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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, 1996
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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
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ASSOCIATED ESTATES REALTY CORPORATION
(Exact name of registrant as specified in its charter)
Ohio 34-1747603 5025 Swetland Court, Richmond Hts., Ohio 44143-1467
- - ------------------------------- ---------------------- ---------------------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer (Address of principal executive offices) (Zip Code)
incorporation or organization) Identification Number)
Registrant's telephone number, including area code (216) 261-5000
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
APPLICABLE ONLY TO CORPORATE ISSUERS:
-------------------------------------
Indicate the number of shares outstanding of each of the issuer's classes of
common as of the latest practicable date.
13,872,381 shares outstanding as of May 13, 1996.
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ASSOCIATED ESTATES REALTY CORPORATION
INDEX
PART 1 - FINANCIAL INFORMATION Page
----
ITEM 1 Financial Statements
Consolidated Balance Sheets as of March 31, 1996
and December 31, 1995........................................................................ 3
Consolidated Statements of Operations for the three
month period ended March 31, 1996 and 1995................................................... 4
Consolidated Statements of Cash Flows for the three month
period ended March 31, 1996 and 1995......................................................... 5
Notes to Financial Statements.................................................................. 6
ITEM 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................................................10
PART II - OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K...............................................................19
SIGNATURES .....................................................................................................20
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ASSOCIATED ESTATES REALTY CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1996 1995
------------------ -------------------
(Unaudited)
ASSETS
Real estate assets:
Land $ 46,263,784 $ 43,829,336
Buildings and improvements 397,226,598 373,420,546
Furniture and fixtures 17,354,459 16,714,676
------------------ -------------------
460,844,841 433,964,558
Less: accumulated depreciation (100,701,413) (97,301,859)
------------------ -------------------
Real estate, net 360,143,428 336,662,699
Cash and cash equivalents 1,484,420 2,848,285
Restricted cash and investments 4,875,939 5,078,884
Accounts and notes receivable:
Rents 1,221,959 1,363,587
Affiliates 1,262,720 731,580
Other 38,068 38,068
Deferred charges and prepaid expenses 4,010,621 3,651,537
Other assets 1,378,018 1,335,377
------------------ -------------------
$ 374,415,173 $ 351,710,017
================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Secured debt $ 66,930,112 $ 68,909,238
Unsecured debt 131,791,007 102,325,107
------------------ -------------------
Total indebtedness 198,721,119 171,234,345
Capital lease obligations 333,276 274,319
Accounts payable and accrued expenses 9,751,791 11,794,365
Dividends payable 6,241,571 5,963,834
Resident security deposits 3,853,154 3,668,159
Funds held for non-owned properties 2,952,924 5,399,836
Accrued interest 3,840,360 1,997,181
Accumulated losses and distributions of equity
investees in excess of investment and advances 12,374,089 12,208,299
------------------ -------------------
Total liabilities 238,068,284 212,540,338
Commitments and contingencies - -
Shareholders' equity:
Preferred shares, Class A cumulative, without par value;
3,000,000 shares authorized; 225,000 issued and outstanding 56,250,000 56,250,000
Common shares, without par value, $.10 stated value;
50,000,000 shares authorized; 13,872,381 shares
issued and outstanding 1,387,238 1,387,238
Paid-in capital 102,567,007 102,567,007
Accumulated dividends in excess of net income (23,857,356) (21,034,566)
------------------ -------------------
Total shareholders' equity 136,346,889 139,169,679
------------------ -------------------
$ 374,415,173 $ 351,710,017
================== ===================
The accompanying notes are an integral part
of these financial statements
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ASSOCIATED ESTATES REALTY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED MARCH 31,
(UNAUDITED)
1996 1995
----------------- -----------------
Revenues
Rental $ 20,559,867 $ 15,720,372
Property management fees 92,080 119,942
Property management fees-affiliates 862,114 878,899
Painting service 73,776 30,159
Painting service-affiliates 207,502 136,320
Other 252,797 240,146
----------------- -----------------
22,048,136 17,125,838
Expenses
Property operating and maintenance 8,514,709 6,374,971
Depreciation and amortization 3,549,955 2,762,708
Painting services 258,380 154,285
General and administrative 1,292,325 1,292,216
Interest expense 3,624,086 2,464,138
----------------- -----------------
Total expenses 17,239,455 13,048,318
----------------- -----------------
Income before equity in net income (loss) of
joint ventures 4,808,681 4,077,520
Equity in net income (loss) of joint ventures (17,504) 53,814
----------------- -----------------
Net income $ 4,791,177 $ 4,131,334
================= =================
Net income applicable to common shares $ 3,420,072 $ 4,131,334
================= =================
Per Common Share:
Net income $ .25 $ .30
================= =================
Dividends paid $ .45 $ .43
================= =================
Weighted average number of common shares outstanding
(in thousands) 13,872 13,869
================= =================
The accompanying notes are an integral part
of these financial statements
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ASSOCIATED ESTATES REALTY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIOD ENDED MARCH 31,
(UNAUDITED)
1996 1995
------------------- -------------------
Cash flow from operating activities:
Net income $ 4,791,177 $ 4,131,334
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,549,955 2,762,708
Equity in net loss (income) of joint ventures 17,504 (53,814)
Earnings distributed from joint ventures 76,785 45,496
Net change in accounts and notes receivable 141,628 180,723
Net change in accounts and notes receivable-affiliates (531,140) (64,074)
Net change in accounts payable and accrued expenses (2,158,922) (281,068)
Net change in other operating assets and liabilities 1,500,957 68,536
Net change in restricted cash 202,945 76,119
Net change in funds held for non-owned properties (2,446,912) (3,114,198)
------------------- ------------------
Total adjustments 352,800 (379,572)
------------------ ------------------
Net cash flow provided by operations 5,143,977 3,751,762
Cash flow from investing activities:
Acquisition of real estate (net of liabilities assumed) (26,248,388) (24,944,256)
Fixed asset additions (179,472) (186,033)
Distributions from joint ventures 71,501 70,790
------------------ -----------------
Net cash flow used for investing activities (26,356,359) (25,059,499)
Cash flow from financing activities:
Increase in unsecured debt 29,314,623 27,003,815
Decrease in secured debt (1,979,126) -
Payments of deferred financing and offering costs (121,299) (722,667)
Payments under capital lease obligations (29,451) (13,412)
Common share dividends paid (5,965,125) (5,547,752)
Preferred share dividends paid (1,371,105) -
------------------ -----------------
Net cash flow provided by financing activities 19,848,517 20,719,984
------------------ -----------------
Decrease in cash and cash equivalents (1,363,865) (587,753)
Cash and cash equivalents, beginning of period 2,848,285 1,870,584
------------------ -----------------
Cash and cash equivalents, end of period $ 1,484,420 $ 1,282,831
================== =================
The accompanying notes are an integral part
of these financial statements
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ASSOCIATED ESTATES REALTY CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
The Company is a self-administered and self-managed real estate
investment trust ("REIT") which specializes in acquisition, development,
ownership and management of multifamily properties in the Great Lakes Region. At
March 31, 1996, the Company owned or was a joint venture partner in 80
multifamily properties containing 15,041 suites. Additionally, the Company
manages 40 non-owned properties, 32 of which are multifamily properties
consisting of 7,052 suites and eight of which are commercial properties
containing an aggregate of approximately 825,000 square feet of gross leasable
area. The Company's real estate property management operations, a painting
service company, a computer services company and a mortgage origination and
servicing company have for the most part been assigned to affiliates of the
Company that are collectively referred to as the "Service Companies".
