<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 March 31, 1997
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) <PAGE>
<TABLE>
<S> <C> <C> <C>
5025 Swetland Court,
Ohio 34-1747603 Richmond Hts., Ohio 44143-1467
(State or other (I.R.S. Employer (Address of principal (Zip Code)
jurisdiction of Identification executive offices)
incorporation or Number
organization)
</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.
15,322,391 shares outstanding as of May 15, 1997.
<PAGE> 2
ASSOCIATED ESTATES REALTY CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
Financial Statements
<S> <C>
ITEM 1
Consolidated Balance Sheets as of March 31, 1997
and December 31, 1996 3
Consolidated Statements of Operations for the
three month period ended March 31, 1997
and 1996 4
Consolidated Statements of Cash Flows for the
three month period ended March 31, 1997
and 1996 5
Notes to Financial Statements 6
ITEM 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
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> 3
ASSOCIATED ESTATES REALTY CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
(Unaudited)
ASSETS
<S> <C> <C>
Real estate assets:
Land $ 47,066,757 $ 44,241,900
Buildings and improvements 454,532,972 430,920,893
Furniture and fixtures 21,260,283 20,286,700
----------- -----------
522,860,012 495,449,493
Less: accumulated depreciation (116,268,919) (112,102,829)
------------ ------------
406,591,093 383,346,664
Construction in progress (including land) 23,611,010 18,516,982
----------- -----------
Real estate, net 430,202,103 401,863,646
Cash and cash equivalents 564,676 1,286,959
Restricted cash and investments 5,514,933 5,625,003
Accounts and notes receivable:
Rents 1,578,503 1,569,907
Affiliates 5,128,128 1,784,297
Deferred charges and prepaid expenses 6,386,027 5,616,394
------------ ------------
$449,374,370 $417,746,206
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Secured debt $ 68,689,452 $ 69,024,253
Unsecured debt 185,404,607 148,788,707
------------ ------------
Total indebtedness 254,094,059 217,812,960
Accounts payable and accrued expenses 11,035,738 14,361,609
Dividends payable 7,124,907 6,895,071
Resident security deposits 4,356,265 4,154,418
Funds held for non-owned properties 1,467,941 1,571,219
Accrued interest 3,919,477 2,521,644
Accumulated losses and distributions of equity
investees in excess of investment and advances 12,646,045 12,413,087
---------- ----------
Total liabilities 294,644,432 259,730,008
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;
15,322,391 and 15,322,381 shares issued and
outstanding at March 31, 1997 and December
31, 1996, respectively 1,532,239 1,532,238
Paid-in capital 133,057,259 133,073,035
Accumulated dividends in excess of net income (36,109,560) (32,839,075)
----------- -----------
Total shareholders' equity 154,729,938 158,016,198
----------- -----------
$449,374,370 $417,746,206 <PAGE>
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements
<PAGE> 4
ASSOCIATED ESTATES REALTY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED MARCH 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Revenues
Rental $ 23,159,943 $ 20,559,867
Property management fees 100,909 92,080
Property management fees-affiliates 879,896 862,114
Painting service 122,432 73,776
Painting service-affiliates 386,012 207,502
Other 149,149 128,993
---------- ----------
24,798,341 21,924,332
Expenses
Property operating and maintenance 9,190,041 8,514,709
Depreciation and amortization 4,328,837 3,549,955
Painting services 410,471 258,380
General and administrative 1,539,797 1,292,325
Interest expense 4,061,829 3,500,282
---------- ----------
Total expenses 19,530,975 17,115,651
---------- ----------
Income before equity in net loss of
joint ventures 5,267,366 4,808,681
Equity in net loss of joint ventures (41,839) (17,504)
------------ --------------
Net income $ 5,225,527 $ 4,791,177
============ ==============
Net income applicable to common shares $ 3,854,421 $ 3,420,072
============ ==============
Per common share:
Net income $ .25 $ .25
============ ==============
Dividends paid $ .465 $ .450
============ ==============
Weighted average number of common
shares outstanding 15,322,386 13,872,381
============ ==============
</TABLE>
The accompanying notes are an integral part
of these financial statements
<PAGE> 5
ASSOCIATED ESTATES REALTY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIOD ENDED MARCH 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Cash flow from operating activities:
Net income $ 5,225,527 $ 4,791,177
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 4,328,837 3,549,955
Equity in net loss of joint ventures 41,839 17,504
Earnings distributed from joint ventures 67,190 76,785
Net change in - Accounts and notes
receivable (8,596) 141,628
- Accounts and notes
receivable-affiliates (3,343,831) (531,140)
- Accounts payable and
accrued expenses (3,725,979) (2,188,373)
- Other operating assets
and liabilities 709,118 1,500,957
- Restricted cash 110,070 202,945
- Funds held for non-owned
properties (103,278) (2,446,912)
---------- ----------
Total adjustments (1,924,630) 323,349
---------- -----------
Net cash flow provided by operating
activities 3,300,897 5,114,526
Cash flow from investing activities:
Acquisition of real estate (net of
liabilities assumed) (31,560,293) (26,248,388)
Fixed asset additions (406,865) (179,472)
Distributions from joint ventures 123,930 71,501
----------- -----------
Net cash flow used for investing activities (31,843,228) (26,356,359)
Cash flow from financing activities:
Principal payments on mortgage notes (334,801) (1,979,126)
Proceeds from senior and medium-term notes 15,000,000 7,500,000
Line of Credit borrowings 64,900,000 54,800,000
Line of Credit repayments (43,300,000) (32,850,000)
Deferred financing and offering costs (179,212) (256,676)
Common share dividends paid (6,895,071) (5,965,125)
Preferred share dividends paid (1,371,106) (1,371,105)
Exercise of stock options 238 0
---------- ----------
Net cash flow provided by financing
activities 27,820,048 19,877,968
---------- ----------
(Decrease) increase in cash and cash (722,283) (1,363,865)
equivalents
Cash and cash equivalents, beginning of period 1,286,959 2,848,285
------------ ------------
Cash and cash equivalents, end of period $ 564,676 $ 1,484,420
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements
<PAGE> 6
ASSOCIATED ESTATES REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Business
Associated Estates Realty Corporation (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 the Great
Lakes Region. At March 31, 1997, the Company owned or was a
joint venture partner in 82 multifamily properties containing
16,300 suites. Additionally, the Company managed 40 non-owned
properties, 32 of which were multifamily properties consisting of
7,052 suites and eight of which were commercial properties
containing an aggregate of approximately 825,000 square feet of
gross leasable area. Through special purpose entities,
collectively referred to as the "Service Companies", the Company
provides to both owned and non-owned properties, management,
painting and computer services as well as mortgage origination
and servicing.
