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, 1996 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 offices) (Zip Code)
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 close of the latest practicable date.
Class Outstanding at April 30, 1996
Common Stock, $.01 par value 17,838,367 shares
<PAGE>
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, 1996 and December 31, 1995......................... 3
Condensed Consolidated Statements of Operations
for the Three Month Periods Ended
March 31, 1996 and 1995...................................... 4
Condensed Consolidated Statement of Changes in
Shareholders' Equity for the Three Month Period
Ended March 31, 1996......................................... 5
Condensed Consolidated Statements of Cash Flows
for the Three Month Periods Ended March 31, 1996 and 1995.... 6
Notes to Condensed Consolidated Financial
Statements for the Three Month Periods
Ended March 31, 1996 and 1995................................ 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 13
Item 5. Other Information.............................................. 14
Item 6. Exhibits and Reports on Form 8-K............................... 16
Signatures .......................................................... 17
1
<PAGE>
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, 1996, and the
related condensed consolidated statements of operations for the three month
periods ended March 31, 1996 and 1995, the condensed consolidated statement of
changes in shareholders' equity for the three month period ended March 31, 1996
and the condensed consolidated statements of cash flows for the three month
periods ended March 31, 1996 and 1995. 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,
1995, 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 March 4, 1996, 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, 1995 is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
As discussed in Note 3 to the condensed consolidated financial statements, the
Internal Revenue Service has substantially completed its examination of the
Company's 1992 and 1993 Federal income tax returns and has proposed certain
adjustments.
DELOITTE & TOUCHE LLP
Jacksonville, Florida
May 2, 1996
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
KOGER EQUITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited - See Independent Accountants' Report)
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Real Estate Investments:
Operating properties:
Land $ 98,727 $ 98,727
Buildings 473,457 471,145
Furniture and equipment 1,597 1,566
Accumulated depreciation (67,623) (62,885)
--------- ---------
Operating properties - net 506,158 508,553
Undeveloped land held for investment 21,150 21,150
Undeveloped land held for sale, at lower
of cost or market value 9,131 9,131
Cash and temporary investments 29,701 25,650
Accounts receivable, net of allowance for
uncollectible rents of $361 and $391 4,524 5,260
Cost in excess of fair value of net assets acquired from
KPI, net of accumulated amortization of $388 and $345 2,168 2,211
Other assets 7,980 7,427
--------- ---------
TOTAL ASSETS $ 580,812 $ 579,382
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgages and loans payable $ 253,993 $ 254,909
Accounts payable 1,710 2,641
Accrued interest 235 206
Accrued real estate taxes payable 2,191 2,222
Accrued liabilities - other 4,335 5,133
Advance rents and security deposits 3,845 3,574
--------- ---------
Total Liabilities 266,309 268,685
--------- ---------
Contingency (Note 7) -- --
Shareholders' Equity
Common stock 205 205
Capital in excess of par value 319,040 318,609
Warrants 2,248 2,250
Retained earnings 16,226 13,210
Treasury stock, at cost (23,216) (23,577)
--------- ---------
Total Shareholders' Equity 314,503 310,697
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 580,812 $ 579,382
========= =========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
3
<PAGE>
KOGER EQUITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - See Independent Accountants' Report)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Month Period
Ended March 31,
-----------------
1996 1995
---- ----
<S> <C> <C>
REVENUES
Rental $23,985 $23,482
Other rental services 95 123
Management fees ($0 and $1,006 from TKPL) 1,722 1,348
Interest 373 365
Gain on early retirement of debt 128
------- --------
Total revenues 26,175 25,446
------- --------
EXPENSES
Property operations 9,919 9,709
Depreciation and amortization 5,055 4,476
Mortgage and loan interest 4,962 6,516
General and administrative 1,466 1,445
Direct cost of management fees 1,296 913
Undeveloped land costs 129 162
Litigation costs 255
Loss on sale of assets 2
