<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
------------------
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 1-12486
--------
ASSOCIATED ESTATES REALTY CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Ohio 34-1747603 5025 Swetland Court, Richmond Hts., Ohio 44143-1467
- ------------------------------- ---------------------- ---------------------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer (Address of principal executive offices) (Zip Code)
incorporation or organization) Identification Number)
</TABLE>
Registrant's telephone number, including area code (216) 261-5000
--------------
(Former name, former address and former fiscal year,
if changed since last report)
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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
-------------------------------------
Indicate the number of shares outstanding of each of the issuer's classes of
common as of the latest practicable date.
13,872,381 shares outstanding as of November 14, 1996.
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Page 1
<PAGE> 2
ASSOCIATED ESTATES REALTY CORPORATION
INDEX
<TABLE>
<CAPTION>
PART 1 - FINANCIAL INFORMATION Page
----
<S> <C>
ITEM 1 Financial Statements
Consolidated Balance Sheets as of September 30, 1996
and December 31, 1995.........................................................................3
Consolidated Statements of Operations for the three and nine
month periods ended September 30, 1996 and 1995...............................................4
Consolidated Statements of Cash Flows for the nine month
period ended September 30, 1996 and 1995......................................................5
Notes to Financial Statements..................................................................6
ITEM 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................................................10
PART II - OTHER INFORMATION
ITEM 4 Submission of Matters to a Vote of Security-Holders............................................20
ITEM 6 Exhibits and Reports on Form 8-K...............................................................20
SIGNATURES.......................................................................................................21
</TABLE>
Page 2
<PAGE> 3
ASSOCIATED ESTATES REALTY CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------ ------------
(Unaudited)
ASSETS
<S> <C> <C>
Real estate assets:
Land $ 43,817,469 $ 37,782,564
Buildings and improvements 427,356,315 371,213,067
Furniture and fixtures 18,437,986 16,714,676
--------------- ---------------
489,611,770 425,710,307
Less: accumulated depreciation (107,914,818) (97,301,859)
--------------- ---------------
381,696,952 328,408,448
Construction in progress (including land) 15,900,610 8,254,251
--------------- ---------------
Real estate, net 397,597,562 336,662,699
Cash and cash equivalents 117,709 2,848,285
Restricted cash and investments 5,329,646 5,078,884
Accounts and notes receivable:
Rents 1,176,146 1,363,587
Affiliates 361,365 731,580
Other 12,651 38,068
Deferred charges and prepaid expenses 5,060,675 3,651,537
Other assets 980,796 1,335,377
--------------- ---------------
$ 410,636,550 $ 351,710,017
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Secured debt $ 69,348,832 $ 68,909,238
Unsecured debt 170,772,807 102,325,107
--------------- ---------------
Total indebtedness 240,121,639 171,234,345
Capital lease obligations 382,486 274,319
Accounts payable and accrued expenses 10,396,140 11,794,365
Dividends payable - 5,963,834
Resident security deposits 4,161,809 3,668,159
Funds held for non-owned properties 2,108,784 5,399,836
Accrued interest 3,883,715 1,997,181
Accumulated losses and distributions of equity
investees in excess of investment and advances 12,373,411 12,208,299
--------------- ---------------
Total liabilities 273,427,984 212,540,338
Commitments and contingencies - -
Shareholders' equity:
Preferred shares, Class A cumulative, without par value;
3,000,000 shares authorized; 225,000 issued and outstanding 56,250,000 56,250,000
Common shares, without par value, $.10 stated value;
50,000,000 shares authorized; 13,872,381 shares
issued and outstanding 1,387,238 1,387,238
Paid-in capital 102,506,016 102,567,007
Accumulated dividends in excess of net income (22,934,688) (21,034,566)
--------------- ---------------
Total shareholders' equity 137,208,566 139,169,679
--------------- ---------------
$ 410,636,550 $ 351,710,017
=============== ===============
</TABLE>
The accompanying notes are an integral part
of these financial statements
Page 3
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ASSOCIATED ESTATES REALTY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
1996 1995 1996 1995
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
Revenues
Rental $ 22,305,673 $ 17,858,148 $ 64,717,754 $ 49,995,168
Property management fees 100,128 102,559 292,995 325,875
Property management fees-affiliates 835,728 853,497 2,554,799 2,695,073
Painting service 108,015 60,423 310,163 203,029
Painting service-affiliates 368,123 218,508 986,210 553,490
Other 367,085 378,733 796,220 1,245,371
------------- -------------- ------------- -------------
24,084,752 19,471,868 69,658,141 55,018,006
Expenses
Property operating and maintenance 9,684,255 7,570,303 27,115,528 20,907,380
Depreciation and amortization 3,858,100 3,309,534 11,192,067 9,065,987
Painting services 395,452 236,639 1,127,542 681,104
General and administrative 1,163,171 1,247,864 4,041,559 3,814,198
Interest expense 4,076,426 2,819,907 11,691,848 8,180,264
------------- -------------- ------------- -------------
Total expenses 19,177,404 15,184,247 55,168,544 42,648,933
Income before equity in net income of joint
ventures 4,907,348 4,287,621 14,489,597 12,369,073
Equity in net income of joint ventures 76,895 54,255 210,029 195,820
------------- -------------- ------------- -------------
Net income before extraordinary income 4,984,243 4,341,876 14,699,626 12,564,893
Extraordinary item-extinguishment of debt
prepayment fees and write off of
deferred finance costs - 911,093 - 911,093
------------- -------------- ------------- -------------
Net income $ 4,984,243 $ 3,430,783 $ 14,699,626 $ 11,653,800
============= ============== ============= =============
Net income applicable to common shares $ 3,613,138 $ 2,669,158 $ 10,586,311 $ 10,892,175
============= ============== ============= =============
Per Common Share:
Net income before extraordinary item $ .26 $ .26 $ .76 $ .85
============= ============== ============= =============
Net income $ .26 $ .19 $ .76 $ .79
============= ============== ============= =============
Dividends paid $ .45 $ .43 $ 1.33 $ 1.26
============= ============== ============= =============
Weighted average number of common
shares outstanding (in thousands) 13,872 13,869 13,872 13,869
</TABLE>
The accompanying notes are an integral part
of these financial statements
Page 4
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ASSOCIATED ESTATES REALTY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30,
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flow from operating activities:
Net income $14,699,626 $11,653,800
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 11,192,067 9,065,987
Write off of deferred finance costs - 911,093
Equity in net income of joint ventures (210,030) (195,820)
Earnings distributed from joint ventures 539,519 96,584
Net change in accounts and notes receivable 212,858 247,839
Net change in accounts and notes receivable-affiliates 370,215 340,648
Net change in accounts payable and accrued expenses (1,808,450) 4,079,506
Net change in other operating assets and liabilities 1,113,205 2,476,789
Net change in restricted cash (250,762) (1,604,088)
Net change in funds held for non-owned properties (3,291,052) (3,857,023)
----------- -----------
Total adjustments 7,867,570 11,561,515
----------- -----------
Net cash flow provided by operations 22,567,196 23,215,315
Cash flow from investing activities:
Acquisition of real estate (net of liabilities assumed) (67,029,289) (87,183,864)
Fixed asset additions (487,142) (752,107)
Distributions from joint ventures (164,378) 223,727
----------- -----------
Net cash flow used for investing activities (67,680,809) (87,712,244)
Cash flow from financing activities:
Increase in unsecured debt 68,400,000 46,119,500
Decrease in secured debt (2,596,657) (13,713,707)
Payments of deferred financing and offering costs (762,488) (1,669,206)
Payments under capital lease obligations (94,236) (48,996)
Common share dividends paid (18,450,267) (17,475,420)
Preferred share dividends paid (4,113,315) (761,625)
Proceeds from the issuance of preferred shares, net of $1,771,875
of underwriting commissions and $271,337 of offering expenses
paid - 54,206,788
----------- -----------
Net cash flow provided by financing activities 42,383,037 66,657,334
----------- -----------
(Decrease) increase in cash and cash equivalents (2,730,576) 2,160,405
Cash and cash equivalents, beginning of period 2,848,285 1,870,584
----------- -----------
Cash and cash equivalents, end of period $ 117,709 $ 4,030,989
============== ===============
</TABLE>
The accompanying notes are an integral part
of these financial statements
Page 5
<PAGE> 6
ASSOCIATED ESTATES REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
The Company is a self-administered and self-managed real estate
investment trust ("REIT") which specializes in the acquisition, development,
ownership and management of multifamily properties in Ohio, Michigan and
Pennsylvania (the "Great Lakes Region"). At September 30, 1996, the Company
owned or was a joint venture partner in 84 multifamily properties containing
15,838 suites. Additionally, the Company manages 40 non-owned properties, 32 of
which are multifamily properties consisting of 7,052 suites and eight of which
are commercial properties containing an aggregate of approximately 825,000
square feet of gross leasable area. The Company's real estate property
management operations, a painting service company, a computer services company
and a mortgage origination and servicing company have for the most part been
assigned to affiliates of the Company that are collectively referred to as the
"Service Companies".
As referred to herein, the "Company" means Associated Estates Realty
Corporation, its wholly owned subsidiaries, which own certain of the real estate
properties, and the Service Companies.
