<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
Date of Report: February 1, 1996
---------------------------------
(Date of earliest event reported)
ASSOCIATED ESTATES REALTY CORPORATION
-------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 1-12486 34-1747603
- ----------------------------- ------------------------ ----------------------
(State or other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification Number)
5025 Swetland Court, Richmond Heights, Ohio 44143-1467
------------------------------------------------- ----------------------
(Address of Principal Executive Offices) (Zip Code)
(216) 261-5000
----------------------------------------------------
(Registrant's telephone number, including area code)
<PAGE> 2
ITEM 5: OTHER EVENTS
------------
On March 1, 1996, June 20, 1996 and September 4, 1996, the Company
acquired certain assets, consisting principally of the Multifamily Properties as
further described below from the named sellers (the "Asset Purchases"). The
Asset Purchases were as follows:
<TABLE>
<CAPTION>
Date of
Purchase Seller Name of Multifamily Property Suites
-------- ----------------------------------------- ---------------------------- ------
<S> <C> <C> <C>
03/01/96 The Prudential Insurance Company Chestnut Ridge 468
of America, a New Jersey corporation
06/20/96 Springbrook, Inc., Corporation, a Michigan Spring Brook 168
corporation
09/04/96 Aspen Lakes Limited Partnership, a Aspen Lakes 144
Michigan limited partnership ---
780
===
</TABLE>
The Company also acquired a 12.5 acre land parcel in Streetsboro, Ohio
on August 9, 1996 from Greentree Holding Limited, an Ohio limited partnership.
In addition, a land parcel containing 12 acres suitable for development
adjacent to the Aspen Lakes property was acquired from an affiliate of the
seller of Aspen Lakes. Both the Streetsboro and Aspen Lakes land parcels
(collectively the "Land Acquisitions") are zoned for the construction of
multifamily apartments. The Company has also entered into a contract to
purchase a 24 acre parcel of land adjacent to the Streetsboro land parcel.
There can be no assurance, however, that the Company will be successfull in
consummating this transaction.
With respect to the Asset Purchases and Land Acquisitions (as
applicable), the Company purchased all of the above named sellers' rights, title
and interests in the apartment complex and land together with all rights of way,
easements, licenses, permits, fixtures, furnishings, equipment, the right to
manage, other intangible assets, leases and tenancies (collectively referred to
as the "Acquired Assets"), and all guaranties, warranties and other intangible
rights pertaining to the Acquired Assets.
On February 1, 1996 and April 1, 1996, the Company acquired 100% of the
partnership interests of the following partnerships which owned the apartment
complexes described below:
<TABLE>
<CAPTION>
Seller Name of Multifamily Property Suites
----------------------------- ---------------------------- ------
<S> <C> <C> <C>
02/01/96 The Washington Group, an Ohio The Residence at Washington 72
General Partnership Court House
04/01/96 Kalamazoo Associates Limited Summer Ridge 248
Partnership, a Michigan limited ---
partnership
320
===
</TABLE>
Following the acquisition of the partnership's interest, the
Partnerships were dissolved and title to the real property and all buildings,
fixtures and other improvements, including but not limited to the apartment
complexes (collectively referred to as the "Partnership Property"), was
transferred to the Company.
2
<PAGE> 3
As referred to herein, "Acquired Properties" refers to both the
Acquired Assets and the Partnership Property, none of which individually
constitutes a significant subsidiary.
Neither the Company nor any of its shareholders owned any interests in
the sellers prior to the acquisition of the Acquired Properties by the Company.
The purchase price of the Acquired Properties was approximately $49 million, of
which $3.7 million represented liabilities assumed.
In determining the price paid for the Acquired Properties, the Company
considered the historical and expected cash flow from the Acquired Properties,
the nature of the occupancy trends and terms of the leases in place, current
operating costs and taxes, the physical condition of the Acquired Properties,
the potential to increase their cash flow and other factors. The Company also
considered the capitalization rates at which it believes apartment properties
have recently sold, but determined the prices it was willing to pay for the
Acquired Properties primarily based on the factors discussed above. No
independent appraisals were performed in connection with the acquisitions. The
Company, after investigation of the properties, is not aware of any material
factors, other than those enumerated above, that would cause the financial
information reported to not be indicative of future expected operating results.