Principles of Consolidation
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. The Company holds a preferred share interest in the
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.
One property included in the consolidated 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 interest 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.
All significant intercompany balances and transactions have
been eliminated in consolidation.
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.
Reclassifications
Certain reclassifications have been made to the 1996
financial statements to conform to the 1997 presentation.
<PAGE> 7
2. DEVELOPMENT AND ACQUISITION OF MULTIFAMILY PROPERTIES
Construction in progress including the cost of land for the
development of multifamily properties was $23,611,010 and
$18,516,982 at March 31, 1997 and December 31, 1996,
respectively. The Company capitalizes interest costs on funds
used in construction, real estate taxes and insurance from the
commencement of development activity through the time the
property is ready for leasing. Interest, real estate taxes and
insurance aggregating approximately $464,000 were capitalized
during the period ended March 31, 1997. The following schedule
details construction in progress at March 31, 1997:
<TABLE>
<CAPTION>
Construction
(dollars in thousands) Costs
Number Incurred to
Property of Suites Land Cost Date Completion
<S> <C> <C> <C> <C>
AURORA, OH
The Residence at Barrington-Phase I 168 $ 1,359 $ 6,585 Late 1997
The Residence at Barrington-Phase II 120 982 - Winter 1998
288 2,341 6,585
ANN ARBOR, MI
Arbor Landings Apartments II 160* 650 195 Summer 1998
COLUMBUS, OH
Bradford at Easton 324 1,506 8,215 Fall 1997
FENTON, MI
Georgetown Park Apartments III 120* 350 77 1998*
GRAND RAPIDS, MI
Aspen Lakes II 114* 402 24 1998*
STREETSBORO, OH
The Village of Western Reserve 108 691 1,105 Late 1997
WESTLAKE, OH
Westlake 300* 523 47 1999*
MT. STERLING, OH
Muirwood Mt. Sterling 89* 125 3 1999*
COLUMBUS, OH
Wyndemere 170* 201 20 2000*
Other - - 551
----- ------- ---------
1,673 $ 6,789 $ 16,822
===== ======= =========
*Estimated
</TABLE>
During the period January 1, 1997 through March 31, 1997,
the Company acquired, in separate purchase transactions, two
multifamily properties containing an aggregate of 462 suites and
a parcel of land consisting of 10 acres for an aggregate purchase
price of $24.3 million, which was financed with (i) borrowings
under the Company's Line of Credit of $23.3 million, and (ii)
available cash of $1 million.
<PAGE> 8
3. SHAREHOLDERS' EQUITY
The following table summarizes the changes in shareholders'
equity since December 31, 1996:
<TABLE>
<CAPTION>
Class A Common Accumulated
Cumulative Shares Dividends
Preferred (at $.10 Paid-In In Excess Of
Shares stated value) Capital Net Income Total
<S> <C> <C> <C> <C> <C>
Balance, Dec. 31, 1996 $ 56,250,000 $ 1,532,238 $ 133,073,035 $ (32,839,075) $ 158,016,198
Net income - - - 5,225,527 5,225,527
Exercise of stock
options - 1 237 - 238
Additional costs re-
lating to common
stock offering - - (16,013) - (16,013)
Common share
dividends declared - - - (7,124,906) (7,124,906)
Preferred share
dividends declared - - - (1,371,106) (1,371,106)
------------ ------------ ------------- ------------- ----------
Balance, Mar. 31, 1997 $ 56,250,000 $ 1,532,239 $ 133,057,259 $ (36,109,560) $ 154,729,938 <PAGE>
============ ============ ============= ============= =============
</TABLE>
4. SECURED DEBT
Conventional Mortgage Debt
Conventional mortgages payable are comprised of nonrecourse,
fixed rate, 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
Federally insured mortgage debt is insured by HUD pursuant
to one of the mortgage insurance programs administered under the
National Housing Act of 1934, (one property is funded through
Industrial Development Bonds). 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.
Seven of the eight federally insured mortgages have a fixed rate
and the remaining mortgage has a variable rate.
Under certain of the mortgage agreements, the Company is
required to make escrow deposits for taxes, insurance and
replacement of project assets.
5. UNSECURED DEBT
Senior Notes
The Senior Notes were issued in 1995, and net proceeds of
$83.6 million, after underwriting commissions, offering expenses
and discounts, were applied to amounts drawn on the Line of
Credit. 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.
Medium-Term Notes Program
During the quarter ending March 31, 1997, the Company issued
two Medium-Term Notes (the "MTN's") aggregating $15 million under
its $75 million MTN program. The principal amounts of these
<PAGE> 9
MTN's were $10 million and $5 million and bear interest at 6.625%
and 6.52% over terms of 5 and 30 years, respectively. The holder
of the $5 million, 30 year MTN has the option to require payment
on February 20, 2002. The net proceeds to the Company with
respect to these issuances was $14.9 million which was applied to
amounts outstanding under the Line of Credit.
Line of Credit
The Company utilizes a $75 million unsecured credit facility
(the "Line of Credit"). The Line of Credit includes certain
restrictive covenants which, among others, requires the Company
to (i) maintain a minimum level of net worth, (ii) limit
dividends to 90% of Distributable Cash Flow, as defined in the
agreement, (iii) restrict the use of its borrowings, and (iv)
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.
