1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A-1
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
-------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 1-12486 34-1747603
- ---------------------------- ------------------------ ----------------------
(State or other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification Number)
5025 Swetland Court, Richmond Heights, Ohio 44143-1467
--------------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(216) 261-5000
----------------------------------------------------
(Registrant's telephone number, including area code)
2
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:
Date of
Purchase Seller Name of Multifamily Property Suites
-------- -------------------------------------- ---------------------------- ------
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
===
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:
Date of
Purchase Seller Name of Multifamily Property Suites
-------- ----------------------------------- ---------------------------- ------
03/31/97 Forest Park II Limited Partnership, Remington Place Apartments 234
A Connecticut limited partnership
Following the acquisition of the partnership interests, 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
3
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.
Number Number
Name of of of Type of Year
Property Location Suites Buildings Construction Constructed
- ------------------------- ------------------ ------ --------- ------------ -----------
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
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
4
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.
Pro Forma Financial Information (Unaudited)
- -------------------------------------------
Unaudited pro forma financial information of the Company and the
Acquired Properties is presented as follows:
- Condensed balance sheet as of March 31, 1997;
- Condensed statement of operations for the three months ended
March 31, 1997 and for the year ended December 31, 1996, and;
- Estimated twelve-month pro forma statement of taxable net
operating income and operating funds available.
4
5
Exhibits:
- ---------
23.01 Consent of Independent Accountants.
5
6
ASSOCIATED ESTATES REALTY CORPORATION
SELECTED ACQUISITION PROPERTIES
FINANCIAL STATEMENTS
6
7
ASSOCIATED ESTATES REALTY CORPORATION
INDEX TO FINANCIAL STATEMENTS
SELECTED ACQUISITION PROPERTIES
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
ASSOCIATED ESTATES REALTY CORPORATION
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
Condensed Balance Sheet as of March 31, 1997 F-5
Condensed Statement of Operations for the three
months ended March 31, 1997 F-7
Condensed Statement of Operations for the year
ended December 31, 1996 F-10
Estimated Twelve-Month Pro Forma Statement of Taxable
Net Operating Income and Operating Funds Available F-13
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
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ASSOCIATED ESTATES REALTY CORPORATION
SELECTED ACQUISITION PROPERTIES
STATEMENTS OF REVENUE AND CERTAIN EXPENSES
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
-------------- --------------- -----------------
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
======== ======== ========
FOR THE YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------
The Gables at Remington Place Saw Mill Village
White River Apartments Apartments
-------------- --------------- -----------------
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
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
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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:
Property Location Suites Year Built
- ------------------------- --------------------- ------ ----------
The Gables at White River Indianapolis, Indiana 228 1991
Remington Place Apartments Cincinnati, Ohio 234 1988-90
Saw Mill Village Apartments Columbus, Ohio 340 1987
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.
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ASSOCIATED ESTATES REALTY CORPORATION
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The following unaudited pro forma condensed balance sheet is presented
as if the acquisitions by the Company of (i) Hawthorne Hills Apartments, (ii)
Oak Bend Apartments, and (iii) Saw Mill Village Apartments, all of which were
acquired after March 31, 1997, had been purchased on March 31, 1997. Such pro
forma information is based upon the historical consolidated balance sheet of
the Company as of that date, giving effect to the transactions described above.
This pro forma condensed balance sheet should be read in conjunction with the
pro forma condensed statement of operations of the Company and the historical
financial statements and notes thereto of the Company included in the
Associated Estates Realty Corporation Form 10-Q for the three months ended
March 31, 1997.
This unaudited pro forma condensed balance sheet is not necessarily
indicative of what the actual financial position of the Company would have been
at March 31, 1997 nor does it purport to represent the future financial
position of the Company.
