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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 6, 1997
-----------------------
(Date of earliest event reported)
ASSOCIATED ESTATES REALTY CORPORATION
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(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
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(Address of Principal Executive Offices) (Zip Code)
(216) 261-5000
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(Registrant's telephone number, including area code)
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ITEM 5: OTHER EVENTS
On February 6, 1997, April 22, 1997, May 14, 1997 and May 30, 1997,
Associated Estates Realty Corporation (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>
02/06/97 Metropolitan Life Insurance Company, The Gables at White River 228
a New York corporation
04/22/97 Merry Land & Investment Company, Inc., Saw Mill Village Apartments 340
a Georgia corporation
05/14/97 Gerald J. Demirjian and Mary J. Demirjian Hawthorne Hills Apartments 88
05/30/97 Colony Bay East, Inc., an Ohio Oak Bend Apartments 90
corporation ---
746
===
</TABLE>
The Company also acquired a 10.2 acre land parcel in Franklin, Ohio on
March 7, 1997 from Dennis R. Morris and Patricia D. Morris (the "Land
Acquisition"). The Land Acquisition is presently zoned for the construction of
multifamily apartments and is located adjacent to a multifamily property
presently owned by the Company.
The seller of Oak Bend Apartments is in the process of constructing 12
suites contained in two buildings on land which was acquired by the Company as
part of the purchase transaction. The land on which the 12 suites are being
constructed is adjacent to the land on which 90 suites acquired by the Company
are located. The Company has agreed to acquire the 12 suites from the seller
once construction has been completed to the satisfaction of the Company. There
can be no assurance, however, that the Company will be successful in
consummating this transaction.
With respect to the Asset Purchases and Land Acquisition (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 March 31, 1997 the Company acquired 100% of the partnership
interests of the following partnership which owned the apartment complex
described below:
<TABLE>
<CAPTION>
Date of
Purchase Seller Name of Multifamily Property Suites
-------- ----------------------------------- ---------------------------- ------
<S> <C> <C> <C>
03/31/97 Forest Park II Limited Partnership, Remington Place Apartments 234
A Connecticut limited partnership
</TABLE>
Following the acquisition of the partnership's interest, the
Partnership was dissolved and title to the real property and all buildings,
fixtures and other improvements, including but not limited to the apartment
complex (collectively referred to as the "Partnership Property"), was
transferred to the Company.
As referred to herein, "Acquired Properties" refers to both the
Acquired Assets and the Partnership Property, none of which individually
constitutes a significant subsidiary.
2
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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 $53.5 million,
of which $2.6 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 necessarily 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>
The Gables at White River Indianapolis, IN 228 10 Two and three story garden 1991
style apartments with vinyl and
brick exteriors
Hawthorne Hills Toledo, OH 88 5 Two story garden style 1973
Apartments apartments with brick exteriors
Oak Bend Apartments Columbus, OH 90 15 Two story town home style 1997
apartments with vinyl siding
and stone accents
Remington Place Cincinnati, OH 234 20 Two story garden style 1988-90
Apartments apartments with cedar siding
and stone accents
Saw Mill Village Columbus, OH 340 12 Two and three story garden 1987
Apartments style apartments with vinyl and
brick exteriors
</TABLE>
ITEM 7: FINANCIAL STATEMENTS AND EXHIBITS
Financial Statements
- --------------------
This report includes (i) unaudited statements of revenue and certain
expenses of The Gables at White River, Remington Place Apartments and Saw Mill
Village Apartments (collectively the "Selected Acquisition
3
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Properties") for the period ended March 31, 1997 or date of acquisition,
whichever is earlier, and (ii) audited statements of revenue and certain
expenses for the year ended December 31, 1996 for each of the Selected
Acquisition Properties.
An audited statement of revenues and certain expenses for the year
ended December 31, 1996 for Hawthorne Hills Apartments has not been presented
as this Multifamily Property was not considered individually significant to
satisfy the audit requirements of Rule 3-14.
An audited statement of revenues and certain expenses for the year
ended December 31, 1996 for Oak Bend Apartments was not presented because the
property was under development and in the lease-up phase and, accordingly, the
related operating information of the property would not be meaningful.