For the three months ended March 31, 1997, based on the Company's
present credit ratings, the LIBOR margin was 150 basis points,
fixed in increments of 30, 60, 90, 120 or 180 days or,
alternatively, borrowings are at prime rate. An annual
commitment fee of 25 to 37.5 basis points on the average daily
unused amount of the facility was 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 March 31, 1997, $43.1 million was drawn on the Line of Credit.
6. PREFERRED AND COMMON SHARES
On December 11, 1996, the Company completed an offering of
1,300,000 common shares at $22.375 per share. On December 17,
1996, the underwriters exercised an option to purchase an
additional 150,000 shares at $22.375 per share. The net proceeds
of approximately $30.7 million were applied to reduce debt.
As of December 31, 1996, 2,250,000 Depositary Shares, each
representing 1/10 of a share of the Company's 9.75% Class A
Cumulative Redeemable Preferred Shares (the "Perpetual Preferred
Shares"), were issued and outstanding. Each Depositary Share has
a $25 liquidation preference ($56.3 million in the aggregate).
Dividends on the Perpetual Preferred Shares are cumulative from
the date of issue and are payable quarterly. Except in certain
circumstances relating to the preservation of the Company's
status as a REIT, the Perpetual Preferred Shares are not
redeemable prior to July 25, 2000. On and after July 25, 2000,
the Perpetual Preferred Shares will be redeemable for cash at the
option of the Company.
The Company is authorized to issue 3,000,000 Class B
Cumulative Preferred Shares, without par value, and 3,000,000
Noncumulative Preferred Shares, without par value.
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 Company is required to adopt Statement of Financial
Accounting Standard No. 128 ("SFAS 128"), Earnings Per Share as
of December 31, 1997; earlier application is not permitted. SFAS
128 specifies the computation, presentation, and disclosure
requirements for earnings per share. The Company does not
believe that the adoption of SFAS 128 will have a material effect
on the Company's method of calculation or display of earnings per
share amounts.
<PAGE> 10
8. PRO FORMA CONDENSED FINANCIAL INFORMATION (UNAUDITED)
The following unaudited supplemental pro forma operating
data for 1997 is presented to reflect, as of January 1, 1997, the
effects of: (i) the two property acquisitions completed in 1997,
and (ii) the issuance of the Medium-Term Note in 1997. The
following unaudited supplemental pro forma operating data for
1996 is presented to reflect, as of January 1, 1996, the effects
of: (i) the six property acquisitions completed in 1996, (ii)
the offering of 1,450,000 shares of common stock, (iii) the
issuance of the Medium-Term Notes, and (iv) the two property
acquisitions completed in 1997.
<TABLE>
<CAPTION>
For the three
months ended
March 31,
(In thousands, except
per share amounts) 1997 1996
<S> <C> <C>
Revenues $ 25,493 $ 24,692
Net income 5,225 5,038
Net income applicable
to common shares 3,854 3,667
Net income per common share $ 0.25 $ 0.24
Weighted average common
shares outstanding 15,322 15,322
</TABLE>
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, nor does it purport
to represent the results of operations of future periods of the
Company.
9. SUBSEQUENT EVENTS
Subsequent to March 31, 1997, the Company acquired one
multifamily property containing 340 suites in Columbus, Ohio
which was financed using borrowings under the Line of Credit.
Subsequent to March 31, 1997, the Company issued a $15
million note under the Medium-Term Notes Program bearing interest
of 7.82% over a 10 year term. The net proceeds to the Company of
$14.9 million were applied to amounts outstanding under the Line
of Credit.
On April 23, 1997, The Company negotiated a reduction in
pricing on its $75 million unsecured line of credit. The new
LIBOR rate margin is 125 basis points, a reduction of 25 basis
points from the previous margin.
On April 30, 1997, the Company prepaid three conventional
mortgages. The balance of the mortgages at the prepayment date
was approximately $14,685,170.
<PAGE> 11
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, 83 multifamily properties containing
16,640 suites located in Ohio, Michigan, Indiana and Western
Pennsylvania. During the quarter ended March 31, 1997, several
adjacent properties were combined for operating, administrative
and reporting efficiencies thereby adjusting the Company's total
property count.
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
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.
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 in accordance with REIT requirements
in both the short and long term.
Financing:
Sixty-two of the Company's 75 wholly owned properties were
unencumbered at March 31, 1997 with annualized earnings before
interest, depreciation and amortization of over $44.1 million and
a historical cost basis of over $410.6 million. The remaining
thirteen of the Company's wholly owned properties, having a
historical cost basis of $105 million, are encumbered by secured
property specific debt of $67.3 million at March 31, 1997.
Unsecured debt, which totaled $185.4 million at March 31, 1997,
consisted of $57.5 million in Medium-Term Notes, Senior Notes of
$84.8 million and amounts drawn on the revolving credit facility
of $43.1 million. The Company's proportionate share of the
mortgage debt relating to the seven joint venture properties was
$18 million at March 31, 1997. The weighted average interest
rate on the secured, unsecured and the Company's proportionate
share of the joint venture debt was 7.86% at March 31, 1997. <PAGE>
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 125 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
March 31, 1997, $43.1 million was drawn on the Line of Credit
with a weighted average interest rate of 7.1%.
During the quarter ending March 31, 1997, the Company issued
two Medium-Term Notes (the "MTN's") aggregating $15 million under
its $75 million MTN program. The principal amounts of these
MTN's were $10 million and $5 million and bear interest at 6.625%
at 6.52% over terms of 5 and 30 years, respectively. The holder
<PAGE> 12
of the $5 million, 30 year MTN has the option to require payment
on February 20, 2002. The net proceeds to the Company with
respect to these issuances was $14.9 million which was applied to
amounts outstanding under the Line of Credit. On April 29, 1997,
the Company issued a $15 million MTN bearing interest of 7.82%
over a 10 year term. The net proceeds to the Company of $14.9
million was applied to amounts outstanding under the Line of
Credit.
Registration statements filed in connection with financing:
The Company has filed a shelf registration statement with
the Securities and Exchange Commission relating to the proposed
offering of up to $368.8 million of debt securities, preferred
shares, depositary shares, common shares and common share
warrants. The total amount of the shelf filing includes a $102.5
million Medium-Term Notes Program. The securities may be offered
from time to time at prices and upon terms to be determined at
the time of sale.