As referred to herein, the "Company" means Associated Estates Realty
Corporation, its wholly owned subsidiaries, which own certain of the real estate
properties, and the Service Companies.
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION/COMBINATION
The accompanying consolidated financial statements include the
accounts of the Company, its wholly owned subsidiaries, which own certain of the
real estate properties, and the Service Companies, which provide various
services to both owned and non-owned properties. The Company holds a preferred
share interest in these Service Companies which entitles it to receive 95% of
the economic benefits from operations and which is convertible into a majority
interest in the voting common shares. The outstanding voting common shares of
these Service Companies are held by an executive officer of the Company. The
Service Companies are consolidated because, from a financial reporting
perspective, the Company is entitled to virtually all economic benefits and has
operating control over the companies.
One property included in the financial statements is 33-1/3% owned by
third party investors. As this property has an accumulated deficit, no
recognition of the third party interest is reflected in the financial statements
since it is the Company's policy to recognize minority interests only to the
extent that the third party's investment and accumulated share of income exceeds
distributions and its share of accumulated losses. Investments in joint
ventures, which are 50% or less owned by the Company, are presented using the
equity method of accounting. Since the Company intends to fulfill its
obligations as a partner in the joint ventures, the Company has recognized its
share of losses and distributions in excess of its investment.
The accompanying unaudited financial statements reflect all
adjustments which are, in the opinion of management, necessary to reflect a fair
presentation of the results for the interim periods presented, and all such
adjustments are of a normal recurring nature.
All significant inter-entity balances and transactions have been
eliminated in consolidation.
Certain reclassifications have been made to the 1995 financial
statements to conform to the 1996 presentation.
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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.
INCENTIVE COMPENSATION PLANS
During 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-based
Compensation" which establishes financial accounting and reporting standards for
stock-based compensation paid to employees and suppliers of goods or services.
The Company has elected to adopt this standard through annual disclosure only.
3. ACQUISITION AND DEVELOPMENT OF MULTIFAMILY PROPERTIES
During the period January 1, 1996 through March 31, 1996, the Company
acquired, in separate purchase transactions, two multifamily properties
containing an aggregate of 540 suites for an aggregate purchase price of $23.9
million, which were financed with borrowings under the Company's Line of Credit.
Construction in progress for the development of multifamily property
was $10,387,658 and $7,730,937 at March 31, 1996 and December 31, 1995,
respectively. The Company capitalizes interest on funds used in constructing
property from the date of initiation of construction activities through the time
the property is ready for leasing. The Company also capitalizes real estate
taxes and insurance costs during the construction period.
4. SHAREHOLDERS' EQUITY
The following table summarizes the changes in shareholders' equity
since December 31, 1995:
Class A Common Accumulated
Cumulative Shares Dividends
Preferred (at $.10 Paid-In In Excess Of
Shares stated value) Capital Net Income Total
------------ ------------- ---------- -------------- -----------
Balance, Dec. 31, 1995 $56,250,000 $ 1,387,238 $ 102,567,007 $(21,034,566) $139,169,679
Net income - - - 4,791,177 4,791,177
Common share
dividends declared - - - (6,242,862) (6,242,862)
Preferred share
dividends declared - - - (1,371,105) (1,371,105)
-------------- --------------- ---------------- --------------- ---------------
Balance, Mar. 31, 1996 $56,250,000 $ 1,387,238 $ 102,567,007 $(23,857,356) $136,346,889
============== =============== ================ =============== ===============
5. SECURED DEBT
CONVENTIONAL MORTGAGE DEBT
Conventional mortgages payable are comprised of nonrecourse loans to
the Company which are collateralized by the associated real estate and resident
leases. Mortgages payable are generally due in monthly installments of principal
and/or interest and mature at various dates through August 1, 2018.
FEDERALLY INSURED MORTGAGE DEBT
This mortgage indebtedness is insured by HUD pursuant to certain of the
mortgage insurance programs administered under the National Housing Act of 1934.
These government-insured loans are nonrecourse to the Company. Payments of
principal, interest and HUD mortgage insurance premiums are made in equal
monthly installments and mature at various dates through August 1, 2028.
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Under certain of the mortgage agreements, the Company is required to
make escrow deposits for taxes, insurance and replacement of project assets. One
underlying mortgage is secured by a letter of credit which is renewed annually.
6. UNSECURED DEBT
SENIOR NOTES
The Senior Notes were issued in 1995, and net proceeds of $83.6
million, after underwriting commissions, offering expenses and discounts, were
applied to amounts drawn on the Company's Revolving Credit Facility or Line of
Credit. Notes with a principal balance of $75,000,000 accrue interest at 8.38%
and mature in 2000. The remaining notes, in the principal amount of $10,000,000,
accrue interest at 7.10% and mature in 2002.