Company Pro Forma Company
Historical Adjustments Pro Forma
------------- ------------- -------------
Assets
Real estate, net $ 430,202 $ 28,299 (a) $ 458,501
Cash and cash equivalents 565 - 565
Receivables and other assets 13,092 - 13,092
Restricted cash 5,515 - 5,515
-------------- ------------- ------------
$ 449,374 $ 28,299 $ 477,673
============== ============= ============
Liabilities
Secured debt $ 68,689 $ - $ 68,689
Unsecured debt 185,405 26,915 (b) 212,320
Other liabilities 27,904 1,384 (c) 29,288
Accumulated losses of
equity investees in excess of
investment and advances 12,646 - 12,646
-------------- ------------- ------------
294,644 28,299 322,943
Shareholders' equity
Class A cumulative preferred shares 56,250 - 56,250
Common shares 1,532 - 1,532
Paid in capital 133,057 - 133,057
Accumulated dividends in
excess of net income (36,109) - (36,109)
-------------- ------------- ------------
154,730 - 154,730
-------------- ------------- ------------
$ 449,374 $ 28,299 $ 477,673
============== ============= ============
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(a) Represents the purchase price of the properties acquired subsequent to
March 31, 1997, namely: (i) Hawthorne Hills Apartments, (ii) Oak Bend
Apartments, and (iii) Saw Mill Village Apartments.
(b) Represents the utilization of the Line of Credit to finance, in part, the
acquisition of the properties acquired subsequent to March 31, 1997.
(c) Represents the assumption of other liabilities in connection with the
properties acquired subsequent to March 31, 1997 in the following amounts:
Assumption
of Other
Liabilities
-----------
Hawthorne Hills Apartments $ 510
Oak Bend Apartments 113
Saw Mill Village Apartments 761
-------
$ 1,384
=======
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ASSOCIATED ESTATES REALTY CORPORATION
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The unaudited pro forma condensed statement of operations for the
three months ended March 31, 1997 is presented as if the following transactions
had occurred on January 1, 1997, (i) the acquisition by the Company of the
Selected Acquisition Properties as reported herein and, (ii) the acquisition of
Hawthorne Hills Apartments, an 88 suite Multifamily Property located in Toledo,
Ohio.
This pro forma condensed statement of operations is based upon the
historical results of operations of the Company for the three months ended
March 31, 1997 and should be read in conjunction with the proforma condensed
balance sheet of the Company set forth elsewhere herein and the historical
financial statements and notes thereto of the Company included in the
Associated Estates Realty Corporation Form 10-Q for the three months ended
March 31, 1997.
The unaudited pro forma condensed statement of operations is not
necessarily indicative of what the actual results of operations of the Company
would have been assuming the transactions had been completed as set forth
above, nor does it purport to represent the results of operations of future
periods of the Company.
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ASSOCIATED ESTATES REALTY CORPORATION
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Pro Forma
Adjustments
for
Acquired
Company Properties Company
Historical (a) Pro Forma
---------- ----------- ----------
Revenues from rental properties $ 23,160 $ 1,506 $ 24,666
Painting services and loan
origination fees 508 - 508
Management fees and other income 1,130 11 1,141
-------- -------- --------
24,798 1,517 26,315
Property operating and maintenance
expenses exclusive of depreciation
and amortization 9,190 601 9,791
Depreciation - real estate assets 4,071 307 4,378
- other 95 - 95
Amortization of deferred financing fees 163 - 163
Painting services 410 - 410
General and administrative expenses 1,540 - 1,540
Interest expense 4,062 687 4,749
-------- -------- --------
19,531 1,595 21,126
-------- -------- --------
Income or (loss) before equity in net
loss of joint ventures 5,267 (78) 5,189
Equity in net loss of joint ventures ( 42) - ( 42)
-------- -------- --------
Income or (loss) $ 5,225 $ (78) $ 5,147
======== ======== ========
Income or (loss) applicable to common
shares $ 3,854 $ (78) $ 3,776
======== ======== ========
Per share net income applicable to
common shares $ 0.25 $ 0.25
======== ========
Weighted average number of shares 15,322 15,322
======== ========
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ASSOCIATED ESTATES REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(a) Reflects the revenues and expenses of the following acquisitions: (i)
The Gables at White River, (ii) Hawthorne Hills Apartments, (iii)
Remington Place Apartments, and (iv) Saw Mill Village Apartments. Such
financial information is presented for the period January 1, 1997
through the date of acquisition or March 31, 1997, whichever is
earlier.
