SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 21, 1993
KOGER EQUITY, INC.
(Exact name of registrant as specified in its charter)
Florida 1-9997 59-2898045
(State of incorporation (Commission (IRS Employer
of organization File Number) Identification No.)
3986 Boulevard Center Drive, Suite 101
Jacksonville, Florida 32207
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (904) 398-3403
N/A
(Former name or former address, if changes since last report)
<PAGE>
Item 7. Financial Statements and Exhibits
Listed below are the financial statements, pro forma financial information
and exhibits, if any, filed as part of this report.
(a) Financial Statements of the Business Acquired.
INDEPENDENT AUDITORS' REPORT
To the Boards of Directors and Stockholders of
Koger Properties, Inc. and Koger Equity, Inc.
Jacksonville, Florida
We have audited the accompanying Historical Summaries of Gross Rental Income
and Direct Operating Expenses of the ninety-three properties (the "Office
Buildings") owned by Koger Properties, Inc. (the "Historical Summaries") for
each of the three years in the period ended March 31, 1993. These Historical
Summaries are the responsibility of Koger Properties, Inc.'s management. Our
responsibility is to express an opinion on the Historical Summaries based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the Historical Summaries are free of
material misstatement. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the Historical Summaries. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation
of the Historical Summaries. We believe that our audits provide a reasonable
basis for our opinion.
The accompanying Historical Summaries were prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission (for inclusion in a Koger Equity, Inc. current report on Form 8-K/A
in connection with a merger between Koger Properties, Inc. and Koger Equity,
Inc.) as described in the Notes to the Historical Summaries and are not
intended to be a complete presentation of Koger Properties, Inc.'s or of its
Office Buildings' revenues and expenses.
In our opinion, such Historical Summaries present fairly, in all material
respects, the gross rental income and direct operating expenses described in
the Notes to the Historical Summaries of the Office Buildings for each of the
three years in the period ended March 31, 1993 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE
Jacksonville, Florida
October 19, 1993
(December 21, 1993 as to Note 1)
<PAGE>
KOGER PROPERTIES, INC.
OFFICE BUILDINGS
HISTORICAL SUMMARIES
Gross Rental Income and Direct Operating Expenses
The following historical summaries of gross rental income and direct
operating expenses of the ninety-three properties comprising the Office
Buildings to be acquired by Koger Equity, Inc. ("KE") from Koger Properties,
Inc. ("KPI"), in connection with the merger between KE and KPI, for each of
the three years in the period ended March 31, 1993 have been audited by
Deloitte & Touche, independent public accountants. The historical summaries
relate only to the operating properties to be acquired and do not reflect the
consolidated gross rental income and direct operating expenses for all
properties owned by KPI for the periods presented. The historical summaries
include the gross rental income and direct operating expenses of eighty fully
operational buildings and thirteen buildings which were not fully operational
during the periods. The summaries for the six months ended September 30, 1993
and 1992 are unaudited; however, in the opinion of management, all adjustments
necessary for a fair presentation of the gross rental income and direct
operating expenses have been included. The gross rental income and direct
operating expenses for the six months ended September 30, 1993 are not
necessarily indicative of the results for a full year. These summaries should
be read in conjunction with their notes.
(In Thousands)
Six Months Ended
September 30 Years ended March 31
1993 1992 1993 1992 1991
(Unaudited)
Gross rental income $21,204 $21,233 $43,601 $41,324 $34,387
Direct operating expenses:
Janitorial, utilities and
maintenance 5,711 5,241 11,148 8,873 3,751
Real estate taxes 2,218 2,307 4,106 4,318 3,020
Management fees (Note 5) 1,097 1,046 2,133 2,127 1,472
Insurance and other 404 418 850 737 501
Provision for losses on the
Office Buildings 20,981
Total 9,430 9,012 18,237 37,036 8,744
Income from rental operations
before depreciation,
interest and income taxes $11,774 $12,221 $25,364 $ 4,288 $25,643
<PAGE>
KOGER PROPERTIES, INC.