LINE OF CREDIT
The Company utilizes a $75 million unsecured revolving credit facility
(the "Line of Credit"). The Line of Credit includes certain restrictive
covenants which, among others, requires the Company to maintain a minimum level
of net worth, to limit dividends to 90% of Distributable Cash Flow, to restrict
the use of its borrowings and to maintain certain debt coverage ratios. The Line
of Credit provides for a scaled reduction in the LIBOR, present prime rate and
commitment fee margins based on the Company's credit ratings. Based on the
Company's present credit ratings and pursuant to a March 1996 interest rate
reduction amendment to the Line of Credit, the LIBOR margin is 1.5% 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 .25% to .375% based on
the average daily unused amount of the facility is paid quarterly in arrears.
The Line of Credit expires in September 1997 and the Company has the option to
extend the facility for an additional one year period. At March 31, 1996, $39.6
million was drawn on the Line of Credit.
MEDIUM TERM NOTES PROGRAM
The Company's $75 million Medium Term Notes Program became effective
on January 3, 1996. The Company issued two notes under the MTN Program
aggregating $7.5 million. The net proceeds of approximately $7.4 million were
applied to amounts borrowed under the Line of Credit.
One note with a principal balance of $5,000,000 accrues interest at
6.83% and is due in 2003. The second note has a principal balance of $2,500,000
and accrues interest at 6.60% and is due in 2026. The holder of the $2,500,000
note has the option to require repayment on March 15, 2003.
7. EARNINGS PER SHARE
Net income per share has been computed by dividing common share
dividends paid or declared for the period by the weighted average number of
common shares outstanding plus the undistributed net income applicable to common
shareholders as appropriate, divided by the weighted average number of common
shares outstanding. Common share equivalents were excluded from the earnings per
share calculation as they were not dilutive. The weighted average number of
shares outstanding utilized in the calculation was 13,872,381 and 13,869,381 for
the periods ended March 31, 1996 and 1995, respectively.
8. PRO FORMA FINANCIAL INFORMATION
The following unaudited supplemental pro forma operating data for the
three months ended March 31, 1996 is presented to reflect the effects of the two
property acquisitions completed through March 31, 1996, as if such transactions
had occurred on January 1, 1996. The unaudited supplemental pro forma operating
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data for the three months ended March 31, 1995 is presented to reflect the
effects of (i) the issuance of the Senior and Medium Term Notes, (ii) the
offering of 2,250,000 Depositary Shares, each representing 1/10 of a share of
the Company's 9 3/4% Class A Cumulative Redeemable Preferred Shares, (iii) the
15 property acquisitions completed in 1995, and (iv) the two property
acquisitions completed in 1996, as if such transactions had occurred on January
1, 1995.
For the three months ended
March 31,
----------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1996 1995
---------------- -----------------
Revenues $ 22,660 $ 21,042
Income before equity in net income or loss of affiliates 5,041 4,544
Net income applicable to common shares 3,652 3,490
Net income applicable to common shares per share .26 .25
Weighted average common shares outstanding 13,872 13,869
The 1995 pro forma financial information does not include the revenue
and expenses for Colony Bay East Phase I and II, Kensington Grove or the
Residence at Washington for the period January 1 through March 31, 1995. The
revenue and expenses of the aforementioned properties were excluded from the pro
forma financial information for the period as they were under construction for
substantially all of the period prior to their acquisition.
9. SUBSEQUENT EVENTS
On February 21, 1996, the Company declared a dividend of $.45 per share
for the quarter ending March 31, 1996. The dividend will be paid on May 1, 1996
to shareholders of record on April 15, 1996.
Subsequent to March 31, 1996, the Company acquired one multifamily
property containing 248 suites in Kalamazoo, Michigan for an aggregate purchase
price of $12.5 million which was financed using borrowings under the Line of
Credit.
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ASSOCIATED ESTATES REALTY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Associated Estates Realty Corporation (the "Company") is a Real Estate
Investment Trust ("REIT") formed in July of 1993. In November of 1993, the
Company completed its initial public offering (the "IPO") of common stock and
currently owns or is a joint venture partner in 81 multifamily properties
containing 15,281 suites. Subsequent to the IPO and prior to March 31, 1996, the
Company acquired 38 multifamily properties containing 6,165 suites in Ohio,
Michigan and Pittsburgh, Pennsylvania and three land parcels containing 89.7
acres for a aggregate investment of $270.3 million.
The following discussion should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this report.
Historical results and percentage relationships set forth in the Consolidated
Statements of Operations contained in the financial statements, including trends
which might appear, should not be taken as indicative of future operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company has elected to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended, commencing with
its taxable year ending December 31, 1994. REIT's are subject to a number of
organization and operational requirements including a requirement that 95% of
the income that would otherwise be considered as taxable income be distributed
to its shareholders. Providing the Company continues to qualify as a REIT, it
will generally not be subject to a Federal income tax on net income.
The Company expects to meet its short-term liquidity requirements
generally through its net cash provided by operations. The Company believes that
its net cash provided by operations will be sufficient to meet both operating
requirements and the payment of dividends by the Company in accordance with REIT
requirements in both the short and long term.
Acquisitions 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 three months ended March 31, 1996, the Company acquired two
multifamily properties containing an aggregate of 540 suites for an aggregate
purchase price of $23.9 million. The acquisitions, which are located in Central
Ohio and Pittsburgh, Pennsylvania, were financed with borrowings under the Line
of Credit. The Company has also entered into a contract for the construction of
a 324 suite property that will be known as Bradford at Easton on a 45 acre
Columbus, Ohio land parcel owned by the Company for a total estimated cost of
$17.6 million. The Company anticipates that construction of Bradford at Easton
will be completed in the Fall of 1997. The Company is also planning a 288 suite
development in Northern Ohio for an estimated cost of $20.9 million that will
be constructed in two phases beginning in the Spring of 1996 and scheduled for
completion in the Fall of 1997.
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Subsequent to March 31, 1996, the Company acquired a multifamily property in
Kalamazoo, Michigan containing 248 suites for an aggregate purchase price of
$12.5 million which was financed with borrowings under the Company's Line of
Credit. The Company is currently under contract to purchase a parcel of
undeveloped land in Streetsboro, Ohio consisting of 12.5 acres and two
multifamily properties, one of which is located in Holland, Michigan and the
other in Grand Rapids, Michigan, containing an aggregate of 312 suites, for an
aggregate purchase price of $12.6 million. If acquired, the Company will
commence construction of a 112 suite multifamily property on the Streetsboro
land parcel commencing in the Summer of 1996. The Company expects to finance
the acquisition of the two properties and land parcel using borrowings under
the Line of Credit and the assumption of mortgage indebtedness. There can be no
assurances, however, that the Company will be successful in acquiring the two
properties and the land parcel under contract.