Certain other information concerning the Acquired Properties is
summarized below. The cash purchase price of the Acquired Properties has been
financed primarily with cash on hand made available through the Company's
revolving credit facility (the "Line of Credit"). The Acquired Properties have
been operated, since construction, as rental properties. The Company will manage
all of the Acquired Properties.
<TABLE>
<CAPTION>
Number Number
Name of of of Type of Year
Property Location Suites Buildings Construction Constructed
- ------------------------ --------------------------- -------- ---------- ------------------------------------- -----------
<S> <C> <C> <C> <C> <C>
Aspen Lakes Grand Rapids, MI 144 5 Three story, wood siding with 1981
pitched roof apartments
Chestnut Ridge Pittsburgh, PA 468 31 Two story garden style, cedar 1986
siding with pitched roof
apartments
The Residence at Washington Court House, Oh 72 9 Ranch style, all brick pitched 1995
Washington Court House roof apartments
Spring Brook Holland, MI 168 13 Two story garden/townhomes, 1986
aluminum sided apartments
Summer Ridge Kalamazoo, MI 248 9 Two story garden style, cedar 1989-91
siding with pitched roof
apartments
</TABLE>
ITEM 7: FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
Financial Statements
- --------------------
This report includes (i) unaudited statements of revenue and certain
expenses of Aspen Lakes, Chestnut Ridge, Spring Brook and Summer Ridge
(collectively the "Selected Acquisition 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
for each of the Selected Acquisition Properties.
3
<PAGE> 4
Pro Forma Financial Information (Unaudited)
- -------------------------------------------
Unaudited pro forma financial information of the Company and the
Acquired Properties is presented as follows:
o Condensed balance sheet as of June 30, 1996;
o Condensed statement of operations for the six months ended June
30, 1996 and for the year ended December 31, 1995, and;
o Estimated twelve-month pro forma statement of taxable net
operating income and operating funds available.
4
<PAGE> 5
ASSOCIATED ESTATES REALTY CORPORATION
FINANCIAL STATEMENTS
5
<PAGE> 6
ASSOCIATED ESTATES REALTY CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
SELECTED ACQUISITION PROPERTIES
Report of Independent Accountants F-2
Statements of Revenue and Certain Expenses for the
period ended June 30, 1996 (unaudited)
and for the year ended December 31, 1995 F-3
Notes to Statements of Revenue and Certain Expenses F-4
ASSOCIATED ESTATES REALTY CORPORATION
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
Condensed Balance Sheet as of June 30, 1996 F-5
Condensed Statement of Operations for the six months
ended June 30, 1996 F-7
Condensed Statement of Operations for the year ended
December 31, 1995 F-10
Estimated Twelve-Month Pro Forma Statement of Taxable Net
Operating Income and Operating Funds Available F-13
</TABLE>
F-1
<PAGE> 7
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Associated Estates Realty Corporation
We have audited the accompanying statements of revenue and certain expenses of
Aspen Lakes, Chestnut Ridge, Spring Brook and Summer Ridge Apartments for the
year ended December 31, 1995. These historical statements are the responsibility
of management. Our responsibility is to express an opinion on these historical
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the historical statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the historical statements, assessing
the accounting principles used and the significant estimates made by management,
as well as evaluating the overall presentation of the historical statements. We
believe that our audits provide a reasonable basis for our opinion.
The accompanying historical statements were prepared on the basis described in
Note 2, for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission (for inclusion in the Current Report on Form
8-K of Associated Estates Realty Corporation) and are not intended to be a
complete presentation of the revenues and expenses of Aspen Lakes, Chestnut
Ridge, Spring Brook and Summer Ridge Apartments.