Interest expense assumes interest at the weighted average rate of the
MTN Notes or at the rate of the Company's line of credit, as
applicable.
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ASSOCIATED ESTATES REALTY CORPORATION
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The unaudited pro forma condensed statement of operations for the year
ended December 31, 1996 is presented as if the following transactions had
occurred on January 1, 1996: (i) the offering of 1,450,000 shares of common
stock on December 11, 1996 and the use of the net proceeds to repay borrowings
on the line of credit, (ii) the acquisition by the Company of the five
properties acquired during 1996 as previously reported in the Company's Form
8-K dated February 1, 1996 and one acquisition consummated on September 20,
1996, (iii) the acquisition by the Company of the Selected Acquisition
Properties as reported herein, and (iv) the acquisition of Hawthorne Hills
Apartments, a 88 suite property in Toledo, Ohio. The six properties acquired in
1996, the Selected Acquisition Properties and Hawthorne Hills Apartments are
collectively referred to herein as the "Acquisition Properties."
This pro forma condensed statement of operations is based upon the
historical results of operations of the Company for the year ended December 31,
1996 and should be read in conjunction with the pro forma condensed balance
sheet of the Company as of March 31, 1997 included elsewhere herein and the
historical financial statements and notes thereto of the Company included in
the Associated Estates Realty Corporation Form 10-K for the year ended December
31, 1996.
The unaudited pro forma condensed statement of operations is not
necessarily indicative of what the actual results of operations of the Company
would have been assuming the transactions had been completed as set forth
above, nor does it purport to represent the results of operations of future
periods of the Company.
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ASSOCIATED ESTATES REALTY CORPORATION
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Pro Forma
Adjustments
-----------
Company Company
Historical (a) Pro Forma
------------- -------------- ------------
Revenues
Rental $ 87,975 $ 9,791(a) $ 97,766
Painting services revenue 1,634 - 1,634
Management fees and other income 4,824 110(a) 4,934
------------- ---------- ------------
94,433 9,901 104,334
Expenses
Property operating and maintenance
expenses exclusive of depreciation
and amortization 37,056 4,171(a) 41,227
Depreciation - real estate assets 14,611 2,154(a) 16,765
- other 316 - 316
Amortization of deferred financing fees 609 - 609
Painting services 1,427 - 1,427
General and administrative 5,921 - 5,921
Interest expense 15,494 5,022(a) 18,330
(2,186)(b)
------------- ---------- ------------
Total expenses 75,434 9,161 84,595
------------- ---------- ------------
Income before equity in net income
of joint ventures 18,999 740 19,739
Equity in net income of joint ventures 305 - 305
-------------- ---------- ------------
Net income $ 19,304 $ 740 $ 20,044
============= ========== ============
Net income applicable to common shares $ 13,820 $ 740 $ 14,560
============= ========== ============
Per share data:
Net income before extraordinary item
per share $ .99 $ 0.95
============= ============
Weighted average number of shares 13,932 15,322
============= ============
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ASSOCIATED ESTATES REALTY CORPORATION
NOTES TO PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(a) Reflects the revenues and expenses of the following acquisitions: (i)
Aspen Lakes, (ii) Chestnut Ridge, (iii) The Gables at White River,
(iv) Hawthorne Hills Apartments, (v) Perimeter Lakes, (vi) Remington
Place Apartments, (vii)The Residence at Washington, (viii) Saw Mill
Village Apartments, (ix) Spring Brook and (x)Summer Ridge. The pro
forma adjustment includes the revenues and expenses for each of the
properties for the period January 1, 1996 through the earlier of the
date of acquisition or December 31, 1996.