The Company is exploring opportunities to sell several of the
government assisted properties and has received an expression of interest from a
number of different sources. In addition, the Company has determined that a 90
acre parcel of land which was one of the assets acquired by the Company at the
time of the IPO that is presently zoned for office and industrial use will not
be rezoned for multifamily use. The Company intends to sell the property and has
received interest from parties interested in developing office and industrial
buildings on the property.
Financing:
The Company utilizes a $75 million unsecured revolving credit facility
(the "Line of Credit") that includes certain restrictive covenants which, among
others, require the Company to maintain a minimum level of net worth, to limit
dividends to 90% of Distributable Cash Flow, to restrict the use of its
borrowings and to maintain certain debt coverage ratios. The Line of Credit
provides for a scaled reduction in the LIBOR, prime rate and commitment fee
margins based on the Company's credit ratings. Based on the Company's present
credit ratings and pursuant to a March 1996 interest rate reduction amendment,
the LIBOR margin is 1.50%, 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 0.25% and 0.375% on the average daily unused amount of
the facility is paid quarterly in arrears based on the amount outstanding on the
facility. 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,
1996, $39.6 million was drawn on the Line of Credit. The weighted average
interest rate for Line of Credit borrowings was 7.56% during the first quarter
of 1996.
Sixty-one of the Company's 73 wholly owned properties were unencumbered
at March 31, 1996 with annualized earnings before interest, depreciation and
amortization of over $38.8 million and an historical cost basis of over $336.0
million. Twelve of the Company's wholly owned properties, having an historical
cost basis of $94.3 million, secured $65.3 million of property specific mortgage
debt at March 31, 1996 which comprised 30.3% of the Company's outstanding debt.
The Company's unsecured debt totaled $131.8 million at March 31, 1996 which
comprised 61.3% of the Company's outstanding debt. The Company's Senior Notes
and Medium Term Notes have been rated BBB- and Baa3 by Standard and Poor's and
Moody's, respectively. The weighted average interest rate on the Company's debt
was 8.10% at March 31, 1996.
The Company has filed shelf registration statements with the Securities
and Exchange Commission for the registration of up to $250 million and $200
million of debt securities, preferred shares, depositary shares, common shares
and common share warrants in January and December of 1995 respectively. The
Company has $233.8 million of securities under these shelf filings available
for issuance.
Cash flow sources and applications:
Net cash provided by operating activities increased $1,392,200 for the
three months ended March 31, 1996 when compared to the three months ended March
31, 1995. This increase was primarilly the result of an increase in earnings
before depreciation and amortization attributable to the increase in the
Company's asset portfolio.
Net cash flows used for investing activities of $26,356,400 for the
three months ended March 31, 1996 were primarily used for the acquisition of
multifamily real estate property.
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Net cash flows provided by financing activities of $19,848,500 for the
three months ended March 31, 1996 were primarily comprised of borrowings on the
Line of Credit. Funds were also used to pay dividends on the Company's
common and perpetual preferred shares.
On February 21, 1996, the Company declared a dividend of $0.45 per
common share for the quarter ending March 31, 1996, which was paid on May 1,
1996 to shareholders of record on April 15, 1996.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1996 TO THE THREE MONTHS ENDED
MARCH 31, 1995.
Overall, total revenue increased $4,922,300, or 28.7%, and total
expenses before the net income of the joint ventures increased $4,191,200, or
32.1%, for the quarter . Net income applicable to common shares decreased
$711,300, or 17.2%, after the Company's interest in the net income of the joint
venture properties and dividends on the Company's perpetual preferred shares.
In the following discussion of the comparison of the three months ended
March 31, 1996 to the three months ended March 31, 1995, the term "Core
Portfolio Properties" refers to the 36 wholly owned multifamily properties
acquired by the Company at the time of the IPO, the 21 properties acquired
during 1994 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 17 multifamily properties acquired between
January 1, 1995 and March 31, 1996.
During the three months ended March 31, 1996, the Acquired Properties
generated total revenues of $4,727,300 for the quarter while incurring property,
operating and maintenance expenses of $1,870,500.
Rental Revenues:
Rental revenues increased $4,839,600, or 30.8%, for the quarter. Rental
revenues from the Acquired Properties increased $4,144,800 for the same period.
Increases in occupancy and suite rents at the Core Portfolio market rate and
government assisted properties resulted in a $694,800 or 4.6% increase in rental
revenue from these properties. Approximately $75,000, or 0.5%, of the increase
in the Core Portfolio rental revenue relates to a retroactive rent increase at
one of the Company's government assisted properties.
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The following table summarizes the comparative rents per suite and
economic occupancies(1) by property type:
Average Net Collected Average Economic
Rent Per Suite2 Occupancy
------------------------------------ ----------------------
For the three months Percent For the three months
ended March 31, Increase ended March 31,
1996 1995 1996 1995
------ ------ ------ ------ ------
Core Portfolio Properties:
Market rate $ 551 $ 532 3.6% 95.0% 94.4%
Market rate - joint venture
properties 476 469 1.5% 91.3% 91.9%
Weighted average -
Market rate properties 542 524 3.4% 94.6% 94.1%
Government Assisted 653 635 2.8% 99.8% 100.0%
Weighted average - Core
Portfolio Properties 561 544 3.1% 95.6% 95.3%
Table I on page 16 summarizes the rental rates, occupancies and certain
other information for each of the Acquired Properties and Core Portfolio
Properties.
Other Revenues:
Painting service revenue and painting service revenue - affiliates
increased $114,800, or 69.0%, for the quarter and reflects an increase in
revenue generated from suite painting and major renovation projects when
compared to the previous year. 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 $2,139,700, or
33.6%, for the quarter. Operating and maintenance expenses at the Acquired
Properties increased $1,717,700 for the quarter due primarily to the operating
and maintenance expenses incurred at the 13 properties that were acquired
between April 1, 1995 and March 31, 1996. Property operating and maintenance
expenses at the Core Portfolio Properties increased $422,000, or 6.8%, when
compared to the prior three month period primarily due to increases in payroll,
advertising and real estate taxes which were offset by a decline in maintenance
and repair expenses. Payroll expense at the Core Portfolio Properties increased
$252,100, or 17.4%, due to (i) an increase in staff at the properties acquired
during 1994 and (ii) higher levels of overtime for snow removal than were
incurred during the quarter ended March 31, 1995. Real estate taxes for the Core
Portfolio Properties increased $227,400, or 19.3%, due primarily to the increase
in the real estate tax valuations for certain properties as a result of a
reassessment. Total expenditures for building renovations and suite and
- - --------------
1 Economic occupancy is defined as the actual rent revenue divided by
the total rent expected to be earned based on the market rental rate of all
occupied suites.