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION/COMBINATION
The accompanying consolidated financial statements include the accounts
of the Company, its wholly owned subsidiaries, which own certain of the real
estate properties, and the Service Companies, which provide various services to
both owned and non-owned properties. The Company holds a preferred share
interest in these Service Companies which entitles it to receive 95% of the
economic benefits from operations and which is convertible into a majority
interest in the voting common shares. The outstanding voting common shares of
these Service Companies are held by an executive officer of the Company. The
Service Companies are consolidated because, from a financial reporting
perspective, the Company is entitled to virtually all economic benefits and has
operating control over the companies.
One property included in the financial statements is 33-1/3% owned by
third party investors. As this property has an accumulated deficit, no
recognition of the third party interest is reflected in the financial statements
since it is the Company's policy to recognize minority interests only to the
extent that the third party's investment and accumulated share of income exceeds
distributions and its share of accumulated losses. Investments in joint
ventures, which are 50% or less owned by the Company, are presented using the
equity method of accounting. Since the Company intends to fulfill its
obligations as a partner in the joint ventures, the Company has recognized its
share of losses and distributions in excess of its investment.
The accompanying unaudited financial statements reflect all adjustments
which are, in the opinion of management, necessary to reflect a fair
presentation of the results for the interim periods presented, and all such
adjustments are of a normal recurring nature.
All significant inter-entity balances and transactions have been
eliminated in consolidation.
Certain reclassifications have been made to the 1995 financial
statements to conform to the 1996 presentation.
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<PAGE> 7
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
3. ACQUISITION AND DEVELOPMENT OF MULTIFAMILY PROPERTIES
During the period January 1, 1996 through September 30, 1996, the
Company acquired, in separate purchase transactions, six multifamily properties
containing an aggregate of 1,337 suites and two parcels of land consisting of 33
acres for an aggregate purchase price of $59 million, which were financed with
borrowings under the Company's Line of Credit of $46 million, net proceeds of
$9.9 million from the issuance of a medium term note, and the assumption of
mortgage indebtedness with a stated value of $3.1 million.
Construction in progress for the development of multifamily properties
was $15,900,610 and $8,254,251 at September 30, 1996 and December 31, 1995,
respectively. The Company capitalizes interest, real estate taxes and insurance
costs on funds used in constructing property from the commencement of
construction through the time the property is ready for leasing. Interest, real
estate taxes and insurance of approximately $826,700 and $440,000 were
capitalized at September 30, 1996 and December 31, 1995, respectively. The
following schedule details construction in progress at September 30, 1996:
<TABLE>
<CAPTION>
Construction Percent
(dollars in thousands) Cost Construction Percent Percent
Number of Incurred to Complete Leased Occupied Estimated
Property Suites Land Cost Date at 9/30/96 at 9/30/96 at 9/30/96 Completion
- -------------------- ---------- --------- ------------ ------------ ---------- ---------- ---------
AURORA, OH
<S> <C> <C> <C> <C> <C> <C> <C>
Barrington-Phase I 168 $ 1,375 $ 2,693 16% - - Fall 1997
Barrington-Phase II 120 982 - - - Winter 1998
-------- ------- ----------
288 2,357 2,693
ANN ARBOR, MI
Arbor Landings II TBD 650 118 - - - TBD
COLUMBUS, OH
Bradford at Easton 324 2,033 5,816 43% - - Fall 1997
FENTON, MI
Georgetown TBD 350 TBD - - - TBD
GRAND RAPIDS, MI
Aspen Lakes TBD 400 TBD - - - TBD
STREETSBORO, OH
Village of Western
Reserve 112 691 86
WESTLAKE, OH
Westlake TBD 523 - - - - TBD
Future Development
Project Costs - - 184 - - -
-------- ------- ----------
724 $ 7,004 $ 8,897
======== ======= ==========
<FN>
TBD (To be determined)
</TABLE>
At September 30, 1996, the Company held land having an historical cost
of $2,916,273 that it intends to sell since the land will not be rezoned for
multifamily use. Management estimates that proceeds from the sale of the land
will exceed its cost and as a result, the land is stated at cost.
Page 7
<PAGE> 8
4. SHAREHOLDERS' EQUITY
The following table summarizes the changes in shareholders' equity
since December 31, 1995:
<TABLE>
<CAPTION>
Class A Accumulated
Cumulative Common Dividends
Preferred Shares Paid-In In Excess Of
Shares (at $.10 stated value) Capital Net Income Total
--------------- -------------------- ---------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Balance, Dec. 31, 1995 $ 56,250,000 $ 1,387,238 $ 102,567,007 $ (21,034,566) $ 139,169,679
Net income - - - 14,699,626 14,699,626
Common share
dividends declared - - - (12,486,433) (12,486,433)
Preferred share
dividends declared - - - (4,113,315) (4,113,315)
Additional offering costs - - (60,991) - (60,991)
---------------- -------------- --------------- --------------- ---------------
Balance, September 30, 1996 $ 56,250,000 $ 1,387,238 $ 102,506,016 $ (22,934,688) $ 137,208,566
=============== ============== =============== =============== ===============
</TABLE>
5. SECURED DEBT
CONVENTIONAL MORTGAGE DEBT
Conventional mortgages payable are comprised of nonrecourse, project
specific, loans to the Company which are collateralized by the associated real
estate and resident leases. Mortgages payable are generally due in monthly
installments of principal and/or interest and mature at various dates through
August 1, 2018.
FEDERALLY INSURED MORTGAGE DEBT
This mortgage indebtedness is insured by HUD pursuant to certain of the
mortgage insurance programs administered under the National Housing Act of 1934.
These government-insured loans are nonrecourse to the Company. Payments of
principal, interest and HUD mortgage insurance premiums are made in equal
monthly installments and mature at various dates through August 1, 2028.
Under certain of the mortgage agreements, the Company is required to
make escrow deposits for taxes, insurance and replacement of project assets. One
underlying mortgage is secured by a letter of credit which is renewed annually.
6. UNSECURED DEBT
SENIOR NOTES
The Senior Notes were issued in 1995, and their net proceeds of $83.6
million, after underwriting commissions, offering expenses and discounts, were
applied to amounts drawn on the Company's revolving credit facility. Senior
Notes with a principal balance of $75 million accrue interest at 8.38% and
mature in 2000. Senior Notes with a principal balance of $10 million, accrue
interest at 7.10% and mature in 2002.
LINE OF CREDIT
The Company utilizes a $75 million unsecured revolving credit facility
(the "Line of Credit"). The Line of Credit includes certain restrictive
covenants which, among others, requires the Company to maintain a minimum level
of net worth, to limit dividends to 90% of Distributable Cash Flow, to restrict
the use of its borrowings and to maintain certain debt coverage ratios. The Line
of Credit provides for a scaled reduction in the LIBOR, prime rate and
commitment fee margins based on the Company's credit ratings. Based on the
Company's present credit ratings and pursuant to a March 1996 interest rate
reduction amendment to the Line of Credit, the LIBOR margin is 150 basis points
fixed in increments of 30, 60, 90, 120 or 180 days and
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<PAGE> 9
Prime Rate borrowings are at the Prime Rate with no margin. An annual commitment
fee of 25 to 37.5 basis points based on the average daily unused amount of the
facility is paid quarterly in arrears. The Line of Credit expires in
September 1997 and the Company has the option to extend the facility for an
additional one year period. At September 30, 1996, $58.5 million was drawn on
the Line of Credit.
MEDIUM TERM NOTES PROGRAM
During 1996, the Company issued five Medium Term Notes (the "MTN's")
aggregating $27.5 million under its $75 million MTN program. The principal
amounts of these MTN's range from $2.5 million to $10 million and bear interest
from 6.60% to 7.93% over terms of between 5 to 30 years. The holder of a $2.5
million, 30 year MTN has the option to require payment on March 15, 2003. The
net proceeds to the Company with respect to these issuances was $27.3 million,
of which $17.4 million was applied to amounts outstanding under the Line of
Credit and the remaining $9.9 million was used to acquire a multifamily
property.
7. EARNINGS PER SHARE
Net income per share has been computed by dividing common share
dividends paid or declared for the period by the weighted average number of
common shares outstanding plus the undistributed net income applicable to common
shareholders as appropriate, divided by the weighted average number of common
shares outstanding. Common share equivalents were excluded from the earnings per
share calculation as they were not dilutive. The weighted average number of
shares outstanding utilized in the calculation was 13,872,381 and 13,869,381 for
the periods ended September 30, 1996 and 1995, respectively.
8. PRO FORMA FINANCIAL INFORMATION
The following unaudited supplemental pro forma operating data for the
nine months ended September 30, 1996 is presented to reflect the effects of the
six property and two land parcel acquisitions completed through September 30,
1996, as if such transactions had occurred on January 1, 1996. The unaudited
supplemental pro forma operating data for the nine months ended September 30,
1995 is presented to reflect the effects of (i) the issuance of the Senior and
Medium Term Notes, (ii) the offering of 2,250,000 Depositary Shares, each
representing 1/10 of a share of the Company's 9 3/4% Class A Cumulative
Redeemable Preferred Shares, (iii) the 15 property acquisitions completed in
1995, (iv) the six property and two land parcel acquisitions completed in
1996, as if such transactions had occurred on January 1, 1995, and (v) the
issuance of 3,000 restricted shares in 1995.
