<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) OCTOBER 1, 1997
KOGER EQUITY, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA
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(State of incorporation or organization)
1-9997 59-2898045
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(Commission File Number) (IRS Employer Identification No.)
3986 BOULEVARD CENTER DRIVE
JACKSONVILLE, FLORIDA 32207
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (904) 398-3403
- --------------------------------------------------------------------------------
N/A
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(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 5. OTHER EVENTS.
During the period from May 15, 1997 through October 1, 1997, Koger Equity,
Inc. (the "Company") (i) acquired three office buildings and 5.26 acres of
unimproved land in a suburban office park, (ii) acquired two individual office
buildings, (iii) acquired an individual office building, (iv) acquired an office
building adjacent to one of the Company's office parks, (v) acquired two office
buildings and 2.4 acres of unimproved land and (vi) acquired an individual
office building. These six individual transactions (collectively referred to as
the "1997 Acquisitions") were with separate, unrelated sellers. The following is
a brief description of the 1997 Acquisitions:
(1) On May 15, 1997, the Company acquired three office buildings,
containing approximately 134,000 net rentable square feet, and 5.26
acres of unimproved land located in Greenville, South Carolina. The
properties were acquired for approximately $14.1 million, which was
available from the Company's existing cash balance.
(2) On June 4, 1997, the Company acquired two office buildings,
containing approximately 214,100 net rentable square feet, located
in San Antonio, Texas. The properties were acquired for
approximately $15.6 million, which was available from the Company's
existing cash balance.
(3) On June 18, 1997, the Company acquired an office building,
containing approximately 23,000 net rentable square feet, located in
Jacksonville, Florida. The property was acquired for approximately
$3.3 million, which was available from the Company's existing cash
balance.
(4) On August 4, 1997, the Company acquired an office building,
containing approximately 80,500 net rentable square feet, located in
Tallahassee, Florida. This office building is adjacent to the
Company's Tallahassee Capital Circle Center. The property was
acquired for approximately $9.6 million, which was made available
primarily from drawing $8.0 million on the Company's secured
revolving credit facility.
(5) On September 23, 1997, the Company acquired two office buildings,
containing approximately 46,400 net rentable square feet, and 2.4
acres of unimproved land located in El Paso, Texas. The properties
were acquired for approximately $3.3 million, which was available
from the Company's existing cash balance.
(6) On October 1, 1997, the Company acquired an office building,
containing approximately 154,100 net rentable square feet, located
in Atlanta, Georgia. The property was acquired for approximately
$21.3 million, which was made available primarily from drawing $18.0
million on the Company's secured revolving credit facility.
Each of the 1997 Acquisitions was pursuant to individual agreements for
the sale and purchase of each property between each selling entity and the
Company. The Company considered various factors in determining the price to be
paid for each of the 1997 Acquisitions. Factors considered include nature of the
tenants and terms of leases in place, opportunities for alternative and new
tenancies, historical and expected cash flow, occupancy rates, current operating
costs on the properties and anticipated changes therein under Company ownership,
the physical condition and location of the properties, need for capital
improvements, the anticipated effect on the Company's financial results, and
other factors. The Company takes into consideration capitalization rates at
which it believes other comparable office buildings have recently sold. However,
the Company determines the price it is willing to pay primarily on the factors
discussed above relating to the properties themselves and their fit with the
Company's existing operations.
1
<PAGE> 3
No separate independent appraisals were obtained in connection with the 1997
Acquisitions. The Company, after investigation of the 1997 Acquisitions, is not
aware of any material factors, other than those discussed above, that would
cause the financial information reported not to be necessarily indicative of
future operating results.
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 Real Estate Acquired.
The Statements of Revenues and Certain Expenses included in this report
encompass the following:
- Audited Statement of Revenues and Certain Expenses of Greenville Park
Central for the year ended December 31, 1996.
- Audited Statement of Revenues and Certain Expenses of the Atrium
Building and the Pacific Plaza Building for the year ended December 31,
1996.
- Audited Statement of Revenues and Certain Expenses of the Ideon
Building for the year ended December 31, 1996.
- Audited Statement of Revenues and Certain Expenses of the Alexander
Building for the year ended December 31, 1996.
- Audited Statement of Revenues and Certain Expenses of Coventry Park
West Buildings A and B for the year ended December 31, 1996.
- Audited Statement of Revenues and Certain Expenses of the Lincoln
Parkway Building for the year ended December 31, 1996.
2
<PAGE> 4
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Koger Equity, Inc.
