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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, 2001 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.)
433 PLAZA REAL, SUITE 335
BOCA RATON, FLORIDA 33432
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 395-9666
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, 2001
Common Stock, $.01 par value 26,797,348 shares
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KOGER EQUITY, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Independent Accountants' Report............................................. 3
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
March 31, 2001 and December 31, 2000..................................... 4
Condensed Consolidated Statements of Operations
for the Three Month Periods Ended
March 31, 2001 and 2000.................................................. 5
Condensed Consolidated Statement of Changes in
Shareholders' Equity for the Three Month Period
Ended March 31, 2001..................................................... 6
Condensed Consolidated Statements of Cash Flows
for the Three Month Periods Ended March 31, 2001 and 2000................ 7
Notes to Condensed Consolidated Financial
Statements for the Three Month Periods
Ended March 31, 2001 and 2000............................................ 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................ 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................. 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................... 12
Item 5. Other Information........................................................... 13
Item 6. Exhibits and Reports on Form 8-K............................................ 15
Signatures ......................................................................... 16
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INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Shareholders of
Koger Equity, Inc.
Boca Raton, Florida
We have reviewed the accompanying condensed consolidated balance sheet of Koger
Equity, Inc. and subsidiaries (the "Company") as of March 31, 2001 and the
related condensed consolidated statements of operations for the three month
periods ended March 31, 2001 and 2000, the condensed consolidated statement of
changes in shareholders' equity for the three month period ended March 31, 2001
and the condensed consolidated statements of cash flows for the three month
periods ended March 31, 2001 and 2000. 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 auditing standards generally accepted in the United States of America, 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 accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of the
Company as of December 31, 2000, 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, 2001, 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, 2000 is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
DELOITTE & TOUCHE LLP
Certified Public Accountants
West Palm Beach, Florida
May 4, 2001
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KOGER EQUITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED - SEE INDEPENDENT ACCOUNTANTS' REPORT)
(IN THOUSANDS)
MARCH 31, DECEMBER 31,
2001 2000
---------- ------------
ASSETS
Real Estate Investments:
Operating properties:
Land $ 139,579 $ 138,214
Buildings 819,065 805,935
Furniture and equipment 3,158 2,631
Accumulated depreciation (164,296) (155,817)
---------- ----------
Operating properties - net 797,506 790,963
Properties under construction:
Land 762 2,128
Buildings 4,213 12,023
Undeveloped land held for investment 13,899 13,899
Undeveloped land held for sale, net of allowance 76 76
Cash and cash equivalents 5,334 1,615
Accounts receivable, net of allowance for
uncollectible accounts of $591 and $584 13,592 13,232
Investment in Koger Realty Services, Inc. -- 2,533
Cost in excess of fair value of net assets acquired,
net of accumulated amortization of $1,238 and $1,195 1,318 1,360
Other assets 13,173 13,193
---------- ----------
TOTAL ASSETS $ 849,873 $ 851,022
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgages and loans payable $ 344,107 $ 343,287
Accounts payable 2,897 4,961
Accrued real estate taxes payable 5,539 4,175
Accrued liabilities - other 9,609 10,562
Dividends payable 9,381 9,392
Advance rents and security deposits 7,203 7,014
---------- ----------
Total Liabilities 378,736 379,391
---------- ----------
Minority interest 23,190 23,138
---------- ----------
Shareholders' equity:
Common stock 296 296
Capital in excess of par value 468,485 468,277
Notes receivable from stock sales (5,459) (6,250)
Retained earnings 19,507 20,261
Treasury stock, at cost (34,882) (34,091)
---------- ----------
Total Shareholders' Equity 447,947 448,493
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 849,873 $ 851,022
========== ==========
See Notes to Unaudited Condensed Consolidated Financial Statements.