------- -------
Total expenses 23,082 23,223
------- -------
INCOME BEFORE INCOME TAXES 3,093 2,223
Income taxes 77 19
------- -------
NET INCOME $ 3,016 $ 2,204
======= =======
EARNINGS PER COMMON SHARE AND
COMMON EQUIVALENT SHARE:
Primary $ 0.16 $ 0.12
======= =======
Fully Diluted $ 0.16 $ 0.12
======= =======
WEIGHTED AVERAGE COMMON SHARES AND
COMMON EQUIVALENT SHARES OUTSTANDING:
Primary 18,577 17,747
======= =======
Fully Diluted 18,577 17,747
======= =======
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
4
<PAGE>
KOGER EQUITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY
(Unaudited - See Independent Accountants' Report)
(In thousands)
<TABLE>
<CAPTION>
Total
Common Stock Capital in Share-
Par Excess of Retained Treasury Stock holders'
Shares Value Par Value Warrants Earnings Shares Cost Equity
------ ------ ---------- -------- --------- ------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 20,477 $205 $318,609 $2,250 $13,210 2,723 $(23,577) $310,697
Treasury Stock Reissued 116 (48) 393 509
Warrants Exercised 1 11 (2) 9
Stock Options Exercised 14 71 3 (32) 39
Stock Appreciation Rights
Exercised 20 233 233
Net Income 3,016 3,016
------ ---- -------- ------ ------- ----- -------- --------
Balance, March 31, 1996 20,512 $205 $319,040 $2,248 $16,226 2,678 $(23,216) $314,503
====== ==== ======== ====== ======= ===== ======== ========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
5
<PAGE>
KOGER EQUITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - See Independent Accountants' Report)
(In thousands)
<TABLE>
<CAPTION>
Three Month Period
Ended March 31,
---------------
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,016 $ 2,204
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,055 4,476
Loss on sale of assets 2
Gain on early debt repayment (128)
Accrued interest added to principal 37 295
Amortization of mortgage discounts 44 44
Increase (decrease) in accounts payable, accrued
liabilities and other liabilities (762) 773
Decrease in receivables and other assets 240 622
Increase in receivable from TKPL (108)
--------- ---------
Net cash provided by operating activities 7,630 8,180
--------- ---------
INVESTING ACTIVITIES
Tenant improvements to existing properties (768) (2,195)
Building improvements to existing properties (425) (454)
Energy management improvements (1,119)
Deferred tenant costs (222) (139)
Additions to furniture and equipment (31) (109)
Proceeds from sale of assets 62
Cash acquired in purchase of assets from KPI 129
--------- ---------
Net cash used in investing activities (2,565) (2,706)
--------- ---------
FINANCING ACTIVITIES
Proceeds from sale of stock under Stock Investment Plan 44 53
Proceeds from exercise of warrants and stock options 48 1
Principal payments on mortgages and loans (997) (3,284)
Financing costs (109) (16)
--------- ---------
Net cash used in financing activities (1,014) (3,246)
--------- ---------
Net increase in cash and cash equivalents 4,051 2,228
Cash and cash equivalents - beginning of period 25,650 23,315
--------- ---------
Cash and cash equivalents - end of period $ 29,701 $ 25,543
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest $ 4,852 $ 5,884
========== ==========
Cash paid during the period for income taxes $ 78 $ 4
========== ==========
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
6
<PAGE>
KOGER EQUITY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIODS
ENDED MARCH 31, 1996 AND 1995
(Unaudited - See Independent Accountants' Report)
1. BASIS OF PRESENTATION. The condensed consolidated financial statements
include the accounts of Koger Equity, Inc., its wholly-owned subsidiaries and
Koger Realty Services, Inc. (the "Company"). All significant 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, 1995,
included in the Company's Form 10-K Annual Report for the year ended December
31, 1995. The balance sheet at December 31, 1995, 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, 1996, are not necessarily indicative of the results to be
expected for the full year.
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), and Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). Adoption of
SFAS 121 and 123 had no impact on the financial statements for the three month
period ended March 31, 1996.
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 20 office buildings owned by Centoff
Realty Company, Inc. ("Centoff"), a subsidiary of Morgan Guaranty Trust Company
of New York. More significantly, Koger Realty Services, Inc., a Delaware
corporation and an entity in which KE has a significant economic interest
("KRSI"), manages 95 buildings owned by Koala Realty Holding Company, Inc.