In our opinion, the historical statements referred to above present fairly, in
all material respects, the revenue and certain expenses of Aspen Lakes, Chestnut
Ridge, Spring Brook and Summer Ridge Apartments on the basis described in Note 2
for the year ended December 31, 1995, in conformity with generally accepted
accounting principles.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Cleveland, Ohio
September 17, 1996
F-2
<PAGE> 8
ASSOCIATED ESTATES REALTY CORPORATION
SELECTED ACQUISITION PROPERTIES
STATEMENTS OF REVENUE AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1996 OR DATE
OF ACQUISITION, WHICHEVER IS EARLIER
(UNAUDITED)
-----------------------------------------------------
Aspen Chestnut Spring Summer
Lakes Ridge Brook Ridge
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue
Rental income $457,750 $547,984 $449,681 $460,103
Other income 18,309 19,390 3,330 4,455
-------- -------- -------- --------
476,059 567,374 453,011 464,558
Certain expenses
Personnel 21,509 21,055 17,275 28,517
Advertising 5,833 2,259 2,437 2,940
Utilities 24,620 42,603 16,523 12,681
Building and grounds repair and 39,369 59,372 54,878 23,051
maintenance
Real estate taxes and insurance 48,242 87,061 63,197 49,095
Other operating expenses 15,849 31,060 3,125 13,709
-------- -------- -------- --------
155,422 243,410 157,435 129,993
-------- -------- -------- --------
Revenue in excess of certain expenses $320,637 $323,964 $295,576 $334,565
======== ======== ======== ========
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------
Aspen Chestnut Spring Summer
Lakes Ridge Brook Ridge
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue
Rental income $ 880,147 $3,365,426 $ 929,326 $1,768,179
Other income 35,463 91,120 9,912 23,504
---------- ---------- ---------- ----------
915,610 3,456,546 939,238 1,791,683
Certain expenses
Personnel 39,530 147,708 30,304 160,676
Advertising 15,206 13,375 4,146 19,338
Utilities 42,950 232,398 39,831 69,819
Building and grounds repair and 81,178 315,401 129,338 153,198
maintenance
Real estate taxes and insurance 96,485 519,931 58,891 172,973
Other operating expenses 28,637 249,915 4,085 117,622
---------- ---------- ---------- ----------
303,986 1,478,728 266,595 693,626
---------- ---------- ---------- ----------
Revenue in excess of certain expenses $ 611,624 $1,977,818 $ 672,643 $1,098,057
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 9
ASSOCIATED ESTATES REALTY CORPORATION
SELECTED ACQUISITION PROPERTIES
NOTES TO THE STATEMENTS OF REVENUE AND CERTAIN EXPENSES
1. OPERATING PROPERTIES
The properties presented herein, referred to as the "Selected
Acquisition Properties," are summarized as follows:
<TABLE>
<CAPTION>
Property Location Suites Year Built
-------------------------- ----------------------------------- ------ ----------
<S> <C> <C> <C>
Aspen Lakes Grand Rapids, Michigan 144 1981
Chestnut Ridge Pittsburgh, Pennsylvania 468 1986
Spring Brook Holland, Michigan 168 1986
Summer Ridge Kalamazoo, Michigan 248 1989-91
</TABLE>
The statements of revenues and certain expenses for the unaudited
period ended June 30, 1996, includes the operating results of each of the
Selected Acquisition Properties detailed above from January 1, 1996 through the
earlier of the date of acquisition or June 30, 1996 (unaudited) and for the year
ended December 31, 1995. Chestnut Ridge, Summer Ridge, Spring Brook and Aspen
Lakes were acquired by Associated Estates Realty Corporation (the "Company") on
March 1, April 1, June 20, and September 4, 1996, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying statements of revenue and certain expenses have been
prepared on the accrual basis of accounting.
The accompanying financial statements are not representative of the
actual operations for the periods presented, because certain expenses which may
not be comparable to the expenses to be incurred by the Company in the future
operations of the properties have been excluded. Expenses excluded consist of
depreciation on the building and improvements and amortization of organization
costs and other intangible assets, interest expense and other general and
administrative expenses not directly related to the future operations of the
Selected Acquisition Properties.
