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