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 period January 1, 1997 through March 31, 1997,
the Company acquired, in separate purchase transactions, two
multifamily properties containing an aggregate of 462 suites and
a parcel of land consisting of 10 acres for an aggregate purchase
price of $24.3 million. The multifamily properties are located
in Indianapolis, Indiana and Cincinnati, Ohio. The property and
land acquisitions were financed with borrowings under the
Company's Line of Credit of $23.3 million and cash on-hand of
$1.0 million. On April 22, 1997, the Company acquired a 340
suite property in Columbus, Ohio.
The remainder of the acquisitions, development and
dispositions section contains forward-looking statements and
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 judgements 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. Factors which could cause actual results to differ
materially from those projected include the general economic
climate; the supply and demand for multifamily properties in the
Midwest; interest rate levels; the availability of financing and
other risks associated with the acquisition, development and
disposition of properties, including risks that development or
lease-up may not be completed on schedule. Furthermore, there
can be no assurances that the Company will be successful in
acquiring the multifamily properties and the land parcels under
contract or be successful in selling any of the Government-
Assisted Properties or the parcel of land as described below.
The Company is currently under contract to purchase three
multifamily properties containing an aggregate of 534 suites and
five parcels of undeveloped land containing an aggregate 172.5
acres for a purchase price of $39.1 million. The three
multifamily properties are located in Columbus, Ohio; Toledo,
Ohio and Indianapolis, Indiana, respectively, while the land
parcels are located in Ohio, Michigan and Pennsylvania. With the
exception of one 37 acre parcel located in Avon, Ohio, the land
parcels under contract are located adjacent to or in the vicinity
of multifamily properties presently owned by the Company.
The Company has two newly constructed multifamily properties
in lease-up: Bradford at Easton, a 324 suite property located in
Columbus, Ohio presently has 146 suites completed of which 132
are leased. Eighteen suites of the 168 suite first phase of The
Residence at Barrington, a 288 suite development in Aurora, Ohio
(a city located Southeast of Cleveland) have been completed while
26 suites have been leased. The Company has also commenced
construction at the 108 suite first phase of The Village of
Western Reserve in Streetsboro, Ohio (also located Southeast of
Cleveland). The Bradford at Easton, Barrington Phase II and
Western Reserve properties are scheduled for completion in the
fourth quarter of 1997.
<PAGE> 13
The Company is anticipating the construction of an
additional 514 suites during 1998 on land adjacent to multifamily
properties currently owned by the Company as follows:
<TABLE>
<CAPTION>
Property Location Suites
<S> <C> <C>
Arbor Landings Ann Arbor, Michigan 160
Apartments II
The Residence at Aurora, Ohio
Barrington, Phase II 120
Georgetown Park Fenton, Michigan
Apartments III 120
Aspen Lake II Grand Rapids, Michigan 114
---
Total Suites 514
</TABLE>
The Company estimates the total cost of the new construction
properties and suite additions will be approximately $73.2
million, of which $22.1 million has been incurred through March
31, 1997, including land costs of $5.9 million.
The Company also owns approximately 59 acres of land, also
adjacent to properties currently owned by the Company, on which
approximately 560 suites are planned for development. Through
March 31, 1997, the Company has incurred approximately $1.5
million in preliminary development and land costs for these and
other planned development projects.
The Company is exploring opportunities to dispose of several
of its multifamily properties and has received an expression of
interest from various prospective buyers. 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.
Dividends
On February 19, 1997, the Company declared a dividend of
$0.465 per common share for the quarter ending March 31, 1997
which was paid on May 1, 1997 to shareholders of record on April
15, 1997. On February 14, 1997, 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 March 14, 1997 to shareholders of record on February 28,
1997.
Cash flow sources and applications:
Net cash provided by operating activities decreased $1.8
million to $3.3 million from $5.1 million for the three-months
ended March 31, 1997 when compared with the three-months ended
March 31, 1996. This decrease was primarily the result of the
application of cash flow from operating activities to the
reduction of accounts payable and accrued expenses, and an
increase in accounts receivable from affiliates.
Net cash flows used for investing activities of $31.8
million for the three-months ended March 31, 1997 were primarily
used for the acquisition of multifamily real estate, properties
and undeveloped land parcels.
Net cash flows provided by financing activities of $27.8
million for the three-months ended March 31, 1997 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.
<PAGE> 14
RESULTS OF OPERATIONS
Comparison of the three-months ended March 31, 1997 to the three-
months ended March 31, 1996
Overall, total revenue increased $2,874,000 or 13.1% and
total expenses before the net loss of the joint ventures
increased $2,415,300 or 14.1% for the quarter. Net income
applicable to common shares increased $434,400 or 12.7%, after
dividends on the Company's Perpetual Preferred Shares.
In the following discussion of the comparison of the three-
months ended March 31, 1997 to the three-months ended March 31,
1996, the term Core Portfolio Properties refers to the 36 wholly
owned multifamily properties acquired by the Company at the time
of the IPO and the 36 properties acquired prior to January 1,
1996 and the acquisition of the remaining 50% interest in two
properties in which the company was a joint venture partner at
the time of the IPO. Acquired Properties refers to the eight
properties acquired between January 1, 1996 and March 31, 1997.
During the three-months ended March 31, 1997, the Acquired
Properties generated total revenues of $2,698,500 while incurring
property, operating and maintenance expenses of $1,018,550.
Rental Revenues:
Rental revenues increased $2,600,100 or 12.7% for the
quarter. The majority of this increase is attributable to rental
revenues from the Acquired Properties of $2,344,400 for the same
period. Increases in occupancy and suite rents at the Core
Portfolio Conventional and Government-Assisted Properties
resulted in a $255,700 or 1.3% increase in rental revenue from
these properties.
Other Revenues:
Painting service revenue and painting service revenue -
affiliates increased $227,200 or 80.8% for the quarter and
reflects an increase in revenue generated from suite painting and
major renovation projects when compared to the previous quarter.
