SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
For the fiscal year ended December 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 (I.R.S. Employer Identification No.)
of incorporation or organization)
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
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange on Which Registered
1. Common Stock, Par Value $.01 New York Stock Exchange
2. Common Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
NONE
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
---
The aggregate market value of the voting stock held by non-affiliates of the
registrant on March 1, 2002 was approximately $369,853,000.
The number of shares of registrant's Common Stock outstanding on March 1, 2002
was 21,134,458.
Documents Incorporated by Reference
The Company's Proxy Statement to be filed pursuant to Regulation 14A under the
Securities Act of 1934 for the 2002 Annual Meeting of Shareholders is
incorporated by reference in Part III of this report.
1
TABLE OF CONTENTS
ITEM NO. DESCRIPTION PAGE NO.
PART I
1. BUSINESS.................................................... 3
2. PROPERTIES.................................................. 5
3. LEGAL PROCEEDINGS........................................... 10
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 10
PART II
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS....................................... 10
6. SELECTED FINANCIAL DATA..................................... 11
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 12
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.. 23
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 24
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE....................... 46
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 46
11. EXECUTIVE COMPENSATION...................................... 47
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT............................................ 47
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 47
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K....................................... 48
15. SIGNATURES.................................................. 58
2
PART I
Item 1. BUSINESS
General
Koger Equity, Inc. ("KE") is a self-administered and self-managed equity
real estate investment trust (a "REIT") which develops, owns, operates and
manages suburban office buildings (the "Office Buildings") primarily located in
12 office centers (each a "Koger Center") located in eight metropolitan areas
throughout the southeastern United States. As of December 31, 2001, KE owns 120
Office Buildings, of which 118 are in Koger Centers and two are outside Koger
Centers but in metropolitan areas where Koger Centers are located.
Koger-Vanguard Partners, L.P. ("KVP") is a limited partnership, for which KE is
the general partner, which owns suburban office buildings located in a Koger
Center. As of December 31, 2001, KVP owns 13 Office Buildings. The Office
Buildings contain approximately 6.9 million rentable square feet and were on
average 90 percent leased as of December 31, 2001. While KE expects to continue
the development of suburban office properties for its own account, it may from
time to time acquire developed properties compatible with its properties in
other markets primarily in the Southeast if such acquisitions can be made on
terms favorable to KE. During December 2001, KE sold 75 suburban office
buildings and one retail center, containing more than 3.9 million rentable
square feet, located throughout San Antonio and Austin, Texas; Greensboro and
Charlotte, North Carolina; Greenville, South Carolina; and Birmingham, Alabama.
These properties were sold to AP-Knight, LP ("AP-Knight"), an affiliate of
Apollo Real Estate Investment Fund ("Apollo").
KE owns approximately 78 acres of unencumbered land held for development
and approximately one acre of unencumbered land held for sale. A majority of the
land held for development adjoins Office Buildings in four Koger Centers, which
have infrastructure, including roads and utilities, in place. The remaining land
held for development adjoins properties which were sold during 2001. KE intends
over time to develop and construct office buildings using this land and to
acquire additional land for development. In addition, KE provides leasing,
management and other customary tenant-related services for the Koger Centers.
In addition to managing its own properties, KE provides property and asset
management services through its wholly-owned subsidiaries, Southeast Properties
Holding Corporation ("Southeast"), Koger Real Estate Services, Inc. ("KRES") and
Koger Realty Services, Inc. ("KRSI") for office buildings owned by unaffiliated
parties (KE, KVP, Southeast , KRES and KRSI are hereafter referred to as the
"Company"). Through August 2001, KRSI provided property management services to
Koala Realty Holding Company, Inc. ("Koala") for 55 office properties. On
December 12, 2001, KRSI began providing property management services to the
properties sold to AP-Knight. The Company currently provides asset management
services to Crocker Realty Trust for office properties containing approximately
4.6 million square feet.
KE operates in a manner so as to qualify as a REIT under the provisions of
the Internal Revenue Code of 1986, as amended (the "Code"). As a REIT, the
Company will not, with certain limited exceptions, be taxed at the corporate
level on taxable income distributed to its shareholders on a current basis. The
Company distributes at least 90 percent of its annual REIT taxable income (which
term is used herein as defined and modified in the Code) to its shareholders. To
qualify as a REIT, a corporation must meet certain substantive tests: (a) at
least 95 percent of its gross income must be derived from certain passive and
real estate sources; (b) at least 75 percent of its gross income must be derived
from certain real estate sources; (c) at the close of each calendar quarter, it
must meet certain tests designed to ensure that its assets consist principally
(at least 75 percent by value) of real estate assets, cash and cash equivalents
and that its holdings of securities are adequately diversified; (d) each year,
it must distribute at least 90 percent of its REIT taxable income; and (e) at no
time during the second half of any calendar year may the Company be "closely
held" (i.e., have more than 50 percent in value of its outstanding stock owned,
directly, indirectly or constructively, by not more than five individuals). The
constructive ownership rules, among other things, treat the shareholders of a
corporation as owning proportionately any stock in another corporation owned by
the first corporation. Management fee revenue does not qualify as real estate or
passive income for purposes of determining whether the Company has met the REIT
requirements that at least 95 percent of the Company's gross income be derived
from certain real estate and passive sources and that at least 75 percent of its
gross income be derived from certain real estate sources. Accordingly, in the
event the Company derives income in excess of five percent from management and
other "non-real estate" and "non-passive" activities, the Company would no
longer qualify as a REIT for federal income tax purposes and would be required
to pay federal income taxes as a business corporation. The income earned by KRSI
is not included in determining KE's qualification as a REIT.
3
Two major governmental tenants, when all of their respective departments
and agencies which lease space in the Company's buildings are combined, lease
more than 10 percent of the rentable area of the Company's buildings and
contribute more than 10 percent of the Company's annualized rentals as of
December 31, 2001. At that date, the United States of America leased 13 percent
of the Company's rentable square feet and accounted for an aggregate of 15.7
percent of the Company's annualized rents. In addition, the State of Florida
leased 11.1 percent of the Company's rentable square feet and accounted for 13.5
percent of the Company's annualized rents. Some of the Company's principal
tenants are the United States of America, the State of Florida, Blue Cross and
Blue Shield of Florida, Landstar System Holdings, Wellspring Resources, Siemens
Westinghouse, Zurich Insurance, General Electric, Hoechst Celanese Corp. and
Hanover Insurance. Governmental tenants (including the State of Florida and the
United States of America), which account for 27.3 percent of the Company's
leased space, may be subject to budget reductions in times of recession and
governmental austerity measures. There can be no assurance that governmental
appropriations for rents may not be reduced. Additionally, certain
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.
Competition
The Company competes in the leasing of office space with a considerable
number of other realty concerns, including local, regional and national, some of
which have greater resources than the Company. Through its ownership and
management of suburban office parks, the Company seeks to attract tenants by
offering office space convenient to residential areas. In recent years local,
regional and national concerns have built competing office parks and single
buildings in suburban areas in which the Company's Office Buildings are located.
In addition, the Company competes for tenants with large high-rise office
buildings generally located in the downtown business districts of these
metropolitan areas. Although competition from other lessors of office space
varies from city to city, the Company has been able to attain and maintain what
it considers satisfactory occupancy levels at satisfactory rental rates.
Investment Policies
The Company is currently in a position to capitalize on some of its
strengths, such as the value of its franchise in the suburban office park market
and its operating systems, development expertise, acquisition expertise and
unimproved land available for development. The Company intends to continue to
develop and construct office buildings primarily using its existing inventory of
78 acres of land held for development, most of which is partially or wholly
improved with streets and/or utilities and is located in various metropolitan
areas where the Company currently operates or manages suburban office parks. The
Company may also acquire existing office buildings or additional land for
development in other markets primarily in the Southeast that the Company
0considers favorable. Although all of the Company's properties are located in
the Southeast, management does not consider that the Company's development and
acquisitions activities are limited to any particular area. The Company may also
sell Office Buildings or Koger Centers located in certain markets. In addition,
the Company has adopted a plan to repurchase up to 2.65 million shares of its
common stock.
The investment policies of the Company may be changed by its directors at
any time without notice to, or a vote of, shareholders. Although the Company has
no fixed policy which limits the percentage of its assets which may be invested
in any one type of investment or the geographic areas in which the Company may
acquire properties, the Company intends to continue to operate so as to qualify
for tax treatment as a REIT. The Company may in the future invest in other types
of office buildings, apartment buildings, shopping centers, and other
properties. The Company also may invest in the securities (including mortgages)
of companies primarily engaged in real estate activities; however, it does not
intend to become an investment company regulated under the Investment Company
Act of 1940.
4
For the year ended December 31, 2001, all of the Company's rental revenues
were derived from buildings purchased or constructed by the Company. The
Company's 2001 interest revenues were derived from temporary cash investments
and notes receivable from current and former employees.
