258,800 200,100 94% 16.21 San Antonio West 960,700 788,900 89% 13.73 St. Petersburg 640,100 519,400 90% 14.06 Tallahassee 960,300 789,600 85% 17.38 Tulsa 581,100 476,400 84% 11.64 ---------- --------- TOTAL 10,677,500 8,713,100 92% $15.17 ========== ========= ==== ======
(1) The percent leased rates have been calculated by dividing total net rentable square feet leased in an office building by net rentable square feet in such building, which excludes public or common areas. (2) Rental rates are computed by dividing (a) total annualized base rents (which excludes expense pass-through and reimbursements) for a Koger Center or location as of March 31, 1998 by (b) the net rentable square feet applicable to such total annualized rents. 13 15 (b) The following schedule sets forth for all of the Company's office buildings (i) the number of leases which will expire during the remainder of calender year 1998 and calendar years 1999 through 2006, (ii) the total net rentable area in square feet covered by such leases, (iii) the percentage of total net rentable square feet represented by such leases, (iv) the average annual rent per square foot for such leases, (v) the current annualized rents represented by such leases, and (vi) the percentage of gross annualized rents contributed by such leases. This information is based on the buildings owned by the Company on March 31, 1998 and on the terms of leases in effect as of March 31, 1998, on the basis of then existing base rentals, and without regard to the exercise of options to renew. Furthermore, the information below does not reflect that some leases have provisions for early termination for various reasons, including, in the case of government entities, lack of budget appropriations. Leases were renewed on approximately 68 percent of the Company's net rentable square feet which were scheduled to expire during the three month period ended March 31, 1998.
PERCENTAGE OF AVERAGE PERCENTAGE TOTAL SQUARE ANNUAL RENT TOTAL OF TOTAL NUMBER OF NUMBER OF FEET LEASED PER SQUARE ANNUALIZED ANNUAL. RENTS LEASES SQUARE FEET REPRESENTED BY FOOT UNDER RENTS UNDER REPRESENTED BY PERIOD EXPIRING EXPIRING EXPIRING LEASES EXPIRING LEASES EXPIRING LEASES EXPIRING LEASES - ------ ---------- ----------- --------------- --------------- --------------- --------------- 1998 893 1,813,890 22.8% $14.76 $ 26,772,414 22.3% 1999 663 1,421,918 17.9% 14.75 20,973,711 17.4% 2000 465 1,332,191 16.8% 15.73 20,954,721 17.4% 2001 223 1,205,443 15.2% 15.81 19,062,524 15.8% 2002 124 713,089 9.0% 15.82 11,279,717 9.4% 2003 63 480,425 6.0% 13.98 6,715,979 5.6% 2004 74 266,304 3.4% 10.03 2,671,993 2.2% 2005 4 29,673 0.4% 12.41 368,114 0.3% 2006 11 220,035 2.8% 18.68 4,110,000 3.4% OTHER 16 453,737 5.7% 16.44 7,461,415 6.2% ----- --------- ----- ------------ ---- TOTAL 2,536 7,936,705 100.0% $15.17 $120,370,588 100.0% ===== ========= ===== ====== ============ ======
14 16 (c) The Company believes that Funds from Operations is one measure of the performance of an equity real estate investment trust. Funds from Operations should not be considered as an alternative to net income as an indication of the Company's financial performance or to cash flow from operating activities (determined in accordance with generally accepted accounting principles) as a measure of the Company's liquidity, nor is it necessarily indicative of sufficient cash flow to fund all of the Company's needs. Funds from Operations is calculated as follows (in thousands):
THREE MONTH PERIOD ENDED MARCH 31, 1998 1997 ------- ------ Net Income $ 7,664 $5,693 Depreciation - real estate 6,006 5,051 Amortization - deferred tenant costs 332 235 Amortization - goodwill 42 42 Recovery of loss on land held for sale (381) Gain on TKPL note to Southeast (46) ------- ------- Funds from Operations $14,044 $10,594 ======= =======
15 17 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