The increase in painting service 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
$675,300 or 7.9% for the quarter. Operating and maintenance
expenses at the Acquired Properties increased $925,500 for the
quarter due primarily to the operating and maintenance expenses
incurred at the two properties acquired during 1997 and the
recognition of a full quarter's operating expenses at the six
properties acquired during 1996. Property operating and
maintenance expenses at the Core Portfolio Properties decreased
$250,200, or 3.1% when compared to the prior three month period
primarily due to decreases in building and grounds repairs and
maintenance, real estate taxes, insurance and other operating
expenditures which were partially offset by increases in
personnel and utilities expenses. Total expenditures for
building renovations and suite and common area refurbishment in
the Core Portfolio Properties that were not considered to be
capital in nature averaged $70 per suite for the three-months
ended March 31, 1997 as compared to $74 per suite for the three-
months ended March 31, 1996.
Other expenses:
Depreciation and amortization increased $778,900 or 21.9%
for the quarter primarily due to the increased depreciation and
amortization expense recognized on the Acquired Properties.
Painting service expenses increased $152,100 or 58.9% for
the quarter. These increases were primarily the result of
payroll related expenses attributable to the increased sales
activity of the painting company.
General and administrative expenses increased $247,500 or
19.2% for the quarter. This increase is primarily attributable
to payroll and payroll related expenses as the Company continues
to develop a team of professionals to provide the hands-on
attention to the Company's expanding portfolio of assets.
<PAGE> 15
Interest expense increased $561,500 or 16.0% for the quarter
primarily due to the interest incurred with respect to the
additional borrowings under the Line of Credit that were used for
the acquisition of properties.
Net income applicable to common shares:
Net income applicable to common shares is reduced by
dividends on the Perpetual Preferred Shares of $1,371,100.
Equity in net loss of joint ventures:
The combined equity in net loss of joint ventures increased
$24,300 for the quarter primarily attributable to a decline in
rents and occupancies at the joint venture properties.
The following table presents the historical statements of
operations of the Company's beneficial interest in the operations
of the joint ventures for the quarters ended March 31, 1997 and
1996.
<TABLE>
<CAPTION>
For the quarter
ended March 31,
1997 1996
<S> <C> <C>
Beneficial interests in
joint venture operations
Rental revenue $ 1,624,600 $ 1,642,600
Cost of operations 1,096,300 1,083,000
----------- -----------
528,300 559,600
Interest income 6,400 3,700
Interest expense (443,200) (447,800)
Depreciation (120,900) (121,300)
Amortization (12,400) (11,700)
----------- -----------
Net income $ (41,800) $ (17,500)
=========== ===========
</TABLE>
Outlook
The following two paragraphs contain forward-looking
statements and certain risks, trends and uncertainties 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 61% 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 30th largest
metropolitan area in the U.S. based on population. Population in
the Central Ohio region grew 7.6% from 1990 to 1996, ranking it
25th among the top 50 fastest growing metropolitan areas in the
U.S., according to Census Bureau data. Columbus, Ohio was
selected by the E & Y Kenneth Leventhal Real Estate Group as one
of the 12 best apartment 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 with a stable population and
employment outlook.
<PAGE> 16
With an average economic occupancy for the Core Portfolio
market-rate properties over 94.5%, 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 quarter as the Company
continues to maintain its properties to maximize their earnings
potential. Real estate tax increases should begin to moderate 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.
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> 17
The following tables present information concerning the Multifamily Properties
owned by Associated Estates Realty Corporation.
<TABLE>
<CAPTION>
Year Average
Type of Total Built or Unit Size
The Multifamily Properties Location Construction Suites Rehab. Sq. Ft.
------------------------------ -------------- ----------------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
MARKET RATE
Acquired Properties
Central Ohio Properties
Perimeter Lakes Dublin Garden/Townhomes 189 1992 999
Remington Place Apartments Cincinnati Garden 234 1988-90 830
The Residence at Washington Wash. Ct. House Ranch 72 1995 862
--- ---
495 899
Indiana Properties
The Gables at White River Indianapolis Garden 228 1991 974
Michigan Properties
Aspen Lakes Grand Rapids Garden 144 1981 789
Spring Brook Apartments Holland Garden/Townhomes 168 1986 818
Summer Ridge Apartments Kalamazoo Garden 248 1989-91 960
----- ---
560 873
Western Pennsylvania Properties
Chestnut Ridge Pittsburgh Garden 468 1986 769
----- ---
Acquired Property Subtotal 1,751 866
Core Portfolio Properties
Michigan Properties
Arbor Landings Apartments Ann Arbor Garden 168 1990 1,116
Central Park Place Grand Rapids Garden 216 1988 850
Country Place Apartments Mt. Pleasant Garden 144 1987 859
Georgetown Park Apartments Fenton Garden 360 1987-96 1,005
The Landings at the Preserve Battle Creek Garden 190 1990-91 952
The Oaks and Woods at Hampton Rochester Hills Garden/Townhomes 544 1986-88 1,050
----- -----
1,622 992
Central Ohio Properties
Arrowhead Station Columbus Townhomes 102 1987 1,344
Bedford Commons Columbus Townhomes 112 1987 1,157
Bolton Estates Columbus Garden 196 1992 687 <PAGE>
Colony Bay East Columbus Garden 156 1994 903
Heathermoor Worthington Garden/Townhomes 280 1989 829
Kensington Grove Westerville Garden/Townhm/Ranch 76 1995 1,109
Lake Forest Columbus Garden 192 1994 788
Muirwood Vllg. at Bennell Columbus Ranch 164 1988 769
Muirwood Vllg. at London London Ranch 112 1989 769
Muirwood Vllg. at Mt. Sterling Mt. Sterling Ranch 48 1990 769
Muirwood Vllg. at Zanesville Zanesville Ranch 196 1991-95 769
Pendleton Lakes East Columbus Garden 256 1990-93 899
Residence at Christopher Wren Gahanna Garden/Townhomes 264 1993 1,062
Residence at Turnberry Pickerington Garden/Townhomes 216 1991 1,182
Sheffield at Sylvan Circleville Ranch 136 1989 791
Sterling Park Grove City Garden 128 1994 763
The Residence at Newark Newark Ranch 112 1993-94 868
Wyndemere Franklin Ranch 128 1991-95 768
----- ---
2,874 898
Northern Ohio Properties
Bay Club Willowick Garden 96 1990 925
Cloisters Toledo Townhomes 188 1990 1,037
Colonnade West Cleveland Garden 216 1964 502
Cultural Gardens Euclid Mid Rise 186 1966 688
Edgewater Landing Cleveland High Rise 241 1988 r 585
Gates Mills III Mayfield Hts. High Rise 320 1978 874
Holly Park Kent Garden 192 1990 875
Huntington Hills Stow Townhomes 85 1982 976
Kensington Village Toledo Garden/Townhomes 190 1985-90 920
Mallard's Crossing Medina Garden 192 1990 998
Memphis Manor Cleveland Garden 120 1966 554
Park Place Parma Hts. Mid Rise 164 1966 760
Pinecrest Broadview Hts. Garden 96 1987 r 598 <PAGE>
<CAPTION>
For the three months ending For the three months ending
March 31, 1997 March 31, 1996
-------------------------------- ---------------------------------
Average Average Rent Average Average Rent
Economic Physical Per Economic Physical Per
The Multifamily Properties Occupancy Occupancy Suite Sq. Ft. Occupancy Occupancy Suite Sq. Ft.