Notes to Historical Summaries of
Gross Rental Income and Direct Operating Expenses of the Office
Buildings For the Three Years in the Period Ended March 31, 1993
and (Unaudited) the Six Month Periods Ended September 30, 1993
and 1992
1. KOGER PROPERTIES, INC.'S CHAPTER 11 PROCEEDINGS, MERGER AND
LITIGATION
Koger Properties, Inc. ("KPI" or the "Company") filed a voluntary
petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code
on September 25, 1991. The Chapter 11 filing was precipitated by cash
flow and liquidity problems, due in part to a severe contraction in the
availability of financing for commercial real estate, and was based upon
management's conclusion that the sources of liquidity and other financing
alternatives necessary to enable KPI to meet the requirements of its
business would not be available absent the protections available under
the Bankruptcy Code. KPI continued in possession of its respective
properties and managed its business as debtor-in-possession pursuant to
the Bankruptcy Code. On April 30, 1993, KPI filed with the Bankruptcy
Court its Third Amended and Restated Plan of Reorganization proposed
jointly by KPI and Koger Equity, Inc. ("KE") (the "Plan"). The
Bankruptcy Court entered an order confirming the Plan on December 8,
1993. The Plan became effective on December 21, 1993. The shareholders
of KE previously voted upon and approved the merger between KPI and KE,
pursuant to an Agreement and Plan of Merger, on August 11, 1993. The
effective date of the merger is December 21, 1993.
KPI and certain of its former officers and directors are also party to
certain class action and derivative complaints filed in fiscal 1991,
based upon allegations that KPI and the individual defendants failed to
disclose or misrepresented KPI's financial condition and results of
operations and allegations of corporate waste and misappropriation of
funds. A class action and a derivative action also were filed against
KPI and KE and certain current and former officers of KPI and KE alleging
breach of fiduciary duty and failure to disclose information relating to
KE's cash flow, dividend, and financing policies. All suits seek damages
from the named defendants. KPI believes that the allegations are without
merit and is vigorously contesting the proceedings. While no assurance
can be given as to the likelihood of a favorable outcome of the foregoing
litigation or the estimated amount of potential loss, KPI believes that
it has good and meritorious defenses.
The shareholder derivative action on behalf of KPI has been stayed by the
pendency of KPI's bankruptcy case. KPI has been voluntarily dismissed,
without prejudice, as a defendant in the two class action proceedings and
in the shareholder derivative action on behalf of KE.
<PAGE>
KOGER PROPERTIES, INC.
Notes to Historical Summaries of
Gross Rental Income and Direct Operating Expenses of the Office
Buildings For the Three Years in the Period Ended March 31, 1993
and (Unaudited) the Six Month Periods Ended September 30, 1993
and 1992
(Continued)
The Securities and Exchange Commission is investigating allegations of
insider trading in KPI's shares as well as the allegations made in the
above complaints. KPI is cooperating in such investigation, but there
can be no assurance that formal legal proceedings or administrative
actions will not be commenced involving KPI.
On November 24, 1993, a former participant of the Koger Properties, Inc.
Stock Retirement Plan (now liquidated) (the "Stock Retirement Plan")
filed a civil action in the United States District Court, Middle District
of Florida, as a representative of the Stock Retirement Plan and
similarly situated former class member participants of the Stock
Retirement Plan. The complaint is against certain current and former
directors of the Company and former trustees of the Plan and alleges
losses to the Plan and former participants due to breach of fiduciary
duties. The ultimate outcome of this matter cannot presently be
determined.
KPI is unable to determine whether the ultimate outcome of such
litigation and investigation will have a material effect on its financial
condition or operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies are considered by management to be
relevant to the accompanying Historical Summaries. Additional accounting
policies applicable to the Company's consolidated financial statements
have been omitted since they are not considered necessary for a fair
presentation of such Historical Summaries.
Real Estate Assets - The Company historically reviewed its real estate
portfolio to determine whether such assets had suffered an impairment in
value which was deemed to be other than temporary, requiring the assets
to be reduced to their net realizable value. Effective for the fiscal
year ended March 31, 1992, management of KPI determined that all real
estate assets should be valued at the lower of cost or estimated fair
value. Accordingly, a provision for losses on the Office Buildings was
recorded in the 1992 fiscal year in order to report the Office Buildings
<PAGE>
KOGER PROPERTIES, INC.
Notes to Historical Summaries of
Gross Rental Income and Direct Operating Expenses of the Office
Buildings For the Three Years in the Period Ended March 31, 1993
and (Unaudited) the Six Month Periods Ended September 30, 1993
and 1992
(Continued)
at the lower of cost or estimated fair value. In making such estimates,
management considered the continuing recessionary effects on commercial
real estate markets, current and future expected occupancy rates in its
markets, prospects for leasing of such space at rates sufficient to
support the existing book values of such assets and expected changes in
operating costs. Such writedowns were based upon a methodology believed
by management to be reasonable for such purposes but which did not
include independent, third-party appraisals of such assets. During 1993,
management obtained certain independent, third-party appraisals and other
evidential matter and determined that its writedown of such assets as of
March 31, 1992 was overstated by $13,345,000. Accordingly, management
restated its 1992 consolidated financial statements. Such restatement
did not affect the provision for losses previously recorded on the
Office Buildings. Adjustments to these estimates may be necessary in the
event that future economic conditions, including occupancy and leasing
rates, operating costs, interest rates, the terms and availability of
financing for future development, and other relevant factors vary
significantly from those assumed in these estimates.