EXHIBIT NUMBER DESCRIPTION ------- ----------- 11 Earnings Per Share Computations. 15 Letter re: Unaudited interim financial information. 27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K On February 2, 1998, the Company filed a Form 8-K (dated December 29, 1997) reporting under Item 5, Other Events, that the Company had increased its secured revolving credit facility to $100 million with First Union National Bank, Guaranty Federal Bank F.S.B., AmSouth Bank and Morgan Guaranty Trust Company of New York and providing under Item 7, Financial Statements and Exhibits, copies of the loan documents evidencing the $100 million secured revolving credit facility. On February 4, 1998, the Company filed a Form 8-K/A (dated December 29, 1997) reporting under Item 5, Other Events, that an exhibit had been inadvertently omitted from the Form 8-K, dated December 29, 1997, and providing under Item 7, Financial Statements and Exhibits, a copy of the exhibit which was inadvertently omitted. On March 26, 1998, the Company filed a Form 8-K (dated March 23, 1998) reporting under Item 5, Other Events, that the Company had (i) agreed to the purchase of an office and retail development located in Birmingham, Alabama, (ii) engaged in negotiations for the acquisition of a property which would be made by a newly formed so called "downREIT" limited partnership with the Company as general partner and (iii) employed David B. Hiley as its Executive Vice President and Chief Financial Officer effective April 1, 1998, and providing under Item 7, Financial Statements and Exhibits, Statement of Revenues and Certain Expenses for the agreed upon acquisition. On March 30, 1998, the Company filed a Form 8-K (dated March 24, 1998) reporting under Item 5, Other Events, that the Company had signed an Underwriting Agreement relating to the sale by the Company in an underwritten public offering of 1,000,000 shares of the Company's Common Stock between the Company and Wheat, First Securities, Inc. The Company also provided under Item 7, Financial Statements and Exhibits, a copy of the Underwriting Agreement. 16 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. KOGER EQUITY, INC. Registrant [VICTOR A. HUGHES, JR.] ----------------------------------- VICTOR A. HUGHES, JR. CHAIRMAN OF THE BOARD CHIEF EXECUTIVE OFFICER Dated: May 7, 1998 [JAMES L. STEPHENS] ----------------------------------- JAMES L. STEPHENS VICE PRESIDENT AND CHIEF ACCOUNTING OFFICER 17 EX-11 2 EARNINGS PER SHARE COMPUTATIONS 1 EXHIBIT 11 EARNINGS PER SHARE COMPUTATIONS (IN THOUSANDS EXCEPT PER SHARE DATA)
THREE MONTH PERIOD ENDED MARCH 31, --------------------- 1998 1997 --------- ------- EARNINGS PER COMMON AND DILUTIVE COMMON EQUIVALENT SHARE: Net Income $ 7,664 $ 5,693 ======== ======= Shares: Weighted average number of common shares outstanding 25,504 20,962 Weighted average number of additional shares issuable for common stock equivalents (a) 775 1,398 -------- ------- Adjusted common shares 26,279 22,360 ======== ======= EARNINGS PER SHARE $ 0.29 $ 0.25 ======== =======
(a) Shares issuable were derived using the "Treasury Stock Method" for all dilutive common stock equivalents. EX-15 3 LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION 1 EXHIBIT 15 May 7, 1998 Koger Equity, Inc. 3986 Boulevard Center Drive Jacksonville, Florida 32207 We have made a review, in accordance with standards established by the American Institute of Certified Public Accountants, of the unaudited interim financial information of Koger Equity, Inc. and subsidiaries for the periods ended March 31, 1998 and 1997, as indicated in our report dated April 24, 1998; because we did not perform an audit, we expressed no opinion on such financial information. We are aware that our report referred to above, which is included in your Quarterly Reports on Form 10-Q for the quarter ended March 31, 1998, is incorporated by reference in Registration Statement No. 33-55179 of Koger Equity, Inc. on Form S-3, Registration Statement No. 33-54617 of Koger Equity, Inc. on Form S-8, Registration Statement No. 333-20975 of Koger Equity, Inc. on Form S-3, Registration Statement No. 333-23429 of Koger Equity, Inc. on Form S-8 and Registration Statement No. 333-37919 of Koger Equity, Inc. on Form S-3. We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act. DELOITTE & TOUCHE LLP Jacksonville, Florida EX-27 4 FINANCIAL DATA SCHEDULE
5 KOGER EQUITY, INC. DOES NOT FILE A CLASSIFIED BALANCE SHEET, THEREFORE THESE NOT PROVIDED. 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 25,159 0 5,042 240 0 0 757,181 110,779 692,752 0 199,772 0 0 285 466,108 692,752 0 31,417 0 11,857 8,275 56 3,282 7,947 283 7,664 0 0 0 7,664 0.30 0.29
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