2 Net collected rent revenue per suite is defined as the rent revenue
recognized on occupied suites at the actual rents in accordance with the
respective leases divided by the total number of suites available to be leased.
Page 13
14
common area refurbishment (including suite painting) in the Core Portfolio
Properties averaged $555 per suite for the three months ended March 31, 1996 as
compared to $617 per suite for the three months ended March 31, 1995. This
decline in renovation and suite and common area refurbishment expenses is
primarily due to the timing of the occurrence of the expenses in 1996 and it is
expected that the favorableness in maintenance and repair expenses over the
prior quarter will reverse as the year progresses.
Other expenses:
Depreciation and amortization increased $787,200, or 28.5%, for the
quarter primarily due to the increased depreciation and amortization expense
recognized on the Acquired Properties of $819,800.
Painting services expenses increased $104,100, or 67.5%, for the
quarter. These increases were primarily the result of an increase in payroll
related expenses attributable to the increase in the number of suites painted by
the painting company.
Interest expense increased $1,159,900, or 47.1%, 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
combined. In addition, the Company incurred interest on the $75 million Senior
Notes at an effective rate of 8.48% during the first quarter of 1996.
Equity in the net income (loss) of the joint ventures:
The combined equity in the net income of the joint ventures decreased
$71,300, or 132.5%,for the quarter The decrease is primarily attributable to a
decline in occupancy at the joint venture properties and higher operating
expenses due to increases in (i) overtime wages incurred for snow removal, (ii)
utility costs and (iii) heating system repairs and maintenance costs.
The following table presents the historical statements of operations of
the Company's beneficial interest in the operations of the joint ventures for
the three months ended March 31, 1996 and 1995.
For the three months ended
March 31,
------------------------------
1996 1995
-------------- -------------
Beneficial interests in
joint venture operations
Rental revenue $ 1,642,604 $ 1,625,875
Cost of operations 1,083,045 994,462
-------------- -------------
559,559 631,413
Interest income 3,692 6,658
Interest expense (447,761) (451,951)
Depreciation (120,460) (119,900)
Amortization (12,536) (12,407)
-------------- -------------
Net income $ (17,504) $ 53,813
============== =============
Net income applicable to common shares:
Net income applicable to common shares is reduced by dividends on the
2,250,000 Depositary Shares, each representing 1/10 of a share of the Company's
9 3/4% Class A Cumulative Redeemable Preferred Shares, of $1,371,000.
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 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.
Page 14
15
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. 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 $2.0
million per environmental contamination discovery (with a $50,000 deductible)
and has a $10.0 million policy term aggregate. Management has no plans to
abandon any of the properties and is unaware of any other material loss
contingencies.
Page 15
16
The following tables present information concerning the Multifamily
Properties owned by Associated Estates Realty Corporation.
For the three months ending
---------------------------
March 31, 1996
------------------------
Year Average Average
Type of Total Built or Unit Size Economic Physical
The Multifamily Properties Location Construction Suites Rehab. Sq. Ft. Occupancy Occupancy
- - ---------------------------- ----------- ------------ ------ ------- -------- --------- ---------
MARKET RATE
ACQUISITION PROPERTIES
CENTRAL OHIO PROPERTIES
Arrowhead Station Columbus Townhomes 102 1987 1,344 88.5% 97.1%
Colony Bay East Columbus Garden 156 1994 903 89.9 98.7
Kensington Grove Westerville Garden/Townhm. 76 1995 1,109 96.7 97.4
The Residence at Washington Wash. Ct. Ranch 72 1995 862 N/A 95.8
--- ----- ---- -------
406 1,045 91.4% 97.5%
WESTERN PENNSYLVANIA
Chestnut Ridge Pittsburgh Garden 468 1986 769 N/A 84.6%
MICHIGAN PROPERTIES
Arbor Landings Apartments Ann Arbor Townhomes 168 1990 1,116 97.2% 97.0%
Country Place Apartments Mt. Pleasant Garden 144 1987 859 100.0 98.6
Summer Ridge Apartments Kalamazoo Garden 248 1989-91 960 N/A N/A
The Oaks and Woods at Hampton Rochester Hil Garden/Townhm 544 1986-88 1,050 97.5 98.9