The accounting treatment of the merger transaction has resulted in the
Office Buildings being recorded by KE at their estimated fair values at
the date of the transaction. The recording of such assets at estimated
fair value will result in certain assets being recorded by KE at amounts
significantly higher than the amounts reported by KPI at cost in its
consolidated financial statements. The future operations of these Office
Buildings as investment properties will require losses to be recorded
only in cases in which it has been determined that such assets have
suffered an impairment in value which is deemed to be other than
temporary, requiring such assets to be reduced to their net realizable
value.
The Company capitalized construction costs, improvement costs, major
renewals and interest associated with investments in real estate. Costs
(including interest) incurred during a building's "lease-up" period were
also capitalized. These capitalized "lease-up" costs totaled $-0-,
$232,038 and $1,236,076 for the three years ended March 31, 1993,
1992 and 1991, respectively. The "lease-up" period was defined generally
as that period beginning when basic construction of the building was
complete and ending when substantially all partitioning costs for
occupants and additional construction costs had been incurred. Such
"lease-up" period did not exceed one year. Maintenance and repairs are
charged to operations.
<PAGE>
KOGER PROPERTIES, INC.
Notes to Historical Summaries of
Gross Rental Income and Direct Operating Expenses of the Office
Buildings For the Three Years in the Period Ended March 31, 1993
and (Unaudited) the Six Month Periods Ended September 30, 1993
and 1992
(Continued)
Depreciation and amortization are computed on the straight-line method
for financial reporting purposes over the following estimated service
lives:
Buildings 28.5 to 65 years
Building components 10 to 40 years
Furniture and Equipment 3 to 7 years
Lease-up costs 3 to 5 years
Revenue Recognition - In general, rent revenues are recognized when due
from tenants. However, the straight-line basis, which averages annual
minimum rents over the terms of leases, is used to recognize minimum rent
revenues under leases which provide for varying rents over their terms.
3. BASIS OF PRESENTATION
A. Certain rental income and expenses that are dependent upon the
particular owner and carrying value of the Office Buildings have
been excluded from the accompanying historical summaries of gross
rental income and direct operating expenses. Such items consist of
(a) income and related expenses of certain services furnished to
tenants, (b) depreciation of the buildings and improvements, (c)
interest, and (d) provision for Federal and state income taxes.
Below are the approximate amounts of such items which have been so
excluded:
(In Thousands)
Six Months Ended
September 30 Years Ended March 31
1993 1992 1993 1992 1991
(Unaudited)
Services furnished income,
net of related expenses (1) $ 288 $ 212
Depreciation $9,592 $10,561 $20,231 24,151 23,871
Interest (2) 6,457 6,591 13,004 14,894 13,247
<PAGE>
KOGER PROPERTIES, INC.
Notes to Historical Summaries of
Gross Rental Income and Direct Operating Expenses of the Office
Buildings For the Three Years in the Period Ended March 31, 1993
and (Unaudited) the Six Month Periods Ended September 30, 1993
and 1992
(Continued)
(1) Income and Related Expenses of Services Furnished to Tenants - KE,
as a real estate investment trust, is limited as to the amount of
non-passive income that can be earned. Management of KE believes
that the performance of such services by KE on behalf of its tenants
may jeopardize its ability to meet this non-passive income
threshold. As such, these revenues and expenses have been excluded
from the Historical Summaries because they are not comparable to the
current and proposed future operations of the properties.
(2) Interest - Interest includes only contractual interest cost
associated with debt that is specifically collateralized by the
Office Buildings and excludes other interest incurred by the Company
related to unsecured obligations. Amounts shown in the accompanying
table include interest charges capitalized by the Company in its
historical consolidated financial statements in connection with the
development and construction of the buildings and related
improvements. Amounts shown in the accompanying table do not
include interest on loans from KE under the credit agreement
described in Note 5. Such credit agreement was collateralized by
mortgages on a pool of office buildings. The specific buildings in
the pool varied with the amount outstanding under the agreement,
which amount fluctuated as advances were made and as repayments
occurred through the purchase of completed buildings by KE. Total
contractual interest under the credit agreement was $10,949,000,
$9,664,000 and $12,538,000 for the years ended March 31, 1993, 1992
and 1991 respectively, and $5,936,000 and $5,357,000 for the six
months ended September 30, 1993 and 1992, respectively.