Employees
The Company has a combined financial, administrative, leasing, and center
maintenance staff of 180 employees. A resident manager is responsible for the
leasing and operations of all buildings in a Koger Center or metropolitan area.
The Company has approximately 63 employees who perform maintenance activities.
Item 2. PROPERTIES
General
As of December 31, 2001, the Company owned 120 Office Buildings located in
the eight metropolitan areas of Jacksonville, Orlando, St. Petersburg, and
Tallahassee, Florida; Atlanta, Georgia; Charlotte, North Carolina; Memphis,
Tennessee; and Richmond, Virginia. The Koger Centers have been developed in
campus-like settings with extensive landscaping and ample tenant parking. The
Office Buildings are generally one to five-story structures of contemporary
design and constructed of masonry, concrete and steel, with facings of brick,
concrete and glass. The Koger Centers are generally located with easy access,
via expressways, to the central business district and to shopping and
residential areas in the respective communities. The properties are well
maintained and adequately covered by insurance.
Leases on the Office Buildings vary between net leases (under which the
tenant pays some operating expenses, such as utilities, insurance and repairs)
and gross leases (under which the Company pays all such items). Most leases are
on a gross basis and are for terms generally ranging from three to five years.
In some instances, such as when a tenant rents the entire building, leases are
for terms of up to 20 years. As of December 31, 2001, the Office Buildings were
on average 90 percent leased and the average annual rent per rentable square
foot leased was $16.71. The buildings are occupied by numerous tenants
(approximately 896 leases), many of whom lease relatively small amounts of
space, conducting a broad range of commercial activities.
New leases and renewals of existing leases are negotiated at the current
market rate at the date of execution. The Company endeavors to include
escalation provisions in all of its gross leases. As of December 31, 2001,
approximately four percent of the Company's annualized gross rental revenues
were derived from existing leases containing rental escalation provisions based
upon changes in the Consumer Price Index (some of which contain maximum rates of
increases); approximately 93 percent of such revenues were derived from leases
containing escalation provisions based upon fixed steps or real estate tax and
operating expense increases; and approximately three percent of such revenues
were derived from leases without escalation provisions. Some of the Company's
leases contain options which allow the lessee to renew for varying periods,
generally at the same rental rate and subject, in most instances, to Consumer
Price Index escalation provisions.
The Company owns approximately 85 acres of unimproved land (78 acres held
for development, one acre held for sale and six acres not suitable for
development) located in the metropolitan areas of Birmingham, Alabama; Orlando
and St. Petersburg, Florida; Atlanta, Georgia; Charlotte and Greensboro, North
Carolina; and Columbia and Greenville, South Carolina. Each of these parcels of
land has been partially or wholly developed with streets and/or utilities.
5
Property Location and Other Information
The following table sets forth information relating to the properties owned by
the Company as of December 31, 2001.
Average Land
Number Age of Improved Unimproved
of Buildings Rentable with Bldgs. Land
Koger Center/Location Buildings (In Years) (1) Sq. Ft. (In Acres) (In Acres)
- --------------------- ---------- -------------- ------------- -------------- ------------
Atlanta Chamblee 21 19 1,110,903 76.2 2.5
Atlanta Gwinnett 3 5 260,484 15.9 19.6
Atlanta Perimeter 1 16 176,503 5.3
Birmingham Colonnade 16.5
Charlotte Carmel 7.7
Charlotte University 2 3 182,852 18.7
Charlotte Vanguard 13 18 525,732 39.7 17.1
Columbia Spring Valley 1.0
Greensboro Wendover 9.1
Greenville Park Central 3.5
Jacksonville Baymeadows 7 9 749,790 51.1
Jacksonville JTB 4 2 416,773 32.0
Memphis Germantown 6 8 527,180 34.6
Orlando Central 21 30 616,905 44.7 1.3
Orlando Lake Mary 2 3 303,481 20.2
Orlando University 5 7 380,117 27.1
Richmond Paragon 1 16 145,008 8.1
St. Petersburg 15 18 669,807 68.7 6.7
Tallahassee 19 19 833,372 62.7
---- --------- -----
Total 120 6,898,907 505.0 85.0
=== ========= ===== ====
Average 14
==
(1) The age of each building was weighted by the rentable square feet for such
building to determine the weighted average age of (a) the buildings in each
Koger Center or location and (b) all buildings owned by the Company.
6
Percent Leased and Average Rental Rates
The following table sets forth, with respect to each Koger Center or
location, the number of buildings, number of leases, rentable square feet,
percent leased, and the average annual rent per rentable square foot leased, in
each case as of December 31, 2001.
Average
Number Number Rentable Annual
of of Square Percent Rent Per
Koger Center/Location Buildings Leases Feet Leased (1) Square Foot (2)
- --------------------- --------- -------- ----------- ---------- ---------------
Atlanta Chamblee 21 137 1,110,903 91% $18.10
Atlanta Gwinnett (3) 3 46 260,484 74% 19.39
Atlanta Perimeter 1 15 176,503 93% 20.63
Charlotte University 2 20 182,852 99% 18.09
Charlotte Vanguard 13 69 525,732 88% 15.89
Jacksonville Baymeadows 7 38 749,790 99% 12.33 (4)
Jacksonville JTB 4 7 416,773 100% 12.94 (4)
Memphis Germantown 6 87 527,180 86% 18.16
Orlando Central 21 147 616,905 97% 15.64
Orlando Lake Mary 2 21 303,481 97% 20.17
Orlando University (3) 5 63 380,117 85% 18.25
Richmond Paragon 1 29 145,008 100% 18.09
St. Petersburg (3) 15 126 669,807 85% 15.82
Tallahassee 19 91 833,372 80% 18.43
----- ----- -----------
Total 120 896 6,898,907
=== ===== =========
Weighted Average - Total Company 90% $16.71
=== ======
Weighted Average - Operational Buildings 91% $16.61
=== ======
Weighted Average - Buildings in Lease-up 80% $19.67
=== ======
(1) The percent leased rates have been calculated by dividing total rentable
square feet leased in a building by rentable square feet in such building.
(2) Rental rates are computed by dividing (a) total annualized base rents
(which excludes expense pass-throughs and reimbursements) for a Koger
Center or location as of December 31, 2001 by (b) the rentable square feet
applicable to such total annualized base rents.
(3) Includes a building which is currently in the lease-up period.
(4) Includes the effect of net leases where tenants pay certain operating costs
in addition to base rent.
7
Lease Expirations on the Company's Properties
The following schedule sets forth with respect to all of the Office
Buildings (a) the number of leases which will expire in calendar years 2002
through 2010, (b) the total rentable area in square feet covered by such leases,
(c) the percentage of total rentable square feet leased represented by such
leases, (d) the average annual rent per square foot for such leases, (e) the
current annualized base rents represented by such leases, and (f) the percentage
of gross annualized base rents contributed by such leases. This information is
based on the buildings owned by the Company on December 31, 2001 and on the
terms of leases in effect as of December 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 66 percent, 61 percent and 66 percent of the Company's square
feet, which were scheduled to expire during 2001, 2000 and 1999, respectively.
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
- ------ ---------- ------------ --------------- --------------- --------------- ---------------
2002 290 1,264,098 20.4% $17.30 $21,871,262 21.1%
2003 205 1,386,694 22.3% 15.50 21,488,495 20.7%
2004 197 820,821 13.2% 16.34 13,412,061 12.9%
2005 91 603,969 9.7% 17.87 10,794,397 10.4%
2006 64 553,616 8.9% 18.09 10,015,100 9.7%
2007 15 479,384 7.7% 16.39 7,857,309 7.6%
2008 16 346,630 5.6% 18.06 6,260,497 6.0%
2009 8 224,516 3.6% 19.78 4,440,393 4.3%
2010 3 116,495 1.9% 17.10 1,991,685 1.9%
Other 7 412,578 6.7% 13.60 5,610,640 5.4%
---- ----------- ----- ------------ ------
Total 896 6,208,801 100.0% $16.71 $103,741,839 100.0%
==== =========== ===== ====== ============ ======
Building Improvements, Tenant Improvements and Deferred Tenant Costs on the
Company's Properties
The following table sets forth certain information with respect to the
building improvements made, and tenant improvement costs and deferred tenant
costs (leasing commissions and tenant relocation costs) incurred, by the Company
during the three years ended December 31, 2001. The information set forth below
is not necessarily indicative of future expenditures for these items.
Building Improvements Tenant Improvements Deferred Tenant Costs
---------------------------- --------------------------- --------------------------------
Per Average Per Average Per Average
Usable Sq. Usable Sq. Usable Sq.