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KOGER EQUITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED - SEE INDEPENDENT ACCOUNTANTS' REPORT)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTH PERIOD
ENDED MARCH 31,
------------------------
2001 2000
-------- --------
REVENUES
Rental and other rental services $ 41,591 $ 41,406
Management fees 1,094 410
Interest 247 56
Income (loss) from Koger Realty Services, Inc. 81 (70)
-------- --------
Total revenues 43,013 41,802
-------- --------
EXPENSES
Property operations 15,392 15,422
Depreciation and amortization 8,947 8,535
Mortgage and loan interest 6,636 6,679
General and administrative 2,039 5,108
Direct cost of management fees 915 136
Other 52 79
-------- --------
Total expenses 33,981 35,959
-------- --------
INCOME BEFORE LOSS ON SALE OR DISPOSITION OF
ASSETS, INCOME TAXES AND MINORITY INTEREST 9,032 5,843
Loss on sale or disposition of assets (3) --
-------- --------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 9,029 5,843
Income taxes 40 155
-------- --------
INCOME BEFORE MINORITY INTEREST 8,989 5,688
Minority interest 364 333
-------- --------
NET INCOME $ 8,625 $ 5,355
======== ========
EARNINGS PER SHARE:
Basic $ 0.32 $ 0.20
======== ========
Diluted $ 0.32 $ 0.20
======== ========
WEIGHTED AVERAGE SHARES:
Basic 26,825 26,796
======== ========
Diluted 26,883 27,095
======== ========
See Notes to Unaudited Condensed Consolidated Financial Statements.
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KOGER EQUITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY
(UNAUDITED - SEE INDEPENDENT ACCOUNTANTS' REPORT)
(IN THOUSANDS)
COMMON STOCK NOTES
------------------ CAPITAL IN RECEIVABLE TOTAL
SHARES PAR EXCESS OF FROM STOCK RETAINED TREASURY SHAREHOLDERS'
ISSUED VALUE PAR VALUE SALES EARNINGS STOCK EQUITY
------ ------ ---------- ---------- -------- -------- -------------
Balance, December 31, 2000 29,559 $ 296 $468,277 $ (6,250) $ 20,261 $(34,091) $ 448,493
Common stock sold 39 45 84
Stock loan repayments 791 (836) (45)
Options exercised 16 169 169
Dividends declared (9,379) (9,379)
Net Income 8,625 8,625
------ ------ -------- -------- -------- -------- ---------
Balance, March 31, 2001 29,575 $ 296 $468,485 $ (5,459) $ 19,507 $(34,882) $ 447,947
====== ====== ======== ======== ======== ======== =========
See Notes to Unaudited Condensed Consolidated Financial Statements.
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KOGER EQUITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - SEE INDEPENDENT ACCOUNTANTS' REPORT)
(IN THOUSANDS)
THREE MONTH PERIOD
ENDED MARCH 31,
------------------------
2001 2000
-------- --------
OPERATING ACTIVITIES
Net income $ 8,625 $ 5,355
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,947 8,535
(Income) loss from Koger Realty Services, Inc. (81) 70
Provision for uncollectible accounts 423 210
Minority interest 364 333
Loss on sale or disposition of assets 3 --
Changes in assets and liabilities:
Increase in receivables and other assets (528) (152)
Decrease in accounts payable, accrued liabilities
and other liabilities (2,398) (4,843)
-------- --------
Net cash provided by operating activities 15,355 9,508
-------- --------
INVESTING ACTIVITIES
Property acquisitions -- (10)
Building construction expenditures (1,492) (5,227)
Tenant improvements to first generation space (1,645) (1,102)
Tenant improvements to existing properties (1,506) (2,050)
Building improvements (676) (341)
Deferred tenant costs (371) (645)
Additions to furniture and equipment (24) (55)
Cash acquired in purchase of assets from KRSI 2,535 --
Proceeds from sale of assets 3 --
-------- --------
Net cash used in investing activities (3,176) (9,430)
-------- --------
FINANCING ACTIVITIES
Collection of notes receivable from stock sales 172 --
Proceeds from exercise of stock options 166 1,163
Proceeds from sales of common stock 84 113
Proceeds from mortgages and loans 12,500 34,747
Dividends paid (9,390) (9,370)
Distributions paid to limited partners (312) (298)
Treasury stock purchased -- (9,659)
Principal payments on mortgages and loans payable (11,680) (14,797)
Financing costs -- 4
-------- --------
Net cash provided by (used in) financing activities (8,460) 1,903
-------- --------
Net increase in cash and cash equivalents 3,719 1,981
Cash and cash equivalents - beginning of period 1,615 --
-------- --------
Cash and cash equivalents - end of period $ 5,334 $ 1,981
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest, net of amount capitalized $ 6,690 $ 6,601
======== ========
Cash paid during the period for income taxes $ -- $ 155
======== ========
See Notes to Unaudited Condensed Consolidated Financial Statements.
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KOGER EQUITY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIODS
ENDED MARCH 31, 2001 AND 2000
(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-Vanguard Partners, L.P. (the "Company"). All material
intercompany transactions and accounts have been eliminated in consolidation.