<TABLE>
<CAPTION>
For the nine months ended
September 30,
------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1996 1995
----------- ----------
<S> <C> <C>
Revenues $ 72,883 $ 68,893
Net income applicable to common shares 11,250 10,144
Net income applicable to common shares per share .81 .73
Weighted average common shares outstanding 13,872 13,872
</TABLE>
The 1995 pro forma financial information does not include the revenue
and expenses for Colony Bay East Phase I and II, Kensington Grove or the
Residence at Washington for the period January 1 through September 30, 1995. The
revenue and expenses of the aforementioned properties were excluded from the pro
forma financial information for the period as they were under construction for
substantially all of the period prior to their acquisition.
9. SUBSEQUENT EVENTS
On October 2, 1996, the Company declared a dividend of $.45 per share
for the quarter ending September 30, 1996. The dividend was paid on November 1,
1996 to shareholders of record on October 15, 1996.
Page 9
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ASSOCIATED ESTATES REALTY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Associated Estates Realty Corporation (the "Company") is a Real Estate
Investment Trust ("REIT") that currently owns, or is a joint venture partner, in
84 multifamily properties containing 15,838 suites located in Ohio, Michigan and
Western Pennsylvania.
The following discussion should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this report.
Historical results and percentage relationships set forth in the Consolidated
Statements of Operations contained in the financial statements, including trends
which might appear, should not be taken as indicative of future operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company has elected to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended, commencing with
its taxable year ending December 31, 1994. REIT's are subject to a number of
organization and operational requirements including a requirement that 95% of
the income that would otherwise be considered as taxable income be distributed
to its shareholders. Providing the Company continues to qualify as a REIT, it
will generally not be subject to a Federal income tax on net income.
The Company expects to meet its short-term liquidity requirements
generally through its net cash provided by operations. The Company believes that
its net cash provided by operations will be sufficient to meet both operating
requirements and the payment of dividends by the Company in accordance with REIT
requirements in both the short and long term.
Financing:
Sixty-four of the Company's 77 wholly owned properties were
unencumbered at September 30, 1996 with annualized earnings before interest,
depreciation and amortization of over $40.5 million and an historical cost basis
of over $364.0 million. The remaining thirteen of the Company's wholly owned
properties, having an historical cost basis of $100.8 million, secured property
specific debt of $67.8 million at September 30, 1996. Unsecured debt, which
totaled $170.8 million at September 30, 1996, consisted of $27.5 in Medium Term
Notes, Senior Notes of $84.8 million and amounts drawn on the revolving credit
facility of $59 million. The Company's proportionate share of the mortgage debt
relating to the seven joint venture properties was $18.0 million at September
30, 1996. The weighted average interest rate on the secured, unsecured and the
Company's proportionate share of the joint venture debt was 7.91% at September
30, 1996.
The Company utilizes borrowings under a $75 million unsecured revolving
credit facility (the "Line of Credit") for the acquisition and development of
multifamily properties and working capital purposes. The Line of Credit includes
certain restrictive covenants which, among others, requires the Company to
maintain a minimum level of net worth, to limit dividends to 90% of
Distributable Cash Flow, to restrict the use of its borrowings and to maintain
certain debt coverage ratios. The Line of Credit provides for a scaled reduction
in the LIBOR or prime rate margins and commitment fees based on the Company's
credit ratings. Based on the Company's present credit ratings, the LIBOR margin
is 150 basis points fixed in increments of 30, 60, 90, 120 or 180 days and Prime
Rate borrowings are at the Prime Rate with no margin. An annual commitment fee
of between 25 basis points and 37.5 basis points on the average daily unused
amount of the facility is paid quarterly in arrears. The Line of Credit expires
in September 1997 and the Company has the option to extend the facility for an
additional one year period. At September 30, 1996, $58.5 million was drawn on
the Line of Credit with a weighted average interest rate of 7.09%.
During the nine-month period ending September 30, 1996, the Company
issued five Medium-Term Notes (the "MTN's") aggregating $27.5 million under its
$75 million MTN program. The principal amounts of these MTN's range from $2.5
million to $10 million and bear interest from 6.60% to 7.93% over terms of
between 5 to 30 years. The holder of a $2.5 million, 30 year Medium Term Note
has the option to require payment on March 15, 2003. The net proceeds to the
Company with respect to these issuances was $27.3 million, of which $17.4
million was applied to amounts outstanding under the Line of Credit and the
remaining $9.9 million was used
Page 10
<PAGE> 11
to acquire a multifamily property.
Registration statements filed in connection with financing:
The Company has filed two shelf registration statements with the
Securities and Exchange Commission for the registration of up to $250 million
and $200 million of debt securities, preferred shares, depositary shares,
common shares and common share warrants in January and December of 1995,
respectively. The Company has $233.8 million of securities under these shelf
filings available for issuance.
Acquisitions, development and dispositions:
The Company intends to continue to finance its multifamily property
acquisitions and development with the most appropriate sources of capital, which
may include undistributed Funds From Operations, the issuance of equity
securities, bank and other institutional borrowings, the issuance of debt
securities, the assumption of mortgage indebtedness or through the exchange of
properties. The Company may also determine to raise additional working capital
through one or more of these sources.
During the nine-month period ended September 30, 1996, the Company
acquired six multifamily properties containing 1,289 suites for an aggregate
purchase price of $59.0 million. The acquisitions are located in Michigan, Ohio
and Western Pennsylvania, and were financed with borrowings under the Line of
Credit, the issuance of MTN's and cash on hand. The Company has also entered
into a contract for the construction of a 324 suite property that will be known
as Bradford at Easton on a 45 acre Columbus, Ohio land parcel owned by the
Company with an estimated completion in the Fall of 1997. The Company is also
developing Barrington, a 288 suite multifamily property in Aurora, Ohio, that
will be constructed in two phases with an estimated completion of the first
phase in the Fall of 1997. The construction of Bradford at Easton and
Barrington Phase I was approximately 43% and 16% complete, respectively, at
September 30, 1996. In addition to the land on which Bradford at Easton and
Barrington are being developed, the Company owns six parcels of undeveloped
land, three of which are in Ohio and three of which are in Michigan, containing
136 acres on which an estimated 1,224 suites could be developed. Development
activities for the construction of 360 suites have commenced with respect to
three of these parcels.
The Company is currently under contract to purchase a 10 acre parcel
of undeveloped land located in Mt. Sterling, Ohio. The parcel of land under
contract is adjacent to a property owned by the Company and, if acquired, will
be held for future development. The Company expects to finance the acquisition
of the land parcel using borrowings under the Line of Credit. There can be no
assurances, however, that the Company will be successful in acquiring the land
parcel under contract.
The Company is exploring opportunities to sell several of the
Government Assisted properties and has received an expression of interest from a
number of different sources. In addition, the Company has determined that a 90
acre parcel of land, which was one of the assets acquired by the Company at the
time of the IPO that is presently zoned for office and industrial use, will not
be rezoned for multifamily use. The Company intends to sell the property and has
received interest from parties interested in developing office and industrial
buildings on the property.
Dividends
On October 2, 1996, the Company declared a dividend of $0.45 per common
share for the quarter ending September 30, 1996 which was paid on November 1,
1996 to shareholders of record on October 15, 1996. On August 22, 1996, the
Company declared a dividend of $0.60938 per depositary share on its Class A
Cumulative Preferred Shares (the "Perpetual Preferred Shares") which was paid on
September 16, 1996 to shareholders of record on September 6, 1996.
Page 11
<PAGE> 12
Cash flow sources and applications:
Net cash provided by operating activities decreased $648,120 to
$22,567,200 from $23,215,315 for the nine-month period ended September 30, 1996
when compared with the nine-month period ended September 30, 1995. This decrease
was primarily the result of the application of cash flow from operating
activities to the reduction of accounts payable and accrued expenses.
Net cash flows used for investing activities of $67,680,800 for the
nine-month period ended September 30, 1996 were primarily used for the
acquisition of multifamily real estate, properties and undeveloped land
parcels.
Net cash flows provided by financing activities of $42,383,00 for the
nine-month period ended September 30, 1996 were primarily comprised of
borrowings on the Line of Credit and the issuance of MTN's. Funds were also
used to pay dividends on the Company's common and Perpetual Preferred Shares.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE-MONTHS ENDED SEPTEMBER 30, 1996 TO THE THREE-MONTHS
ENDED SEPTEMBER 30, 1995.
Overall, total revenue increased $4,612,900 or 23.7% and total expenses
increased $3,993,200 or 26.3% for the quarter ended September 30, 1996 as
compared to the quarter ended September 30, 1995. Net income applicable to
common shares increased $944,000 or 35.4% after the Company's interest in the
net income of the joint venture properties and dividends on the Company's
Perpetual Preferred Shares.
In the following discussion of the comparison of the three-months ended
September 30, 1996 to the three-months ended September 30, 1995, the term "Core
Portfolio Properties" refers to the 64 wholly owned properties that were
acquired by the Company prior to June 30, 1995 and "Acquired Properties" refers
to the 16 multifamily properties acquired between July 1, 1995 and September 30,
1996. During the three-months ended September 30, 1996, the Acquired Properties
generated total revenues of $5,087,200 while incurring property, operating and
maintenance expenses of $2,071,600.