The Landings at the Preserve Battle Creek Garden 190 1990-91 952 86.8 92.1
--- ----- ---- -------
1,294 1,006 95.9% 97.3%
NORTHERN OHIO PROPERTIES
Cloisters Toledo Townhomes 188 1990 1,037 93.7% 94.7%
Kensington Village Toledo Townhomes 190 1985-90 920 97.0 96.3
Mallard's Crossing Medina Townhomes 192 1990 998 97.8 97.4
Treetops Toledo Townhomes 128 1988-89 1,350 95.6 95.3
Vantage Villa Toledo Garden 150 1974 935 95.9 93.3%
--- ----- ---- ----
848 1,031 96.1 95.5
--- ----- ---- ----
Acquisition Properties 3,016 981 95.3% 94.7%
CORE PORTFOLIO PROPERTIES
MICHIGAN PROPERTIES
Central Park Place Grand Rapids Townhomes 216 1988 850 97.0% 93.5%
Georgetown Park Apartments Fenton Townhomes 312 1987-95 1,005 93.4 93.6
--- ----- ---- ----
528 942 94.8% 93.6%
CENTRAL OHIO PROPERTIES
Bedford Commons Columbus Townhome 112 1987 1,157 96.6% 93.8%
Bentley Station Columbus Garden 96 1993 891 93.5 96.9
Bolton Estates Columbus Garden 196 1992 687 88.1 93.9
Heathermoor Worthington Garden/Townhm 280 1989 829 94.0 96.8
Lake Forest Columbus Garden 192 1994 788 87.8 93.8
Muirwood Village at Bennell Columbus Garden 140 1988 807 97.0 98.6
Muirwood Village at Gemstar Columbus Garden 24 1988 769 100.0 100.0
Muirwood Village at London London Garden 112 1989 769 95.2 97.3
Muirwood Village at Mt. Sterling Mt. Sterling Garden 48 1990 769 95.7 87.5
Muirwood Village at Zanesville Zanesville Garden 196 1991 769 100.0 97.4
Pendleton Lakes Columbus Garden 160 1990 903 84.1 98.1
Residence at Christopher Wren Gahanna Townhomes 264 1993 1,062 93.3 94.3
Residence at Turnberry Pickerington Townhomes 216 1991 1,182 92.0 93.1
Sheffield at Sylvan Circleville Garden 136 1989 791 98.0 96.3
Sterling Park Grove City Garden 128 1994 763 96.4 95.3
The Residence at Newark Newark Garden 112 1993 868 99.9 99.1
Wyndermere Franklin Garden 128 1991 768 100.0 97.7
--- ----- ---- ----
2,540 874 94.7% 95.8%
NORTHERN OHIO PROPERTIES
Bay Club Willowick Garden 96 1990 925 95.4% 92.7%
Colonade Elyria Elyria Garden 72 1964 512 94.8 98.6
Colonade West Cleveland Garden 216 1964 502 96.7 96.3
Cultural Gardens Euclid Mid Rise 186 1966 688 98.0 98.9
Edgewater Landing Cleveland High Rise 241 1988 r 585 95.9 99.2
Gates Mills III Mayfield Hts. High Rise 320 1978 874 91.9 98.4
Holly Park Kent Garden 192 1990 875 89.6 92.7
Huntington Hills Stow Garden 85 1982 976 96.6 97.6
Memphis Manor Cleveland Garden 120 1966 554 94.5 98.3
For the three months ending
---------------------------------------------------------------
March 31, 1996 March 31, 1995
------------------ ---------------------------------------
Average Rent Average Average Rent
Per Economic Physical Per
The Multifamily Properties Suite Sq. Ft. Occupancy Occupancy Suite Sq. Ft.
- - ---------------------------- -------- ------- --------- --------- ----- -------
MARKET RATE
ACQUISITION PROPERTIES
CENTRAL OHIO PROPERTIES
Arrowhead Station $ 640 $ 0.48 98.9% 93.1% $ 563 $ 0.42
Colony Bay East 482 0.53 98.0 99.0 469 0.52
Kensington Grove 750 0.68 N/A N/A N/A N/A
The Residence at Washington N/A N/A N/A N/A N/A N/A
----- ---- ----- ----- --- ----
$ 591 $ 0.54 98.5% 96.0% $ 518 $ 0.46
WESTERN PENNSYLVANIA
Chestnut Ridge N/A N/A N/A N/A N/A N/A
MICHIGAN PROPERTIES
Arbor Landings Apartments $ 807 $ 0.72 92.9% 96.4% 805 $ 0.72
Country Place Apartments 487 0.57 N/A N/A N/A N/A
Summer Ridge Apartments N/A N/A N/A N/A N/A N/A
The Oaks and Woods at Hampton 752 0.72 N/A N/A N/A N/A
The Landings at the Preserve 646 0.68 N/A N/A N/A N/A
----- ---- ----- ----- --- ----
$ 705 $ 0.69 92.9% 96.4% $ 805 $ 0.72
NORTHERN OHIO PROPERTIES
Cloisters $ 499 $ 0.48 N/A N/A N/A N/A
Kensington Village 430 0.47 N/A N/A N/A N/A
Mallard's Crossing 656 0.66 93.8 94.3 629 0.63
Treetops 704 0.52 N/A N/A N/A N/A
Vantage Villa 561 0.60 N/A N/A N/A N/A
----- ---- ----- ----- --- ----
561 0.54 93.8 94.3 629 0.63
----- ---- ----- ----- --- ----
Acquisition Properties $ 633 $ 0.61 94.8% 95.5% $ 642 $ 0.59
CORE PORTFOLIO PROPERTIES
MICHIGAN PROPERTIES
Central Park Place $ 608 $ 0.72 98.9% 99.5% $ 571 $ 0.67
Georgetown Park Apartments 651 0.65 98.9 99.7 624 0.62
----- ---- ----- ----- --- ----
$ 634 $ 0.67 98.9% 99.6% $ 601 $ 0.64
CENTRAL OHIO PROPERTIES
Bedford Commons $ 710 $ 0.61 100.0% 98.2% $ 687 $ 0.59
Bentley Station 504 0.57 87.9% 90.6% 484 0.54
Bolton Estates 459 0.67 92.5 91.3 444 0.65
Heathermoor 524 0.63 93.4 95.0 508 0.61
Lake Forest 530 0.67 99.7 97.9 511 0.65
Muirwood Village at Bennell 474 0.59 93.1 93.6 466 0.58
Muirwood Village at Gemstar 465 0.61 84.5 83.3 458 0.60
Muirwood Village at London 485 0.63 96.0 96.4 473 0.62
Muirwood Village at Mt. Sterling 479 0.62 94.0 91.7 465 0.61