("Koala"), an investment entity for which J.P. Morgan Investment Management,
Inc. acts as the investment manager. KRSI was incorporated during 1995 to, among
other things, provide leasing and property management services to owners of
commercial office buildings. KE has purchased all of the preferred stock of
KRSI, which preferred stock represents at least 95 percent of the economic value
of KRSI. Such preferred stock is non-voting but is convertible into voting
common stock. Accordingly, KE has consolidated KRSI in the financial statements.
7
<PAGE>
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 1995 and does not expect to have REIT
taxable income during 1996, 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, under existing loan covenants the Company may be prohibited from
paying dividends in excess of amounts necessary to maintain its status as a
REIT. See Note 8, Dividends. KRSI has recorded a provision of $52,500 for
Federal income tax for the three month period ended March 31, 1996.
The Internal Revenue Service has substantially completed its examination of the
Company's 1992 and 1993 Federal income tax returns. The Internal Revenue Service
has proposed disallowing certain deductions, the result of which if upheld,
would reduce the Company's net operating loss carryforwards as of January 1,
1996 from approximately $105 million to $32 million, require the payment of a
deficiency dividend by the Company of approximately $7.2 million and the payment
of interest and penalties to the Internal Revenue Service of approximately $2
million. Management believes that all deductions taken were appropriate and
intends to contest the proposed adjustments. As no determination can be made as
to the eventual outcome of this uncertainty, the condensed consolidated
financial statements have not been adjusted to reflect the outcome of such
uncertainty.
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, 1996, the Company contributed 43,804 shares of common
stock to the Company's 401(K) Plan. These shares had a value of approximately
$465,000 based on the closing price of the Company's common stock on the
American Stock Exchange on December 31, 1995. During the three month period
ended March 31, 1995, the Company contributed 122,441 shares of common stock to
the Company's 401(K) Plan. These shares had a value of approximately $888,000
based on the closing price of the Company's stock on the American Stock Exchange
on December 30, 1994.
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, 1996, the Company had
$253,993,000 of loans outstanding, which are collateralized by mortgages on
certain operating properties.
8
<PAGE>
Annual maturities for mortgages and loans payable, which are gross of $853,000
of discounts, are as follows (in thousands):
Year Ending December 31,
1996 $ 3,082
1997 12,937
1998 19,392
1999 5,751
2000 87,181
Subsequent Years 126,503
--------
Total $254,846
========
In addition to reporting and other requirements, the Company's debt agreements
contain provisions limiting the amount of annual dividends, limiting additional
borrowings, and limiting general and administrative expenses. The Company is
also required to maintain certain financial ratios.
7. LEGAL PROCEEDINGS. A derivative action against the Company in the U.S.
District Court, Middle District of Florida (the "District Court"), which
commenced on October 29, 1990, has been resolved in favor of the Company.
Various amended filings and counter-claims had been filed against the Company.
The Company and the other parties to this derivative action agreed on a
settlement of all claims and submitted documentation thereof to the District
Court. On January 10, 1996, the District Court entered its order approving this
settlement (the "Approval Order") after notice to stockholders of the Company.
The Approval Order became final on or about February 12, 1996, and the parties
are now required to exchange documentation and effect other steps to consummate
this settlement. During 1995, the Company paid $50,000 for settlement of this
litigation.
8. DIVIDENDS. The terms of the secured debt of the Company provide that
the Company will be subject to certain dividend limitations which, however, will
not restrict the Company from paying the dividends required during 1996 to
maintain its qualification as a REIT. In the event that the Company no longer
qualifies as a REIT, additional dividend limitations would be imposed by the
terms of such debt. In addition, two of the Company's bank lenders have required
that until the Company has raised an aggregate of $50 million of equity the
following limitations on dividends will be applied: (a) in 1996 and 1997, $11
million unless imposition of the limit would cause loss of REIT status and (b)
in 1998 and 1999, $11 million regardless of impact on REIT status.
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, 1995.