Year Total Ft. Owned Total Ft. Owned Total Ft. Owned
- ------ ------------ ------------ --------------- ---------- -------------- -----------
1999 (1) $4,545,000 $0.50 $13,204,000 $1.46 $1,736,000 $0.19
2000 (2) 4,005,000 0.48 8,362,000 1.00 1,711,000 0.20
2001 (3) 4,829,000 0.58 6,666,000 0.80 1,381,000 0.17
(1) Excludes the 14 buildings for which construction was completed during 1997,
1998 and 1999.
(2) Excludes the 18 buildings for which construction was completed during 1998,
1999 and 2000.
(3) Excludes the 13 buildings for which construction was completed during 1999,
2000 and 2001.
8
Fixed Rate Indebtedness on the Company's Properties
The following table sets forth with respect to each Koger Center or
location the principal amount (dollars in thousands) of, and the weighted
average interest rate on, the indebtedness of the Company having a fixed
interest rate and encumbering the Company's properties in such Koger Center or
location as of December 31, 2001.
Weighted
Mortgage Average
Loan Interest
Koger Center/Location Balance Rate
---------------------- ----------- ---------
Atlanta Chamblee $ 0 -
Atlanta Gwinnett 10,693 8.26%
Atlanta Perimeter 7,201 8.26%
Charlotte University 0 -
Charlotte Vanguard 19,468 8.20%
Jacksonville Baymeadows 33,733 7.86%
Jacksonville JTB 17,414 8.26%
Memphis Germantown 24,269 7.84%
Orlando Central 26,335 8.26%
Orlando Lake Mary 12,778 8.26%
Orlando University 20,657 7.25%
Richmond Paragon 7,903 8.00%
St. Petersburg 27,779 8.26%
Tallahassee 38,909 8.10%
----------
Total $247,139 8.04%
========== =====
The outstanding principal amount of the mortgage loan with Northwestern
Mutual Life Insurance Company has been allocated based upon the square footage
of the collateral in the applicable Koger Center or location. For additional
information on these loans see Note 3, "Mortgages and Loans Payable" of the
Notes to Consolidated Financial Statements.
Indebtedness with Variable Interest Rates
As of December 31, 2001, the Company had a $125 million secured revolving
credit facility and a term loan with variable interest rates and encumbering
certain of the Company's properties. The following table sets forth historical
information with respect to indebtedness having variable interest rates (dollars
in thousands):
Weighted Approximate Approximate
Balance Average Maximum Average Wtd. Avg. Int.
Year Ended at End Int. Rate at Amount Amount Rate During
December 31 of Period End of Period Outstanding Outstanding the Period
- ----------- --------- --------------- ----------- ----------- -------------
2001 $ 1,544 7.9% $101,577 $90,009 5.7%
2000 90,000 8.1% 123,500 96,262 7.9%
1999 94,000 8.0% 128,000 95,277 6.7%
9
Item 3. LEGAL PROCEEDINGS
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is listed on the New York Stock Exchange under
the ticker symbol KE. The high and low closing sales prices for the periods
indicated in the table below were:
Years
2001 2000 1999
--------------------------- --------------------------- ---------------------------
Quarter Ended High Low High Low High Low
- ------------- --------- ---------- ---------- ---------- ---------- ----------
March 31 $15.97 $13.35 $17.9375 $15.5000 $17.5625 $12.6875
June 30 16.60 14.07 18.8750 16.5625 18.4375 12.8750
September 30 17.51 15.95 17.4375 16.6250 18.0000 15.5000
December 31 18.10 16.30 16.9375 15.0625 16.8750 14.2500
Any dividend paid in respect of the Company's common stock during the last
quarter of each year will, if necessary, be adjusted to satisfy the REIT
qualification requirement that at least 90 percent of the Company's REIT taxable
income for such taxable year be distributed. The Company's secured revolving
credit facility requires the Company to maintain certain financial ratios, which
includes a limitation on dividends. However, this covenant does not restrict the
Company from paying the dividends required to maintain its qualification as a
REIT.
Set forth below are the dividends per share paid during the three years ended
December 31, 2001.
Years
---------------------
Quarter Ended 2001 2000 1999
------------- ---- ---- ----
March 31 $.35 $.35 $.30
June 30 .35 .35 .30
September 30 .35 .35 .35
December 31 .35 .35 .35
On January 15, 2002, the Company paid a capital gain distribution in the
form of a special dividend of $1.74 per share to shareholders of record on
December 28, 2001. On February 7, 2002, the Company paid a quarterly dividend of
$0.35 per share to shareholders of record on December 31, 2001. In addition, the
Company's Board of Directors has declared a quarterly dividend of $0.35 per
share payable on May 2, 2002, to shareholders of record on March 31, 2002.
On March 1, 2002, there were approximately 1,228 shareholders of record and
the closing price of the Company's common stock on the New York Stock Exchange
was $17.50.
10
Item 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements (as defined below) and the
notes thereto.
(In thousands except per share and property data)
Income Information 2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
Rental revenues and other rental services $165,623 $164,733 $156,153 $133,663 $109,501
Interest revenues 776 703 457 446 1,274
Total revenues 170,560 167,874 160,093 138,082 113,989
Property operations expense 61,608 61,868 60,582 53,719 44,453
Depreciation and amortization 36,007 35,133 32,314 28,381 24,073
Mortgage and loan interest 25,204 27,268 21,893 16,616 16,517
General and administrative expense 8,412 20,217 8,633 6,953 6,374
Net income 73,223 27,153 36,586 29,602 21,204
Earnings per share - diluted 2.75 1.01 1.35 1.10 .94
Dividends declared per common share (1) 3.14 1.40 1.35 1.15 .55
Weighted average shares outstanding - diluted 26,610 26,962 27,019 26,901 22,495
Balance Sheet Information
Operating properties (before depreciation) $663,286 $946,780 $927,523 $872,183 $681,249
Undeveloped land 13,855 13,975 17,137 20,535 14,761
Total assets 690,585 851,022 885,739 834,995 656,097
Mortgages and loans payable 248,683 343,287 351,528 307,903 181,963
Total shareholders' equity 354,542 448,493 467,826 464,763 444,262
Other Information
Funds from operations (2) $ 69,681 $ 56,107 $ 65,011 $ 56,486 $ 42,324
Income before interest, income taxes,
depreciation and amortization $135,118 $ 89,533 $ 90,980 $ 75,555 $ 62,729
Number of buildings (at end of period) 120 194 218 251 228
Percent leased (at end of period) 90% 90% 93% 90% 92%
(1) Includes a capital gain distribution in the form of a special dividend of
$1.74 per share.
(2) The Company believes that Funds from Operations is one measure of the
performance of an equity REIT. 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 GAAP) 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):
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
Net income $73,223 $27,153 $36,586 $29,602 $21,204
Depreciation - real estate 32,261 31,720 28,800 25,146 21,795
Amortization - deferred tenant costs 2,172 1,923 2,132 1,464 1,031
Amortization - goodwill 170 170 170 170 170
Minority interest 1,044 1,156 1,174 139
Gain on sale or disposition of operating properties (39,189) (5,963) (3,846)
Gain on sale or disposition of non-operating assets (52) (5) (35) (1,955)
Recovery of loss on land held for sale (379)
Loss on early retirement of debt 458
-------- ------- ------- -------- --------
Funds from Operations $69,681 $56,107 $65,011 $56,486 $42,324
======= ======= ======= ======= =======
11
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the selected
financial data and the consolidated financial statements (the "Consolidated
Financial Statements") appearing elsewhere in this report. Historical results
and percentage relationships in the Consolidated Financial Statements, including
trends which might appear, should not be taken as indicative of future
operations or financial position. The Consolidated Financial Statements include
the accounts of KE, Southeast, KRES, KRSI and KVP (collectively, the "Company").
GENERAL
The Company has prepared, and is responsible for, the accompanying
Consolidated Financial Statements and the related consolidated financial
information included in this report. Such Consolidated Financial Statements were
prepared in accordance with accounting principles generally accepted in the
United States of America ("GAAP") and include amounts determined using
management's best judgments and estimates of the expected effects of events and
transactions that are being accounted for currently.
The Company's independent auditors have audited the accompanying
Consolidated Financial Statements. The objective of their audit, conducted in
accordance with auditing standards generally accepted in the United States of
America, was to express an opinion on the fairness of presentation, in all
material respects, of the Company's consolidated financial position, results of
operations, and cash flows in conformity with GAAP. They evaluated the Company's
internal control structure to the extent considered necessary by them to
determine the audit procedures required to support their report on the
Consolidated Financial Statements and not to provide assurance on such
structure.