Rental Revenues:
Rental revenues increased $4,447,500 or 24.9% for the quarter. Rental
revenues from the Acquired Properties increased $3,997,600 for the same period.
Increases in occupancy and suite rents at the Core Portfolio market rate and
Government Assisted properties resulted in a $449,600 or 2.7% increase in rental
revenue from these properties.
The following table summarizes the comparative rents per suite and
economic occupancies(1) by property type:
<TABLE>
<CAPTION>
Average Net Collected Average Economic
Rent Per Suite(2) Occupancy
-------------------------------------- ----------------------
For the three-months For the three-months
ended September 30, Percent ended September 30,
1996 1995 Increase 1996 1995
--------- --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
Core Portfolio Properties:
Market rate $ 565 $ 540 4.6% 95.2% 94.6%
Market rate - joint venture
properties 478 478 0.0% 90.3% 92.9%
Government Assisted 643 618 4.0% 99.9% 99.3%
Weighted average - Core
Portfolio Properties 569 547 4.0% 95.6% 95.3%
<FN>
- --------
1 Economic occupancy is defined as the actual rent revenue divided by
the total rent expected to be earned based on the market rental rate of all
occupied suites.
2 Net collected rent revenue per suite is defined as the rent revenue
recognized on occupied suites at the actual rents in accordance with the
respective leases divided by the total number of suites available to be leased.
</TABLE>
Page 12
<PAGE> 13
Table I on page 17 summarizes the rental rates, occupancies and certain
other information for each of the Acquired Properties and Core Portfolio
Properties.
Other Revenues:
Painting service revenue and painting service revenue - affiliates
increased $197,200 or 70.7% for the quarter and reflects an increase in revenue
generated from suite painting and major renovation projects when compared with
the three-months ended September 30, 1995. The increase in painting service
revenue and painting service revenue - affiliates was partially offset by an
increase in painting service expenses as discussed elsewhere herein.
Property operating and maintenance expenses:
Property operating and maintenance expenses increased $2,114,000 or
27.9% for the quarter. Operating and maintenance expenses at the Acquired
Properties increased $1,841,400 for the quarter due primarily to the operating
and maintenance expenses incurred at the 16 properties that were acquired
between July 1, 1995 and September 30, 1996. Property operating and maintenance
expenses at the Core Portfolio Properties increased $272,600 or 3.7% when
compared with the prior three-month period primarily due to increases in
payroll, advertising and real estate taxes. Payroll expense at the Core
Portfolio Properties increased $106,400 or 6% due to an increase in staff at the
properties acquired during 1994. Real estate taxes for the Core Portfolio
Properties increased $148,800 or 9.9% due primarily to the increase in the real
estate tax valuations for certain of these properties. Total expenditures for
building renovations and suite and common area refurbishment (including suite
painting) in the Core Portfolio Properties averaged $175 per suite for the
three-months ended September 30, 1996 as compared to $163 per suite for the
three-months ended September 30, 1995.
Other expenses:
Depreciation and amortization increased $754,100 or 16.6% for the
quarter primarily due to the increased depreciation and amortization expense
recognized on the Acquired Properties of $919,800.
Painting services expenses increased $158,800 or 67.1% for the quarter.
These increases were primarily the result of an increase in payroll related
expenses attributable to the increase sales of the painting company.
Interest expense increased $1,256,500 or 44.6% for the quarter
primarily due to the interest incurred with respect to the borrowings under the
Line of Credit and the MTN's which were used for the acquisition of properties.
COMPARISON OF THE NINE-MONTHS ENDED SEPTEMBER 30, 1996 TO THE NINE-MONTHS ENDED
SEPTEMBER 30, 1995.
Overall, total revenue increased $14,640,100 or 26.6% and total
expenses increased $12,519,600 or 29.4% for the nine-month period. Net income
applicable to common shares decreased $305,900 or 2.8% after the Company's
interest in the net income of the joint venture properties and dividends on the
Company's Perpetual Preferred Shares. During the nine-months ended September 30,
1996, the Acquired Properties generated total revenues of $17,034,900 while
incurring property, operating and maintenance expenses of $6,861,500.
In the following discussion of the comparison of the nine-months ended
September 30, 1996 to the nine-months ended September 30, 1995, the term "Core
Portfolio Properties" refers to the 59 wholly owned properties that were
acquired by the Company prior to December 31, 1994 and "Acquired Properties"
refers to the 21 multifamily properties acquired between January 1, 1995 and
September 30, 1996.
Page 13
<PAGE> 14
Rental Revenues:
Rental revenues increased $14,722,600 or 29.5% for the nine-month
period. Rental revenues from the Acquired Properties increased $12,971,600 for
the same period. Increases in occupancy and suite rents at the Core Portfolio
Conventional and Government-Assisted Properties resulted in a $1,751,000 or 3.8%
increase in rental revenue.
Other Revenues:
Property management fees and property management fees - affiliates
decreased $173,200 or 5.7% for the nine-month period. This decrease was due
primarily to a (i) decline in supplemental management fees earned on two of the
Government Assisted properties managed by the Company and (ii) a reduction in
rental revenue at the managed properties as management fees are earned based on
a percentage of the rents collected. The supplemental management fees are based
on the cash flow available for distribution of the two managed properties which
declined due to an increase in repair and maintenance expenses at the two
managed properties.
Painting service revenue and painting service revenue - affiliates
increased $539,900 or 71.4% for the nine-month period and reflects the increase
in revenue generated from suite painting and major renovation projects when
compared with the nine-months ended September 30, 1995. The increase in painting
service revenue and painting service revenue - affiliates was partially offset
by an increase in painting service expenses as discussed elsewhere herein.
Other income for the nine-months ended September 30, 1996 decreased
$449,200 or 36.1% when compared with the nine-months ended September 30, 1995.
The decrease is due primarily to a decrease in supervisory management fees
received from one of the managed properties.
Property operating and maintenance expenses:
Property operating and maintenance expenses increased $6,208,100 or
29.7% for the nine-months ended September 30, 1996. Operating and maintenance
expenses at the Acquired Properties increased $5,495,500 for the nine-month
period due primarily to the operating and maintenance expenses incurred at the
six properties acquired during 1996 and the recognition of a full nine-month
period's operating expenses at the 15 properties acquired during 1995. Property
operating and maintenance expenses at the Core Portfolio Properties increased
$712,700 when compared with the nine-months ended September 30, 1995 primarily
due to increases in real estate taxes, personnel and advertising expenses. Total
expenditures for building renovations and suite and common area refurbishment in
the Core Portfolio Properties, including suite painting, averaged $370 per suite
for the nine-months ended September 30, 1996 as compared to $385 per suite for
the nine-months ended September 30, 1995.
Other expenses:
Depreciation and amortization increased $2,126,100 or 23.5% for the
nine-months ended September 30, 1996 as compared to the nine-months ended
September 30, 1995 primarily due to the increased depreciation and amortization
expense recognized on the Acquired Properties of $2,505,900.
Painting service expenses increased $446,400 or 65.5% for the
nine-month period. These increases were primarily the result of additional
payroll related expenses attributable to an increase in the sales activity of
the painting company.
General and administrative expenses for the nine-months ended September
30, 1996 increased $227,400 or 6.0% when compared with the nine-months ended
September 30, 1995. This increase is primarily attributable to payroll and
related expenses.
Interest expense increased $3,511,600 or 42.9% for the nine-month
period primarily due to the interest incurred with respect to the borrowings
under the Line of Credit and the MTN's which were used for the acquisition of
properties.
Page 14
<PAGE> 15
Equity in net income (loss) of the joint ventures:
The following table presents the historical statements of operations of
the Company's beneficial interest in the operations of the joint ventures for
the three- and nine-months ended September 30, 1996 and 1995.
<TABLE>
<CAPTION>
For the three-months ended For the nine-months ended
September 30, September 30,
-------------------------------- --------------------------------
1996 1995 1996 1995
--------------- --------------- ---------------- --------------
Beneficial interests in
joint venture operations
<S> <C> <C> <C> <C>
Rental revenue $ 1,643,740 $ 1,644,429 $ 4,949,030 $ 4,915,986
Cost of operations 994,452 1,015,309 3,014,758 2,989,776
-------------- --------------- ---------------- --------------
649,288 629,120 1,934,272 1,926,210
Interest income 5,183 7,451 14,412 19,591
Interest expense (443,995) (449,728) (1,338,367) (1,352,601)
Depreciation (121,173) (120,181) (363,067) (360,160)
Amortization (12,408) (12,407) (37,221) (37,221)
-------------- --------------- ---------------- --------------
Net income $ 76,895 $ 54,255 $ 210,029 $ 195,819
============== =============== ================ ==============
</TABLE>
Net income applicable to common shares:
Net income applicable to common shares is reduced by dividends on the
Perpetual Preferred Shares, of $1,371,000 and $761,625 for the three months
ended September 30, 1996 and 1995, respectively and $4,113,315 and $761,625 for
the nine-months ended September 30, 1996 and 1995, respectively.