9
<PAGE>
RESULTS OF OPERATIONS.
Rental revenues totalled $23,985,000 for the quarter ended March 31, 1996,
compared to $23,482,000 for the quarter ended March 31, 1995. The increase in
rental revenues resulted primarily from increases in the revenues from operating
cost escalations and other items passed through to tenants. The effect of the
increase in the Company's average rental rate was offset by the decrease in the
total net rentable square feet owned by the Company during the quarter ended
March 31, 1996 as compared to the same period of the prior year. The Company
sold three buildings (containing 233,980 net rentable square feet) on July 31,
1995. At March 31, 1996, the Company's buildings were on average 90 percent
leased with an average rental rate of $13.82. Other rental services revenues
declined $28,000 for the three month period ended March 31, 1996, compared to
the same period last year, due to the reduction in these type of services
requested by tenants in the Company's buildings.
Management fee revenues totalled $1,722,000 for the quarter ended March 31,
1996, compared to $1,348,000 for the quarter ended March 31, 1995. This increase
was due primarily to (i) an increase in fees earned for construction management
services, (ii) an increase in fees earned from the management of buildings sold
by The Koger Partnership, Ltd. ("TKPL") to Koala on August 1, 1995 and (iii) the
management fees earned from the three buildings sold by the Company to Koala.
Property operating expenses include such charges as utilities, taxes,
janitorial, maintenance, provision for uncollectible rents and management costs.
The amounts of property operating expenses and their percentages of total rental
revenues for the applicable periods are as follows:
Percent of
Total Rental
Period Amount Revenues
------ ------ --------
March 31, 1996 - Quarter $9,919,000 41.2%
March 31, 1995 - Quarter $9,709,000 41.1%
Property operating expenses increased primarily due to increases in maintenance
costs and utility costs, which were partially offset by reductions in janitorial
costs and real estate taxes.
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 $647,000 for the three month period ended March
31, 1996, compared to the same period last year, due to improvements made to the
Company's existing properties during 1995. Amortization expense decreased
$68,000 for the three month period ended March 31, 1996, compared to the same
period last year, due primarily to the reduction in goodwill recorded during the
quarter ended September 30, 1995.
Interest expense decreased by $1,554,000, during the three month period ended
March 31, 1996, compared to the same period last year, primarily due to the
reduction in the average balance of mortgages and loans payable. At March 31,
1996, the weighted average interest rate on the Company's outstanding debt was
approximately 7.7 percent.
10
<PAGE>
General and administrative expenses for the three month periods ended March 31,
1996 and 1995, totalled $1,466,000 and $1,445,000, respectively, which is 1.0
percent and 0.9 percent (annualized) of average invested assets.
Direct costs of management contracts increased $383,000 for the three month
period ended March 31, 1996, compared to the same period last year, due to
increased costs associated with (i) providing property management services for
all management contracts and (ii) providing construction management services.
Net income totalled $3,016,000 for the quarter ended March 31, 1996, compared to
net income of $2,204,000 for the corresponding period of 1995. This improvement
is due to the increases in rental revenues and management fee revenues and the
reduction in interest expense. These items were partially offset by the
increases in (i) depreciation and amortization expense, (ii) direct cost of
management fees and (iii) litigation costs.
LIQUIDITY AND CAPITAL RESOURCES.
Operating Activities - During the three months ended March 31, 1996, the
Company generated approximately $7.6 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 Koala, 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. However, the Company currently expects that it will not be
required to pay any dividends during 1996 to maintain its REIT status. The
Company believes that its cash provided by operating activities will be
sufficient to cover debt service payments through 1996.
The level of cash flow generated by rents depends primarily on the occupancy
rates of the Company's buildings and increases in rental rates on new and
renewed leases and under escalation provisions in existing leases.