INCOME RECOGNITION
Rental income attributable to residential leases is recorded when due
from tenants.
REPAIR AND MAINTENANCE
Expenditures for maintenance and repairs are charged to operations as
incurred. Betterments that improve or extend the life of the asset beyond its
original condition are capitalized. Costs incurred in connection with resident
turnover are charged to operations.
UNAUDITED FINANCIAL INFORMATION
The financial data for the period ended June 30, 1996 is unaudited;
however, in the opinion of the Company, the interim data includes adjustments
consisting only of normal recurring adjustments, necessary for a fair statement
of the results for the interim period. The results for the interim periods
presented are not necessarily indicative of the results for the full year.
F-4
<PAGE> 10
ASSOCIATED ESTATES REALTY CORPORATION
PRO FORMA CONDENSED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed balance sheet is presented
as if the acquisitions by the Company of (i) Aspen Lakes, (ii) a 20 acre land
parcel adjacent to Aspen Lakes, and (iii) a 12.5 acre land parcel in
Streetsboro, Ohio, all of which were acquired after June 30, 1996, had been
purchased on June 30, 1996. Such pro forma information is based upon the
historical consolidated balance sheet of the Company as of that date, giving
effect to the transactions described above. This pro forma condensed balance
sheet should be read in conjunction with the pro forma condensed statement of
operations of the Company and the historical financial statements and notes
thereto of the Company included in the Associated Estates Realty Corporation
Form 10-Q for the six months ended June 30, 1996.
This unaudited pro forma condensed balance sheet is not necessarily
indicative of what the actual financial position of the Company would have been
at June 30, 1996 nor does it purport to represent the future financial position
of the Company.
<TABLE>
<CAPTION>
Company Pro Forma Company
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Assets
Real estate, net $ 378,200 $ 6,587(a) $ 384,787
Cash and cash equivalents 1,596 -- 1,596
Receivables and other assets 7,231 66(d) 7,297
Restricted cash 5,498 212(e) 5,710
--------- -------- ---------
$ 392,525 $ 6,865 $ 399,390
========= ======== =========
Liabilities
Secured debt $ 66,625 $ 3,037(b) $ 69,662
Unsecured debt 153,107 3,650(c) 156,757
Other liabilities 20,671 178(d) 20,849
Accumulated losses of equity investees
in excess of investment and
advances 12,284 -- 12,284
--------- -------- ---------
252,687 6,865 259,552
Shareholders' equity
Class A cumulative preferred shares 56,250 -- 56,250
Common shares 1,387 -- 1,387
Paid in capital 102,506 -- 102,506
Accumulated dividends in
excess of net income (20,305) -- (20,305)
--------- -------- ---------
139,838 -- 139,838
--------- -------- ---------
$ 392,525 $ 6,865 $ 399,390
========= ======== =========
</TABLE>
F-5
<PAGE> 11
(a) Represents the purchase price of the properties acquired subsequent to
June 30, 1996, namely: (i) Aspen Lakes, (ii) a 20 acre land parcel
adjacent to Aspen Lakes, and (iii) a 12.5 acre land parcel in
Streetsboro, Ohio.
(b) Represents the assumption of mortgage indebtedness with respect to the
acquisition of Aspen Lakes.
(c) Represents the utilization of the Line of Credit to finance, in part,
the acquisition of the properties acquired subsequent to June 30, 1996.
(d) Represents receivables and other assets purchased and the assumption of
other liabilities in connection with the properties acquired subsequent
to June 30, 1996 in the following amounts:
<TABLE>
<CAPTION>
Receivables Assumption
and Other of Other
Assets Liabilities
------------ ------------
<S> <C> <C>
Aspen Lakes and adjacent land parcel $ 66 $ 166
Streetsboro land parcel -- 12
------------ ------------
$ 66 $ 178
============ ============
</TABLE>
(e) Represents reserve for replacements, resident security deposits and tax
and insurance escrows maintained with respect to the mortgage assumed
in connection with the acquisition of Aspen Lakes.
