UNITED STATES
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): January 6, 2004
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KOGER EQUITY, INC.
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(Exact name of registrant as specified in its charter)
FLORIDA
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(State or other jurisdiction of incorporation)
1-9997 59-2898045
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(Commission File Number) (IRS Employer Identification No.)
225 NE Mizner Boulevard, Suite 200
Boca Raton, Florida 33432
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(Address of principal executive offices) (Zip Code)
(561) 395-9666
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(Registrant's telephone number, including area code)
N/A
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(Former name or former address, if changed since last report)
Item 2. Acquisition or Disposition of Assets.
On January 6, 2004, the Company entered into a definitive purchase and sale
agreement to acquire the Atlantic Center Plaza ("ACP") in Atlanta, Georgia for
approximately $116.5 million and closing costs. ACP is a 23-floor office
building containing approximately 502,000 square feet of rentable space that was
constructed in 2001. ACP is immediately adjacent to Interstate 75, located at
the intersection of West Peachtree Street and Fourteenth Street in the Midtown
submarket. In connection with the transaction, the Company will assume an $86.0
million note payable that is secured by the property. In addition, it is
estimated that approximately $32.8 million of the funds required for this
transaction will be drawn from proceeds from the Company's recently announced
common stock offering. ACP will be acquired from Atlantic Center Plaza, LLC, an
unrelated third party.
The Company considered various factors in determining the price to be paid for
this acquisition. Factors considered included the nature of the tenants and
terms of leases in place, opportunities for alternative and new tenancies,
historical and expected cash flows, occupancy rates, current operating costs on
ACP and anticipated changes therein under Company ownership, the physical
condition and location of ACP, the need for capital improvements, the
anticipated effect on the Company's financial results, and other factors. The
Company took into consideration capitalization rates at which it believed other
comparable properties had recently sold. However, the Company determined the
price it was willing to pay primarily on the factors discussed above relating to
ACP itself and its fit into the Company's existing operations. No separate
independent appraisal was obtained in connection with this acquisition. The
Company, after investigation, 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. The Company intends to
lease office space in ACP to tenants as it does the other office buildings
contained in its portfolio. ACP will be managed and leased by a third party
management company.
1
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.
Statement of Revenues and Certain Expenses of ACP for the year ended
December 31, 2002.
(b) Pro Forma Financial Statements
The following unaudited pro forma financial statements set forth (i)
the pro forma balance sheet as of September 30, 2003, as if the
acquisition occurred on September 30, 2003, (ii) the pro forma
statement of operations for the year ended December 31, 2002, as if
the acquisition occurred on January 1, 2002, and (iii) the pro forma
statement of operations for the nine months ended September 30, 2003,
as if the acquisition occurred on January 1, 2003. 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 acquisition
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 but not limited to changes in ACP's
occupancy, rental rates and rental expenses.
2
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Koger Equity, Inc.
Boca Raton, Florida:
We have audited the accompanying statement of revenues and certain expenses of
Atlantic Center Plaza ("ACP") for the year ended December 31, 2002. This
financial statement is the responsibility of ACP's former management. Our
responsibility is to express an opinion on the financial statement based on our
audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 a Form 8-K of Koger Equity,
Inc. dated January 6, 2004 as a result of the acquisition of ACP). 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 ACP
are excluded and, accordingly, the statement is not intended to be a complete
presentation of ACP'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 ACP for the year
ended December 31, 2002 in conformity with accounting principles generally
accepted in the United States of America.
DELOITTE & TOUCHE LLP
Certified Public Accountants
West Palm Beach, Florida
January 6, 2004
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ATLANTIC CENTER PLAZA
STATEMENT OF REVENUES AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 2002
REVENUES:
Base rental income $ 7,079,672
Operating expense recovery 130,102
Parking, antennae, and other income 215,749
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Total revenues 7,425,523
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CERTAIN EXPENSES:
Properties operating 1,672,096
Real estate and other taxes 925,306
Management costs and fees 290,727
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Total certain expenses 2,888,129
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REVENUES IN EXCESS OF CERTAIN EXPENSES $ 4,537,394
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See notes to statement of revenues and certain expenses.