At March 31, 1996, leases representing approximately 22.4 percent of the gross
annual rent from the Company's properties, without regard to the exercise of
options to renew, were due to expire during the remainder of 1996. This
represents 943 leases for space in buildings located in 16 of the 17 centers 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, 1996, leases were renewed on approximately 53 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,
1996, the average rental rate increased from $12.56 to $13.52. However, current
market conditions in certain markets may 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 1996 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
11
<PAGE>
reduced rents during initial lease periods. During 1994, 1995 and 1996, the
Company has benefitted 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 22.5 percent of the Company's leased
space at March 31, 1996, 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, 1996, 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, 1996, the Company's expenditures for
improvements to existing properties decreased by $337,000 over the corresponding
period of the prior year primarily due to reductions in expenditures for tenant
improvements, which reductions were partially offset by expenditures for energy
management improvements to the Company's buildings.
The terms of the Company's existing indebtedness require that a substantial
portion of any debt or equity financing achieved by the Company during the
foreseeable future be applied to the reduction of the current secured
indebtedness of the Company and contain limitations on incurrence of additional
debt and other restrictions.
Financing Activities - The Company has no open lines of credit, but has a
cash balance at March 31, 1996 of $29,701,000. At March 31, 1996, the Company
had 86 buildings, containing 2,516,230 net rentable square feet, which were
unencumbered.
Loan maturities and normal amortization of mortgages and loans payable are
expected to total approximately $4.3 million over the next 12 months. The
Company believes that these obligations will be paid from cash provided by
operations or from current cash balances. Significant maturities of the
Company's mortgages and loans payable do not begin to occur until 1998.
Depending on market conditions, the Company may seek to raise additional equity
capital, the proceeds of which would be used to reduce existing indebtedness. On
August 22, 1994, the Company filed a shelf registration statement with respect
to the possible issuance of up to $100,000,000 of its common and/or preferred
stock. However, due to market conditions, the Company has not yet issued any
equity under such registration statement.
12
<PAGE>
The Company is currently implementing its plan to refinance or restructure the
Company's existing debt in order to eliminate certain restrictive covenants. To
assist in implementing the debt refinancing, the Company has engaged J.P. Morgan
and Company as its financial adviser. Currently, management expects to complete
the refinancing during the quarter ended September 30, 1996.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
13
<PAGE>
Item 5. Other Information
(a) The following table sets forth, with respect to the Company's centers
at March 31, 1996, number of buildings, net rentable square feet,
percentage leased, and the average annual rent per net rentable square
foot leased.
<TABLE>
<CAPTION>
Average
Net Annual
Number Rentable Rent Per
of Square Percent Square
Koger Center Buildings Feet Leased(1) Foot (2)
- ------------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Atlanta Chamblee 22 947,920 94% $14.51
Austin 12 370,860 94% 15.86
Charlotte Carmel 1 109,600 100% 14.91
Charlotte East 11 468,820 72% 12.97
El Paso 14 251,930 93% 14.03
Greensboro South 13 610,470 91% 13.37
Greenville 8 290,560 94% 13.96
Jacksonville Baymeadows 4 468,000 100% 15.55
Jacksonville Central 32 677,540 87% 11.42
Memphis Germantown 3 258,400 99% 16.86
Orlando Central 22 565,220 86% 14.02
Orlando University 2 159,600 92% 16.08
San Antonio 26 788,670 88% 11.47
St. Petersburg 15 519,320 92% 12.79
Tallahassee Apal. Pkwy 14 408,500 85% 15.87
Tallahassee Cap. Circle 4 300,700 100% 17.66
Tulsa (3) 13 476,280 79% 10.13
----- ----------
TOTAL 216 7,672,390 90% $13.82
==== ========= ====== ======
</TABLE>
(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 rents for a
center as of March 31, 1996 by (b) the net rentable square feet
applicable to such total annualized rents.
(3) The Tulsa North Center and the Tulsa South Center have been combined
for this table.
14
<PAGE>
(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 1996 and calendar years 1997 through 2004,
(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 annual rental represented by such leases, and
(vi) the percentage of gross annual rental contributed by such leases.
This information is based on the buildings owned by the Company on March
31, 1996 and on the terms of leases in effect as of March 31, 1996, 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 53 percent
of the Company's net rentable square feet which were scheduled to expire
during the three month period ended March 31, 1996.