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Exhibits:
- ---------
23.01 Consent of Independent Accountants.
5
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ASSOCIATED ESTATES REALTY CORPORATION
SELECTED ACQUISITION PROPERTIES
FINANCIAL STATEMENTS
6
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ASSOCIATED ESTATES REALTY CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SELECTED ACQUISITION PROPERTIES
<S> <C>
Report of Independent Accountants F-2
Statements of Revenue and Certain Expenses for
the period ended March 31, 1997 or date of
acquisition, whichever is earlier (unaudited) and
for the year ended December 31, 1996 F-3
Notes to Statements of Revenue and Certain Expenses F-4
</TABLE>
F-1
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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
The Gables, Remington Place and Saw Mill Village Apartments for the year ended
December 31, 1996. These historical statements are the responsibility of
management. Our responsibility is to express an opinion on these historical
statements based upon 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 The Gables, Remington
Place and Saw Mill Village Apartments.
In our opinion, the historical statements referred to above present fairly, in
all material respects, the revenue and certain expenses of The Gables, Remington
Place and Saw Mill Village Apartments on the basis described in Note 2 for the
year ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Cleveland, Ohio
May 8, 1997
F-2
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ASSOCIATED ESTATES REALTY CORPORATION
SELECTED ACQUISITION PROPERTIES
STATEMENTS OF REVENUE AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1997
OR DATE OF ACQUISITION, WHICHEVER IS EARLIER
(UNAUDITED)
--------------------------------------------------
The Gables at Remington Place Saw Mill Village
White River Apartments Apartments
-------------- --------------- -----------------
<S> <C> <C> <C>
Revenue
Rental income $273,316 $410,571 $705,398
Other income 2,360 8,464 --
-------- -------- --------
275,676 419,035 705,398
Certain expenses
Personnel 30,130 40,362 81,900
Advertising 7,211 8,796 11,759
Utilities 19,496 15,139 46,272
Building and grounds repair and maintenance 38,764 28,991 39,038
Real estate taxes and insurance 19,852 42,778 82,449
Other operating expenses 15,028 6,124 10,741
-------- -------- --------
130,481 142,190 272,159
-------- -------- --------
Revenue in excess of certain expenses $145,195 $276,845 $433,239
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------
The Gables at Remington Place Saw Mill Village
White River Apartments Apartments
-------------- --------------- -----------------
<S> <C> <C> <C>
Revenue
Rental income $1,800,083 $1,756,328 $2,615,683
Other income 17,368 13,325 8,246
---------- ---------- ----------
1,817,451 1,769,653 2,623,929
Certain expenses
Personnel 167,102 172,680 236,110
Advertising 33,910 21,677 76,586
Utilities 72,845 86,545 191,793
Building and grounds repair and maintenance 174,607 193,681 285,013
Real estate taxes and insurance 195,839 195,634 333,183
Other operating expenses 60,523 97,677 74,927
---------- ---------- ----------
704,826 767,894 1,197,612
---------- ---------- ----------
Revenue in excess of certain expenses $1,112,625 $1,001,759 $1,426,317
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
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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>
The Gables at White River Indianapolis, Indiana 228 1991
Remington Place Apartments Cincinnati, Ohio 234 1986
Saw Mill Village Apartments Columbus, Ohio 340 1987
</TABLE>
The statements of revenues and certain expenses for the unaudited
period ended March 31, 1997, includes the operating results of each of the
Selected Acquisition Properties detailed above from January 1, 1997 through the
earlier of the date of acquisition or March 31, 1997 (unaudited) and for the
year ended December 31, 1996. The Gables at White River, Remington Place
Apartments and Saw Mill Village Apartments were acquired by Associated Estates
Realty Corporation (the "Company") on February 6, March 31, and April 22, 1997,
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 March 31, 1997 or date of
acquisition, whichever is earlier, 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
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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: July 1, 1997 /s/ Dennis W. Bikun
- ------------------------- -------------------------------------
Dennis W. Bikun
Chief Financial Officer & Treasurer
Chief Accounting Officer
F-5
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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. 333-22419) of Associated Estates
Realty Corporation of our report dated May 8, 1997 relating to the statements
of revenue and certain expenses of each of the Selected Acquisition Properties,
as defined, which appears in the current report on Form 8-K of Associated
Estates Realty Corporation dated February 6, 1997.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Cleveland, Ohio
July 1, 1997