Provision for Federal and State Income Taxes - It is not practical to
allocate corporate income tax expense to the Office Buildings.
B. Certain indirect project costs related to building refurbishments
and improvements and tenant improvements for the Office Buildings
were capitalized based upon KPI's historical capitalization policies
as a property developer (Note 2). Because depreciation has been
<PAGE>
KOGER PROPERTIES, INC.
Notes to Historical Summaries of
Gross Rental Income and Direct Operating Expenses of the Office
Buildings For the Three Years in the Period Ended March 31, 1993
and (Unaudited) the Six Month Periods Ended September 30, 1993
and 1992
(Continued)
excluded from the historical summaries, the effect of such
costs on operating results of the Office Buildings is not reflected
in the accompanying historical summaries. The capitalization of
such costs is not expected to be comparable to the proposed future
operations of the properties. The amount of such costs that were
excluded from the historical summaries was approximately $-0-,
$1,207,000 and $4,469,000 for the years ended March 31, 1993, 1992,
and 1991, respectively, and $-0- and $-0- for the six months ended
September 30, 1993 and 1992, respectively.
4. LEASES
The Company's operations include the leasing of office space in its
operating centers located in selected metropolitan areas. The leases on
these properties are generally for a term of three to five years. In
most instances, the Company pays all operating expenses including real
estate taxes and insurance. The majority of the Company's leases provide
for rent escalations that are usually based on changes in the Consumer
Price Index issued by the Bureau of Labor Statistics of the United States
Department of Labor. A substantial number of leases contained options
that allow the lessee to renew for varying periods, generally for the
same rental terms and amount, subject to the above described escalation
provisions.
<PAGE>
KOGER PROPERTIES, INC.
Notes to Historical Summaries of
Gross Rental Income and Direct Operating Expenses of the Office
Buildings For the Three Years in the Period Ended March 31, 1993
and (Unaudited) the Six Month Periods Ended September 30, 1993
and 1992
(Continued)
The Company's leases, all of which are operating leases, expire at
various dates through 2002. A schedule of minimum future rental income
from these leases for the Office Buildings (which generally are
noncancellable) based on the rentals in effect at March 31, 1993,
without regard to the exercise of options to renew, follows (in
thousands):
Year Ending
March 31,
1994 $ 39,823
1995 31,819
1996 19,738
1997 10,764
1998 6,583
Subsequent years 23,533
$132,260
Rental income accrues to the Company until the related properties are
sold, at which time the income accrues to the purchasing entity. The
above minimum future rental income does not include contingent rentals
that may be received under the provisions of the lease agreements.
5. TRANSACTIONS WITH RELATED PARTIES
The following transactions are considered by management to be relevant to
the accompanying Historical Summaries. Additional related party
transactions applicable to the Company's consolidated financial
statements have been omitted since they are not considered necessary for
a fair presentation of such Historical Summaries.
Koger Management, Inc. - Koger Management, Inc. (the "Manager"), a
wholly-owned subsidiary of the Company, is the property manager for all
of the Company's properties as well as for properties owned by KE, The
Koger Partnership, Ltd. and others. The Manager undertakes all property
<PAGE>
KOGER PROPERTIES, INC.
Notes to Historical Summaries of
Gross Rental Income and Direct Operating Expenses of the Office
Buildings For the Three Years in the Period Ended March 31, 1993
and (Unaudited) the Six Month Periods Ended September 30, 1993
and 1992
(Continued)
management functions, including leasing and maintenance of office
buildings. The Manager receives fees under various management agreements
with each Koger entity or other client. Management fees included in the
Historical Summaries represent fees paid to the Manager and, accordingly,
were eliminated in the Company's historical, consolidated financial
statements.
Loans from Koger Equity, Inc. - Since September 1988, KE loaned funds to
KPI at a floating interest rate between 11 percent and 13 percent under
a credit agreement which was amended and restated during the year ended
March 31, 1991. The loans from KE were collateralized by first and
second mortgages on 62 of the office buildings included in the Historical
Summaries and two parcels of land owned by KPI and were to be repaid
in various increments through December 31, 1993. The total amount due
under the amended and restated credit agreement at March 31, 1993,
including accrued interest of $2,308,000, was $90,333,000. Additional
loans from KE were outstanding as of March 31, 1993 in the amount of
$27,058,000 that were collateralized by first mortgages under a separate,
land credit agreement. KPI failed to make interest payments on all such
loans as of September 30, 1991 and subsequent thereto, and was in default
by reason of such failure. The merger of KPI and KE constituted a
stipulated agreement and settlement of all such loans between KE and KPI.