----------------------------- --------- --------- ----- ------- --------- --------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MARKET RATE
Acquired Properties
Central Ohio Properties
Perimeter Lakes 94.1% 89.9% $ 703 $ 0.70 N/A N/A N/A N/A
Remington Place Apartments N/A 86.8 640 0.77 N/A N/A N/A N/A
The Residence at Washington 91.1 94.4 527 0.61 N/A 95.8% N/A N/A
---- ---- ---- ------ --- ---- --- ---
93.4% 89.1 $ 655 $ 0.68 N/A 95.8% N/A N/A
Indiana Properties
The Gables at White River 81.4% 82.5% $ 731 $ 0.75 N/A N/A N/A N/A
Michigan Properties
Aspen Lakes 90.7% 89.6% $ 550 $ 0.70 N/A N/A N/A N/A
Spring Brook Apartments 95.3 96.4 469 0.57 N/A N/A N/A N/A
Summer Ridge Apartments 90.4 95.6 672 0.70 N/A N/A N/A N/A
---- ---- ----- ------ --- --- --- ---
91.7% 94.3% $ 580 $ 0.66 N/A N/A N/A N/A
Western Pennsylvania Properties
Chestnut Ridge 94.7% 96.6% $ 695 $ 0.90 N/A 84.6% N/A N/A
---- ---- ----- ------ --- ---- --- ---
Acquired Property Subtotal 93.2% 91.9% $ 637 $ 0.75 N/A 86.1% N/A N/A
Core Portfolio Properties
Michigan Properties
Arbor Landings Apartments 95.5% 95.2% $ 838 $ 0.75 97.2% 97.0% $ 807 $ 0.72
Central Park Place 92.9 94.0 609 0.72 97.0 93.5 608 0.72
Country Place Apartments 94.7 91.0 516 0.60 100.0 98.6 487 0.57
Georgetown Park Apartments 95.3 93.3 670 0.67 93.4 93.6 651 0.65
The Landings at the Preserve 91.8 88.9 657 0.69 86.8 92.1 646 0.68
The Oaks and Woods at Hampton 95.5 95.0 783 0.75 97.5 98.9 752 0.72
---- ---- ----- ------ ----- ---- --- ----
94.7% 93.5% $ 702 $ 0.71 95.6% 96.1% $ 681 $ 0.69
Central Ohio Properties
Arrowhead Station 96.9% 94.1% $ 680 $ 0.51 88.5% 97.1% $ 640 $ 0.48
Bedford Commons 97.6 93.8 744 0.64 96.6 93.8 710 0.61
Bolton Estates 95.8 98.0 459 0.67 88.1 93.9 459 0.67
Colony Bay East 93.2 90.4 511 0.57 89.9 98.7 482 0.53
Heathermoor 96.1 95.0 538 0.65 94.1 96.8 524 0.63
Kensington Grove 92.9 93.4 772 0.70 96.7 97.4 750 0.68
Lake Forest 90.4 97.9 547 0.69 87.8 93.8 530 0.67 <PAGE>
Muirwood Vllg. at Bennell 97.5 97.0 474 0.62 97.6 98.8 472 0.61
Muirwood Vllg. at London 96.7 96.4 499 0.65 95.2 97.3 485 0.63
Muirwood Vllg. at Mt. Sterling 94.7 100.0 495 0.64 95.7 87.5 479 0.62
Muirwood Vllg. at Zanesville 95.3 96.4 522 0.68 100.0 97.4 504 0.66
Pendleton Lakes East 96.0 94.1 490 0.55 94.3 97.7 497 0.55
Residence at Christopher Wren 95.7 93.2 722 0.68 93.3 94.3 702 0.66
Residence at Turnberry 91.3 93.5 734 0.62 92.0 93.1 710 0.60
Sheffield at Sylvan 98.4 92.6 501 0.63 98.0 96.3 498 0.63
Sterling Park 94.1 97.7 545 0.71 96.4 95.3 525 0.69
The Residence at Newark 95.5 88.4 554 0.64 99.9 99.1 532 0.61
Wyndemere 98.1 96.1 532 0.69 100.0 97.7 518 0.67
---- ---- ----- ------ ----- ---- ----- ----
95.1% 94.8% $ 570 $ 0.63 94.3% 96.0% $ 555 $ 0.62
Northern Ohio Properties
Bay Club 97.5% 96.9% $ 622 $ 0.67 95.4% 92.7% $ 604 $ 0.65
Cloisters 98.5 98.4 526 0.51 93.7 94.7 499 0.48
Colonnade West 96.1 95.4 401 0.80 96.7 96.3 389 0.77
Cultural Gardens 95.4 93.5 498 0.72 98.0 98.9 486 0.71
Edgewater Landing 93.6 98.8 413 0.71 95.9 99.2 409 0.70
Gates Mills III 93.1 97.8 671 0.77 91.9 98.4 657 0.75
Holly Park 98.3 99.0 651 0.74 89.6 92.7 721 0.82
Huntington Hills 96.6 97.6 646 0.66 96.6 97.6 636 0.65
Kensington Village 97.3 98.9 446 0.48 97.0 96.3 430 0.47
Mallard's Crossing 98.7 98.4 688 0.69 97.8 97.4 656 0.66
Memphis Manor 91.8 95.0 441 0.80 94.5 98.3 428 0.77
Park Place 93.6 98.2 522 0.69 98.6 97.6 512 0.67
Pinecrest 97.2 94.8 457 0.76 94.7 94.8 452 0.76 <PAGE>
</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
Year Average
Type of Total Built or Unit Size
The Multifamily Properties Location Construction Suites Rehab. Sq. Ft.