The financial statements have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission related to interim
financial statements.
During January 2001, Koger Equity, Inc. organized KRSI Merger, Inc., a Florida
corporation, as a wholly owned taxable subsidiary. Effective February 1, 2001,
Koger Realty Services, Inc. ("KRSI"), a Delaware corporation, was merged into
this new subsidiary (the "Merger"). Pursuant to the Merger, the common stock of
KRSI was repurchased at the formula price set forth in KRSI's Articles of
Incorporation. Subsequent to the Merger, the name of the new Florida subsidiary
was changed to Koger Realty Services, Inc. This merger was accounted for using
the purchase method of accounting resulting in a reduction in the cost basis of
assets of approximately $143,000. Prior to the Merger, the Company accounted for
its investment in the preferred stock of KRSI using the equity method.
The financial statements should be read in conjunction with the consolidated
financial statements and notes thereto for the year ended December 31, 2000,
included in the Company's Form 10-K Annual Report for the year ended December
31, 2000. The accompanying balance sheet at December 31, 2000, 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, 2001, are not necessarily indicative of the results to be
expected for the full year.
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." In June 2000, the FASB issued SFAS No. 138,
which amends certain provisions of SFAS 133 to clarify four areas causing
difficulties in implementation. The amendment included expanding the normal
purchase and sale exemption for supply contracts, permitting the offsetting of
certain intercompany foreign currency derivatives and thus reducing the number
of third party derivatives, permitting hedge accounting for foreign-currency
denominated assets and liabilities, and redefining interest rate risk to reduce
sources of ineffectiveness. The Company adopted SFAS 133 and the corresponding
amendments under SFAS 138 on January 1, 2001. SFAS 133, as amended by SFAS 138,
has not had a material impact on the Company's consolidated results of
operations, financial position or cash flows.
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. Koger-Vanguard Partners, L.P.
("KVP") is a Delaware limited partnership, for which KE is the general partner.
In addition to managing its own properties, the Company provides property
management services to third parties. Koger Realty Services, Inc. manages 70
office buildings owned by Koala Realty Holding Co., Inc. ("Koala"), a wholly
owned subsidiary of a co-mingled pension trust for which Morgan Guaranty Trust
Company of New York is the trustee and J. P.
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Morgan Investment Management, Inc. is the investment manager. The Company also
provides asset management services to Crocker Realty Trust for 127 office
properties.
3. FEDERAL INCOME TAXES. KE is operated in a manner so as to
qualify and has elected tax treatment as a real estate investment trust under
the Internal Revenue Code (a "REIT"). As a REIT, KE is required to distribute
annually at least 95 percent of its REIT taxable income to its shareholders.
Since KE had no REIT taxable income during 2000 and does not expect to have REIT
taxable income during 2001, no provision has been made for Federal income taxes.
To the extent that KE pays dividends equal to 100 percent of REIT taxable
income, the earnings of KE 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. Koger Realty Services,
Inc. has recorded a provision of $40,000 for Federal income tax for the quarter
ended March 31, 2001.
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, 2001, the Company received 54,018 shares of its
common stock as settlement of $836,000 of notes receivables from former
employees. Pursuant to the Merger, the Company acquired the net assets of KRSI
in exchange for its preferred stock in KRSI. The net assets of KRSI acquired
consisted of (i) cash in the amount of $2,535,000, (ii) other assets with a fair
value of $1,016,000 and (iii) liabilities assumed with a fair value of $937,000.
During the three month period ended March 31, 2000, the Company contributed
15,557 shares of common stock to the Company's 401(k) Plan. These shares had a
value of approximately $263,000 based on the closing price of the Company's
common stock on the American Stock Exchange on December 31, 1999.
5. EARNINGS PER COMMON SHARE. Basic earnings per common share has
been computed based on the weighted average number of shares of common stock
outstanding for each period. Diluted earnings per common share is similar to
basic earnings per share except that the weighted average number of common
shares outstanding is increased to include the number of additional common
shares that would have been outstanding if the dilutive common shares (options)
had been issued. The treasury stock method is used to calculate dilutive shares
which reduces the gross number of dilutive shares by the number of shares
purchasable from the proceeds of the options assumed to be exercised.