<PAGE>
(b) Pro Forma Financial Information.
The following unaudited pro forma financial statements set forth the pro
forma balance sheet as of September 30, 1993, as if the merger of Koger
Properties, Inc. ("KPI") into the Company occurred on September 30, 1993, and
the pro forma statement of operations of the Company for the nine months ended
September 30, 1993, as if the merger of KPI into the Company had occurred on
January 1, 1993. The pro forma financial statements are based upon
assumptions contained in the notes thereto and should be read in conjunction
with such notes.
The following unaudited pro forma financial statements may not necessarily
reflect the results of operations or financial position of the Company which
would have actually resulted had the merger of KPI into the Company occurred
as of the date and for the period indicated, nor should it be taken as
indicative of the future results of operations or the future financial position
of the Company. Differences would result from various factors, including,
changes in the amounts of rents received and rental expenses paid in
connection with operating the KPI properties, recoveries from the debt and
equity investments in The Koger Partnership, Ltd., and changes in the interest
rates assumed for the KPI Restructured Notes and the Company's bank loans.
<PAGE>
<TABLE>
KOGER EQUITY, INC.
UNAUDITED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1993
(in thousands)
<CAPTION>
KE
HISTORICAL PRO FORMA PRO FORMA
9/30/93 ADJUSTMENTS 9/30/93
ASSETS
Operating Properties:
<S> <C> <C> <C> <C>
Real Estate $315,463 $ 93,549 (a) $564,089
155,077 (b)
Furniture & equipment 25 789 (b) 814
Accumulated depreciation (28,437) (28,437)
Operating properties - net 287,051 536,466
Undeveloped land 25,072 (a) 33,054
7,982 (b)
Undeveloped land held for sale 3,474 (a) 6,982
3,508 (b)
Loans to Koger Properties, Inc.
foreclosed in-substance, net 93,850 (93,850)(a) 0
Cash and temporary investments 7,647 15,596 (b) 23,243
Accounts receivable, net 1,842 1,208 (b) 3,050
Receivable from The Koger Partnership, Ltd. 545 (b) 545
Receivables from Koger Equity, Inc. 1,792 (b) 0
(1,792)(c)
Intangible and other assets 5,066 (879)(b) 17,186
12,999 (d)
TOTAL ASSETS $395,456 $225,070 $620,526
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable $ 1,321 $ 2,098 (b) $ 5,158
1,739 (b)
Payable to Koger Properties, Inc. 1,578 (1,578)(c) 0
Accrued interest 149 726 (b) 875
Accrued real estate taxes 2,647 359 (b) 3,006
Dividends payable to Koger Propeties, Inc. 214 (214)(c) 0
Mortgages & loans payable 150,798 28,245 (a) 328,386
149,343 (b)
Tax notes 5,040 (b) 5,040
Other liabilities 1,699 1,828 (b) 3,527
TOTAL LIABILITIES 158,406 345,992
Shareholders' Equity
Common stock 143 62 (e) 205
Capital in excess of par value 267,825 50,750 (e) 318,575
Warrants 1,368 (e) 1,368
Accumulated dividends in excess of net income (20,789) (20,789)
Treasury stock (10,129) (14,696)(f) (24,825)
TOTAL SHAREHOLDERS' EQUITY 237,050 274,534
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $395,456 $225,070 $620,526
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
<PAGE>
<TABLE>
KOGER EQUITY, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1992
(in thousands except per share data)
<CAPTION>
KE
HISTORICAL KPI AS PRO FORMA
12/31/92 ADJUSTED ADJUSTMENTS PRO FORMA
Revenues
<S> <C> <C> <C> <C> <C>
Rental $45,957 $41,324 $87,281
Management fees 6,279 $ (2,314)(a) 4,421
456 (b)
Interest 231 231
Total revenues 46,188 47,603 (1,858) 91,933
Expenses
Property operations 19,380 18,613 (2,314)(a) 38,343
2,664 (c)
Depreciation and amortization 8,089 21,121 (15,853)(d) 14,133
776 (e)
Interest 11,530 12,753 1,419 (f) 25,702
General and administrative 4,075 4,963 (2,838)(g) 6,200
Provisions for losses on loans
to Koger Properties, Inc.