OUTLOOK
The following two paragraphs contain forward-looking statements and are
subject to certain risks, trends and uncertainties that could cause actual
results to vary from those projected. Readers are cautioned not to place undue
reliance on forward-looking statements, which are based only on current
judgments and current knowledge. These forward-looking statements are intended
to be covered by the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Investors are cautioned that the Company's forward-looking
statements involve risks and uncertainty, including without limitation risks of
a lessening of demand for the apartments owned by the Company, changes in
government regulations affecting the Government Assisted properties, and
expenditures that cannot be anticipated such as utility rate and usage
increases, unanticipated repairs, additional staffing, insurance increases and
real estate tax valuation reassessments.
Approximately 56% of the Company's multifamily properties are located
in the greater Cleveland/Akron, Ohio area which is the fourteenth largest
consumer market in the United States containing over four million people within
a fifty mile radius of Akron. In Central Ohio, Columbus is the only city in the
northeast quadrant of the country that has experienced continuous population
growth since 1970, according to Census Bureau data. Columbus, Ohio was selected
by the E & Y Kenneth Leventhal Real Estate Group as one of the 12 best
investment markets in the country because of its well-diversified economic base,
strong rental growth and lower vacancy rates. The Company's Michigan portfolio
is located in eight separate markets having a combined projected population
growth of approximately 4.2%, or 153,000 people, with a projected 8.5% increase
in job growth or an additional 17,000 jobs.
With an average economic occupancy for the Core Portfolio over 95%, and
strong market fundamentals, it would appear that opportunities exist for
continued rental growth at the Company's market-rate properties. The Company
expects that building and grounds repair and maintenance expenditures for the
Core Portfolio properties will increase when compared to the prior year
as the Company continues to maintain its properties to maximize their earnings
potential. Real estate tax increases should begin to decline as the effect of
the reassessed values diminishes over time. Utility expenditures will vary over
prior periods as the effect of weather related usage variances is factored into
the level of utility expense.
Page 15
<PAGE> 16
INFLATION
Substantially all of the residential leases at the properties allow, at
the time of renewal, for adjustments in the rent payable thereunder, and thus
may enable the Company to seek increases in rents. The substantial majority of
these leases are for one year or less and the remaining leases are for terms up
to two years. The short-term nature of these leases generally serves to reduce
the risk to the Company of the adverse effect of inflation.
CONTINGENCIES
There are no recorded amounts resulting from environmental liabilities
as there are no known contingencies with respect thereto. Future claims for
environmental liabilities are not measurable given the uncertainties surrounding
whether there exists a basis for any such claims to be asserted and, if so,
whether any claims will, in fact, be asserted. Furthermore, no condition is
known to exist that would give rise to a liability for site restoration, post
closure and monitoring commitments, or other costs that may be incurred with
respect to the sale or disposal of a property. Phase I environmental audits have
been completed on all of the Company's wholly owned and joint venture
properties. The Company has obtained environmental insurance covering (i)
pre-existing contamination, (ii) on-going third party contamination, (iii) third
party bodily injury and (iv) remediation. The policy is for a five year term and
carries a limit of liability of $2 million per environmental contamination
discovery (with a $50,000 deductible) and has a $10 million policy term
aggregate. Management has no plans to abandon any of the properties and is
unaware of any other material loss contingencies.
Page 16
<PAGE> 17
The following tables present information concerning the Multifamily
Properties owned by Associated Estates Realty Corporation.
<TABLE>
<CAPTION>
For the three months ending
------------------------------
September 30, 1996
------------------------------
Year Average Average
Type of Total Built or Unit Size Economic Physical
The Multifamily Properties Location Construction Suites Rehab. Sq. Ft. Occupancy Occupancy
- ------------------------------- -------------- -------------------- ------ -------- --------- --------- ----------
MARKET RATE
ACQUIRED PROPERTIES
MARKET RATE
CENTRAL OHIO PROPERTIES
<S> <C> <C> <C> <C> <C> <C>
Kensington Grove Westerville Garden/Townhm/Ranch 76 1995 1,109 96.2% 98.7%
Perimeter Lakes Dublin Garden/Townhomes 189 1992 999 N/A 98.9
The Residence at Washington Wash. Ct. House Ranch 72 1995 862 99.2 88.9
----- ------- ----- ------
337 989 97.4% 96.7%
WESTERN PENNSYLVANIA
Chestnut Ridge Pittsburgh Garden 468 1986 769 93.2% 97.4
MICHIGAN PROPERTIES
Aspen Lakes Grand Rapids Garden 144 1981 789 N/A 97.9%
Summer Ridge Apartments Kalamazoo Garden 248 1989-91 960 93.8 96.4
Spring Brook Apartments Holland Garden/Townhomes 168 1986 818 96.4 97.1
The Oaks and Woods at Hampton Rochester Hills Garden/Townhomes 544 1986-88 1,050 96.4 97.1
The Landings at the Preserve Battle Creek Garden 190 1990-91 952 95.5 97.4
------- ------ ----- ----
1,294 966 95.7% 96.7%
NORTHERN OHIO PROPERTIES
Cloisters Toledo Townhomes 188 1990 1,037 93.7% 97.9%
Kensington Village Toledo Garden/Townhomes 190 1985-90 920 95.9 98.4
Treetops Toledo Townhomes 128 1988-89 1,350 97.0 96.1
Vantage Villa Toledo Garden 150 1974 935 95.0 94.7
------- ------- ----- ----
656 1,041 95.4 97.0
------- ------ ----- ----
Acquired Property Subtotal 2,755 960 95.2% 96.9%
CORE PORTFOLIO PROPERTIES
MICHIGAN PROPERTIES
Arbor Landings Apartments Ann Arbor Garden 168 1990 1,116 97.7% 97.7%
Central Park Place Grand Rapids
Country Place Apartments Mt. Pleasant Garden 144 1987 859 100.0 100.0
Georgetown Park Apartments Fenton Garden 36 1987-95 1,005 98.3 97.8
---- ----- ------ ------
888 984 97.4% 98.2
CENTRAL OHIO PROPERTIES
Arrowhead Station Columbus Townhomes 102 1987 1,344 98.9% 99.0%
Bedford Commons Columbus Townhomes 112 1987 1,157 99.4 98.2
Bentley Station Columbus Garden 96 1993 891 97.1 94.8
Bolton Estates Columbus Garden 196 1992 687 89.7 91.8
Colony Bay East Columbus Garden 156 1994 903 96.6 96.8
Heathermoor Worthington Garden/Townhomes 280 1989 829 98.3 98.6
Lake Forest Columbus Garden 192 1994 788 90.2 92.7
Muirwood Village at Bennell Columbus Ranch 140 1988 807 96.3 96.4
Muirwood Village at Gemstar Columbus Ranch 24 1988 769 96.3 91.7
Muirwood Village at London London Ranch 112 1989 769 97.2 94.6
Muirwood Village at Mt. Sterling Mt. Sterling Ranch 48 1990 769 96.4 97.9
Muirwood Village at Zanesville Zanesville Ranch 196 1991 769 99.7 95.4
Pendleton Lakes Columbus Garden 160 1990 903 98.5 97.5
Residence at Christopher Wren Gahanna Garden/Townhomes 264 1993 1,062 98.8 98.5
Residence at Turnberry Pickerington Garden/Townhomes 216 1991 1,182 93.5 98.1
Sheffield at Sylvan Circleville Ranch 136 1989 791 97.1 94.1
Sterling Park Grove City Garden 128 1994 763 92.2 94.5
The Residence at Newark Newark Ranch 112 1993 868 99.5 97.3
Wyndemere Franklin Ranch 128 1991 768 99.3 100.0
----- ----- ---- -----
2,798 892 96.5% 96.4
NORTHERN OHIO PROPERTIES
Bay Club Willowick Garden 96 1990 925 96.6% 94.8%
Colonade Elyria Elyria Garden 72 1964 512 95.1 98.6
Colonade West Cleveland Garden 216 1964 502 94.6 91.2
Cultural Gardens Euclid Mid Rise 186 1966 688 95.1 96.2
Edgewater Landing Cleveland High Rise 241 1988 r 585 95.3 96.3
Gates Mills III Mayfield Hts. High Rise 320 1978 874 92.0 93.8
Holly Park Kent Garden 192 1990 875 92.4 100.0
Huntington Hills Stow Townhomes 85 1982 976 95.6 97.6
Mallard's Crossing Medina Garden 192 1990 998 97.1 93.8
<CAPTION>
For the three months ending
---------------------------------------------------------
September 30, 1996 September 30, 1995
------------------- ------------------------------------
Average Rent Average Average Rent
Per Economic Physical Per
The Multifamily Properties Suite Sq. Ft. Occupancy Occupancy Suite Sq. Ft.