Muirwood Village at Zanesville 504 0.66 99.0 98.4 483 0.63
Pendleton Lakes 493 0.55 90.5 90.6 474 0.52
Residence at Christopher Wren 702 0.66 92.2 95.5 688 0.65
Residence at Turnberry 710 0.60 93.6 94.4 703 0.59
Sheffield at Sylvan 498 0.63 100.0 98.9 491 0.62
Sterling Park 525 0.69 92.5 90.6 510 0.67
The Residence at Newark 532 0.61 99.3 96.4 518 0.60
Wyndermere 518 0.67 99.3 100.0 502 0.65
----- ---- ----- ----- --- -----
$ 551 $ 0.63 94.7% 94.8% $ 539 $ 0.61
NORTHERN OHIO PROPERTIES
Bay Club $ 604 $ 0.65 99.7% 100.0% $ 570 $ 0.62
Colonade Elyria 358 0.70 98.0 100.0 347 0.68
Colonade West 389 0.77 94.3 96.8 366 0.73
Cultural Gardens 485 0.71 97.5 98.9 472 0.69
Edgewater Landing 409 0.70 86.2 90.9 413 0.71
Gates Mills III 657 0.75 88.9 90.3 644 0.74
Holly Park 721 0.82 91.2 90.1 715 0.82
Huntington Hills 636 0.65 97.1 100.0 608 0.62
Memphis Manor 428 0.77 94.4 96.7 408 0.74
Page 16
17
For the three months ending
--------------------------
March 31, 1996
----------------------
Year Average Average
Type of Total Built or Unit Size Economic Physical
The Multifamily Properties Location Construction Suites Rehab. Sq. Ft. Occupancy Occupancy
- - ---------------------------- ------------- ------------- ------ -------- ---------- --------- ---------
Park Place Parma Hts. Mid Rise 164 1966 760 98.6 97.6
Pinecrest Broadview Hts Garden 96 1987 r 598 94.7 94.8
Portage Towers Cuyahoga Falls High Rise 376 1973 869 96.3 96.0
Somerset West (a) North Royalton Garden 197 1982 1,038 93.6 95.9
Timbers I Broadview Hts. Garden 48 1987 920 92.0 93.8
Timbers II Broadview Hts. Garden 48 1989 940 95.2 95.8
The Triangle (b) Cleveland High Rise 273 1989 616 98.4 97.1
Villa Moderne North Olmsted Garden 135 1963 504 97.2 94.8
Washington Manor Elyria Garden 48 1963 584 99.0 100.0
West Park Plaza Cleveland Garden 118 1964 520 95.3 98.3
Westchester Townhouses Westlake Garden 136 1989 1,000 96.8 94.1
Westlake Townhomes Westlake Garden 7 1985 1,000 100.0 100.0
Williamsburg at Greenwood VillagSagamore Hills Townhomes 260 1990 938 95.8 95.4
Winchester Hills I (c) Willoughby Hills High Rise 362 1972 822 92.6 96.1
Winchester Hills II Willoughby Hills High Rise 362 1979 822 95.1 94.5
----- ----- ----- -----
4,158 772 95.1 96.4
----- ----- ----- -----
Core Portfolio Market Rate Properties 7,226 820 95.0% 96.4%
GOVERNMENT ASST.-ELDERLY
Ellet Development Akron High Rise 100 1978 589 100.0% 100.0%
Hillwood I Akron High Rise 100 1976 570 100.0 100.0
Puritas Place (d) Cleveland High Rise 100 1981 518 100.0 100.0
Riverview Massillon High Rise 98 1979 553 100.0 99.0
State Road Apartments Cuyahoga Falls Garden 72 1977 r 750 100.0 100.0
Statesman II Shaker Height Garden 47 1987 r 796 100.0 100.0
Sutliff Apartments II Cuyahoga Falls High Rise 185 1979 577 99.6 100.0
Tallmadge Acres Tallmadge Mid Rise 125 1981 641 100.0 100.0
Twinsburg Apartments Twinsburg Mid Rise 100 1979 554 100.0 100.0
Village Towers Jackson Twp. High Rise 100 1979 557 100.0 99.0
West High Apartments Akron Mid Rise 68 1981 r 702 100.0 100.0
----- ----- ----- -----
1,095 602 100.0% 99.8%
GOVERNMENT ASST.-FAMILY
Jennings Commons Cleveland Garden 50 1981 823 98.8% 100.0%
Rainbow Terrace Cleveland Garden 484 1982 r 768 98.7 97.7
Shaker Park Gardens II Warrensville Garden 151 1964 753 99.0 100.0
----- ----- ----- -----
685 769 98.8 98.4
----- ----- ----- -----
Core Portfolio Government Asst. Properties 1,780 666 99.7% 99.3%
CONGREGATE CARE
Gates Mills Club Mayfield Heigts High Rise 120 1980 721 96.6% 96.7%
The Oaks Westlake Garden 50 1985 672 92.9 94.0
----- ----- ----- -----
170 707 95.3 95.9
----- ----- ----- -----
9,176 734 96.0 % 96.6%
JOINT VENTURE PROPERTIES
NORTHEAST OHIO
MARKET RATE
Americana Euclid High Rise 738 1968 803 90.3% 92.3%
College Towers Kent Mid Rise 380 1969 662 91.7 93.7
Euclid House Euclid Mid Rise 126 1969 654 96.5 92.1
Gates Mills Towers Mayfield Hts. High Rise 760 1969 856 94.2 98.0
Highland House Painesville Garden 36 1964 539 100.0 100.0
Watergate Euclid High Rise 949 1971 831 87.9 91.7
----- ----- ----- -----
2,989 789 91.3% 93.8%
GOVERNMENT ASST.-FAMILY
Lakeshore Village Cleveland Garden 108 1982 786 100.0% 100.0%
----- ----- ----- -----
3,097 789 91.9 94.0
----- ----- ----- -----
15,289 974 95.5% 95.7%
====== ===== ===== =====
For the three months ending
--------------------------------------------------------------------
March 31, 1996 March 31, 1995
-------------------- ---------------------------------------------
Average Rent Average Average Rent
Per Economic Physical Per
The Multifamily Properties Suite Sq. Ft. Occupancy Occupancy Suite Sq. Ft.