foreclosed in-substance 1,982 1,982
Provision for uncollective rents 199 115 314
Undeveloped land costs 649 649
Cost of management fees 5,871 (2,664)(c) 3,207
Total expenses 45,255 64,085 (18,810) 90,530
Net Income $ 933 $(16,482) $16,952 $ 1,403
Earnings Per Common Share $ 0.07 $ 0.08 (h)
Weighted Average Shares Outstanding 13,220 4,377 (h) 17,597 (h)
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
<PAGE>
<TABLE>
KOGER EQUITY, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993
(in thousands except per share data)
<CAPTION>
KE
HISTORICAL KPI AS PRO FORMA
9/30/93 ADJUSTED ADJUSTMENTS PRO FORMA
Revenues
<S> <C> <C> <C>
Rental $33,164 $33,614 $66,778
Management fees 5,042 $ (1,671)(a) 3,503
132 (b)
Interest 168 168
Total revenues 33,332 38,656 (1,539) 70,449
Expenses
Property operations 13,515 14,792 1,885 (c) 30,192
Koger Management, Inc. management fees 1,671 (1,671)(a) 0
Depreciation and amortization 6,582 14,623 (10,672)(d) 11,183
650 (e)
Interest 8,340 9,644 985 (f) 18,969
General and administrative 1,413 3,464 (468)(g) 4,409
Provision for uncollective rents 276 286 562
Undeveloped land costs 605 605
Cost of management fees 4,157 (1,885)(c) 2,272
Total expenses 31,797 47,571 (11,176) 68,192
Net Income $ 1,535 $(8,915) $ 9,637 $ 2,257
Earnings Per Common Share $ 0.12 $ 0.13 (h)
Weighted Average Shares Outstanding 13,220 4,377 (h) 17,597 (h)
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
<PAGE>
KOGER EQUITY, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. Basis of Presentation
On December 21, 1993, Koger Properties, Inc. ("KPI") was merged with and
into the Company (the "Merger"). Pursuant to the Merger, the Company acquired
substantially all of the assets and liabilities of KPI. As consideration for
the purchase of the KPI assets and liabilities, the Company cancelled all loans
due from KPI foreclosed in-substance and issued 6,158,977 shares of the
Company's common stock (the "Shares") to certain unsecured creditors of KPI. In
addition, the Company issued 644,000 warrants to purchase 644,000 Shares (the
"Warrants") to the shareholders of KPI and holders of certain securities law
claims against KPI. This acquisition has been accounted for under the purchase
method of accounting in the unaudited pro forma financial statements. It is
the intent of the Company's management to operate the 93 buildings acquired
from KPI in a manner similar to the Company's pre-merger operating building
portfolio. It is currently management's intent that the undeveloped land
acquired from KPI will be held as an investment for future development except
for four parcels, which have a value of approximately $6,982,000, which are
classified in the pro forma balance sheet as held for sale.
2. Unaudited Pro Forma Balance Sheet
The unaudited pro forma balance sheet as of September 30, 1993 is based on
the historical balance sheet for the Company presented in the Quarterly Report
on Form 10-Q for the period ended September 30, 1993. The unaudited pro forma
balance sheet includes adjustments assuming the acquisition of KPI assets
occurred as of September 30, 1993. Significant pro forma adjustments in the
unaudited pro forma balance sheet include the following:
(a) Represents the fair value of the collateral acquired from KPI in
satisfaction of the loans to KPI foreclosed in-substance and the
assumption of related first mortgage loans. Estimated fair value of
the collateral acquired from KPI was determined by obtaining
appraisals, performed by an independent appraiser, on certain
properties, dated between March 1992 and February 1993, and by
performing discounted cash flow analysis based on market assumptions
provided by an independent appraiser in February 1993. The
effective interest rate on the debt assumed by the Company
approximates the fair market rate of debt with similar terms,
conditions and associated risks. Therefore, the debt is recorded at
the face value of the debt assumed.
(b) Represents the fair value of the remaining assets and liabilities
being acquired from KPI. The estimated fair value of the remaining
operating properties and undeveloped land acquired from KPI was
determined by obtaining appraisals from an independent appraiser
dated June 11, 1993. The effective interest rate of KPI restructured
mortgage debt and tax notes, acquired by the Company, approximates
fair market rates of debt with similar terms, conditions and
associated risks. Therefore, the debt is recorded at the face value
of the debt assumed.