Jacksonville, Florida
We have audited the accompanying statement of revenues and certain expenses of
the properties known as Greenville Park Central for the year ended December 31,
1996. This financial statement is the responsibility of management. Our
responsibility is to express an opinion on the financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the filing of Form 8-K of Koger Equity,
Inc. as a result of the acquisition of these properties). Material amounts,
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from future operations of the
acquired properties are excluded and the statement is not intended to be a
complete presentation of the acquired properties' revenues and expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the revenues and certain expenses of Greenville Park
Central for the year ended December 31, 1996 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Jacksonville, Florida
November 6, 1997
3
<PAGE> 5
GREENVILLE PARK CENTRAL - GREENVILLE, SOUTH CAROLINA
STATEMENT OF REVENUES AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
REVENUES:
Rental income $1,960,943
Recoverable expenses 2,657
Other income 6,775
----------
Total revenues 1,970,375
----------
CERTAIN EXPENSES:
Property operating 567,514
Real estate taxes 151,180
Management costs and fees 85,692
----------
Total certain expenses 804,386
----------
REVENUES IN EXCESS OF CERTAIN EXPENSES $1,165,989
==========
</TABLE>
See notes to statement of revenues and certain expenses.
4
<PAGE> 6
GREENVILLE PARK CENTRAL - GREENVILLE, SOUTH CAROLINA
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 1996
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Greenville Park Central, an office park located in Greenville, South
Carolina, was acquired by Koger Equity, Inc. on May 15, 1997. The statement of
revenues and certain expenses includes information related to the operations of
Park Central for the period from January 1, 1996 through December 31, 1996 as
recorded by the office building's previous owner, Financial Enterprises III, a
Virginia limited liability company.
The accompanying historical financial statement information is presented in
conformity with Rule 3-14 of Regulation S-X of the Securities and Exchange
Commission. Accordingly, the financial statement is not representative of the
actual operations for the year ended December 31, 1996 as certain expenses,
which may not be comparable to the expenses expected to be incurred in the
future operations of the acquired property, have been excluded. Expenses
excluded consist of interest, depreciation and amortization, and other costs not
directly related to the future operations of the acquired property.
MANAGEMENT'S USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
RENTAL INCOME - Rental income is recognized on a straight-line basis over
the terms of the related leases.
PROPERTY OPERATING EXPENSES - Property operating expenses consist primarily
of utilities, insurance, repairs and maintenance, security and safety, cleaning
and other administrative expenses.
MANAGEMENT COSTS AND FEES - The property was managed by the previous owner
and the amount recorded represents its direct personnel and other costs for
managing the office buildings.
2. OPERATING LEASES
Operating revenue is principally obtained from business tenant rentals
under operating leases. Certain of the leases in force at December 31, 1996
included early termination provisions. Future minimum rentals under all
operating leases (including those with early termination provisions) of business
tenants as of December 31, 1996 are approximately as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ ----------
<S> <C>
1997 $1,974,144
1998 1,829,013
1999 1,521,071
2000 1,121,185
2001 700,565
Thereafter 802,364
----------
Total $7,948,342
==========
</TABLE>
For the year ended December 31, 1996, one tenant, Industria, Inc., contributed
more than ten percent of rental revenues.
5
<PAGE> 7
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Koger Equity, Inc.
Jacksonville, Florida
We have audited the accompanying statement of revenues and certain expenses of
the properties known as the Atrium Building and the Pacific Plaza Building for
the year ended December 31, 1996. This financial statement is the responsibility
of management. Our responsibility is to express an opinion on the financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the filing of Form 8-K of Koger Equity,
Inc. as a result of the acquisition of these properties). Material amounts,
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from future operations of the
acquired properties are excluded and the statement is not intended to be a
complete presentation of the acquired properties' revenues and expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the revenues and certain expenses of the Atrium Building
and the Pacific Plaza Building for the year ended December 31, 1996 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Jacksonville, Florida
November 6, 1997
6
<PAGE> 8
ATRIUM BUILDING AND PACIFIC PLAZA BUILDING - SAN ANTONIO, TEXAS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
REVENUES:
Rental income $2,191,678
Recoverable expenses 73,331
Other income 16,136
----------
Total revenues 2,281,145
----------
CERTAIN EXPENSES:
Property operating 649,839
Real estate taxes 204,078
Management costs and fees 190,032
----------
Total certain expenses 1,043,949
----------
REVENUES IN EXCESS OF CERTAIN EXPENSES $1,237,196
==========
</TABLE>
See notes to statement of revenues and certain expenses.