Interest expense assumes interest at fair value with respect to the
mortgages assumed, at the rate of the Company's line of credit or at
the rate of the MTN Notes, as applicable.
(b) Reflects the reduction of interest expense from using the proceeds of
the 1,450,000 Common Share offering completed on December 11, 1996.
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ASSOCIATED ESTATES REALTY CORPORATION
ESTIMATED TWELVE-MONTH PRO FORMA STATEMENT OF
TAXABLE NET OPERATING INCOME AND OPERATING FUNDS AVAILABLE
(UNAUDITED)
The following unaudited statement is a pro forma estimate for
a twelve-month period of taxable income and funds available from operations of
the Company. The unaudited pro forma statement is based on the Company's
historical operating results for the year ended December 31, 1996 adjusted as
if the following transactions had occurred on January 1, 1996: (i) the offering
of 1,450,000 shares of common stock on December 11, 1996 and the use of the net
proceeds to repay borrowings on the line of credit, (ii) the acquisition by the
Company of the five properties acquired during 1996 as previously reported in
the Company's Form 8-K dated February 1, 1996 and one acquisition consummated
on September 20, 1996, (iii) the acquisition by the Company of the Selected
Acquisition Properties as reported herein, and (iv) the acquisition of
Hawthorne Hills Apartments, a 88 suite property in Toledo, Ohio. The six
properties acquired in 1996, the Selected Acquisition Properties and
Hawthorne Hills Apartments are collectively referred to herein as the
"Acquisition Properties."
This statement should be read in conjunction with (i) the
historical financial statements and notes thereto of the Company and (ii) the
pro forma financial statements of the Company.
ESTIMATE OF TAXABLE NET OPERATING INCOME (IN THOUSANDS):
Historical earnings from operations, exclusive of depreciation and
amortization (Note 1) $ 29,356
Acquisition Properties historical earnings from operations, as
adjusted, exclusive of depreciation (Note 2) 2,894
----------
32,250
----------
Estimated tax basis depreciation and amortization (Note 3)
AERC (11,254)
Acquisition Properties (2,469)
----------
Pro Forma taxable operating income before dividends deduction 17,877
Estimated dividends deduction (Note 4) 28,499
----------
$ (9,972)
==========
Pro Forma taxable operating income $ -
=========
ESTIMATE OF PRO FORMA OPERATING FUNDS AVAILABLE (NOTE 5) (IN
THOUSANDS):
Pro Forma taxable operating income before dividends deduction $ 18,527
Add pro forma tax basis depreciation and amortization 13,723
---------
Estimate of pro forma operating funds available $ 32,250
=========
<FN>
- ---------
Note 1 - The historical earnings from operations represents the Company's net income applicable to common
shares as adjusted for depreciation and amortization for the year ended December 31, 1996 as
reflected in the historical financial statements.
Note 2 - The historical earnings from operations represents the pro forma results of the properties acquired
since January 1, 1996 as referred to in the pro forma condensed consolidated statement of
operations for the year ended December 31, 1996 included elsewhere in this report.
Note 3 - The tax basis depreciation of the Company is based upon the original purchase price allocated to
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20
the buildings, equipment and personal property, depreciated on a
straight-line basis over a 40-, 12-, and 10-year life, respectively.
Note 4 - Estimated dividends deduction is based on the estimated dividend rate of $1.86 per share. Shares
outstanding, on a pro forma basis are 15,322,381.
Note 5 - Operating funds available does not represent cash generated from operating activities in
accordance with generally accepted accounting principles and is not necessarily indicative of cash
available to fund cash needs.
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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 2, 1997 /s/ Dennis W. Bikun
- ------------------------- -------------------------------------
Dennis W. Bikun
Chief Financial Officer & Treasurer
Chief Accounting Officer
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