6. MORTGAGES AND LOANS PAYABLE. At March 31, 2001, the Company
had $344,107,000 of loans outstanding, which are collateralized by mortgages on
certain operating properties. In conjunction with the sale of the El Paso Center
during 2000, the Company amended the $89.5 million promissory note with
Northwestern Mutual Life Insurance Company ("Northwestern"). This amendment
provided for the release of the El Paso Center from the collateral for this loan
and required that collateral properties be substituted. Northwestern is
currently evaluating the collateral properties identified by the Company. Until
collateral is substituted, $9 million of the outstanding balance of this loan
will be subject to recourse to the Company. If collateral is not substituted,
the Company will be required to make a prepayment of principal in the amount of
$9 million plus pay a prepayment penalty based upon yield maintenance provisions
in the loan agreement. Annual maturities for mortgages and loans payable are
summarized as follows (in thousands):
YEAR ENDING DECEMBER 31,
2001 $ 95,797
2002 12,722
2003 5,238
2004 5,674
2005 6,151
Subsequent Years 218,525
---------
Total $ 344,107
=========
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7. DIVIDENDS. The Company paid a quarterly dividend of $0.35 per
share on February 1, 2001, to shareholders of record on December 31, 2000.
During the quarter ended March 31, 2001, the Company's Board of Directors
declared a quarterly dividend of $0.35 per share payable on May 3, 2001 to
shareholders of record on March 31, 2001. The Company currently expects that all
dividends paid during 2001 will be treated as ordinary income to the recipient
for income tax purposes.
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, 2000.
RESULTS OF OPERATIONS.
Rental and other rental services revenues totaled $41,591,000 for the quarter
ended March 31, 2001, compared to $41,406,000 for the quarter ended March 31,
2000. This increase resulted primarily from (i) the increase in the Company's
average rental rate and (ii) increases in the rental revenues ($1,929,000) from
eight buildings constructed by the Company. The effect of these increases was
partially offset by the loss of rental revenues ($2,593,000) caused by the sale
of two office parks during 2000. At March 31, 2001, the Company's buildings were
on average 89 percent leased with an average rental rate of $18.28 per usable
square foot ($16.22 per rentable square foot). Excluding the five buildings
which were in the lease-up period at March 31, 2001, the remainder of the
Company's buildings were on average 90 percent leased. At March 31, 2000, the
Company's buildings were on average 91 percent leased with an average rental
rate of $16.95 per usable square foot.
Management fee revenues totaled $1,094,000 for the quarter ended March 31, 2001,
compared to $410,000 for the quarter ended March 31, 2000. This increase was due
primarily to the merger of KRSI into a wholly owned taxable subsidiary of the
Company on February 1, 2001.
Interest revenues increased $191,000 for the quarter ended March 31, 2001,
compared to the same period last year, primarily due to (i) the increase in
interest earned from loans to certain current and former employees and (ii) the
higher average balance of cash to invest.
Property operations expense includes such charges as utilities, real estate
taxes, janitorial, maintenance, property insurance, provision for uncollectible
rents and management costs. The amount of property operations expense and its
percentage of total rental revenues for the applicable periods are as follows:
PERCENT OF
TOTAL RENTAL
PERIOD AMOUNT REVENUES
------------------------ ------------ ------------
March 31, 2001 - Quarter $ 15,392,000 37.0%
March 31, 2000 - Quarter $ 15,422,000 37.2%
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 $345,000 for the three month period ended March
31, 2001, compared to the same period last year, due to the construction
completed during 2000 and 2001. Amortization expense increased $67,000 for the
three month period ended March 31, 2001, compared to the same period last year,
due primarily to deferred tenant costs which were incurred after March 31, 2000.
For the three months ended March 31, 2001, interest expense remained basically
unchanged from that incurred during the same period last year. At March 31, 2001
and 2000, the weighted average interest rate on the Company's outstanding debt
was approximately 7.65 percent and 7.87 percent, respectively.
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General and administrative expenses for the three month periods ended March 31,
2001 and 2000, totaled $2,039,000 and $5,108,000, respectively. This decrease is
primarily due to certain non-recurring charges incurred during the prior year
for (i) severance payments made to former senior executive officers, (ii)
changes in termination benefits under the supplemental executive retirement
plan, (iii) accrual of payments to retiring directors and (iv) initial fees for
listing on the New York Stock Exchange.
Direct costs of management contracts increased $779,000 for the three month
period ended March 31, 2001, compared to the same period last year, due to the
merger of KRSI into a wholly owned taxable subsidiary of the Company on February
1, 2001.