The Company maintains accounting and other control systems which management
believes provide reasonable assurance that the Company's assets are safeguarded
and that the Company's books and records reflect the authorized transactions of
the Company, although there are inherent limitations in any internal control
structure, as well as cost versus benefit considerations. The Audit Committee of
the Company's Board of Directors, which is composed exclusively of directors who
are not officers of the Company, directs matters relating to audit functions,
annually appoints the auditors subject to ratification of the Company's Board of
Directors, reviews the auditors' independence, reviews the scope and results of
the annual audit, and periodically reviews the adequacy of the Company's
internal control structure with its external auditors, its internal auditors and
its senior management.
RESULTS OF OPERATIONS
Rental Revenues. Rental revenues increased $848,000 or 0.5 percent from the
year ended December 31, 2000 to the year ended December 31, 2001. This increase
resulted primarily from (i) the increase in the Company's average rental rate
and (ii) increases in rental revenues ($7,308,000) from seven buildings
constructed by the Company. The effect of these increases was partially offset
by (i) the reduction of rental revenues ($5,949,000) caused by the sale of two
office parks during 2000 and 75 office buildings and one retail center on
December 12, 2001 (the "2001 Property Sale") and (ii) the decline in occupancy
in the stabilized properties owned at December 31, 2001. For 2000, rental
revenues increased $8,365,000 or 5.4 percent from the year ended December 31,
1999. This increase resulted primarily from (i) the increase in the Company's
average rental rate and (ii) increases in rental revenues ($15,364,000) from
properties acquired and construction completed during 1999 and 2000. The effect
of these increases was partially offset by the reduction of rental revenues
($13,497,000) caused by the sale of two office parks during 1999 and two office
parks during 2000. As of December 31, 2001, the Company's buildings were on
average 90 percent leased. As of December 31, 2000 and 1999, the buildings owned
by the Company were on average 90 and 93 percent leased, respectively.
Management Fee Revenues. For 2001, management fee revenues increased
$2,287,000, as compared to 2000. This increase was due primarily to (i) the
merger of Koger Realty Services, Inc. into a wholly owned taxable subsidiary of
the Company on February 1, 2001 (the "Merger") and (ii) the increase in asset
management fees ($156,000) earned from Crocker Realty Trust. These increases
were partially offset by reductions in (i) fees earned under the management
contract with Centoff Realty Company, Inc. ("Centoff"), a subsidiary of Morgan
Guaranty Trust Company of New York and (ii) construction management fees.
Management fee revenues decreased $591,000 for 2000, as compared to 1999, due
primarily to a decrease in fees earned under the Centoff management contract. On
January 1, 2000, the management contract for one of the Centoff centers was
transferred from KE to Koger Realty Services, Inc. During November 2000, the
management contract for the remaining Centoff center was terminated when the
property was sold by the third party owner. The effect of these decreases was
partially offset by the asset management fees ($296,000) earned from Crocker
Realty Trust during 2000.
12
Income from Koger Realty Services, Inc. Income from Koger Realty Services,
Inc. decreased $564,000 for 2001, as compared to 2000, due to the Merger. For
2000, income from Koger Realty Services, Inc. decreased $454,000, as compared to
1999, due primarily to an increase in general and administrative expenses.
Interest Revenues. For 2001, interest revenues increased $73,000, as
compared to 2000, due to the higher average balance of cash to invest. Interest
revenues increased $246,000 for 2000, as compared to 1999, due to the interest
earned from loans to certain current and former employees.
Expenses. Property operations expense includes such charges as utilities,
real estate taxes, janitorial, maintenance, property insurance, provision for
uncollectible rents and management costs. During 2001, property operations
expense decreased $260,000 or 0.4 percent, compared to 2000, primarily due to
the reduction of property operations expense ($3,365,000) caused by the sale of
two office parks during 2000 and the 2001 Property Sale. Most of this decrease
was offset by (i) the increases in property operations expense ($1,870,000) from
seven buildings constructed by the Company and (ii) increased accruals to
provision for uncollectible accounts. During 2000, property operations expense
increased by $1,286,000 or 2.1 percent, compared to 1999, primarily due to (i)
increases in property operations expense ($5,662,000) for properties acquired
and construction completed during 1999 and 2000 and (ii) increases in real
estate taxes. These increases were partially offset by the decrease in property
operations expense ($5,847,000) for the properties sold during 1999 and 2000.
For 2001, 2000 and 1999, property operations expense as a percentage of total
rental revenues was 37.2 percent, 37.6 percent and 38.8 percent, respectively.
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. For 2001, depreciation expense increased $605,000 or 1.9 percent,
compared to 2000, due to the construction completed during 2000 and 2001. The
effect of this increase was partially offset by the sale of two office parks
during 2000 and the 2001 Property Sale. For 2000, depreciation expense increased
$2,976,000 or 10.2 percent, compared to the prior year, due to the properties
acquired and construction completed during 1999 and 2000.
Amortization expense increased $269,000, compared to 2000, due to deferred
tenant costs incurred during 2000 and 2001. During 2000, amortization expense
decreased $157,000, compared to 1999, due to deferred tenant costs associated
with properties sold during 1999 and 2000.
Interest expense decreased $2,064,000 during 2001, compared to 2000,
primarily due to (i) the decrease in the average balance of mortgages and loans
payable and (ii) the decrease in the average interest rate on the Company's
variable rate loans. For 2000, interest expense increased $5,375,000, compared
to 1999, primarily due to (i) the increase in the average balance of mortgages
and loans payable, (ii) the reduction in interest capitalized to construction
and (iii) the increase in the average interest rate on the Company's variable
rate loans. During 2001, 2000, and 1999, the weighted average interest rate on
the Company's variable rate loans was 5.7 percent, 7.9 percent and 6.7 percent,
respectively. The Company's average outstanding amount under such loans during
2001, 2000, and 1999 was $90,009,000, $96,262,000, and $95,277,000,
respectively. During 2001, 2000, and 1999, the weighted average interest rate on
the Company's fixed rate loans was 8.0 percent, 8.0 percent and 8.2 percent,
respectively. The Company's average outstanding amount under its fixed rate
loans during 2001, 2000, and 1999 was $250,373,000, $255,439,000, and
$225,391,000, respectively.
13
For 2001, general and administrative expenses decreased $11,805,000,
compared to 2000, primarily due to certain non-recurring charges incurred during
2000, which are described below. General and administrative expenses increased
by $11,584,000 during 2000, compared to 1999. This increase is primarily due to
certain non-recurring charges for (i) corporate reorganization costs
($8,767,000), (ii) severance payments made to certain former senior executives
($2,562,000), (iii) changes in termination benefits under the Supplemental
Executive Retirement Plan ($704,000), (iv) payments to retiring directors
($138,000) and (v) initial fees for listing on the New York Stock Exchange
($161,000).
Direct costs of management fees increased $2,480,000 during 2001, compared
to 2000, primarily due to the Merger. The effect of this increase was partially
offset by declines in costs due to (i) termination of the Centoff management
contract and (ii) reduction in construction management services provided to
third parties. For 2000, direct cost of management fees decreased $534,000,
compared to 1999, due to decreased costs associated with providing property
management services under the Centoff contract.
Other expenses decreased $28,000 during 2001, compared to 2000, primarily
due to the reduction in real estate taxes on unimproved land caused by the
reduction in acres held for investment and held for sale. During 2000, other
expenses decreased $926,000, compared to 1999, primarily due to (i) the
reduction in costs for certain corporate strategic issues and (ii) the reduction
in real estate taxes on unimproved land due to the reduction in acres held for
investment and held for sale.
Management periodically reviews its investment in properties for evidence
of impairments in value. Factors considered consist of, but are not limited to,
the following: current and projected occupancy rates, market conditions in
different geographic regions, and management's plans with respect to its
properties. Where management concludes that expected cash flows will not enable
the Company to recover the carrying amount of its investments, losses are
recorded and asset values are reduced. No such impairments in value existed
during 2001, 2000 or 1999.
Operating Results. Net income totaled $73,223,000, $27,153,000 and
$36,586,000 for 2001, 2000 and 1999, respectively. For 2001, net income
increased $46,070,000 or 169.7 percent from the prior year due primarily to (i)
the increase in gain on sale or disposition of assets and (ii) the decreases in
mortgage and loan interest and general and administrative expenses. For 2000,
net income decreased $9,433,000 or 25.8 percent from the prior year due
primarily to increases in (i) general and administrative expenses due to
corporate reorganization costs and other non-recurring charges, (ii) property
operations expense, (iii) depreciation expense and (iv) interest expense. The
effect of these increases was partially offset by increases in (i) rental
revenues and (ii) gain on sale or disposition of assets.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities. During the year ended December 31, 2001, the Company
generated approximately $64 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 third party owners. As
a REIT for Federal income tax purposes, the Company is required to pay out
annually, as dividends, 90 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 and its current cash
balance will be sufficient to cover debt service payments and to pay the
dividends required to maintain REIT status through 2002.
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. As of December 31, 2001,
approximately 97 percent of the Company's annualized gross rental revenues were
derived from existing leases containing provisions for rent escalations.