------------------------------ ------------- ----------------- ------ -------- --------
<S> <C> <C> <C> <C> <C>
Portage Towers Cuyahoga Falls High Rise 376 1973 869
Somerset West (a) North Royalton Garden/Townhomes 197 1982 1,038
The Triangle (b) Cleveland High Rise 273 1989 616
Timbers Broadview Hts. Garden 96 1987-89 930
Treetops Toledo Townhomes 128 1988-89 1,350
Villa Moderne North Olmsted Garden 135 1963 504
Vantage Villa Toledo Garden 150 1974 935
Washington Manor Elyria Garden 120 1963-64 541
West Park Plaza Cleveland Garden 118 1964 520
Westchester Townhouses Westlake Townhomes 136 1989 1,000
Westlake Townhomes Westlake Townhomes 7 1985 1,000
Williamsburg at Greenwood Vllg. Sagamore Hills Townhomes 260 1990 938
Winchester Hills I (c) Willoughby Hills High Rise 362 1972 822
Winchester Hills II Willoughby Hills High Rise 362 1979 822
----- ---
5,006 816
----- ---
Core Market Rate Properties 9,502 871
GOVERNMENT ASST.-ELDERLY
Ellet Development Akron High Rise 100 1978 589
Hillwood I Akron High Rise 100 1976 570
Puritas Place (d) Cleveland High Rise 100 1981 518
Riverview Massillon High Rise 98 1979 553
State Road Apartments Cuyahoga Falls Garden 72 1977 r 750
Statesman II Shaker Heights Garden 47 1987 r 796
Sutliff Apartments II Cuyahoga Falls High Rise 185 1979 577
Tallmadge Acres Tallmadge Mid Rise 125 1981 641
Twinsburg Apartments Twinsburg Garden 100 1979 554
Village Towers Jackson Twp. High Rise 100 1979 557
West High Apartments Akron Mid Rise 68 1981 r 702
----- ---
1,095 602
GOVERNMENT ASST.-FAMILY
Jennings Commons Cleveland Garden 50 1981 823
Rainbow Terrace Cleveland Garden 484 1982 r 768
Shaker Park Gardens II Warrensville Garden 151 1964 753
--- ---
685 769
----- ---
Core Portfolio Government 1,780 666
Asst. Propertie
CONGREGATE CARE
Gates Mills Club Mayfield Heights High Rise 120 1980 721
The Oaks Westlake Garden 50 1985 672
--- ---
170 707
------ ---
11,452 837
Joint Venture Properties
Northeast Ohio
Market Rate
Americana Euclid High Rise 738 1968 803
College Towers Kent Mid Rise 380 1969 662
Euclid House Euclid Mid Rise 126 1969 654
Gates Mills Towers Mayfield Hts. High Rise 760 1969 856
Highland House Painesville Garden 36 1964 539
Watergate Euclid High Rise 949 1971 831
----- ---
2,989 789
Government Asst.-Family
Lakeshore Village Cleveland Garden 108 1982 786
----- ---
3,097 789
------ ---
Core 14,549 832
------ ===
16,300
======
<CAPTION>
For the three months ending For the three months ending
March 31, 1997 March 31, 1996
-------------------------------- ----------------------------------
Average Average Rent Average Average Rent
Economic Physical Per Economic Physical Per
The Multifamily Properties Occupancy Occupancy Suite Sq. Ft. Occupancy Occupancy Suite Sq. Ft.