Net income totaled $8,625,000 for the quarter ended March 31, 2001, compared to
net income of $5,355,000 for the corresponding period of 2000. This increase was
due to (i) the increases in rental and other rental services revenue, interest
revenue and management fee revenue and (ii) the decrease in general and
administrative expense. These items were partially offset by the increase in
depreciation and amortization expense and direct cost of management fees
expense.
LIQUIDITY AND CAPITAL RESOURCES.
OPERATING ACTIVITIES - During the three months ended March 31, 2001,
the Company generated approximately $15.4 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 and Crocker Realty Trust. 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 2001.
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, 2001,
leases representing approximately 17.6 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 2001. This represents 521 leases for
space in buildings located in 20 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, 2001,
leases were renewed on approximately 72 percent of the Company's 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, 2001, the average
rental rate per rentable square foot increased from $15.10 to $16.07. 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 amount of leases which will
expire during 2001 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 improvement costs and in certain markets reduced rents during initial
lease periods.
The Company has benefited from existing economic conditions and stable 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 and the Company is currently
experiencing slower growth in the markets in which it owns buildings. 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.
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Governmental tenants (including the State of Florida and the United States
Government) which account for approximately 18.9 percent of the Company's leased
space at March 31, 2001, 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, 2001, 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, 2001, the Company's expenditures for
improvements to existing properties decreased $209,000 from the corresponding
period of the prior year. This decrease was due to the reduction in expenditures
for tenant improvements primarily caused by the sale of two office parks during
2000.
The Company has one building under construction which will contain approximately
63,800 rentable square feet. Expenditures for construction of this building are
expected to total approximately $5.1 million, excluding land and tenant
improvement costs.
FINANCING ACTIVITIES - The Company has a $150 million secured revolving
credit facility ($92 million of which was outstanding on March 31, 2001)
provided by First Union National Bank of Florida, AmSouth Bank, N.A., Citizens
Bank of Rhode Island, Compass Bank and Guaranty Federal Bank. At March 31, 2001,
the Company had 19 office buildings, containing approximately 1.78 million
rentable square feet, which were unencumbered.
Loan maturities and normal amortization of mortgages and loans payable are
expected to total approximately $104.9 million over the next 12 months. 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 $91.6 million of its common stock under such registration statements.
The foregoing discussion contains forward-looking statements concerning 2001.
The actual results of operations for 2001 could differ materially from those
projected because of factors affecting the financial markets, reactions of the
Company's existing and prospective investors, the ability of the Company to
identify and execute development projects and acquisition opportunities, the
ability of the Company to renew and enter into new leases on favorable terms,
and other risk factors. See Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations - - Cautionary Statement Relevant
to Forward-Looking Information for Purpose of the `Safe Harbor' Provisions of
the Private Securities Litigation Reform Act of 1995" in the Company's Annual
Report on Form 10-K for the Fiscal Year Ended December 31, 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK. The Company currently has a $150 million secured
revolving credit facility with variable interest rates. The Company may incur
additional variable rate debt in the future to meet its financing needs.
Increases in interest rates on such debt could increase the Company's interest
expense, which would adversely affect the Company's cash flow and its ability to
pay distributions to its shareholders. The Company has not entered into any
interest rate hedge contracts in order to mitigate the interest rate risk with
respect to the secured revolving credit facility. As of March 31, 2001, the
Company had $92 million outstanding under the secured revolving credit facility.
If the weighted average interest rate on this variable rate debt were 100 basis
points higher or lower, annual interest expense would be increased or decreased
by approximately $920,000.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
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ITEM 5. OTHER INFORMATION
(a) The following table sets forth, with respect to each Koger Center or
location at March 31, 2001, gross square feet, rentable square feet,
percentage leased, and the average annual rent per rentable square foot
leased.