F-6
<PAGE> 12
ASSOCIATED ESTATES REALTY CORPORATION
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The unaudited pro forma condensed statement of operations for the six
months ended June 30, 1996 is presented as if the following transactions had
occurred on January 1, 1996, (i) the acquisition by the Company of the Selected
Acquisition Properties as reported herein, (ii) the acquisition of The Residence
at Washington Court House, a 72 suite property in Washington Court House, Ohio,
and (iii) the issuance of two notes under the Company's Medium Term Note Program
aggregating $7.5 million with interest ranging from 6.60% to 6.83% (the "MTN
Notes").
This pro forma condensed statement of operations is based upon the
historical results of operations of the Company for the six months ended June
30, 1996 and should be read in conjunction with the proforma condensed balance
sheet of the Company set forth elsewhere herein and the historical financial
statements and notes thereto of the Company included in the Associated Estates
Realty Corporation Form 10-Q for the six months ended June 30, 1996.
The unaudited pro forma condensed statement of operations is not
necessarily indicative of what the actual results of operations of the Company
would have been assuming the transactions had been completed as set forth above,
nor does it purport to represent the results of operations of future periods of
the Company.
F-7
<PAGE> 13
ASSOCIATED ESTATES REALTY CORPORATION
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Pro Forma
Adjustments
-----------
Acquired
Company Properties Company
Historical (a) Pro Forma
----------- ----------- -----------
<S> <C> <C> <C>
Revenues from rental properties $ 42,412 $ 1,959 $ 44,371
Painting services and loan
origination fees 820 -- 820
Management fees and other income 2,341 47 2,388
----------- ----------- -----------
45,573 2,006 47,579
Property operating and maintenance
expenses exclusive of depreciation
and amortization 17,431 692 18,123
Depreciation - real estate assets 6,886 401 7,287
- other 146 -- 146
Amortization of deferred financing fees 302 -- 302
Painting services 732 -- 732
General and administrative expenses 2,878 -- 2,878
Interest expense 7,616 560 8,176
----------- ----------- -----------
35,991 1,653 37,644
----------- ----------- -----------
Income or (loss) before equity in net
income of affiliates 9,582 353 9,935
Equity in net income of affiliates 133 -- 133
----------- ----------- -----------
Income or (loss) $ 9,715 $ 353 $ 10,068
=========== =========== ===========
Income or (loss) applicable to common
shares $ 6,973 $ 353 $ 7,326
=========== =========== ===========
Per share net income applicable to
common shares $ 0.50 $ 0.53
=========== ===========
Weighted average number of shares 13,872 13,872
=========== ===========
</TABLE>
F-8
<PAGE> 14
ASSOCIATED ESTATES REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(a) Reflects the revenues and expenses of the following acquisitions: (i)
Chestnut Ridge, (ii) The Residence at Washington, (iii) Spring Brook,
and (iv) Summer Ridge and the revenues and expenses of Aspen Lakes, a
proposed acquisition property. Such financial information is presented
for the period January 1, 1996 through the date of acquisition or June
30, 1996, whichever is earlier.
Interest expense assumes interest at fair value with respect to
mortgages assumed or at the rate of the Company's revolving credit
facility, as applicable.
F-9
<PAGE> 15
ASSOCIATED ESTATES REALTY CORPORATION
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The unaudited pro forma condensed statement of operations for the year
ended December 31, 1995 is presented as if the following transactions had
occurred on January 1, 1995: (i) the $75 million and $10 million Senior Notes
Offering completed on April 26, and November 10, 1995, respectively, (the
"Notes") and the use of the net proceeds to repay borrowings on the revolving
credit facility, (ii) the Perpetual Preferred Share Offering completed on July
25, 1995 and the use of the net proceeds to acquire multifamily properties and
to repay borrowings on the revolving credit facility, (iii) the acquisition by
the Company of the ten properties acquired during 1995 as previously reported in
the Company's Forms 8-K dated December 28, 1994, June 12, 1995 and September 21,
1995, respectively, (iv) the acquisition by the Company of the Acquired
Properties as reported herein, and (v) issuance of restricted shares. The ten
properties acquired in 1995 and the Acquired Properties are collectively
referred to herein as the "Acquisition Properties."