- ------------------------------- ----- ------- ----------- ---------- -------------
MARKET RATE
ACQUIRED PROPERTIES
MARKET RATE
CENTRAL OHIO PROPERTIES
<S> <C> <C> <C> <C> <C> <C>
Kensington Grove $ 761 $ 0.69 N/A 97.4% $ 765 $ 0.69
Perimeter Lakes N/A N/A N/A N/A N/A N/A
The Residence at Washington 519 0.60 N/A N/A N/A N/A
----- ------ ----- ---- ----- ----
$ 643 $ 0.65 N/A N/A N/A N/A
WESTERN PENNSYLVANIA
Chestnut Ridge $ 691 $ 0.90 N/A N/A N/A N/A
MICHIGAN PROPERTIES
Aspen Lakes N/A N/A N/A N/A N/A N/A
Summer Ridge Apartments 693 0.72 N/A N/A N/A N/A
Spring Brook Apartments 771 0.73 N/A N/A N/A N/A
The Oaks and Woods at Hampton 771 0.73 N/A 93.8 741 0.71
The Landings at the Preserve 666 0.70 N/A 92.1 728 0.76
----- ------ --- ---- ---- ----
$ 704 $ 0.72 N/A N/A N/A N/A
NORTHERN OHIO PROPERTIES
Cloisters $ 514 $ 0.50 N/A 97.3% $ 408 0.38
Kensington Village 438 0.48 N/A 98.9 398 0.43
Treetops 715 0.53 N/A 98.4 626 0.46
Vantage Villa 573 0.61 N/A N/A N/A N/A
---- ---- --- ---- ----- ------
545 0.52 N/A N/A N/A N/A
---- ---- --- ---- ----- ------
Acquired Property Subtotal $ 655 $ 0.68 N/A N/A N/A N/A
CORE PORTFOLIO PROPERTIES
MICHIGAN PROPERTIES
Arbor Landings Apartments $ 821 $ 0.74 97.4% 96.4% $ 805 $ 0.72
Central Park Place
Country Place Apartments 504 0.59 99.5 98.6 482 0.56
Georgetown Park Apartments 709 0.71 98.6 96.5 630 0.63
------ ----- ------ ----- ----- ------
$ 671 $ 0.70 98.7% 98.4% $ 631 $ 0.66
CENTRAL OHIO PROPERTIES
Arrowhead Station $ 660 $ 0.49 89.1% 95.1% $ 631 $ 0.47
Bedford Commons 718 0.62 98.8 98.2 704 0.61
Bentley Station 507 0.57 97.1 92.7 496 0.56
Bolton Estates 453 0.66 90.9 91.3 454 0.66
Colony Bay East 493 0.55 93.0 85.9 467 0.52
Heathermoor 450 0.54 92.6 98.6 517 0.62
Lake Forest 538 0.68 82.9 91.7 523 0.66
Muirwood Village at Bennell 484 0.60 96.0 95.0 469 0.58
Muirwood Village at Gemstar 478 0.62 91.9 91.7 460 0.60
Muirwood Village at London 491 0.64 100.0 94.6 478 0.62
Muirwood Village at Mt. Sterling 490 0.64 99.9 95.8 470 0.61
Muirwood Village at Zanesville 518 0.67 96.6 95.8 485 0.69
Pendleton Lakes 502 0.56 91.4 91.3 486 0.54
Residence at Christopher Wren 709 0.67 97.5 97.3 700 0.66
Residence at Turnberry 722 0.61 94.3 96.3 702 0.59
Sheffield at Sylvan 502 0.63 97.0 94.9 503 0.64
Sterling Park 537 0.70 92.3 92.2 523 0.69
The Residence at Newark 540 0.62 98.9 99.1 524 0.60
Wyndemere 523 0.68 92.3 94.3 503 0.65
------ ------ ----- ----- ----- ------
$ 550 $ 0.62 94.2% 94.6% $ 521 $ 0.58
NORTHERN OHIO PROPERTIES
Bay Club $ 618 $ 0.67 96.3% 96.9% $ 596 $ 0.64
Colonade Elyria 364 0.71 97.1 98.6 350 0.68
Colonade West 397 0.79 95.9 96.8 381 0.76
Cultural Gardens 492 0.72 98.1 99.5 479 0.70
Edgewater Landing 409 0.70 96.0 94.6 411 0.70
Gates Mills III 664 0.76 92.0 94.1 658 0.75
Holly Park 686 0.78 79.0 73.4 719 0.82
Huntington Hills 641 0.66 98.6 97.6 624 0.64
Mallard's Crossing 674 0.68 95.8 95.8 644 0.65
</TABLE>
Page 17
<PAGE> 18
<TABLE>
<CAPTION>
For the three months ending
---------------------------
September 30, 1996
----------------------------
Year Average Average
Type of Total Built or Unit Size Economic Physical
The Multifamily Properties Location Construction Suites Rehab. Sq. Ft. Occupancy Occupancy
- ------------------------------- ------------- --------------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Memphis Manor Cleveland Garden 120 1966 554 94.3 91.7
Park Place Parma Hts. Mid Rise 164 1966 760 93.2 95.7
Pinecrest Broadview Hts. Garden 96 1987 r 598 94.6 77.1
Portage Towers Cuyahoga Falls High Rise 376 1973 869 94.2 91.2
Somerset West (a) North Royalton Garden/Townhomes 197 1982 1,038 94.0 97.5
The Triangle (b) Cleveland High Rise 273 1989 616 99.8 100.0
Timbers I Broadview Hts. Garden 48 1987 920 98.3 100.0
Timbers II Broadview Hts. Garden 48 1989 940 92.5 97.9
Villa Moderne North Olmsted Garden 135 1963 504 94.9 91.1
Washington Manor Elyria Garden 48 1963 584 96.6 100.0
West Park Plaza Cleveland Garden 118 1964 520 91.8 90.7
Westchester Townhouses Westlake Townhomes 136 1989 1,000 90.7 93.4
Westlake Townhomes Westlake Townhomes 7 1985 1,000 94.2 100.0
Williamsburg at Greenwood Village Sagamore Hill Townhomes 260 1990 938 96.0 97.3
Winchester Hills I (c) Willoughby Hills High Rise 362 1972 822 88.6 93.9
Winchester Hills II Willoughby Hills High Rise 362 1979 822 87.8 90.6
----- ----- ----- -----
4,350 782 93.8 94.3
----- ----- ----- -----
Core Market Rate Properties 8,036 840 95.2% 95.5%
GOVERNMENT ASST.-ELDERLY
Ellet Development Akron High Rise 100 1978 589 99.7% 100.0%
Hillwood I Akron High Rise 100 1976 570 99.4 100.0
Puritas Place (d) Cleveland High Rise 100 1981 518 99.2 99.0
Riverview Massillon High Rise 98 1979 553 98.8 100.0
State Road Apartments Cuyahoga Falls Garden 72 1977 r 750 100.0 100.0
Statesman II Shaker Heights Garden 47 1987 r 796 100.0 100.0
Sutliff Apartments II Cuyahoga Falls High Rise 185 1979 577 100.0 100.0
Tallmadge Acres Tallmadge Mid Rise 125 1981 641 99.3 100.0
Twinsburg Apartments Twinsburg Garden 100 1979 554 99.6 100.0
Village Towers Jackson Twp. High Rise 100 1979 557 100.0 100.0
West High Apartments Akron Mid Rise 68 1981 r 702 99.9 100.0
----- ---- ------ ------
1,095 602 99.7% 99.9%
GOVERNMENT ASST.-FAMILY
Jennings Commons Cleveland Garden 50 1981 823 100.0% 100.0%
Rainbow Terrace Cleveland Garden 484 1982 r 768 100.0 97.5
Shaker Park Gardens II Warrensville Garden 151 1964 753 100.0 99.3
----- ---- ------ ------
685 769 100.0 98.1
----- ---- ------ ------
Core Portfolio Government Asst. Propeties 1,780 666 99.9% 99.2%
CONGREGATE CARE
Gates Mills Club Mayfield Heights High Rise 120 1980 721 96.1% 100.0%
The Oaks Westlake Garden 50 1985 672 93.9 98.0
----- ---- ------ ------
170 707 95.3 99.4
----- ---- ------ ------
9,986 806 96.1% 96.2%
JOINT VENTURE PROPERTIES
NORTHEAST OHIO
MARKET RATE
Americana Euclid High Rise 738 1968 803 86.1% 84.7%
College Towers Kent Mid Rise 380 1969 662 88.8 93.7
Euclid House Euclid Mid Rise 126 1969 654 95.9 96.8
Gates Mills Towers Mayfield Hts. High Rise 760 1969 856 93.3 94.6
Highland House Painesville Garden 36 1964 539 96.4 97.2
Watergate Euclid High Rise 949 1971 831 90.0 89.1
----- ---- ------ ------
2,989 789 90.3% 90.4%
GOVERNMENT ASST.-FAMILY
Lakeshore Village Cleveland Garden 108 1982 786 100.0% 100.0%
------ ---- ------ -----
3,097 789 90.8 90.8
------ ---- ------ -----
15,838 763 94.5% 94.2
====== ==== ====== =====
<CAPTION>
For the three months ending
------------------------------------------------------
September 30, 1996 September 30, 1995
------------------ -----------------------------------
Average Rent Average Average Rent
Per Economic Physical Per
The Multifamily Properties Suite Sq. Ft. Occupancy Occupancy Suite Sq. Ft.