However, market conditions may prevent the Company from escalating rents under
such provisions.
14
As of December 31, 2001, leases representing approximately 21 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 2002. This represents
290 leases for space in buildings located in 13 of the 14 Koger 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. Leases were renewed on
approximately 66 percent, 61 percent and 66 percent of the Company's rentable
square feet, which were scheduled to expire during 2001, 2000 and 1999,
respectively. For those leases, which renewed during 2001, the average rental
rate increased from $15.00 to $15.80, an increase of 5.3 percent. For those
leases in properties owned by the Company at December 31, 2001, which renewed
during 2001, the average rental rate increased from $14.61 to $15.33, an
increase of 4.9 percent. However, for leases in these properties which renewed
during the fourth quarter of 2001, the average rental rate increased 2.9
percent. 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 2002 and the competition for tenants in the markets in which
the Company operates, the Company has offered, 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 region of
the United States provides significant economic growth potential due to its
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 and
increasing vacancy levels 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. For the properties owned on December 31, 2001, occupancy
was 90 percent at December 31, 2001 compared with 91.4 percent at December 31,
2000.
Governmental tenants (including the State of Florida and the United States
of America), which accounted for 27.3 percent of the Company's leased space as
of December 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.
On December 12, 2001, the Company began providing property management
services to AP-Knight for 75 suburban office buildings and one retail center.
AP-Knight acquired these properties from the Company. The Company agreed to
continue to manage these properties for what it considers to be standard
property management fees. This agreement is terminable by either party upon 30
days written notice. From February 1, 2001 through August 31, 2001, the Company
provided property management services for 55 commercial office properties owned
by Koala. During this period, the Company earned fees of $3,499,000 for the
management of these properties. The Company had a contract for the management of
eight commercial office properties owned by Centoff. This agreement was
terminated during November 2000 when the properties were sold by Centoff. The
Company earned fees of $998,000 and $846,000 for the management of these
properties during 2000 and 1999, respectively. At the end of 1999, Centoff
terminated the management agreement with KE related to eight commercial office
buildings. The Company earned fees of $780,000 for the management and leasing of
these properties during 1999. Another agreement to manage one commercial office
building was terminated by the Company during February 1999. During 1999, the
Company earned fees of $82,000 for the management of this building.
During 2000, the Company reached an agreement with Crocker Realty Trust
("CRT") to provide asset management services for the 6.1 million square foot
portfolio of CRT of which Mr. Crocker is the Chairman of the Board and Chief
Executive Officer owning 2.8 percent of the outstanding CRT shares, Mr. Onisko
is the Treasurer and Chief Financial Officer owning 0.2 percent of the
outstanding shares and Apollo is a principal shareholder owning 49 percent of
the outstanding CRT shares. The Company is paid a fee for these services based
upon the value of CRT's assets. The agreement is terminable by either party upon
90 days written notice. The terms of this agreement were approved by a committee
of the Company's Board of Directors whose members were not affiliated with CRT,
and who determined that such terms were similar to those that could be obtained
from an unaffiliated third party. The Company earned fees of $296,000 under this
agreement during the period from June 15, 2000 through December 31, 2000. During
2001, the Company earned fees of $452,000 under this agreement. Currently, the
Company provides asset management services for 4.6 million square feet owned by
CRT.
15
Investing Activities. At December 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 2001,
the Company's expenditures for improvements to existing properties decreased by
approximately $969,000 from the prior year, primarily due to decreases in
expenditures for tenant improvements. This decrease in expenditures for tenant
improvements was primarily due to (i) the sale of two office parks during 2000
and (ii) the lower leasing activity of second generation space during 2001
compared to 2000.
During 2001, the Company completed the construction of two buildings, which
contain 180,900 gross square feet. During 2000, the Company completed the
construction of six buildings, which contain 579,200 gross square feet. During
1999, the Company completed the construction of six buildings, which contain
630,400 gross square feet.
On November 1, 1999, the Company acquired four buildings, containing
508,600 gross square feet, located in Charlotte, North Carolina and Orlando,
Florida for a purchase price of $64.1 million.
On December 12, 2001, the Company sold 75 suburban office buildings, one
retail center and 3.4 acres of unimproved land for approximately $199,587,000,
net of selling costs, and 5,733,772 shares of the Company's common stock (which
were valued at approximately $96,327,000). These properties contained more than
3.9 million rentable square feet and were located throughout Austin and San
Antonio, Texas; Charlotte and Greensboro, North Carolina; Greenville, South
Carolina; and Birmingham, Alabama. These properties were sold to AP-Knight, an
affiliate of Apollo. A director of the Company is the partner responsible for
investments at Apollo. The transaction was negotiated by a Special Committee of
the Board of Directors composed of directors who had no affiliation with Apollo.
In order to insure that the terms of the transaction were equal to, or better
than, a similar transaction with an unrelated third party, the Company initiated
a marketing period through its financial advisor during which unrelated bidders
were asked to submit competing offers to purchase these properties. Prior to the
closing of the sale, the Company did not receive any attractive alternative
offers for these properties. In connection with this transaction, Morgan Stanley
& Co. Incorporated acted as financial advisor and provided an opinion to the
Special Committee of the Board of Directors which opinion stated that the
consideration received from the transaction was fair from a financial point of
view to the Company.
On June 1, 2000, the Company sold the Tulsa Center (containing 476,400
multi-tenant usable square feet and 10 acres of undeveloped land) for
approximately $28,841,000, net of selling costs. The Company sold approximately
5.6 acres of unimproved land located in Richmond, Virginia, for approximately
$800,000, net of selling costs, on July 10, 2000. On August 11, 2000, the
Company sold the El Paso Center (containing 315,600 multi-tenant usable square
feet) for approximately $20,075,000, net of selling costs. The sale of these
properties when combined with certain property adjustments resulted in a gain of
$6,015,000. On August 31, 1999, the Company sold the Jacksonville Central Center
(containing 666,000 multi-tenant usable square feet and 1.4 acres of undeveloped
land) and the Charlotte East Center (containing 468,900 multi-tenant usable
square feet and 3.9 acres of undeveloped land) for approximately $68,761,000,
net of selling costs.
Financing Activities. The Company's primary external sources of cash are
bank borrowings, mortgage financings, and public and private offerings of equity
securities. The proceeds of these financings are used by the Company to acquire
buildings and land or to refinance debt. The Company has a $125 million secured
revolving credit facility provided by Fleet National Bank, Wells Fargo Bank,
N.A. and Compass Bank.
16
Prior to 1999, the Company's Board of Directors (the "Board") approved the
repurchase of up to one million shares of the Company's common stock (the
"Shares"). The Company repurchased 54,000 Shares for approximately $852,000
during 1999. During 2000, the Board approved the repurchase of up to 2.65
million Shares and the Company repurchased 1,209,980 Shares for approximately
$20.4 million. The Company did not repurchase any Shares during 2001.
During 1999, the Company increased its non-recourse loan with Northwestern
Mutual Life Insurance Company ("Northwestern") by $45 million to a total of $235
million, which is secured by nine office parks and one freestanding building.
This loan is divided into (i) a tranche in the amount of $100.5 million with a
10 year maturity and an average interest rate of 8.19 percent, (ii) a tranche in
the amount of $89.5 million with a maturity of 12 years and an interest rate of
8.33 percent, (iii) a tranche in the amount of $14.7 million which matures
January 2, 2007 and an interest rate of 7.1 percent and (iv) a tranche in the
amount of $30.3 million which matures on January 2, 2009 and an interest rate of
7.1 percent. Amortization with respect to this indebtedness is based on equal
monthly installments over a 25 year amortization period. This indebtedness
requires the Company to maintain certain financial ratios.
During December 2001, the Company repaid the $90 million outstanding
balance under the secured revolving credit facility provided by First Union
National Bank of Florida, AmSouth Bank, N.A., Citizens Bank of Rhode Island,
Compass Bank and Guaranty Federal Bank. This credit facility matured during
December 2001. On December 28, 2001, the Company closed on a new $125 million
secured revolving credit facility provided by Fleet National Bank, Wells Fargo
Bank, N.A. and Compass Bank. This facility provides for monthly interest
payments, requires the Company to maintain certain financial ratios and matures
in December 2004.
Loan maturities and normal amortization of mortgages and loans payable
during the year 2002 are expected to total approximately $12.7 million, which
includes a $7.9 million balloon payment due under a term loan which matures in
December 2002. In order to generate funds sufficient to make principal payments
in respect of indebtedness of the Company over the long term, as well as
necessary capital and tenant acquisition expenditures, the Company will be
required to successfully refinance its indebtedness or procure additional equity
capital. However, there can be no assurance that any such refinancing or equity
financing will be achieved or will generate adequate funds on a timely basis for
these purposes. If additional funds are raised by issuing equity securities,
further dilution to existing shareholders may result. Unfavorable conditions in
the financial markets, the degree of leverage of the Company and various other
factors may limit the ability of the Company to successfully undertake any such
financings, and no assurance can be given as to the availability of alternative
sources of funds. The Company has filed shelf registration statements with
respect to the 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.