7
<PAGE> 9
ATRIUM BUILDING AND PACIFIC PLAZA BUILDING - SAN ANTONIO, TEXAS
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 1996
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Atrium Building and Pacific Plaza Building, office buildings located in
San Antonio, Texas, were acquired by Koger Equity, Inc. on June 4, 1997. The
statement of revenues and certain expenses includes information related to the
operations of the Atrium Building and the Pacific Plaza Building for the period
from January 1, 1996 through December 31, 1996 as recorded by the office
buildings' previous affiliated owners, Westoak Properties, a California general
partnership, and Southwest Properties, a California general partnership,
respectively.
The accompanying historical financial statement information is presented in
conformity with Rule 3-14 of Regulation S-X of the Securities and Exchange
Commission. Accordingly, the financial statement is not representative of the
actual operations for the year ended December 31, 1996 as certain expenses,
which may not be comparable to the expenses expected to be incurred in the
future operations of the acquired property, have been excluded. Expenses
excluded consist of interest, depreciation and amortization, and other costs not
directly related to the future operations of the acquired property.
MANAGEMENT'S USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
RENTAL INCOME - Rental income is recognized on a straight-line basis over
the terms of the related leases.
PROPERTY OPERATING EXPENSES - Property operating expenses consist primarily
of utilities, insurance, repairs and maintenance, security and safety, cleaning
and other administrative expenses.
MANAGEMENT COSTS AND FEES - The property was managed by an affiliate of the
previous owners for a property management fee of 4% of rental and other revenues
plus reimbursement of personnel and other costs related to management of the
office buildings.
2. OPERATING LEASES
Operating revenue is principally obtained from business tenant rentals
under operating leases. Certain of the leases in force at December 31, 1996
included early termination provisions. Future minimum rentals under all
operating leases (including those with early termination provisions) of business
tenants as of December 31, 1996 are approximately as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ ----------
<S> <C>
1997 $2,410,475
1998 1,836,744
1999 1,161,293
2000 682,711
2001 343,996
Thereafter 449,781
----------
Total $6,885,000
==========
</TABLE>
For the year ended December 31, 1996, one tenant, North American Intelecom,
contributed more than ten percent of rental revenues.
8
<PAGE> 10
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Koger Equity, Inc.
Jacksonville, Florida
We have audited the accompanying statement of revenues and certain expenses of
the property known as the Ideon Building for the year ended December 31, 1996.
This financial statement is the responsibility of management. Our responsibility
is to express an opinion on the financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission (for
inclusion in the filing of Form 8-K of Koger Equity, Inc. as a result of the
acquisition of this property). Material amounts, described in Note 1 to the
statement of revenues, that would not be comparable to those resulting from
future operations of the acquired property are excluded and the statement is not
intended to be a complete presentation of the acquired property's revenues.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the revenues and certain expenses of the Ideon Building
for the year ended December 31, 1996 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Jacksonville, Florida
November 6, 1997
9
<PAGE> 11
IDEON BUILDING - JACKSONVILLE, FLORIDA
STATEMENT OF REVENUES AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
REVENUES:
Rental income $352,788
--------
CERTAIN EXPENSES:
Property operating 0
Real estate taxes 0
Management fees 0
--------
Total certain expenses 0
--------
REVENUES IN EXCESS OF CERTAIN EXPENSES $352,788
========
</TABLE>
See notes to statement of revenues and certain expenses.
10
<PAGE> 12
IDEON BUILDING - JACKSONVILLE, FLORIDA
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 1996
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Ideon Building, an office building located in Jacksonville, Florida,
was acquired by Koger Equity, Inc. on June 18, 1997. The statement of revenues
and certain expenses includes information related to the operations of the Ideon
Building for the period from January 1, 1996 through December 31, 1996 as
recorded by the office building's previous owner, Centurion Parkway Partners,
Ltd.
The accompanying historical financial statement information is presented in
conformity with Rule 3-14 of Regulation S-X of the Securities and Exchange
Commission. Accordingly, the financial statement is not representative of the
actual operations for the year ended December 31, 1996 as certain expenses,
which may not be comparable to the expenses expected to be incurred in the
future operations of the acquired property, have been excluded. Expenses
excluded consist of interest, depreciation and amortization, and other costs not
directly related to the future operations of the acquired property.
MANAGEMENT'S USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenues
during the reporting period. Actual results could differ from those estimates.
RENTAL INCOME - Rental income is recognized on a straight-line basis over
the terms of the related lease.
PROPERTY OPERATING AND MANAGEMENT EXPENSES AND REAL ESTATE TAXES - All
property operating and management expenses and real estate taxes are paid
directly by the lessee and are, therefore, not included in the accompanying
financial statement.