(c) Represents the elimination of certain inter-company receivables and
payables between the Company and KPI at the date of the Merger.
<PAGE>
(d) The intangible asset represents the excess of the purchase price
over the estimated fair value of the assets and liabilities
acquired.
(e) Represents the market value of 6,158,977 newly issued Shares and
644,000 Warrants. The fair value of the Shares was measured by the
closing bid price on December 20, 1993, which was $8.25 per share.
The fair value of the Warrants was determined by the opening bid
price for the Warrants, which was $2.125.
(f) Represents the purchase of 1,781,419 Shares from KPI pursuant to the
Merger. These Shares were valued at $8.25 as described in (e) above.
3. Unaudited Pro Forma Statement of Operations for the Year Ended December
31, 1992
The unaudited pro forma statement of operations for the year ended
December 31, 1992 is based on the historical statement of operations for the
Company presented in the Annual Report on Form 10-K for the year ended
December 31, 1992. The "KPI as Adjusted" column represents KPI historical
revenues and expenses relating to certain assets and liabilities being
acquired for the twelve months ended December 31, 1992. The unaudited pro
forma statement of operations includes adjustments assuming the Merger
occurred as of January 1, 1992. Significant pro forma adjustments in the
unaudited pro forma statement of operations include the following:
(a) Adjustment required to eliminate management fee revenue related to
KMI management of the 126 properties owned by the Company prior to
the Merger.
(b) Adjustment to reflect increase in management fees for agreements
which will be in effect at the date of the Merger. At the date of
the Merger, management fee rates will be higher than the rates in
effect during 1992 and an increased number of buildings will be
under management. Estimated management fees from Koger Office
Parks, Inc. was calculated by annualizing actual management fee
revenues generated for the 11 months ended February 28, 1993.
Management believes that this approach results in a reasonable
estimate of these management fees assuming the applicable management
agreement had been in place during the entire year of 1992.
Estimated management fees on the other buildings, including buildings
owned by The Koger Partnership, Ltd., ("TKP"), were determined by
multiplying the planned estimated management fee rate (9% for the
TKP buildings and either 5% or 6% for the other buildings) by the
actual 1992 rental revenues of the applicable buildings. The basis
for determining the cost of providing these third party management
services was the actual costs of management services incurred by KMI
in 1992.
(c) Adjustment required to properly classify the costs of managing the
126 properties owned by the Company prior to the Merger as property
operations expense.
(d) Adjustment required to reflect depreciation, on the assets being
acquired from KPI, based on the new basis assigned to the operating
properties being acquired. The Company uses the straight-line
method for depreciation and amortization. The new basis assigned to
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the operating properties was depreciated over the estimated useful
lives of the assets of 40 years for buildings and 5 years for
furniture and equipment.
(e) Amortization of goodwill has been calculated using the straight-line
method over a 15 year term.
(f) Adjustment required to reflect interest expense, related to the debt
being acquired from KPI, based upon the renegotiated debt amounts
and interest rates as outlined in the KPI Plan of Reorganization.
The estimated average effective interest rate on the restructured
KPI debt is approximately 7.7% which approximates the fair market
rate of similar debt with similar terms and conditions.
(g) This adjustment includes:
(1) An adjustment to the historical costs incurred by KPI and the
Company for the twelve months ended December 31, 1992 for certain
redundant costs which totals approximately $27,000.
(2) An adjustment made to the Company's historical costs incurred
during the twelve months ended December 31, 1992 relating to the
elimination of approximately $2,187,000 in legal and
professional fees incurred to resolve the repayment of loans due
from KPI and other related non-recurring KPI bankruptcy issues.
(3) Adjustment to reflect reduction in KPI's General and
Administrative Expenses due to elimination of four KPI senior
management positions at the date of the Merger. This adjustment
has been reduced by amounts paid under severance agreements.
This adjustment totals $624,000.
(h) Earnings per common share was calculated assuming the 6,158,9777
newly issued shares were outstanding as of January 1, 1992 and the
1,781,419 treasury shares were acquired from KPI on January 1, 1992.
The Warrants being issued were considered anti-dilutive for purposes
of calculating earnings per common share.
4. Unaudited Pro Forma Statement of Operations for the Nine Months Ended
September 30, 1993
The unaudited pro forma statement of operations for the nine months ended
September 30, 1993 is based on the historical statement of operations for the
Company presented in the Quarterly Report on Form 10-Q for the period ended
September 30, 1993. The "KPI as Adjusted" column represents KPI historical
revenues and expenses relating to certain assets and liabilities acquired for
the nine months ended September 30, 1993.