4
ATLANTIC CENTER PLAZA
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 2002
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Atlantic Center Plaza ("ACP"), a 23-floor office building containing
approximately 502,000 square feet of rentable space and located in Atlanta,
Georgia, will be acquired from Atlantic Center Plaza, LLC, an unrelated third
party, in January, 2004. The statement of revenues and certain expenses includes
information related to the operations of ACP for the year ended December 31,
2002 as recorded by ACP's previous owners, subject to the adjustments described
below.
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, 2002 as certain expenses,
which may not be comparable to the expenses expected to be incurred in the
future operations of ACP, have been excluded. Expenses excluded consist of
interest, depreciation and amortization, and other costs not directly related to
the future operations of ACP.
Management's Use of Estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America 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.
Properties Operating Expenses - Properties operating expenses consist
primarily of utilities, insurance, repairs and maintenance, security and safety,
cleaning, bad debts and other administrative expenses.
Management Costs and Fees - At the date of acquisition, ACP was being
managed by a third party manager for a management fee of approximately three
percent of rental and other revenues plus reimbursement of personnel and other
costs related to management of ACP.
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ATLANTIC CENTER PLAZA
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 2002
2. OPERATING LEASES
Operating revenue is principally obtained from business tenant rentals
under operating leases. Future minimum base rental income under all tenant
operating leases as of December 31, 2002 are as follows:
Year ending December 31, Amount
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2003 $ 9,692,675
2004 11,051,225
2005 11,822,370
2006 11,670,803
2007 11,305,484
Thereafter 62,699,354
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Total $118,241,911
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For the year ended December 31, 2002, a law firm known as Alston & Bird
contributed approximately 59% of ACP's base rental income.
6
KOGER EQUITY, INC.
UNAUDITED PRO FORMA BALANCE SHEET
September 30, 2003
(In Thousands)
Historical Pro Forma Pro Forma
9/30/2003 Adjustments 9/30/03
----------------- ----------------- -----------------------
ASSETS
Operating properties:
Real estate $ 930,841 $ 118,836 (a) $ 1,049,677
Furniture and equipment 3,533 3,533
Accumulated depreciation (171,697) (171,697)
----------------- ----------------- -----------------------
Operating properties - net 762,677 118,836 881,513
Undeveloped land held for investment 9,995 9,995
Undeveloped land held for sale, net 3,041 3,041
Cash and cash equivalents 13,302 13,302
Restricted cash 14,520 14,520
Accounts receivable, net 14,575 14,575
Cost in excess of fair value of net assets acquired - net 595 595
Other assets 17,464 17,464
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TOTAL ASSETS $ 836,169 $ 118,836 $ 955,005
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LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgages and loans payable $ 394,128 $ 86,000 (a) $ 480,128
Accounts payable 3,764 3,764
Accrued real estate taxes payable 9,893 9,893
Accrued liabilities - other 10,846 10,846
Dividends payable 7,840 7,840
Advance rents and security deposits 5,343 5,343
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Total Liabilities 431,814 86,000 517,814
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Shareholders' Equity:
Preferred stock 30 30
Common stock 299 16 (b) 315
Capital in excess of par value 544,689 32,820 (b) 577,509
Notes receivable from stock sales (5,266) (5,266)
Accumulated other comprehensive loss (212) (212)
Retained earnings (deficit) (3,566) (3,566)
Treasury stock, at cost (131,619) (131,619)
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Total Shareholders' Equity 404,355 32,836 437,191
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 836,169 $ 118,836 $ 955,005
================= ================= =======================
See accompanying notes to unaudited pro forma financial statements.