2. OPERATING LEASE
Operating revenue is principally obtained from business tenant rentals
under an operating lease. Future minimum rentals under the operating lease of
the business tenant as of December 31, 1996 are approximately as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ ----------
<S> <C>
1997 $ 366,900
1998 380,944
1999 392,372
2000 404,143
2001 416,268
Thereafter 357,297
----------
Total $2,317,924
==========
</TABLE>
11
<PAGE> 13
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Koger Equity, Inc.
Jacksonville, Florida
We have audited the accompanying statement of revenues and certain expenses of
the property known as the Alexander Building for the year ended December 31,
1996. This financial statement is the responsibility of management. Our
responsibility is to express an opinion on the financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the filing of Form 8-K of Koger Equity,
Inc. as a result of the acquisition of this property). Material amounts,
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from future operations of the
acquired property are excluded and the statement is not intended to be a
complete presentation of the acquired property's revenues and expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the revenues and certain expenses of the Alexander
Building for the year ended December 31, 1996 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Jacksonville, Florida
November 6, 1997
12
<PAGE> 14
ALEXANDER BUILDING - TALLAHASSEE, FLORIDA
STATEMENT OF REVENUES AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
REVENUES:
Rental income $1,420,505
----------
Total revenues 1,420,505
----------
CERTAIN EXPENSES:
Property operating 263,672
Real estate taxes 123,971
Management costs and fees 71,517
----------
Total certain expenses 459,160
----------
REVENUES IN EXCESS OF CERTAIN EXPENSES $ 961,345
==========
</TABLE>
See notes to statement of revenues and certain expenses.
13
<PAGE> 15
ALEXANDER BUILDING - TALLAHASSEE, FLORIDA
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 1996
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Alexander Building, an office building located in Tallahassee, Florida,
was acquired by Koger Equity, Inc. on August 4, 1997. The statement of revenues
and certain expenses includes information related to the operations of The
Alexander Building for the period from January 1, 1996 through December 31, 1996
as recorded by the office building's previous owner, The Alexander Group, Inc.
The accompanying historical financial statement information is presented in
conformity with Rule 3-14 of Regulation S-X of the Securities and Exchange
Commission. Accordingly, the financial statement is not representative of the
actual operations for the year ended December 31, 1996 as certain expenses,
which may not be comparable to the expenses expected to be incurred in the
future operations of the acquired property, have been excluded. Expenses
excluded consist of interest, depreciation and amortization, and other costs not
directly related to the future operations of the acquired property.
MANAGEMENT'S USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
RENTAL INCOME - Rental income is recognized on a straight-line basis over
the terms of the related leases.
PROPERTY OPERATING EXPENSES - Property operating expenses consist primarily
of utilities, insurance, repairs and maintenance, security and safety, cleaning
and other administrative expenses.
MANAGEMENT COSTS AND FEES - The property was managed by SouthGroup
Management, Inc. for a property management fee of 5% of rental revenue.
2. OPERATING LEASES
Operating revenue is principally obtained from business tenant rentals
under operating leases. Certain of the leases in force at December 31, 1996
included early termination provisions. Future minimum rentals under all
operating leases (including those with early termination provisions) of business
tenants as of December 31, 1996 are approximately as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ ----------
<S> <C>
1997 $1,441,883
1998 1,463,278
1999 1,484,673
2000 1,497,632
2001 782,391
----------
Total $6,669,857
==========
</TABLE>
For the year ended December 31, 1996, all of the rental revenues of this
building were from three leases with a department of the State of Florida.
14
<PAGE> 16
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Koger Equity, Inc.
Jacksonville, Florida
We have audited the accompanying statement of revenues and certain expenses of
the properties known as Coventry Park West Buildings A and B for the year ended
December 31, 1996. This financial statement is the responsibility of management.
Our responsibility is to express an opinion on the financial statement based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the filing of Form 8-K of Koger Equity,
Inc. as a result of the acquisition of these properties). Material amounts,
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from future operations of the
acquired properties are excluded and the statement is not intended to be a
complete presentation of the acquired properties' revenues and expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the revenues and certain expenses of Coventry Park West
Buildings A and B for the year ended December 31, 1996 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Jacksonville, Florida
November 6, 1997
15
<PAGE> 17
COVENTRY PARK WEST BUILDINGS A AND B - EL PASO, TEXAS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
REVENUES:
Rental income $631,971
Recoverable expenses 19,815
--------
Total revenues 651,786
--------
CERTAIN EXPENSES:
Property operating 263,319
Real estate taxes 66,678
Management costs and fees 33,624
--------
Total certain expenses 363,621
--------
REVENUES IN EXCESS OF CERTAIN EXPENSES $288,165
========
</TABLE>
See notes to statement of revenues and certain expenses.