<TABLE>
<CAPTION>
Percentage of Average Percentage
Total Square Annual Rent of Total
Number of Number of Feet Leased per Square Total Annual Annual Rents
Leases Square Feet Represented by Foot Under Rents Under Represented by
Period Expiring Expiring Expiring Leases Expiring Leases Expiring Leases Expiring Leases
- ------ -------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
1996 943 1,551,460 22.5% $13.79 $21,397,834 22.4%
1997 645 1,421,183 20.6% 13.88 19,725,435 20.7%
1998 512 1,762,510 25.5% 13.67 24,093,799 25.2%
1999 191 770,440 11.1% 13.21 10,174,530 10.7%
2000 110 614,787 8.9% 14.98 9,211,285 9.6%
2001 43 302,959 4.4% 14.46 4,380,564 4.6%
2002 7 128,738 1.9% 13.61 1,751,833 1.8%
2003 11 78,661 1.1% 13.84 1,089,044 1.1%
2004 3 74,069 1.1% 9.75 722,538 0.8%
OTHER 9 203,306 2.9% 14.31 2,910,243 3.1%
-------- ----------- ------- ------------- --------
TOTAL 2,474 6,908,113 100.0% $13.82 $95,457,105 100.0%
===== ========= ====== ====== =========== ======
</TABLE>
15
<PAGE>
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.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the
quarter ended March 31, 1996.
16
<PAGE>
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]
------------------
VICTOR A. HUGHES
PRESIDENT AND
CHIEF FINANCIAL OFFICER
Dated: May 9, 1996
[JAMES L. STEPHENS]
-------------------
JAMES L. STEPHENS
VICE PRESIDENT AND
CHIEF ACCOUNTING OFFICER
17
<PAGE>
<PAGE>
EXHIBIT 15
May 2, 1996
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, 1996 and 1995, as indicated in our report dated May 2, 1996; 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, 1996, is
incorporated by reference in Registration Statement No. 33-55179 on Form S-3 and
Registration Statement No. 33-54617 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
<PAGE>
EXHIBIT 11
EARNINGS PER SHARE COMPUTATIONS
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
Three Month Period
Ended March 31,
1996 1995
-------- -------
EARNINGS PER COMMON AND DILUTIVE
COMMON EQUIVALENT SHARE:
<S> <C> <C>
Net Income $ 3,016 $ 2,204
========= =========
Shares:
Weighted average number of common
shares outstanding 17,802 17,661
Weighted average number of additional
shares issuable for common stock
equivalents (a) 775 86
--------- ---------
Adjusted common shares 18,577 17,747
========= =========
EARNINGS PER SHARE $ .16 $ .12
========= =========
EARNINGS PER COMMON SHARE ASSUMING
FULL DILUTION:
Net Income $ 3,016 $ 2,204
========= =========
Shares:
Weighted average number of common
shares outstanding 17,802 17,661
Additional shares issuable for all
dilutive common stock equivalents (a) 775 86
--------- ----------
Shares as adjusted for all dilutants 18,577 17,747
========= =========
EARNINGS PER SHARE $ .16 $ .12
========= =========
(a) Shares issuable were derived using the "Treasury Stock Method" for all
dilutive common stock equivalents.
</TABLE>
<PAGE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Company does not file a classified balance sheet, therefore these not
provided. 5-02(9), 5-02(21)
</LEGEND>
<MULTIPLIER> 1000
<CURRENCY> DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 29,701
<SECURITIES> 0
<RECEIVABLES> 4,885
<ALLOWANCES> 361
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 64,062
<DEPRECIATION> 67,623
<TOTAL-ASSETS> 580,812
<CURRENT-LIABILITIES> 0
<BONDS> 253,993
0
0
<COMMON> 205
<OTHER-SE> 314,298
<TOTAL-LIABILITY-AND-EQUITY> 580,812
<SALES> 0
<TOTAL-REVENUES> 26,175
<CGS> 0
<TOTAL-COSTS> 11,215
<OTHER-EXPENSES> 6,905
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,962
<INCOME-PRETAX> 3,093
<INCOME-TAX> 77
<INCOME-CONTINUING> 3,016
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,016
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