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KOGER EQUITY, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the year ended December 31, 2002
(In Thousands except per Share Data)
Historical Pro Forma Pro Forma
2002 Adjustments 2002
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REVENUES
Rental and other rental services $ 126,404 $ 7,425 (a) $ 133,829
Management fees 3,347 3,347
Interest 405 405
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Total revenues 130,156 7,425 137,581
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EXPENSES
Properties operations 46,235 2,888 (a) 49,123
Depreciation and amortization 27,908 2,834 (b) 30,742
Mortgage and loan interest 25,145 3,372 (c) 28,517
General and administrative 11,381 479 (a) 11,860
Direct cost of management fees 3,335 3,335
Other 143 143
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Total expenses 114,147 9,573 123,720
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INCOME BEFORE GAIN ON SALE OF ASSETS,
INCOME TAXES AND MINORITY INTEREST 16,009 (2,148) 13,861
Gain on sale of assets 21 21
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INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 16,030 (2,148) 13,882
Income tax (benefit) provision (413) (413)
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INCOME BEFORE MINORITY INTEREST 16,443 (2,148) 14,295
Minority interest (20) (20)
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NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 16,423 $ (2,148) $ 14,275
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EARNINGS PER COMMON SHARE:
Basic $ .77 $ .63
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Diluted $ .77 $ .62
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WEIGHTED AVERAGE COMMON SHARES:
Basic 21,269 1,561 22,830
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Diluted 21,378 1,561 22,939
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See accompanying notes to unaudited pro forma financial statements.
8
KOGER EQUITY, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the nine months ended September 30, 2003
(In Thousands except per Share Data)
Historical Pro Forma Pro Forma
2003 Adjustments 2003
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REVENUES
Rental and other rental services $ 107,407 $ 7,051 (a) $ 114,458
Management fees 331 331
Interest 184 184
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Total revenues 107,922 7,051 114,973
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EXPENSES
Property operations 41,949 2,864 (a) 44,813
Depreciation and amortization 24,537 2,125 (b) 26,662
Mortgage and loan interest 22,059 2,528 (c) 24,587
General and administrative 8,415 325 (a) 8,740
Direct cost of management fees 88 88
Other 103 103
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7,842
Total expenses 97,151 104,993
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INCOME BEFORE GAIN ON SALE OF ASSETS,
INCOME TAXES AND MINORITY INTEREST 10,771 (791) 9,980
Gain on sale of assets 589 589
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INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 11,360 (791) 10,569
Income tax (benefit) provision (22) (22)
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(791)
INCOME BEFORE MINORITY INTEREST 11,382 10,591
Minority interest ----------------- ------------------ ---------------------
NET INCOME 11,382 (791) 10,591
Dividends on Preferred Stock (371) (371)
----------------- ------------------ ---------------------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS 11,011 $ (791) 10,220
================= ================== =====================
EARNINGS PER COMMON SHARE:
Basic $ .52 $ .45
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Diluted $ .52 $ .45
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WEIGHTED AVERAGE COMMON SHARES:
Basic 21,314 1,561 22,875
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Diluted 21,377 1,561 22,938
================= ================== =====================
See accompanying notes to unaudited pro forma financial statements.
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KOGER EQUITY, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. Basis of Presentation
Atlantic Center Plaza ("ACP"), a 23-floor office building containing
approximately 502,000 square feet of rentable space and located in Atlanta,
Georgia, will be acquired from Atlantic Center Plaza, LLC, an unrelated third
party, in January 2004. The statement of revenues and certain expenses includes
information related to the operations of ACP for the year ended December 31,
2002 as recorded by ACP's previous owner, subject to the adjustments described
below.
2. Unaudited Pro Forma Balance Sheet
The unaudited pro forma balance sheet as of September 30, 2003 is based on
the historical balance sheet for the Company presented in its Quarterly Report
on Form 10-Q for the period ended September 30, 2003. The unaudited pro forma
balance sheet includes adjustments assuming this acquisition occurred as of
September 30, 2003. Significant pro forma adjustments in the unaudited pro forma
balance sheet include the following:
(a) The Company intends to purchase ACP, located in Atlanta, Georgia, for
approximately $116.5 million and closing costs. The funds required for
this acquisition will be drawn from the assumption of an $86.0 million
mortgage secured by the Property and $32.8 million from the Company's
recently announced common stock offering. The acquisition is reflected
in rental properties in the pro forma balance sheet. A portion of the
purchase price will ultimately be recorded as an intangible asset for
the fair value of the in-place leases. The Company has not completed
its valuation of the in-place leases.