This pro forma condensed statement of operations is based upon the
historical results of operations of the Company for the year ended December 31,
1995 and should be read in conjunction with the pro forma condensed balance
sheet of the Company as of June 30, 1996 included elsewhere herein and the
historical financial statements and notes thereto of the Company included in the
Associated Estates Realty Corporation Form 10-K for the year ended December 31,
1995.
The unaudited pro forma condensed statement of operations is not
necessarily indicative of what the actual results of operations of the Company
would have been assuming the transactions had been completed as set forth above,
nor does it purport to represent the results of operations of future periods of
the Company.
F-10
<PAGE> 16
ASSOCIATED ESTATES REALTY CORPORATION
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Pro Forma
Adjustments
-----------
Company Acquisition Company
Historical Properties (a) Pro Forma
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Rental $ 70,045 $ 14,533 $ 84,578
Painting services revenue 1,067 -- 1,067
Management fees and other income 5,333 268 5,601
----------- ----------- -----------
76,445 14,801 91,246
Expenses
Property operating and maintenance
expenses exclusive of depreciation
and amortization 28,781 5,444 34,225
Depreciation - real estate assets 11,606 3,037 14,643
- other 286 -- 286
Amortization of deferred financing fees 765 -- 765
Painting services 1,001 -- 1,001
General and administrative 5,517 -- 5,517
Interest expense 11,515 4,831 16,346
----------- ----------- -----------
Total expenses 59,471 13,312 72,783
----------- ----------- -----------
Income from operations 16,974 1,489 18,463
Equity in net income of affiliates 297 -- 297
----------- ----------- -----------
Net income or (loss) before
extraordinary item $ 17,271 $ 1,489 $ 18,760
=========== =========== ===========
Income before extraordinary item
applicable to common shares $ 15,138 $ (1,862)(b) $ 13,276
=========== =========== ===========
Per share data:
Net income before extraordinary item
per share $ 1.09 $ 0.96
=========== ===========
Weighted average number of shares 13,869 13,872(c)
=========== ===========
</TABLE>
F-11
<PAGE> 17
ASSOCIATED ESTATES REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(a) Reflects the revenues and expenses of the following acquisitions: (i)
Arbor Landings, (ii) Arrowhead Station, (iii) Aspen Lakes, (iv)
Chestnut Ridge, (v) Country Place Apartments, (vi) Landings at the
Preserve, (vii) The KTC Portfolio, (viii) Mallard's Crossing, (ix)
Muirwood Village of Circleville, (x) The Oaks at Hampton, (xi) The
Residence at Washington Courthouse, (xii) Spring Brook, (xiii) Summer
Ridge, (xiv) Vantage Villa, and (xv) The Woods at Hampton. The pro
forma adjustment includes the revenues and expenses for each of the
properties. Such financial information is presented for the period
January 1, 1995 through the earlier of the date of acquisition or
December 31, 1995.
On February 21, 1995, July 17, 1995 and July 18, 1995, respectively,
the Company purchased three Multifamily Properties known as Colony Bay
East, a 96 suite property in Columbus, Ohio, Kensington Grove, a 76
suite property in Columbus, Ohio and Colony Bay Phase II, a 60 suite
addition to Colony Bay East. Because these properties were under
construction prior to their acquisition and in the process of being
leased, no revenue or expenses for these properties have been included
in this pro forma statement of operations.
Interest expense assumes interest at fair value with respect to the
mortgages assumed, at the rate of the Company's revolving credit
facility or at the rate of the Senior or Medium Term Notes, as
applicable.
(b) Pro forma income or (loss) before extraordinary item applicable to
common shares includes perpetual preferred share dividends assuming
issuance on January 1, 1995.
(c) Reflects the issuance of 3,000 restricted shares.