AVERAGE
ANNUAL
GROSS RENTABLE RENT PER
SQUARE SQUARE PERCENT SQUARE
KOGER CENTER/LOCATION FEET FEET LEASED(1) FOOT(2)
--------------------- ---------- ---------- --------- --------
Atlanta Chamblee 1,199,800 1,110,948 96% $17.14
Atlanta Gwinnett(3) 274,400 261,478 84% 18.05
Atlanta Perimeter 184,000 176,503 93% 20.51
Austin 458,400 440,310 98% 20.00
Birmingham Colonnade(3) 471,200 451,460 83% 16.09
Birmingham Colonnade - Retail 112,600 112,186 70% 12.24
Charlotte Carmel 339,200 324,140 93% 17.40
Charlotte University 190,600 182,789 100% 17.81
Charlotte Vanguard 548,200 525,213 89% 15.83
Greensboro South 749,200 687,952 72% 14.43
Greensboro Wendover 98,300 89,986 72% 17.45
Greenville Park Central 161,700 157,905 80% 16.51
Greenville Roper Mt. 431,000 397,096 91% 15.90
Jacksonville Baymeadows 793,400 748,974 95% 11.57(4)
Jacksonville JTB(3) 436,000 416,817 97% 12.92
Memphis Germantown(3) 562,600 521,963 91% 17.78
Orlando Central 699,700 612,153 98% 15.16
Orlando Lake Mary 318,000 303,481 98% 19.88
Orlando University 337,800 316,501 97% 17.44
Richmond Paragon 154,300 145,008 99% 17.67
San Antonio Airport 258,800 235,335 90% 18.33
San Antonio West 1,102,200 1,061,588 84% 14.55
St. Petersburg(3) 715,500 666,400 86% 15.50
Tallahassee 960,300 831,448 79% 18.33
---------- ----------
Total 11,557,200 10,777,634
========== ==========
Weighted Average - Total Company 89% $16.22
==== ======
Weighted Average - Operational Buildings 90% $16.13
==== ======
Weighted Average - Buildings in Lease-up 72% $18.61
==== ======
(1) The percent leased rates have been calculated by dividing total
rentable square feet leased in an office building by rentable square
feet in such building.
(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, 2001 by (b) the rentable square feet
applicable to such total annualized rents.
(3) Includes a building which is currently in the lease-up period.
(4) Includes the effect of three net leases where tenants lease the entire
building and pay certain operating costs in addition to base rent.
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(b) The following schedule sets forth for all of the Company's buildings
(i) the number of leases which will expire during the remainder of
calendar year 2001 and calendar years 2002 through 2009, (ii) the total
rentable area in square feet covered by such leases, (iii) the
percentage of total rentable square feet represented by such leases,
(iv) the average annual rent per square foot for such leases, (v) the
current annualized base rents represented by such leases, and (vi) the
percentage of gross annualized base rents contributed by such leases.
This information is based on the buildings owned by the Company on
March 31, 2001 and on the terms of leases in effect as of March 31,
2001, 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 72
percent of the Company's rentable square feet which were scheduled to
expire during the three month period ended March 31, 2001.
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
------ --------- ----------- --------------- --------------- --------------- ---------------
2001 521 1,772,860 18.5% $15.37 $ 27,240,425 17.6%
2002 408 1,362,314 14.3% 16.63 22,658,060 14.6%
2003 451 1,968,612 20.6% 16.13 31,750,508 20.5%
2004 283 1,650,219 17.3% 15.61 25,761,426 16.6%
2005 161 903,603 9.5% 17.20 15,544,093 10.0%
2006 27 366,004 3.8% 18.17 6,648,851 4.3%
2007 16 463,205 4.8% 16.36 7,576,855 4.9%
2008 14 287,163 3.0% 18.22 5,232,962 3.4%
2009 8 231,155 2.4% 19.78 4,573,280 2.9%
Other 12 555,616 5.8% 14.55 8,086,017 5.2%
----- --------- ----- ------------ -----
Total 1,901 9,560,751 100.0% $16.22 $155,072,477 100.0%
===== ========= ===== ====== ============ =====
(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 accounting
principles generally accepted in the United States of America) as a
measure of the Company's liquidity, nor is it necessarily indicative of
sufficient cash flow to fund all of the Company's needs. Funds from
Operations is calculated as follows (in thousands):
THREE MONTH PERIOD
ENDED MARCH 31,
2001 2000
-------- --------
Net Income $ 8,625 $ 5,355
Depreciation - real estate 8,045 7,721
Amortization - deferred tenant costs 509 448
Amortization - goodwill 42 43
Minority interest 364 333
Loss on sale of furniture and equipment 3 --
-------- --------
Funds from Operations $ 17,588 $ 13,900
======== ========
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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.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter
ended March 31, 2001.
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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
/s/ ROBERT E. ONISKO
-----------------------
ROBERT E. ONISKO
CHIEF FINANCIAL OFFICER
Dated: May 11, 2001
/s/ JAMES L. STEPHENS
-------------------------
JAMES L. STEPHENS
VICE PRESIDENT AND
CHIEF ACCOUNTING OFFICER
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