- - ---------------------------- -------- ------- --------- --------- ----- -------
Park Place 512 0.67 98.2 97.0 489 0.64
Pinecrest 452 0.76 98.2 97.9 434 0.73
Portage Towers 544 0.63 98.2 98.7 523 0.60
Somerset West (a) 678 0.65 96.6 98.0 665 0.64
Timbers I 649 0.71 99.2 100.0 632 0.69
Timbers II 699 0.74 93.3 97.9 661 0.70
The Triangle (b) 848 1.38 93.9 98.5 833 1.35
Villa Moderne 418 0.83 96.3 97.0 405 0.80
Washington Manor 377 0.65 99.2 100.0 364 0.62
West Park Plaza 412 0.79 95.7 95.8 394 0.76
Westchester Townhouses 741 0.74 90.4 96.3 718 0.72
Westlake Townhomes 745 0.75 100.0 100.0 714 0.71
Williamsburg at Greenwood Village 791 0.84 90.5 93.5 765 0.82
Winchester Hills I (c) 556 0.68 93.9 94.8 537 0.65
Winchester Hills II 588 0.72 91.2 94.8 568 0.69
--- ---- ----- ----- --- ----
582 0.75 93.6 95.8 565 0.73
--- ---- ----- ----- --- ----
Core Portfolio Market Rate Properties 575 $ 0.70 94.4% 95.7% $ 559 $ 0.68
GOVERNMENT ASST.-ELDERLY
Ellet Development 590 $1.00 99.9% 100.0% $ 589 $1.00
Hillwood I 599 1.05 100.0 100.0 596 1.05
Puritas Place (d) 782 1.51 100.0 99.9 782 1.51
Riverview 591 1.07 100.0 100.0 590 1.07
State Road Apartments 596 0.79 100.0 100.0 596 0.79
Statesman II 651 0.82 100.0 100.0 650 0.82
Sutliff Apartments II 586 1.02 100.0 100.0 580 1.01
Tallmadge Acres 662 1.03 99.8 100.0 659 1.03
Twinsburg Apartments 603 1.09 100.0 100.0 602 1.09
Village Towers 583 1.05 100.0 100.0 579 1.04
West High Apartments 790 1.13 100.0 100.0 789 1.12
--- ---- ----- ----- --- ----
632 $ 1.05 100.0% 99.9% $ 630 $ 1.05
GOVERNMENT ASST.-FAMILY
Jennings Commons 685 $ 0.83 100.0% 98.0% $ 680 $ 0.83
Rainbow Terrace 738 0.96 99.9 97.7 620 0.81
Shaker Park Gardens II 531 0.71 99.6 100.0 531 0.71
--- ---- ----- ----- --- ----
688 0.89 99.9 98.4 605 0.79
--- ---- ----- ----- --- ----
Core Portfolio Government Asst. Properties 654 $ 0.98 100.0% 99.3% $ 620 $ 0.93
CONGREGATE CARE
Gates Mills Club 749 $ 1.04 96.7% 99.2% $ 684 $ 0.95
The Oaks 953 1.42 92.0 96.0 939 1.40
--- ---- ----- ----- --- ----
809 1.14 95.0 98.2 759 1.07
--- ---- ----- ----- --- ----
595 $ 0.75 95.6% 96.5% $ 577 $ 0.73
JOINT VENTURE PROPERTIES
NORTHEAST OHIO
MARKET RATE
Americana 483 $ 0.60 93.6% 94.2% $ 469 $ 0.58
College Towers 404 0.61 89.5 88.2 380 0.57
Euclid House 430 0.66 91.3 92.9 421 0.64
Gates Mills Towers 655 0.77 93.0 96.4 646 0.75
Highland House 385 0.71 97.1 100.0 371 0.69
Watergate 533 0.64 90.6 92.5 530 0.64
--- ---- ----- ----- --- ----
521 $ 0.66 91.9% 93.5% $ 510 $ 0.65
GOVERNMENT ASST.-FAMILY
Lakeshore Village 669 $ 0.85 99.9% 99.1% $ 726 $ 0.92
--- ---- ----- ----- --- ----
528 0.67 92.5 90.2 520 0.66
--- ---- ----- ----- --- ----
$ 591 $ 0.72 95.3% 95.7% $ 575 $ 0.72
====== ====== ====== ====== ===== ======
- - --------------
(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
Page 17
18
HISTORICAL FUNDS FROM OPERATIONS AND DISTRIBUTABLE CASH FLOW
Industry analysts generally consider Funds From Operations to be an
appropriate measure of the performance of an equity REIT. Funds From Operations
is defined as net income (computed in accordance with generally accepted
accounting principles), excluding gains (or losses) from sales of property,
non-recurring and extraordinary items, plus depreciation on real estate assets
and after adjustments for unconsolidated joint ventures. Adjustments for joint
ventures are calculated to reflect Funds From Operations on the same basis.
Funds From Operations does not represent cash generated from operating
activities in accordance with generally accepted accounting principles and is
not necessarily indicative of cash available to fund cash needs and should not
be considered an alternative to net income as an indicator of the Company's
operating performance or as an alternative to cash flow as a measure of
liquidity. Distributable Cash Flow is defined as Funds From Operations less
capital expenditures funded by operations and loan amortization payments. The
Company believes that in order to facilitate a clear understanding of the
consolidated historical operating results of the Company, Funds From Operations
and Distributable Cash Flow should be presented in conjunction with net income
(loss) as presented in the consolidated financial statements and data included
elsewhere in this report.
Funds From Operations and Funds Available for Distribution
("Distributable Cash Flow") for the three month period ended March 31, 1996 and
1995 are summarized in the following table:
For the three months
ended March 31,
(IN THOUSANDS) 1996 1995
------------- --------
NET INCOME APPLICABLE TO COMMON SHARES $ 3,420 $ 4,131
Depreciation on real estate assets
Wholly owned properties 3,330 2,574
Joint venture properties 121 120
------------ ------------
FUNDS FROM OPERATIONS 6,871 6,825
Depreciation - other assets 69 60
Amortization of deferred financing fees 163 128
Scheduled mortgage principal amortization (217) (140)
Scheduled mortgage principal amortization-
joint venture properties (47) (43)
Fixed asset additions (115) (186)
Fixed asset additions - joint venture properties - (14)
------------- ------------
DISTRIBUTABLE CASH FLOW $ 6,724 $ 6,630
============= ============
Weighted average shares outstanding 13,872 13,869
============= =============
Page 18
19
PART II
OTHER INFORMATION
Except to the extent noted below, the items required in Part II are
inapplicable and have been omitted.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
FILED HEREWITH OR
INCORPORATED
HEREIN BY
Number TITLE REFERENCE
------ ------------------------------------------------------------ -----------------
3.1 Second Amended and Restated Articles of Incorporation of the Exhibit 3.1 filed
Company herewith.
3.2 Code of Regulations of the Company Exhibit 3.2 filed
herewith.
4.1 Fourth Amendment to Revolving Credit Facility dated March 8, Exhibit 4.1 filed
1996, by and among the Company, as Borrower, and National herewith.
City Bank, as Agent, and the banks identified therein.
10.1 Employment Agreement between the Company and Jeffrey I. Exhibit 10.1 filed
Friedman herewith.
27 Financial Data Schedule Exhibit 27 filed
herewith.
(b) Reports on Form 8-K
None
Page 19
20
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 13, 1996 /s/ Dennis W. Bikun
- - --------------------- ------------------------------------------------------
(Date) Dennis W. Bikun, Chief Financial Officer and Treasurer
Page 20