- -------------------------------- --------- --------- ----- ------ --------- --------- ----- ------
<S> <c <C> <C> <C> <C> <C> <C> <C>
Portage Towers 86.1 86.7 563 0.65 96.3 96.0 544 0.63
Somerset West (a) 93.6 95.4 686 0.66 93.5 95.9 678 0.65
The Triangle (b) 99.7 99.3 898 1.46 98.4 97.1 848 1.38
Timbers 96.2 90.6 680 0.73 93.6 94.8 674 0.72
Treetops 98.3 98.4 729 0.54 95.6 95.3 704 0.52
Villa Moderne 95.9 98.5 437 0.87 97.2 94.8 418 0.83
Vantage Villa 94.2 98.0 603 0.64 95.9 93.3 561 0.60
Washington Manor 99.3 98.3 370 0.68 96.5 99.2 366 0.68
West Park Plaza 95.3 95.8 423 0.81 95.3 98.3 412 0.79
Westchester Townhouses 91.8 93.4 746 0.75 96.8 94.1 741 0.74
Westlake Townhomes 100.0 100.0 781 0.78 100.0 100.0 745 0.75
Williamsburg at Greenwood Vllg. 91.9 94.6 838 0.89 95.8 95.4 791 0.84
Winchester Hills I (c) 87.8 92.0 566 0.69 92.6 96.1 556 0.68
Winchester Hills II 87.3 90.9 601 0.73 95.1 94.5 588 0.72
---- ---- --- ---- ----- ---- --- ----
93.8 95.4 594 0.73 95.3 96.2 579 0.71
---- ---- ----- ------ ----- ---- --- ------
Core Market Rate Properties 94.4% 94.9% $ 605 $ 0.69 95.1% 96.1% $ 589 $ 0.68
GOVERNMENT ASST.-ELDERLY
Ellet Development 99.3% 100.0% $ 587 $1.00 100.0% 100.0% $ 590 $ 1.00
Hillwood I 100.0 100.0 596 1.05 100.0 100.0 599 1.05
Puritas Place (d) 99.9 100.0 782 1.51 100.0 100.0 782 1.51
Riverview 100.0 100.0 591 1.07 100.0 99.9 591 1.07
State Road Apartments 100.0 100.0 589 0.79 100.0 100.0 596 0.79
Statesman II 98.5 97.9 651 0.82 100.0 100.0 651 0.82
Sutliff Apartments II 99.9 100.0 586 1.02 99.6 100.0 586 1.02
Tallmadge Acres 100.0 100.0 658 1.03 100.0 100.0 662 1.03
Twinsburg Apartments 99.9 100.0 603 1.09 100.0 100.0 603 1.09
Village Towers 99.6 100.0 579 1.04 100.0 99.9 583 1.05
West High Apartments 100.0 100.0 790 1.13 100.0 100.0 790 1.13
----- ----- ----- ------ ----- ----- --- ------
100.0% 99.9% $ 630 $ 1.05 100.0% 99.8% $ 632 $ 1.05
GOVERNMENT ASST.-FAMILY
Jennings Commons 99.7% 100.0% $ 674 $ 0.82 98.8% 100.0% $ 685 $ 0.83
Rainbow Terrace 99.4 96.7 773 1.01 98.7 97.7 738 0.96
Shaker Park Gardens II 100.0 99.3 531 0.71 99.0 100.0 531 0.71
----- ----- ----- ----- ---- ----- ---- ----
99.6 97.5 712 0.93 98.8 98.4 688 0.89
----- ---- ---- ------ ---- ----- ----- ------
Core Portfolio Government 100.0% 99.0% $ 662 $ 0.99 99.7% 99.3% $ 654 $ 0.98
Asst. Properties
CONGREGATE CARE
Gates Mills Club 98.3% 100.0% $ 806 $ 1.12 96.6% 96.7% $ 749 $ 1.04
The Oaks 97.1 96.0 985 1.47 92.9 94.0 953 1.42
---- ----- ----- ----- ---- ---- ----- ------
97.8 98.8 859 1.22 95.3 95.9 809 1.14
---- ----- ----- ----- ---- ---- ----- ------
95.4% 95.6% $ 618 $ 0.74 95.9% 96.6% $ 602 $ 0.72
Joint Venture Properties
Northeast Ohio
Market Rate
Americana 85.0% 92.1% $ 480 $ 0.60 90.3% 92.3% $ 483 $ 0.60
College Towers 92.0 89.2 398 0.60 91.7 93.7 404 0.61
Euclid House 88.0 93.7 434 0.66 96.5 92.1 430 0.66
Gates Mills Towers 93.3 96.4 676 0.79 94.2 98.0 655 0.77
Highland House 99.7 97.2 401 0.74 100.0 100.0 385 0.71
Watergate 88.0 92.9 538 0.65 87.9 91.7 533 0.64
---- ---- ----- ------ ----- ----- ----- ------
89.7% 93.2% $ 526 $ 0.67 91.3% 93.8% $ 521 $ 0.66
Government Asst.-Family
Lakeshore Village 99.3% 100.0% $ 669 $ 0.85 100.0% 100.0% $ 669 $ 0.85
---- ----- ----- ------ ----- ----- ----- ------
90.3 93.5 533 0.68 91.9 94.0 528 0.67
---- ----- ----- ------ ----- ----- ----- ----
Core 95.0% 95.1% $ 610 $ 0.73 95.5% 96.1% $ 595 $ 0.71 <PAGE>
==== ===== ===== ====== ===== ===== ===== ======
<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
</FN>
</TABLE>
<PAGE> 19
HISTORICAL FUNDS FROM OPERATIONS AND DISTRIBUTABLE CASH FLOW
Industry analysts generally consider Funds From Operations
("FFO") to be an appropriate measure of the performance of an
equity REIT. FFO 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 FFO on
the same basis. FFO 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 FFO
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, FFO 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.
FFO and Funds Available for Distribution ("Distributable
Cash Flow") for the three month period ended March 31, 1997 and
1996 are summarized in the following table:
<TABLE>
<CAPTION>
For the three
months ended
March 31,
(In thousands) 1997 1996
<S> <C> <C>
Net income applicable to
common shares $ 3,854 $ 3,420
Depreciation on real estate
assets
Wholly owned properties 4,071 3,330
Joint venture properties 121 122
----- -----
Funds From Operations 8,046 6,872
Depreciation - other assets 94 69
Amortization of deferred
financing fees 175 162
Fixed asset additions (114) (115)
------- -------
Distributable Cash Flow $ 8,201 $ 6,988
======= =======
Weighted average shares
outstanding 15,322 13,872
</TABLE>
<PAGE> 20
PART II
OTHER INFORMATION
Except to the extent noted below, the items required in
Part II are inapplicable or, if applicable, 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
- ----------------- -------------- ------------------
<S> <C> <C>
27 Financial Data Exhibit 27 filed
Schedule herewith.
</TABLE>
(b) Reports on Form 8-K
None
<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
May 14, 1997 /s/ Dennis W. Bikun
(Date) Dennis W. Bikun, Chief Financial Officer
and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 564,676
<SECURITIES> 5,514,933
<RECEIVABLES> 6,706,631
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,386,027
<PP&E> 546,471,022
<DEPRECIATION> (116,268,919)
<TOTAL-ASSETS> 449,374,370
<CURRENT-LIABILITIES> 27,904,328
<BONDS> 0
0
56,250,000
<COMMON> 1,532,239
<OTHER-SE> 96,947,699
<TOTAL-LIABILITY-AND-EQUITY> 449,374,370
<SALES> 23,159,943
<TOTAL-REVENUES> 24,798,341
<CGS> 9,190,041
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,279,105
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,061,829
<INCOME-PRETAX> 5,225,527
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,225,527
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,225,527
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