In addition, in the event the Company is unable to generate sufficient
funds both to meet principal payments in respect of its indebtedness and to
satisfy distribution requirements of 90 percent of annual REIT taxable income to
its shareholders, the Company may be unable to qualify as a REIT. In such an
event, the Company (i) will incur federal income taxes and perhaps penalties,
(ii) if the Company is then paying dividends, may be required to decrease any
dividend payments to its shareholders, and (iii) the market price of the
Company's common stock may decrease. The Company would also be prohibited from
requalifying as a REIT for five years.
CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION FOR PURPOSE OF
"SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"safe harbor" for forward-looking statements to encourage companies to provide
prospective information about their businesses without fear of litigation so
long as those statements are identified as forward-looking and are accompanied
by meaningful cautionary statements identifying important factors that could
cause actual results to differ materially from those projected in such
statements. The Company desires to take advantage of the "safe harbor"
provisions of the Act.
17
This Annual Report on Form 10-K contains forward-looking statements,
together with related data and projections, about the Company's projected
financial results and its future plans and strategies. However, actual results
and needs of the Company may vary materially from forward-looking statements and
projections made from time to time by the Company on the basis of management's
then-current expectations. The business in which the Company is engaged involves
changing and competitive markets and a high degree of risk, and there can be no
assurance those forward-looking statements and projections will prove accurate.
Accordingly, the Company hereby identifies the following important factors,
which could cause the Company's actual performance and financial results to
differ materially from any results, which might be projected, forecast,
estimated or budgeted by the Company.
Real Estate Financing Risks
Existing Debt. The Company is subject to risks normally associated with
debt financing, including (a) the risk that the Company's cash flow will be
insufficient to meet required payments of principal and interest, (b) the risk
that the existing debt in respect of the Company's properties (which in
substantially all cases will not have been fully amortized at maturity) will not
be able to be refinanced and (c) the risk that the terms of any refinancing of
any existing debt will not be as favorable as the terms of such existing debt.
The Company currently has outstanding debt of approximately $248.7 million, all
of which is secured by certain of the Company's properties. Approximately $151.4
million of such debt will mature before 2008, with the majority of the remaining
balance maturing in 2009. The $125 million secured revolving credit facility
(none of which was outstanding at year end) matures in December 2004. If
principal payments due at maturity cannot be refinanced, extended or paid with
proceeds of other capital transactions, such as new equity capital, the Company
expects that its cash flow will not be sufficient to repay all such maturing
debt. Furthermore, if prevailing interest rates or other factors at the time of
refinancing (such as the reluctance of lenders to make commercial real estate
loans) result in higher interest rates upon refinancing than the interest rates
on the existing debt, the interest expense relating to such refinanced debt
would increase, which would adversely affect the Company's cash flow and the
amount of distributions the Company would be able to make to its shareholders.
If the Company has mortgaged a property to secure payment of debt and the
Company is unable to meet the mortgage payments, then the mortgagee may
foreclose upon, or otherwise take control of, such property, with a consequent
loss of income and asset value to the Company.
Risk of Rising Interest Rates and Variable Rate Debt. The Company currently
has a $125 million secured revolving credit facility and a term loan with
variable interest rates. The Company may incur additional variable rate debt in
the future. 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.
Existing Leverage; No Limitation on Debt. As of December 31, 2001, the debt
to total market capitalization ratio of the Company was approximately 41
percent. The Company's policy regarding this ratio (i.e., total consolidated
debt as a percentage of the sum of the market value of issued and outstanding
capital stock plus total consolidated debt) is not subject to any limitation in
the organizational documents of the Company. Accordingly, the Board of Directors
could establish policies which would increase the Company's debt to total market
capitalization ratio. If this action were taken, the Company could become more
highly leveraged, resulting in an increase in debt service that (a) could
adversely affect the Company's cash flow and, consequently, the amount of cash
available for distribution to shareholders and (b) could increase the risk of
default on the Company's debt.
For purposes of establishing and evaluating its debt policy, the Company
measures its leverage by reference to the total market capitalization of the
Company rather than by reference to the book value of its assets. The Company
has used total market capitalization because it believes that the book value of
its assets (which to a large extent is comprised of the depreciated value of
real property, the Company's primary tangible asset) does not accurately reflect
its ability to borrow and to meet debt service requirements. The market
capitalization of the Company, however, is more variable than book value, and
does not necessarily reflect the fair market value of the underlying assets of
the Company at all times. The Company also considers factors other than its
market capitalization in making decisions regarding the incurrence of
indebtedness, such as the purchase price of properties to be acquired with debt
financing, the estimated market value of its properties upon refinancing and the
ability of particular properties, and the Company as a whole, to generate cash
flow to cover expected debt service.
18
Geographic Concentration
The Company's revenues and the value of its properties may be affected by a
number of factors, including the regional and local economic climates of the
metropolitan areas in which the Company's buildings are located (which may be
adversely impacted by business layoffs or downsizing, industry slowdowns,
changing demographics and other factors) and regional and local real estate
conditions in such areas (such as oversupply of, or reduced demand for, office
and other competing commercial properties). All of the Company's properties are
located in the southeastern United States. There is also the problem of over
building in certain sub-markets located in markets which the Company currently
serves. While the Company has avoided acquiring or developing property in these
sub-markets such over built condition may move over into the sub-markets where
the Company has property. The Company's performance and its ability to make
distributions to its shareholders are, therefore, dependent on economic
conditions in these market areas. The Company's historical growth has occurred
during periods when the economy in the southeastern United States has
out-performed the national economy. There can be no assurance as to the
continued growth of the economy in the southeastern United States or the future
growth rate of the Company.
Renewal of Leases and Reletting of Space
The Company is subject to the risks that upon expiration of leases for
space located in its buildings (a) such leases may not be renewed, (b) such
space may not be relet or (c) the terms of renewal or reletting (taking into
account the cost of required renovations) may be less favorable than current
lease terms. Leases on a total of 20.4 percent and 22.3 percent of the total
rentable square feet leased in the Company's buildings will expire in 2002 and
2003, respectively. If the Company is unable to promptly relet, or renew the
leases for, all or a substantial portion of the space located in its buildings,
or if the rental rates upon such renewal or reletting are significantly lower
than expected rental rates, or if the Company's reserves for these purposes
prove inadequate, then the Company's cash flow and its ability to make expected
distributions to its shareholders may be adversely affected.
Leases with State of Florida
At December 31, 2001, the Company had 48 leases with various departments
and agencies of the State of Florida which totaled approximately 766,000
rentable square feet. The majority of these leases are for space in Office
Buildings located in Tallahassee, Florida. These leases have provisions for
early termination for various reasons, including lack of budget appropriations.
Therefore during times of recession and government austerity measures, the State
of Florida may be subject to budget reductions and may decide to terminate
certain of its leases prior to the contractual lease expiration date. In
addition, these leases provide the State of Florida with the right to terminate,
without penalty, prior to the contractual lease expiration date in the event a
State owned building becomes available for occupancy upon giving six months
advance written notice to the Company.
Real Estate Investment Risks
General Risks. Real property investments are subject to varying degrees of
risk. The yields available from equity investments in real estate depend in
large part on the amount of income generated and expenses incurred. If the
Company's properties do not generate revenues sufficient to meet operating
expenses, including current levels of debt service, tenant improvements, leasing
commissions and other capital expenditures, the Company may have to borrow
additional amounts to cover fixed costs and the Company's cash flow and its
ability to make distributions to its shareholders will be adversely affected.
The Company must obtain external financing to meet future debt maturities.
19
The Company's net revenues and the value of its properties may be adversely
affected by a number of factors, including the national, regional and local
economic climates; regional and local real estate conditions; the perceptions of
prospective tenants as to the attractiveness of the property; the ability of the
Company to provide adequate management, maintenance and insurance; and increased
operating costs (including real estate taxes and utilities). In addition, real
estate values and income from properties are also affected by such factors as
applicable laws, including tax laws, interest rate levels and the availability
of financing.
Illiquidity of Real Estate. Equity real estate investments are relatively
illiquid. Such illiquidity will tend to limit the ability of the Company to vary
its portfolio promptly in response to changes in economic or other conditions.
Competition. Numerous office buildings compete with the Company's buildings
in attracting tenants to lease space. Some of these competing buildings are
newer, better located or better capitalized than some of the Company's
buildings. Moreover, the Company believes that major national or regional
commercial property developers will continue to seek development opportunities
in the southeastern United States. These developers may have greater financial
resources than the Company. The number of competitive commercial properties in a
particular area could have a material adverse affect on the Company's ability to
lease space in its buildings or at newly developed or acquired properties and
the rents charged.