(b) Reflects a portion of the proceeds from the proposed issuance of
common stock used to purchase ACP.
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KOGER EQUITY, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (continued)
3. Unaudited Pro Forma Statements of Operations
The unaudited pro forma statement of operations for the year ended December
31, 2002 includes adjustments assuming that the acquisition of ACP occurred as
of January 1, 2002, and is based on the historical statement of operations for
the Company presented in its Annual Report on Form 10-K for the year ended
December 31, 2002. The unaudited pro forma statements of operations for the nine
months ended September 30, 2003, include adjustments assuming that the
acquisition of ACP occurred as of January 1, 2003 and is based on the historical
statement of operations for the Company presented in its Quarterly Report on
Form 10-Q for the period ended September 30, 2003. Significant pro forma
adjustments in the unaudited pro forma statements of operations include the
following:
(a) Adjustment required for the historical rental revenues and operating
expenses for ACP. Operating expenses include management costs and fees
calculated using the historical management costs of ACP. ACP was
managed by a third party manager for a management fee of approximately
three percent of rental and other revenues plus reimbursement of
personnel and other costs related to management of ACP. As of the year
ended December 31, 2002 and the nine months ended September 30, 2003,
ACP had occupancy rates of 68% and 79%, respectively.
(b) Adjustment required to reflect depreciation on ACP, based on the total
cost of the acquisition. The Company uses the straight-line method for
depreciation and amortization using an estimated life of 39 years for
ACP. As discussed in Note (a) to the pro forma balance sheet, the
Company has not completed the valuation of the in-place leases. The
amortization of the in-place lease value is not expected to have a
material impact on the pro forma statements of operations.
(c) Adjustment required to reflect interest expense related to the amounts
drawn on the ACP's mortgage ($86 million). The estimated average
interest rate on the ACP's mortgage was 2.9 percent on the first $76
million and 7.3 percent on the last $10 million.
11
KOGER EQUITY, INC.
UNAUDITED STATEMENT OF ESTIMATED TAXABLE OPERATING RESULTS
AND ESTIMATED CASH TO BE MADE AVAILABLE BY OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2002
(In Thousands)
Revenues
Rental and other rental services $132,132
Management fees 3,347
Interest 405
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Total revenues 135,884
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Expenses
Properties operations 49,482
Depreciation and amortization 26,123
Mortgage and loan interest 28,517
General and administrative 9,590
Direct cost of management fees 3,335
Other 143
Compensation - exercise of stock options 677
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Total expenses 117,867
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Estimated Taxable Operating Income 18,017
Add Back: Depreciation and Amortization 26,123
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Estimated Cash To Be Made Available By Operations $ 44,140
========
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,
2002 assuming that the acquisition of Atlantic Center Plaza occurred
on the first day of the twelve month period. However, this statement
does not purport to reflect actual taxable 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 acquisition of Atlantic Center Plaza occurred on
the first day of the twelve month period.
12
(c) Exhibits
EXHIBIT INDEX
The following designated exhibits are filed herewith:
Exhibit
Number Description of Exhibit
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23 Consent of Deloitte and Touche LLP
99 Koger Equity, Inc. News Release dated January 6, 2004.
13
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: January 6, 2004 By: /s/ Steven A. Abney
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Steven A. Abney
Title: Vice President, Finance
and Chief Accounting Officer
14
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, Registration Statement No. 333-23429 of Koger
Equity, Inc. on Form S-8, Registration Statement No. 333-37919 of Koger Equity,
Inc. on Form S-3, Registration Statement No. 333-33388 of Koger Equity, Inc. on
Form S-8 and Registration Statement No. 333-38712 of Koger Equity, Inc. on Form
S-8 of our report dated January 6, 2004 on the statement of revenues and certain
expenses of Atlantic Center Plaza for the year ended December 31, 2002 appearing
in this Current Report on Form 8-K of Koger Equity, Inc., dated January 6, 2004.
DELOITTE & TOUCHE LLP
West Palm Beach, Florida
January 6, 2004
15