Significant pro forma adjustments in the unaudited pro forma statement of
operations for the nine months ended September 30, 1993, include the following:
<PAGE>
(a) Adjustment required to eliminate management fee revenue related to
Koger Management, Inc.'s management of the 126 properties owned by
the Company prior to the Merger.
(b) Adjustment to reflect increase in management fees for agreements
which were in effect on the date of the Merger. At the date of the
Merger, the management fee rate was higher for the buildings owned
by The Koger Partnership, Ltd. ("TKP") In addition, prior to the
Merger certain buildings were returned to lenders and are being
managed by the Company. Estimated management fees for these
buildings were determined by multiplying the management fee rate
(9% for the TKP buildings and 5% or 6% for the other buildings) by
the actual rental revenues on the applicable buildings for the nine
months ended September 30, 1993.
(c) Adjustment required to properly classify the costs of managing the
126 properties owned by the Company prior to the Merger as operations
expense.
(d) Adjustment required to reflect depreciation, on the assets acquired
from KPI, based on the new basis of the operating properties
acquired. The Company uses the straight-line method for depreciation
and amortization. The new basis of the operating properties was
depreciated over the useful lives of the assets of 40 years for
buildings and 5 years for furniture and equipment.
(e) Amortization of goodwill has been calculated using the straight-line
method over a 15 year term.
(f) Adjustment required to reflect interest expense, related to the debt
acquired from KPI, based upon the restructured debt amounts and
interest rates. The average effective rate on the restructured KPI
debt is approximately 7.7% which approximates the fair market rate
of similar debt with similar terms and conditions.
(g) Adjustment to reflect reduction in KPI's General and Administrative
Expenses due to the elimination of four KPI senior management
positions at the date of the Merger. This adjustment has been
reduced by amounts paid under severance agreements.
(h) Earnings per common share was calculated assuming the 6,158,977
newly issued Shares were outstanding for the entire nine month
period and the 1,781,419 treasury shares were acquired from KPI on
January 1, 1993. The Warrants were considered anti-dilutive for
purposes of calculating earnings per common share.
<PAGE>
KOGER EQUITY, INC.
UNAUDITED STATEMENT OF ESTIMATED TAXABLE OPERATING RESULTS AND
ESTIMATED CASH TO BE MADE AVAILABLE BY OPERATIONS OF
KOGER EQUITY, INC. FOR A TWELVE MONTH PERIOD
(in thousands)
Revenues
Rental. . . . . . . . . . . . . . . . . . . . . . . . . . . . .$87,281
Management Fees . . . . . . . . . . . . . . . . . . . . . . . . .4,421
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . 231
Total revenues. . . . . . . . . . . . . . . . . . . . . . . . . 91,933
Expenses
Property operations . . . . . . . . . . . . . . . . . . . . . . 38,343
Depreciation and amortization . . . . . . . . . . . . . . . . . 16,060
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,702
General and administrative. . . . . . . . . . . . . . . . . . . .6,200
Undeveloped land costs. . . . . . . . . . . . . . . . . . . . . . .649
Cost of management fees . . . . . . . . . . . . . . . . . . . . 3,207
Total expenses . . . . . . . . . . . . . . . . . . . . . . 90,161
Estimated Taxable Operating Income . . . . . . . . . . . . . . . . . .1,772
Add Back: Depreciation and Amortization. . . . . . . . . . . . . . 16,060
Estimated Cash To Be Made Available By Operations. . . . . . . . . .$17,832
Note 1 This statement of estimated taxable operating results and estimated
cash to be made available by operations is an estimate of operating
results of the Company for a twelve month period assuming that the
acquisition of KPI assets and liabilities occurred on the first day
of the twelve month period. However, this statement does not
purport to reflect actual results for
any period.
Note 2 Tax depreciation was determined based upon the assumption that the
Merger will be treated as a tax-free reorganization. In a tax-free
reorganization the Company's tax basis in the assets acquired from
KPI would be the same as KPI's tax basis in those assets, and the
Company's holding period with respect to those assets will include
the period those assets were held by KPI. Accordingly, the tax
depreciation represents the actual tax depreciation incurred by the
Company and KPI for the properties during the most recent twelve
month period.
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SIGNATURE
Pursuant to the Requirements of the Securities Exchange Act of 1934, the
reqgistrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KOGER EQUITY, INC.
Date: March 4, 1994 (VICTOR A. HUGHES)
VICTOR A. HUGHES
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