16
<PAGE> 18
COVENTRY PARK WEST BUILDINGS A AND B - EL PASO, TEXAS
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 1996
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Coventry Park West Buildings A and B, office buildings located in El Paso,
Texas, were acquired by Koger Equity, Inc. on September 23, 1997. The statement
of revenues and certain expenses includes information related to the operations
of Coventry Park West Buildings A and B for the period from January 1, 1996
through December 31, 1996 as recorded by the office buildings' previous owner,
CK Properties, L.C.
The accompanying historical financial statement information is presented in
conformity with Rule 3-14 of Regulation S-X of the Securities and Exchange
Commission. Accordingly, the financial statement is not representative of the
actual operations for the year ended December 31, 1996 as certain expenses,
which may not be comparable to the expenses expected to be incurred in the
future operations of the acquired property, have been excluded. Expenses
excluded consist of interest, depreciation and amortization, and other costs not
directly related to the future operations of the acquired property.
MANAGEMENT'S USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
RENTAL INCOME - Rental income is recognized on a straight-line basis over
the terms of the related leases.
PROPERTY OPERATING EXPENSES - Property operating expenses consist primarily
of utilities, insurance, repairs and maintenance, security and safety, cleaning
and other administrative expenses.
MANAGEMENT COSTS AND FEES - The properties were managed by Leavell &
Roberts, Inc. for a property management fee of 5% of rental revenues plus
reimbursement of other costs related to management of the office buildings.
2. OPERATING LEASES
Operating revenue is principally obtained from business tenant rentals
under operating leases. Certain of the leases in force at December 31, 1996
included early termination provisions. Future minimum rentals under all
operating leases (including those with early termination provisions) of business
tenants as of December 31, 1996 are approximately as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ ----------
<S> <C>
1997 $ 726,883
1998 623,621
1999 282,709
2000 220,329
2001 212,985
Thereafter 49,661
----------
Total $2,116,188
==========
</TABLE>
For the year ended December 31, 1996, two tenants, Hunt Building Corporation and
Southwestern Bell Yellow Pages, each contributed more than ten percent of rental
revenues.
17
<PAGE> 19
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Koger Equity, Inc.
Jacksonville, Florida
We have audited the accompanying statement of revenues and certain expenses of
the property known as the Lincoln Parkway Building for the year ended December
31, 1996. This financial statement is the responsibility of management. Our
responsibility is to express an opinion on the financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the filing of Form 8-K of Koger Equity,
Inc. as a result of the acquisition of this property). Material amounts,
described in Note 1 to the statement of revenues and certain expenses, that
would not be comparable to those resulting from future operations of the
acquired property are excluded and the statement is not intended to be a
complete presentation of the acquired property's revenues and expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the revenues and certain expenses of the Lincoln Parkway
Building for the year ended December 31, 1996 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Jacksonville, Florida
November 6, 1997
18
<PAGE> 20
LINCOLN PARKWAY BUILDING - ATLANTA, GEORGIA
STATEMENT OF REVENUES AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
REVENUES:
Rental income $2,679,852
Recoverable expenses 285,524
Other income 213,591
----------
Total revenues 3,178,967
----------
CERTAIN EXPENSES:
Property operating 826,009
Real estate taxes 277,465
Management costs and fees 238,613
----------
Total certain expenses 1,342,087
----------
REVENUES IN EXCESS OF CERTAIN EXPENSES $1,836,880
==========
</TABLE>
See notes to statement of revenues and certain expenses.
19
<PAGE> 21
LINCOLN PARKWAY BUILDING - ATLANTA, GEORGIA
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 1996
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Lincoln Parkway Building, an office building located in Atlanta,
Georgia, was acquired by Koger Equity, Inc. on October 1, 1997. The statement of
revenues and certain expenses includes information related to the operations of
the Lincoln Parkway Building for the period from January 1, 1996 through
December 31, 1996 as recorded by the office building's previous owner,
California Public Employees' Retirement System.
The accompanying historical financial statement information is presented in
conformity with Rule 3-14 of Regulation S-X of the Securities and Exchange
Commission. Accordingly, the financial statement is not representative of the
actual operations for the year ended December 31, 1996 as certain expenses,
which may not be comparable to the expenses expected to be incurred in the
future operations of the acquired property, have been excluded. Expenses
excluded consist of interest, depreciation and amortization, and other costs not
directly related to the future operations of the acquired property.