Changes in Laws. Because increases in income, service or transfer taxes are
generally not passed through to tenants under leases, such increases may
adversely affect the Company's cash flow and its ability to make distributions
to its shareholders. The Company's properties are also subject to various
federal, state and local regulatory requirements, such as requirements of the
Americans with Disabilities Act (the "ADA") and state and local fire and life
safety requirements. Failure to comply with these requirements could result in
the imposition of fines by governmental authorities or awards of damages to
private litigants. The Company believes that its properties are currently in
compliance with all such regulatory requirements. However, there can be no
assurance that these requirements will not be changed or that new requirements
will not be imposed which would require significant unanticipated expenditures
by the Company and could have an adverse affect on the Company's cash flow and
expected distributions.
Uninsured Loss. The Company presently carries comprehensive liability,
fire, and flood (where appropriate), extended coverage and rental loss insurance
with respect to its properties, with policy specifications and insured limits
customary for similar properties. There are, however, certain types of losses
(such as from wars) that may be either uninsurable or not economically
insurable. Should an uninsured loss or a loss exceeding policy limits occur, the
Company could lose both its capital invested in, and anticipated profits from,
one or more of its properties.
Bankruptcy and Financial Condition of Tenants. At any time, a tenant of the
Company's buildings may seek the protection of the bankruptcy laws, which could
result in the rejection and termination of such tenant's lease and thereby cause
a reduction in the cash flow available for distribution by the Company. No
assurance can be given that tenants will not file for bankruptcy protection in
the future or, if any tenants file, that they will affirm their leases and
continue to make rental payments in a timely manner. In addition, a tenant from
time to time may experience a downturn in its business which may weaken its
financial condition and result in its failure to make rental payments when due.
If a tenant's lease is not affirmed following bankruptcy or if a tenant's
financial condition weakens, the Company's income may be adversely affected.
Americans with Disabilities Act Compliance. Under the ADA, all public
accommodations and commercial facilities are required to meet certain federal
requirements relating to access and use by disabled persons. These requirements
became effective in 1992. Compliance with the requirements of the ADA could
require removal of access barriers and non-compliance could result in imposition
of fines by the U.S. Government or an award of damages to private litigants.
Although the Company believes that its properties are substantially in
compliance with these requirements, the Company may incur additional costs to
comply with the ADA. Although the Company believes that such costs will not have
a material adverse affect on the Company, if required changes involve a greater
expenditure than the Company currently anticipates, the Company's ability to
make distributions to its shareholders could be adversely affected.
20
Risks Involved in Property Ownership Through Partnership and Joint
Ventures. Although the Company owns fee simple interests in all but 13 of its
properties, in the future the Company could, if then permitted by the covenants
in its loan agreements and its financial position, participate with other
entities in property ownership through partnerships or joint ventures. KE is
currently the general partner of Koger-Vanguard Partners, L.P., which owns 13
office buildings in Charlotte, North Carolina. Partnership or joint venture
investments may, under certain circumstances, involve risks not otherwise
present in property ownership, including the possibility that (a) the Company's
partners or co-ventures might become bankrupt, (b) such partners or co-ventures
might at any time have economic or other business interests or goals which are
inconsistent with the business interests or goals of the Company, and (c) such
partners or co-ventures may be in a position to take action contrary to the
instructions or the requests of the Company or contrary to the Company's
policies or objectives, including the Company's policy to maintain its
qualification as a REIT. The Company will, however, seek to maintain sufficient
control of such participants or joint ventures to permit the Company's business
objectives to be achieved. There is no limitation under the Company's
organizational documents as to the amount of available funds that may be
invested in partnerships or joint ventures.
Impact of Inflation. The Company may experience increases in its expenses,
including debt service, as a result of inflation. The Company's exposure to
inflationary cost increases in property level expenses is reduced by escalation
clauses, which are included in most of its leases. However, market conditions
may prevent the Company from escalating rents. Inflationary pressure may
increase operating expenses, including labor and energy costs (and, indirectly,
real estate taxes) above expected levels at a time when it may not be possible
for the Company to increase lease rates to offset such higher operating
expenses. In addition, inflation can have secondary effects upon occupancy rates
by decreasing the demand for office space in many of the markets in which the
Company operates.
Although, inflation has historically often caused increases in the value of
income-producing real estate through higher rentals, the Company can provide no
assurance that inflation will increase the value of its properties in the future
and, in fact, the rate of inflation over recent years has been considerably
below that which has been experienced previously.
Risk of Development, Construction and Acquisition Activities
Within the constraints of its policy concerning leverage, the Company has
and will continue to develop and construct office buildings, particularly on its
undeveloped land. Risks associated with the Company's development and
construction activities, including activities relating to its undeveloped land,
may include: abandonment of development opportunities; construction costs of a
property exceeding original estimates and possibly making the property
uneconomical; insufficient occupancy rates and rents at a newly completed
property to make the property profitable; unavailability of financing on
favorable terms for development of a property; and the failure to complete
construction and lease-up on schedule, resulting in increased debt service
expense and construction costs. In addition, new development activities,
regardless of whether or not they are ultimately successful, typically require a
substantial portion of management's time and attention. Development activities
are subject to risks relating to the inability to obtain, or delays in
obtaining, all necessary zoning, land-use, building, occupancy and other
required governmental permits and authorizations.
The Company will continue to acquire office buildings. Acquisitions of
office buildings entail risks that investments will fail to perform in
accordance with expectations. Estimates of the cost of improvements to bring an
acquired building up to standards established for the market position intended
for such building may prove inaccurate. In addition, there are general
investment risks associated with any new real estate investment.
The Company anticipates that any future developments and acquisitions would
be financed through a combination of internally generated cash, equity
investments and secured or unsecured financing. If new developments are financed
through construction loans, there is a risk that, upon completion of
construction, permanent financing for newly developed properties may not be
available or may be available only on disadvantageous terms.
21
Changes in Policies Without Shareholder Approval
The investment, financing, borrowing and distribution policies of the
Company, as well as its policies with respect to all other activities, including
growth, debt, capitalization and operations, are determined by the Board of
Directors. Although the Board of Directors has no present intention to do so,
these policies may be amended or revised at any time and from time to time at
the discretion of the Board of Directors without a vote of the shareholders of
the Company. A change in these policies could adversely affect the financial
condition or results of operations of the Company or the market price of the
common stock.
Limitations of REIT Status on Business of Subsidiaries
Certain requirements for REIT qualification may in the future limit the
Company's ability to increase fee development, management and leasing operations
conducted, and related services offered, by the Company's subsidiaries without
jeopardizing the Company's qualification as a REIT.
Adverse Consequences of Failure to Qualify as a REIT
The Company believes it has operated so as to qualify as a REIT under the
Internal Revenue Code since its inception in 1988. Although management of the
Company intends that the Company continue to operate so as to qualify as a REIT,
no assurance can be given that the Company will remain qualified as a REIT.
Qualification as a REIT involves the application and satisfaction of highly
technical and complex Code requirements for which there are only limited
judicial and administrative interpretations. Uncertainty in the application of
such requirements, as well as circumstances not entirely within the Company's
control, may affect the Company's ability to qualify as a REIT. In addition, no
assurance can be given that legislation, new regulations, administrative
interpretations or court decisions will not significantly change the tax laws
with respect to qualification as a REIT or the federal income tax consequences
of such qualification. The Company, however, is not aware of any pending tax
legislation that would adversely affect the Company's ability to operate as a
REIT.
Possible Environmental Liabilities
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real estate may be
required to investigate and clean up hazardous or toxic substances or petroleum
product releases at such property and may be held liable to a governmental
entity or to third parties for property damage and for investigation and
clean-up costs incurred by such parties in connection with the contamination.
Such laws typically impose clean-up responsibility and liability without regard
to whether the owner knew, or caused the presence, of the contaminants, and the
liability under such laws has been interpreted to be joint and several unless
the harm is divisible and there is a reasonable basis for allocation of
responsibility. The costs of investigation, remediation or removal of such
substances may be substantial, and the presence of such substances, or the
failure to properly remediate the contamination on such property, may adversely
affect the owner's ability to sell or rent such property or to borrow using such
property as collateral. Any person who arranges for the disposal or treatment of
hazardous or toxic substances at a disposal or treatment facility also may be
liable for the costs of removal or remediation of a release of hazardous or
toxic substances at such disposal or treatment facility, whether or not such
facility is owned or operated by such person. In addition, some environmental
laws create a lien on the contaminated site in favor of the government for
damages and costs that it incurs in connection with the contamination. Finally,
the owner of a site may be subject to common law claims by third parties based
on damages and costs resulting from environmental contamination emanating from a
site.