F-12
<PAGE> 18
ASSOCIATED ESTATES REALTY CORPORATION
ESTIMATED TWELVE-MONTH PRO FORMA STATEMENT OF
TAXABLE NET OPERATING INCOME AND OPERATING FUNDS AVAILABLE
(UNAUDITED)
The following unaudited statement is a pro forma estimate for a
twelve-month period of taxable income and funds available from operations of the
Company. The unaudited pro forma statement is based on the Company's historical
operating results for the year ended December 31, 1995 adjusted as if the
following transactions had occurred on January 1, 1995 (i) the $75 million and
$10 million Senior Notes Offering completed on April 26, and November 10, 1995,
respectively (the "Notes") and the use of the net proceeds to repay borrowings
on the revolving credit facility, (ii) the Perpetual Preferred Share Offering
completed on July 25, 1995 and the use of the net proceeds to acquire
multifamily properties and to repay borrowings on the revolving credit facility,
(iii) the acquisition by the Company of the ten properties acquired during 1995
as previously reported in the Company's Forms 8-K dated December 28, 1994, June
12, 1995 and September 21, 1995, respectively and (iv) the acquisition by the
Company of the Acquired Properties as reported herein.
This statement should be read in conjunction with (i) the historical
financial statements and notes thereto of the Company and (ii) the pro forma
financial statements of the Company.
ESTIMATE OF TAXABLE NET OPERATING INCOME (IN THOUSANDS):
<TABLE>
<S> <C>
Historical earnings from operations, exclusive of depreciation and
amortization (Note 1) $ 29,928
Acquisition Properties historical earnings from operations, as adjusted,
exclusive of depreciation (Note 2) 4,526
--------
34,454
--------
Estimated tax basis depreciation and amortization (Note 3):
AERC (9,133)
Acquisition Properties (2,259)
--------
Pro Forma taxable operating income before dividends deduction 23,062
Estimated dividends deduction (Note 4) 30,454
--------
$ (7,392)
========
Pro Forma taxable operating income $ --
========
ESTIMATE OF PRO FORMA OPERATING FUNDS AVAILABLE (NOTE 5) (IN THOUSANDS):
Pro Forma taxable operating income before dividends deduction $ 23,062
Add pro forma tax basis depreciation and amortization 11,392
--------
Estimate of pro forma operating funds available $ 34,454
========
<FN>
- ---------
Note 1 - The historical earnings from operations represents the Company's income
before extraordinary items as adjusted for depreciation and
amortization for the year ended December 31, 1995 as reflected in the
historical financial statements.
Note 2 - The historical earnings from operations represents the pro forma
results of the properties acquired since January 1, 1995 as referred to
in the pro forma condensed consolidated statement of operations for the
year ended December 31, 1995 included elsewhere in this report.
Note 3 - The tax basis depreciation of the Company is based upon the original
purchase price allocated to the buildings, equipment and personal
property, depreciated on a straight-line basis over a 40-, 12-, and
10-year life, respectively.
</TABLE>
F-13
<PAGE> 19
Note 4 - Estimated dividends deduction is based on the estimated dividend rate
of $1.80 per share. Shares outstanding, on a pro forma basis are
13,872,381. The dividend deduction also assumes the Perpetual Preferred
Share Offering took place January 1, 1995.
Note 5 - Operating funds available 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.
F-14
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Associated Estates Realty Corporation
Date: September 25, 1996 /s/ Dennis W. Bikun
- --------------------------------- -----------------------------------
Dennis W. Bikun
Chief Financial Officer & Treasurer
Chief Accounting Officer
F-15
<PAGE> 21
Exhibits:
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23.01 Consent of Independent Accountants.
<PAGE> 1
Exhibit 23.01
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-88430) and in the Prospectus constituting part of
the Registration Statement on Form S-3 (No. 33-80169) of Associated Estates
Realty Corporation of our report dated September 17, 1996 relating to the
statements of revenue and certain expenses of Aspen lakes, Chestnut Ridge,
Spring Brook and Summer Ridge Apartments which appear in the Current Report on
Form 8-K of Associated Estates Realty Corporation dated February 1, 1996.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Cleveland, Ohio
September 24, 1996