MANAGEMENT'S USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
RENTAL INCOME - Rental income is recognized on a straight-line basis over
the terms of the related leases.
PROPERTY OPERATING EXPENSES - Property operating expenses consist primarily
of utilities, insurance, repairs and maintenance, security and safety, cleaning
and other administrative expenses.
MANAGEMENT COSTS AND FEES - The property was managed by La Salle Partners
for a property management fee of 2.5% of rental revenues plus reimbursement of
personnel and other costs related to management of the office building .
2. OPERATING LEASES
Operating revenue is principally obtained from business tenant rentals under
operating leases. Certain of the leases in force at December 31, 1996 included
early termination provisions. Future minimum rentals under all operating leases
(including those with early termination provisions) of business tenants as of
December 31, 1996 are approximately as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ ----------
<S> <C>
1997 $2,721,892
1998 2,348,307
1999 904,645
2000 561,723
2001 30,336
Thereafter 7,499
----------
Total $6,574,402
==========
</TABLE>
During the year ended December 31, 1996, two tenants, Hanover Insurance and Ford
Motor Company, each contributed more than ten percent of rental revenues.
20
<PAGE> 22
(b) Pro Forma Financial Statements.
The following unaudited pro forma financial statements set forth (i) the
pro forma balance sheet as of September 30, 1997, as if the acquisition of an
office building occurred on September 30, 1997, and (ii) the pro forma
statements of operations for the year ended December 31, 1996 and the nine
months ended September 30, 1997, as if the 1997 Acquisitions occurred on January
1, 1996. 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 1997 Acquisitions occurred as of the date
and for the periods indicated, nor should they 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
office buildings acquired and changes in the interest rates assumed on the
Company's secured revolving credit facility.
21
<PAGE> 23
KOGER EQUITY, INC.
UNAUDITED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
9/30/97 ADJUSTMENTS 9/30/97
---------- ----------- ----------
<S> <C> <C> <C>
ASSETS
Operating properties:
Real estate $639,595 $21,172 (a) $660,767
Furniture and equipment 2,042 99 (a) 2,141
Accumulated depreciation (98,395) (98,395)
-------- ------- --------
Operating properties - net 543,242 21,271 564,513
Properties under construction 17,200 17,200
Undeveloped land held for investment 15,327 15,327
Undeveloped land held for sale 1,512 1,512
Cash and temporary investments 9,293 (2,915) (a) 6,378
Accounts receivable, net 4,961 4,961
Investment in Koger Realty Services, Inc. 384 384
Cost in excess of fair value of net assets acquired - net 1,912 1,912
Other assets 11,488 (286) (a) 11,202
-------- ------- --------
TOTAL ASSETS $605,319 $18,070 $623,389
======== ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgages and loans payable $202,091 $18,000 (a) $220,091
Accounts payable 3,011 3,011
Accrued real estate taxes payable 6,859 56 (a) 6,915
Accrued liabilities - other 5,025 5,025
Dividends payable 3,283 3,283
Advance rents and security deposits 4,526 14 (a) 4,540
-------- ------- --------
Total Liabilities 224,795 18,070 242,865
-------- ------- --------
Shareholders' Equity
Common stock 249 249
Capital in excess of par value 374,988 374,988
Retained earnings 33,745 33,745
Treasury stock, at cost (28,458) (28,458)
-------- ------- --------
Total Shareholders' Equity 380,524 380,524
-------- ------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $605,319 $18,070 $623,389
======== ======= ========
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
22
<PAGE> 24
KOGER EQUITY, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
1996 ADJUSTMENTS 1996
---------- ----------- ---------
<S> <C> <C> <C>
REVENUES
Rental and other rental services $ 98,805 $ 9,856 (a) $108,661
Management fees 2,682 2,682
Interest 1,951 (1,225) (b) 726
Income from Koger Realty Services, Inc. 342 342
Gain on TKPL note to Southeast 292 292
-------- -------- --------
Total revenues 104,072 8,631 112,703
-------- -------- --------
EXPENSES
Property operations 41,597 3,632 (a) 45,229
Depreciation and amortization 21,127 1,827 (c) 22,954
Mortgage and loan interest 18,701 3,138 (d) 21,839
General and administrative 6,623 6,623
Direct cost of management fees 1,884 1,884
Undeveloped land costs 517 12 (e) 529
Litigation costs 424 424