- ------------------------------- ----- ------- --------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Memphis Manor 440 0.79 94.5 95.0 424 0.77
Park Place 521 0.69 96.5 98.8 508 0.67
Pinecrest 456 0.76 92.4 97.9 443 0.74
Portage Towers 559 0.64 96.3 93.1 537 0.62
Somerset West (a) 699 0.67 93.0 94.4 678 0.65
The Triangle (b) 881 1.43 94.6 98.2 848 1.38
Timbers I 653 0.71 98.0 93.8 639 0.69
Timbers II 721 0.77 99.5 89.6 682 0.73
Villa Moderne 428 0.85 95.2 93.3 410 0.81
Washington Manor 387 0.66 96.3 95.8 373 0.64
West Park Plaza 421 0.81 97.7 97.5 405 0.78
Westchester Townhouses 767 0.77 94.9 96.3 736 0.74
Westlake Townhomes 772 0.77 99.8 100.0 735 0.74
Williamsburg at Greenwood Village 809 0.86 96.7 93.8 777 0.83
Winchester Hills I (c) 564 0.69 91.3 93.1 552 0.67
Winchester Hills II 601 0.73 92.3 93.9 578 0.70
----- ----- ------ ------ --- ------
596 0.76 94.0 94.3 580 0.74
----- ------ ------ ------ ----- ------
Core Market Rate Properties $ 588 $ 0.70 94.6% 94.7% $ 570 $ 0.68
GOVERNMENT ASST.-ELDERLY
Ellet Development $ 586 $ .99 98.8% 100.0% $ 587 $1.00
Hillwood I 593 1.04 100.0 100.0 598 1.05
Puritas Place (d) 782 1.51 99.5 100.0 782 1.51
Riverview 594 1.07 99.6 100.0 593 1.07
State Road Apartments 593 0.79 100.0 100.0 596 0.79
Statesman II 604 0.76 100.0 100.0 650 0.82
Sutliff Apartments II 585 1.01 99.5 100.0 589 1.02
Tallmadge Acres 653 1.02 98.9 100.0 658 1.03
Twinsburg Apartments 600 1.08 100.0 100.0 602 1.09
Village Towers 568 1.02 100.0 100.0 580 1.04
West High Apartments 794 1.13 100.0 100.0 789 1.12
----- ------ ------- ------- ----- ------
$ 626 $ 1.04 99.7% 100.0% $ 631 $ 1.05
GOVERNMENT ASST.-FAMILY
Jennings Commons $ 663 $ 0.81 100.0% 100.0% $ 668 $ 0.81
Rainbow Terrace 708 0.92 98.7 97.3 620 0.81
Shaker Park Gardens II 532 0.71 98.5 100.0 533 0.71
----- ------ ------- ----- ----- ------
666 0.87 98.9 98.1 604 0.79
---- ------ ------- ------ ----- ------
Core Portfolio Government Asst. $ 642 $ 0.96 99.4% 99.3% $ 621 $ 0.93
CONGREGATE CARE
Gates Mills Club $ 798 $ 1.11 97.1% 100.0% $ 742 $ 1.03
The Oaks 987 1.47 93.5 92.0 949 1.41
---- ------ ------ ------ ----- -------
854 1.21 95.8 97.6 803 1.14
---- ------ ------ ------ ----- -------
$ 602 $ 0.75 95.5% 95.6% $ 579 $ 0.72
JOINT VENTURE PROPERTIES
NORTHEAST OHIO
MARKET RATE
Americana $ 493 $ 0.61 93.0% 94.2% $ 475 $ 0.59
College Towers 402 0.61 89.3 89.7 385 0.58
Euclid House 431 0.66 95.4 92.1 424 0.65
Gates Mills Towers 666 0.78 94.9 96.4 647 0.76
Highland House 398 0.74 96.9 94.4 375 0.70
Watergate 544 0.65 92.1 91.8 535 0.64
----- ------ ------ ------ ----- ------
$ 529 $ 0.67 92.9% 93.3% $ 514 $ 0.65
GOVERNMENT ASST.-FAMILY
Lakeshore Village $ 669 $ 0.85 98.8% 100.0% $ 671 $ 0.85
----- ------ ---- ------ ----- ------
536 0.68 93.3 93.6 522 0.66
----- ------ ---- ------ ----- ------
$ 580 $ 0.70 94.4% 94.4% $ 564 $ 0.68
===== ====== ==== ====== ===== ======
<FN>
- ---------------
(a) Somerset West has 77 Contract Suites and 120 Conventional Property
suites.
(b) The Triangle also contains 63,321 square feet of office/retail
space.
(c) The Company acquired a noteholder interest entitling the Company
to substantially all cash flows from operations. The Company has
certain rights under a security agreement to foreclose on the
property to the extent that the unpaid principal and interest on
the underlying notes exceed seven years equivalent principal and
interest payments. Unpaid principal and interest is expected to
exceed seven years of equivalent principal and interest payments
in 1995.
(d) The property was developed by AEG in 1981 subject to a warranty
deed reversion provision. This provision states that the
assignment of fee simple title of the property to AEG (transferred
to the Company) shall expire in 2037.
r = Rehabilitated
</TABLE>
Page 18
<PAGE> 19
HISTORICAL FUNDS FROM OPERATIONS AND DISTRIBUTABLE CASH FLOW
Industry analysts generally consider Funds From Operations to be an
appropriate measure of the performance of an equity REIT. Funds From Operations
is defined as net income (computed in accordance with generally accepted
accounting principles), excluding gains (or losses) from sales of property,
non-recurring and extraordinary items, plus depreciation on real estate assets
and after adjustments for unconsolidated joint ventures. Adjustments for joint
ventures are calculated to reflect Funds From Operations on the same basis.
Funds From Operations does not represent cash generated from operating
activities in accordance with generally accepted accounting principles and is
not necessarily indicative of cash available to fund cash needs and should not
be considered an alternative to net income as an indicator of the Company's
operating performance or as an alternative to cash flow as a measure of
liquidity. Distributable Cash Flow is defined as Funds From Operations less
capital expenditures funded by operations and loan amortization payments. The
Company believes that in order to facilitate a clear understanding of the
consolidated historical operating results of the Company, Funds From Operations
and Distributable Cash Flow should be presented in conjunction with net income
as presented in the consolidated financial statements and data included
elsewhere in this report.
Funds From Operations and Funds Available for Distribution
("Distributable Cash Flow") for the nine month period ended September 30, 1996
and 1995 are summarized in the following table:
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
(IN THOUSANDS) 1996 1995 1996 1995
-------- -------- --------- --------
<S> <C> <C> <C> <C>
NET INCOME APPLICABLE TO COMMON SHARES $ 3,613 $ 2,669 $ 10,586 $ 10,892
Extraordinary item -- 911 -- 911
Depreciation on real estate assets
Wholly owned properties 3,626 2,961 10,513 8,223
Joint venture properties 121 120 363 360
-------- -------- -------- --------
FUNDS FROM OPERATIONS 7,360 6,661 21,462 20,386
Depreciation - other assets 80 96 226 217
Amortization of deferred financing fees 164 265 490 661
Scheduled mortgage principal amortization (229) (193) (668) (514)
Scheduled mortgage principal amortization-
joint venture properties (50) (45) (145) (132)
Fixed asset additions (97) (166) (276) (558)
Fixed asset additions - joint venture properties -- -- -- (20)
-------- -------- -------- --------
DISTRIBUTABLE CASH FLOW $ 7,228 $ 6,618 $ 21,089 $ 20,040
======== ======== ======== ========
Weighted average shares outstanding 13,872 13,869 13,872 13,869
</TABLE>
Page 19
<PAGE> 20
PART II
OTHER INFORMATION
Except to the extent noted below, the items required in Part II are
inapplicable or, disapplicable, would be answered in the negative and have been
omitted.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
FILED HEREWITH OR
INCORPORATED
HEREIN BY
Number TITLE REFERENCE
- ----------------- ------------------------------------------------ -----------------------
<C> <C> <C>
10 Associated Estates Realty Corporation Directors' Exhibit 10 filed
Deferred Compensation Plan herewith.
27 Financial Data Schedule Exhibit 27 filed
herewith.
</TABLE>
(b) Reports on Form 8-K
A Current Report on Form 8-K dated February 1, 1996 was filed
on September 25, 1996. This report describes the Company's
acquisition of multifamily properties, partnership interests
and undeveloped land. This report includes (i) unaudited
statements of revenue and certain expenses of certain of the
multifamily properties for the period ended June 30, 1996 or
date of acquisition, whichever is earlier, and (ii) audited
statements of revenue and certain expenses for the year ended
December 31, 1995 of the those properties. The report also
includes pro forma financial information (unaudited) of the
Company and the acquired properties as follows: condensed
balance sheet as of June 30, 1996; condensed statement of
operations for the six months ended June 30, 1996 and for the
year ended December 31, 1995; and estimated twelve-month pro
forma statement of taxable net operating income and operating
funds available.
Page 20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ASSOCIATED ESTATES REALTY CORPORATION
November 14, 1996 /s/ Dennis W. Bikun
- ------------------------ -----------------------------------------
(Date) Dennis W. Bikun, Chief Financial Officer
and Treasurer
Page 21
<PAGE> 1
EXHIBIT 10
ASSOCIATED ESTATES REALTY CORPORATION
DIRECTORS' DEFERRED COMPENSATION PLAN
Associated Estates Realty Corporation (the "Company") desires to
establish a Directors' Deferred Compensation Plan (the "Plan") to assist it in
attracting and retaining persons of competence and stature to serve as
Independent Directors by giving those directors the option of deferring receipt
of the fees payable to them by the Company for their services as directors and
creating an opportunity for appreciation of fees deferred based on appreciation
of the Company's Common Shares.