Certain federal, state and local laws, regulations and ordinances govern
the removal, encapsulation or disturbance of asbestos-containing materials
("ACM") when such materials are in poor condition or in the event of
construction, remodeling, renovation or demolition of a building. Such laws may
impose liability for release of ACM and may provide for third parties to seek
recovery from owners or operators of real properties for personal injury
associated with ACM. In connection with its ownership and operation of its
properties, the Company may be potentially liable for such costs. All ACM in the
Company's buildings has been found to be in good condition and non-friable, and
should not present a risk as long as it continues to be properly managed.
22
The Company's environmental assessments of its properties have not revealed
any environmental liability that the Company believes would have a material
adverse affect on its business, assets or results of operations taken as a
whole, nor is the Company aware of any such material environmental liability.
Nevertheless, it is possible that the Company's assessments do not reveal all
environmental liabilities or that there are material environmental liabilities
of which the Company is unaware. Moreover, there can be no assurance that future
laws, ordinances or regulations will not impose any material environmental
liability or the current environmental condition of the Company's properties
will not be affected by tenants, by the condition of land or operations in the
vicinity of such properties (such as the presence of underground storage tanks),
or by third parties unrelated to the Company.
Effect of Market Interest Rates on Price of Common Stock
One of the factors that will influence the market price of the Company's
common stock in public markets will be the annual dividend yield on the share
price reflected by dividend distributions by the Company. An increase in market
interest rates could reduce cash available for distribution by the Company to
its shareholders and, accordingly, adversely affect the market price of the
common stock.
Additional Information
For additional disclosure of risk factors to which the Company is subject,
see the other sections of "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
The Company currently has a $125 million secured revolving credit facility
and a term loan 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 December 31, 2001, the Company had
$1.5 million outstanding under loans with variable interest rates. 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 $15,000.
23
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
PAGE NO.
Independent Auditors' Report............................................................................ 25
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2001
and 2000........................................................................................ 26
Consolidated Statements of Operations for Each
of the Three Years in the Period Ended
December 31, 2001............................................................................... 27
Consolidated Statements of Changes in Shareholders'
Equity for Each of the Three Years in the
Period Ended December 31, 2001................................................................ 28
Consolidated Statements of Cash Flows for Each
of the Three Years in the Period Ended
December 31, 2001............................................................................... 29
Notes to Consolidated Financial Statements for
Each of the Three Years in the Period Ended
December 31, 2001............................................................................... 30
Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts
for the Three Years Ended December 31, 2001..................................................... 43
Schedule III - Real Estate and Accumulated
Depreciation as of December 31, 2001............................................................ 44
24
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Koger Equity, Inc.
Boca Raton, Florida
We have audited the accompanying consolidated balance sheets of Koger Equity,
Inc. and subsidiaries (the "Company") as of December 31, 2001 and 2000, and the
related consolidated statements of operations, changes in shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
2001. Our audits also included the financial statement schedules listed in the
Index at Item 8. These financial statements and financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits 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
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Koger Equity, Inc. and subsidiaries
as of December 31, 2001 and 2000, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
As described in Note 2 to the consolidated financial statements, the Company has
sold operating properties with over 3.9 million rentable square feet in exchange
for cash and shares of the Company's common stock. The purchaser, AP-Knight LP,
an affiliate of Apollo Real Estate Advisors, LP, was a related party at the date
of the transaction.
DELOITTE & TOUCHE LLP
Certified Public Accountants
West Palm Beach, Florida
February 22, 2002
25
KOGER EQUITY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2001 AND 2000
(In Thousands Except Share Data)
2001 2000
ASSETS
Real estate investments:
Operating properties:
Land $ 91,919 $138,214
Buildings 568,285 805,935
Furniture and equipment 3,082 2,631
Accumulated depreciation (123,999) (155,817)
-------- -------
Operating properties - net 539,287 790,963
Properties under construction:
Land - 2,128
Buildings - 12,023
Undeveloped land held for investment 13,779 13,899
Undeveloped land held for sale, net of allowance 76 76
Cash and cash equivalents 113,370 1,615
Accounts receivable, net of allowance for uncollectible
accounts of $1,114 and $584 11,574 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 $683 and $1,195 595 1,360
Other assets 11,904 13,193
---------- ----------
TOTAL ASSETS $690,585 $851,022
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgages and loans payable $248,683 $343,287
Accounts payable 4,962 4,961
Accrued real estate taxes payable 1,007 4,175
Accrued liabilities - other 9,206 10,562
Dividends payable 44,159 9,392
Advance rents and security deposits 5,103 7,014
--------- -----------
Total Liabilities 313,120 379,391
--------- ---------
Minority interest 22,923 23,138
--------- ----------
Commitments and contingencies (Notes 2 and 10)
Shareholders' equity:
Preferred stock, $.01 par value; 50,000,000 shares
authorized; issued: none - -
Common stock, $.01 par value; 100,000,000 shares
authorized; issued: 29,663,362 and 29,559,381 shares;
outstanding: 21,128,905 and 26,829,239 shares 297 296
Capital in excess of par value 469,779 468,277
Notes receivable from stock sales (5,066) (6,250)
Retained earnings 21,180 20,261
Treasury stock, at cost; 8,534,457 and 2,730,142 shares (131,648) (34,091)
--------- ----------
Total Shareholders' Equity 354,542 448,493
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $690,585 $851,022
======== ========
See Notes to Consolidated Financial Statements.
26
KOGER EQUITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 2001
(In Thousands Except Per Share Data)
2001 2000 1999
------ ------- -------
Revenues
Rental $164,679 $163,831 $155,466
Other rental services 944 902 687
Management fees 4,080 1,793 2,384
Income from Koger Realty Services, Inc. 81 645 1,099
Interest 776 703 457
--------- ------------ ------------
Total revenues 170,560 167,874 160,093
--------- --------- ---------
Expenses
Property operations 61,608 61,868 60,582
Depreciation and amortization 36,007 35,133 32,314
Mortgage and loan interest 25,204 27,268 21,893
General and administrative 8,412 20,217 8,633
Direct cost of management fees 3,378 898 1,432
Other 189 217 1,143
--------- ------------ -----------
Total expenses 134,798 145,601 125,997
--------- --------- ---------
Income Before Gain on Sale or Disposition of
Assets, Income Taxes and Minority Interest 35,762 22,273 34,096
Gain on sale or disposition of assets 39,189 6,015 3,851
--------- ---------- ----------
Income Before Income Taxes and Minority Interest 74,951 28,288 37,947
Income tax provision (benefit) 684 (21) 187
--------- ---------- ----------
Income Before Minority Interest 74,267 28,309 37,760
Minority interest 1,044 1,156 1,174
--------- ---------- ----------
Net Income $ 73,223 $ 27,153 $ 36,586
========= ========= =========
Earnings Per Share:
Basic $ 2.76 $ 1.02 $ 1.37
========= =========== ===========
Diluted $ 2.75 $ 1.01 $ 1.35
========= =========== ===========
Weighted Average Shares:
Basic 26,517 26,730 26,689
========= ========== ==========
Diluted 26,610 26,962 27,019
========= ========== ==========
See Notes to Consolidated Financial Statements.
27
KOGER EQUITY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED DECEMBER 31, 2001
(In Thousands)
Capital Notes Total
Common Stock in Excess Receivable Share-
Shares Par of Par from Stock Retained Treasury holders'
Issued Value Value Sales Earnings Stock Equity
------ ----- --------- ---------- -------- -------- ---------
BALANCE,
DECEMBER 31, 1998 28,560 $286 $454,988 $30,020 $(20,531) $464,763
Common stock sold 207 235 442
Treasury stock reissued 123 162 285
Treasury stock purchased (852) (852)
Options exercised 174 2 2,120 (40) 2,082
Restricted stock issued 22 368 (56) 312
401(k) Plan contribution 139 129 268
Dividends declared (36,060) (36,060)
Net income 36,586 36,586
------- -- -------- --------- ------ --------- ---------
BALANCE,
DECEMBER 31, 1999 28,756 288 457,945 30,546 (20,953) 467,826
Common stock sold 220 $(5,066) 7,005 2,159
Treasury stock purchased (20,434) (20,434)
Options exercised 803 8 10,026 (1,184) 163 9,013
Restricted stock issued (48) (48)
401(k) Plan contribution 134 128 262
Dividends declared (37,438) (37,438)
Net income 27,153 27,153
-------- -- -------- -------- -------- --------- ----------
BALANCE,
DECEMBER 31, 2000 29,559 296 468,277 (6,250) 20,261 (34,091) 448,493
Common stock sold 125 134 259
Stock loan repayments 1,184 (1,364) (180)
Treasury stock acquired (96,327) (96,327)
Options exercised 104 1 1,377 1,378
Dividends declared (72,304) (72,304)
Net income 73,223 73,223