Loss on sale or disposition of assets 497 497
-------- -------- --------
Total expenses 91,370 8,609 99,979
-------- -------- --------
INCOME BEFORE INCOME TAXES 12,702 22 12,724
Income taxes 815 815
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEM $ 11,887 $ 22 $ 11,909
======== ======== -=======
EARNINGS PER COMMON SHARE AND
COMMON EQUIVALENT SHARE BEFORE
EXTRAORDINARY ITEM:
Primary $ 0.61 $ 0.61
======== ========
Fully Diluted $ 0.61 $ 0.61
======== ========
WEIGHTED AVERAGE COMMON SHARES AND
COMMON EQUIVALENT SHARES OUTSTANDING:
Primary 19,500 19,500
======== ========
Fully Diluted 19,576 19,576
======== ========
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
23
<PAGE> 25
KOGER EQUITY, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
9/30/97 ADJUSTMENTS 9/30/97
---------- ----------- ---------
<S> <C> <C> <C>
REVENUES
Rental and other rental services $80,250 $5,446 (a) $85,696
Management fees 2,209 2,209
Interest 1,084 (727) (b) 357
Income from Koger Realty Services, Inc. 489 489
Reduction in gain on TKPL note to Southeast (9) (9)
------- ------ -------
Total revenues 84,023 4,719 88,742
------- ------ -------
EXPENSES
Property operations 32,824 2,147 (a) 34,971
Depreciation and amortization 17,238 897 (c) 18,135
Mortgage and loan interest 12,264 1,729 (d) 13,993
General and administrative 4,256 4,256
Direct cost of management fees 1,553 1,553
Undeveloped land costs 341 6 (e) 347
Loss on early retirement of debt 144 144
Provision for loss on land held for sale (379) (379)
------- ------ -------
Total expenses 68,241 4,779 73,020
------- ------ -------
INCOME BEFORE GAIN ON SALE OR
DISPOSITION OF ASSETS 15,782 (60) 15,722
Gain on sale or disposition of assets 2,057 2,057
------- ------ -------
INCOME BEFORE INCOME TAXES 17,839 (60) 17,779
Income taxes 189 189
------- ------ -------
NET INCOME $17,650 $ (60) $17,590
======= ====== =======
EARNINGS PER COMMON SHARE AND
COMMON EQUIVALENT SHARE:
Primary $ 0.79 $ 0.79
======= =======
Fully Diluted $ 0.79 $ 0.79
======= =======
WEIGHTED AVERAGE COMMON SHARES AND
COMMON EQUIVALENT SHARES OUTSTANDING:
Primary 22,251 22,251
======= =======
Fully Diluted 22,319 22,319
======= =======
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
24
<PAGE> 26
KOGER EQUITY, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
During the period from May 15, 1997 through October 1, 1997, the Company
consummated the 1997 Acquisitions. These acquisitions were funded from working
capital and by drawing $26 million under the Company's secured revolving credit
facility. It is the intent of the Company's management to operate the ten office
buildings acquired in a manner similar to the Company's existing office building
portfolio. It is currently management's intent that the undeveloped land
acquired, pursuant to these acquisitions, will be held as an investment for
future development.
2. UNAUDITED PRO FORMA BALANCE SHEET
The unaudited pro forma balance sheet as of September 30, 1997 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, 1997. The unaudited pro forma
balance sheet includes adjustments assuming the acquisition of an office
building occurred as of September 30, 1997. Significant pro forma adjustments in
the unaudited pro forma balance sheet include the following:
(a) The Company acquired an office building in Atlanta, Georgia for
$21,172,000 and related furniture and equipment which totaled
$99,000. This purchase was partially funded with an $18,000,000 draw
on the Company's secured revolving credit facility.
3. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER
31, 1996
The unaudited pro forma statement of operations for the year ended
December 31, 1996 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, 1996. The unaudited pro forma statement of operations includes adjustments
assuming that the 1997 Acquisitions occurred as of January 1, 1996. Significant
pro forma adjustments in the unaudited pro forma statement of operations include
the following:
(a) Adjustment required for the historical rental revenues and operating
expenses for the ten office buildings acquired. Operating expenses
do not include historical management costs and fees for those office
buildings which the Company plans to manage with existing staff.
(b) Adjustment required to reduce interest revenues based upon
assumption that $25,000,000 of cash would have been used to purchase
the 1997 Acquisitions on January 1, 1996. The average interest rate
on temporary cash investments was estimated to be 4.9 percent.