Therefore, the Company hereby adopts the Plan as hereinafter set forth:
1. EFFECTIVE DATE. The Plan is effective as of the date of its
adoption. Elections to defer will be effective for all director's annual and
meeting fees payable with respect to periods commencing with the Company's
fiscal quarter that begins October 1, 1996.
2. PARTICIPATION. Each director of the Company who (a) is duly elected
to the Company's Board of Directors and (b) receives fees for services as a
director (an "Eligible Director"), may elect to defer receipt of fees otherwise
payable to that director, as provided for in the Plan. Each Eligible Director
who elects to defer fees will be a Participant in the Plan.
3. ADMINISTRATION. The Company's Board of Directors appoints Jeffrey I.
Friedman and Dennis W. Bikun, directors or officers, or both, of the Company who
are not eligible to become Participants, to act as the Administrators of the
Plan (the "Administrators"). The Administrators will serve at the pleasure of
the Board of Directors and will administer, construe and interpret the Plan. The
Administrators will not be liable for any act done or determination made in good
faith. The Board of Directors has the power to designate additional or
replacement Administrators at its discretion.
<PAGE> 2
4. DEFERRALS.
----------
(a) DEFERRAL ELECTION. Prior to January 1 of each year, any Eligible
Director may file with the Administrators of the Plan, an election in writing to
participate in the Plan and to defer all or a portion of the fees otherwise
payable to that director for that year or for that year and succeeding years (a
"Deferral Election"). Upon adoption of the Plan, Eligible Directors may elect to
defer fees otherwise payable for the fiscal quarter that begins October 1, 1996
by making a Deferral Election prior to October 1, 1996. Each director who first
becomes eligible to participate after the date of the adoption of this Plan may
make a Deferral Election for the portion of the year in which that director
first became eligible with respect to fees for services to be rendered after the
date of that election. When a Deferral Election is filed, an amount equal to all
or a portion (as designated in the Deferral Election) of the fees otherwise
payable to a Participant for the year (or portion thereof) or for that year and
for succeeding years (as designated in the Deferral Election) will be credited
to a deferral account maintained on behalf of that Participant (a "Deferral
Account"). A Deferral Election must also state a distribution commencement date
and method of distribution (lump sum or four equal annual installments). If a
Deferral Election has been filed to participate in the Plan for succeeding years
and a Participant wishes to discontinue deferral, an election in writing to
terminate participation in the Plan for any year must be filed with the
Administrators prior to January 1 of that year.
(b) ACCOUNTING. The Deferral Accounts will be maintained by the
Company and will list and reflect each Participant's credits and valuations. The
Company will provide each Participant an annual statement of the balance in that
Participant's Deferral Account. The Company will credit to each Participant's
-2-
<PAGE> 3
Deferral Account an amount equivalent to the fees that would have been paid to
the Participant if the Participant had not elected to participate in the Plan.
The credit will be made on the date on which the fee would have been paid absent
a Deferral Election. No funds will be segregated into the Deferral Account of
Participants; the Deferral Accounts represent a general unsecured obligation of
the Company.
(c) VALUATION. Until the first distribution to a Participant,
amounts credited to a Deferral Account of that Participant will be increased or
decreased as measured by the market value of the Company's Common Shares plus
the value of dividends or other distributions on the Company's Common Shares.
Each amount credited to a Deferral Account will be assigned a number of Share
Units (including fractions of a Share) determined by dividing the amount
credited to the Deferral Account, whether in lieu of payment of fees for service
as a director or as a dividend or other distribution attributable to those Share
Units, by the Fair Market Value of the Company's Common Shares (as defined
below) on the date of credit. Fair Market Value of the Company's Common Shares
means: (i) the closing price of the Company's Common Shares on the principal
exchange on which the Company's Common Shares are then trading, if any, on the
date of credit, or, if shares were not traded on the date of credit, then on the
next preceding trading day during which a sale occurred; or (ii) if the Common
Shares are not traded on an exchange but are quoted on NASDAQ or a successor
quotation system, (1) the last sales price (if the Common Shares are then listed
as a National Market Issue under the NASD National Market System) or (2) the
mean between the closing representative bid and asked prices (in all other
cases) for the Common Shares on the date of credit as reported by NASDAQ or a
successor quotation system, or (iii) if the Common Shares are not
-3-
<PAGE> 4
publicly traded on an exchange and not quoted on NASDAQ or a successor
quotation system, the mean between the closing bid and asked prices for
the Common Shares, on the date of credit, as determined in good faith
by the Chief Financial Officer; or (iv) if the Company's Common Shares
are not publicly traded, the fair market value established by the Chief
Financial Officer acting in good faith. Each Share Unit will have the
value of a Common Share of the Company. The number of Share Units will
be adjusted to reflect stock splits, stock dividends or other capital
adjustments effected without receipt of consideration by the Company.
5. DISTRIBUTION. A Participant must elect in writing, at the time each
Deferral Election is made under subparagraph 4(a), the date on which
distribution of the amounts credited to the Participant's Deferral Account to
which that Deferral Election relates will commence and the method of
distribution, as permitted hereunder. Payment may be made in one lump sum or
four equal annual installments based on the number of Share Units attributable
to the applicable Deferral Election determined as of the December 31 immediately
preceding commencement of distribution. The time of and method of distribution
of benefits may vary with each separate Deferral Election, but each Deferral
Election will be irrevocable. The Deferral Accounts do not represent rights to
acquire the Company's Common Shares; payment will only be made in cash.
6. DEATH OR DISABILITY.
(a) In the event a Participant's service is terminated by reason of
death or disability prior to the distribution of any portion of that
Participant's Deferral Account, the Company will, within ninety (90) days
of the date of service termination, commence distribution of amounts
credited to the Deferral Account to the Participant (or to the beneficiary
or beneficiaries in the event of death). Distribution will be made
-4-
<PAGE> 5
in accordance with the method of distribution elected by the
Participant pursuant to paragraph 5 hereof. In the event a
Participant's death or disability occurs after distribution of amounts
credited to the Deferral Account hereunder has begun, the Company will
continue to make distributions to the Participant (or to the
beneficiary or beneficiaries in the event of death) in accordance with
the methods of distribution elected by the Participant pursuant to
paragraph 5 hereof.
(b) Each Participant has the right to designate one or more
beneficiaries to receive distributions in the event of Participant's
death by filing with the Company a Beneficiary Designation Form. The
designated beneficiary or beneficiaries may be changed by a Participant
at any time prior to that Participant's death by the delivery to the
Company of a new Beneficiary Designation Form. If no beneficiary has
been designated, or if no designated beneficiary survives the
Participant, distributions pursuant to this provision will be made to
the Participant's estate.
7. ASSIGNMENT AND ALIENATION OF BENEFITS. The right of each Participant
to any account, benefit or payment hereunder will not, to the extent permitted
by law, be subject in any manner to attachment or other legal process for the
debts of that Participant; and no account, benefit or payment will be subject to
anticipation, alienation, sale, transfer, assignment or encumbrance.
8. AMENDMENT OR TERMINATION. The Board of Directors of the Company may
amend or terminate this Plan at any time and from time to time. Any amendment or
termination of this Plan will not affect the rights of a Participant accrued
prior thereto without that Participant's written consent.
-5-
<PAGE> 6
9. TAXES. The Company is not be responsible for the tax consequences
under federal, state or local law of any election made by any Participant under
the Plan. All payments under the Plan are subject to withholding and reporting
requirements to the extent permitted by applicable law.
10. NO RIGHT TO CONTINUED MEMBERSHIP ON THE BOARD. Nothing in this Plan
confers upon any director any right to continue as a director of the Company or
interferes with the rights of the Company and its shareholders, which are hereby
expressly reserved, to remove any director at any time for any reason
whatsoever, with or without cause.
11. APPLICABLE LAW. This Plan is governed under the laws of the State
of Ohio.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by
its Chairman, President and Chief Executive Officer this _____ day of ____,
1996.
ASSOCIATED ESTATES REALTY CORPORATION
By:
------------------------------------
Jeffrey I. Friedman, Chairman, President
and Chief Executive Officer
-6-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 117,709
<SECURITIES> 5,329,646
<RECEIVABLES> 1,550,162
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,997,517
<PP&E> 505,512,380
<DEPRECIATION> (107,914,818)
<TOTAL-ASSETS> 410,636,550
<CURRENT-LIABILITIES> 20,550,448
<BONDS> 0
<COMMON> 1,387,238
0
56,250,000
<OTHER-SE> 79,571,328
<TOTAL-LIABILITY-AND-EQUITY> 410,636,550
<SALES> 64,717,754
<TOTAL-REVENUES> 69,658,141
<CGS> 27,115,528
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 16,361,168
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,691,848
<INCOME-PRETAX> 14,699,626
<INCOME-TAX> 0
<INCOME-CONTINUING> 14,699,626
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,699,626
<EPS-PRIMARY> .76
<EPS-DILUTED> .76
</TABLE>