(c) Adjustment required to reflect depreciation ($1,472,000) on the
office buildings and furniture and equipment acquired, based on the
total cost of the 1997 Acquisitions. The Company uses the
straight-line method for depreciation and amortization using an
estimated life of 39 years for buildings and five to seven years for
furniture and equipment. Also, an adjustment required to reflect
amortization expense ($355,000) related to deferred financing costs
for the secured revolving credit facility.
25
<PAGE> 27
(d) Adjustment required to reflect interest expense related to the
assumed amount drawn on the secured revolving credit facility
($42,111,000) to fund the 1997 Acquisitions. The estimated average
interest rate on the secured revolving credit facility was 7.45
percent.
(e) Adjustment required to reflect real estate taxes on the two parcels
of unimproved land purchased as part of the 1997 Acquisitions.
4. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997
The unaudited pro forma statement of operations for the nine months ended
September 30, 1997 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, 1997. The unaudited pro forma statement of operations includes
adjustments assuming that the 1997 Acquisitions occurred as of January 1, 1996.
Significant pro forma adjustments in the unaudited pro forma statement of
operations for the nine months ended September 30, 1997 include the following:
(a) Adjustment required for the rental revenues and operating expenses
for the ten office buildings for the period prior to their
acquisition. These amounts were estimated based on historical
information available for portions of these periods. Operating
expenses do not include management costs and fees for those office
buildings which the Company plans to manage with existing staff.
(b) Adjustment required to reduce interest revenues based upon
assumption that $35,000,000 of cash would have been used to purchase
the 1997 Acquisitions on January 1, 1996. The average interest rate
on temporary cash investments was estimated to be 5.0 percent.
(c) Adjustment required to reflect depreciation ($799,000) on the office
buildings and furniture and equipment acquired, based on the total
cost of the assets acquired. The Company uses the straight-line
method for depreciation and amortization using an estimated life of
39 years for buildings and five to seven years for furniture and
equipment. Also, an adjustment required to reflect additional
amortization expense ($98,000) related to deferred financing costs
for the secured revolving credit facility.
(d) Adjustment required to reflect additional interest expense related
to the assumed amount drawn on the secured revolving credit facility
($32,111,000) to fund the 1997 Acquisitions. The estimated average
interest rate on the secured revolving credit facility was 7.60
percent.
(e) Adjustment required to reflect real estate taxes on the two parcels
of unimproved land acquired as part of the 1997 Acquisitions for the
period prior to acquisition.
26
<PAGE> 28
KOGER EQUITY, INC.
UNAUDITED STATEMENT OF ESTIMATED TAXABLE OPERATING RESULTS
AND ESTIMATED CASH TO BE MADE AVAILABLE BY OPERATIONS OF
KOGER EQUITY, INC. FOR THE TWELVE MONTH PERIOD ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
REVENUES
Rental and other rental services $108,960
Management fees 2,682
Interest 726
Dividends received from Koger Realty Services, Inc. 490
Gain on TKPL note to Southeast 292
---------
Total revenues 113,150
---------
EXPENSES
Property operations 44,938
Depreciation and amortization 19,027
Mortgage and loan interest 21,839
General and administrative 6,190
Direct cost of management fees 1,813
Other 953
Compensation - exercise of stock options 742
---------
Total expenses 95,502
---------
Estimated Taxable Operating Income 17,648
Add Back: Depreciation and Amortization 19,027
---------
Estimated Cash To Be Made Available By Operations $ 36,675
=========
</TABLE>
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 the twelve month period ended December 31,
1996 assuming that the 1997 Acquisitions 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 actual tax depreciation
for the Company's existing portfolio and based upon the assumption
that the 1997 Acquisitions occurred on the first day of the twelve
month period.
27
<PAGE> 29
(c) Exhibits.
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
23 Consent of Deloitte and Touche LLP
</TABLE>
28
<PAGE> 30
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.
Dated: November 18, 1997 By: JAMES L. STEPHENS
--------------------------------
James L. Stephens
Title: Vice President and
Chief Accounting Officer
29
<PAGE> 1
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation 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 and Registration Statement No. 333-23429 of Koger
Equity, Inc. on Form S-8 of our reports dated November 6, 1997, on the statement
of revenues and certain expenses of Greenville Park Central, the Atrium Building
and Pacific Plaza Building, the Ideon Building, the Alexander Building, the
Coventry Park West Buildings A and B and the Lincoln Parkway Building for the
year ended December 31, 1996 appearing in this Current Report on Form 8-K of
Koger Equity, Inc., dated October 1, 1997.
DELOITTE & TOUCHE LLP
Jacksonville, Florida
November 18, 1997
30
