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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

            

              

FORM 8-K/A

                    

CURRENT REPORT

                          

PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

                      

Date of Report (Date of earliest event reported):  July 3, 2008 (April 21, 2008)

                    

ASSOCIATED ESTATES REALTY CORPORATION

(Exact name of registrant as specified in its charter)

                    

                

                    

Commission File Number 1-12486

                    

Ohio

34-1747603

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification Number)

             

                   

1 AEC PARKWAY, RICHMOND HEIGHTS, OHIO  44143-1467

(Address of principal executive offices)

                   

(216) 261-5000

(Registrant's telephone number, including area code)

                  

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

                               

[ ]

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ]

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ]

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ]

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

    

                                      

      

                                 

    

                    

                       

                                                     

 1


ITEM 2.01   Completion of Acquisition or Disposition of Assets.

                  On April 25, 2008, Associated Estates Realty Corporation (the “Company”), filed a Current Report on Form 8-K disclosing that on April 21, 2008 the Company acquired, through two of its wholly owned subsidiaries, The Belvedere (296 units) and River Forest (240 units), two Class A apartment communities located in the Richmond, Virginia metro area.  The properties were purchased from entities controlled by The Bogese Companies for a total of $75.0 million.  The acquisition also included a 5.92 acre vacant parcel, adjacent to River Forest, which is available for future development. The Company paid approximately $30.0 million in cash, of which $23.6 million was funded by a Section 1031 qualified intermediary from sales proceeds of a property previously sold by the Company.  In addition, the Company assumed a $26.1 million mortgage loan that matures in January 2046, and an $18.9 million mortgage loan that matures in March 2046.

                  The Company hereby amends the Form 8-K filed April 25, 2008 to provide the financial statements of The Belvedere and River Forest as required by the Securities and Exchange Commission Rule 3-14 of Regulation S-X and the pro forma information of the Company as required by Article 11 of Regulation S-X.

 ITEM 9.01   Financial Statements and Exhibits.

(a)

Financial Statements of Real Estate Operations Acquired

                  

Report of Independent Accountants

Combined Statements of Revenue and Certain Operating Expenses

                 

(b)

Proforma Financial Information

                    

Proforma Consolidated Balanced Sheet as of March 31, 2008

Proforma Consolidated Statement of Operations for the year ended December 31, 2007

Proforma Consolidated Statement of Operations for the three months ended March 31, 2008

                     

(c)

Exhibits

              

23.1 Consent of Keiter, Stephens, Hurst, Gary & Shreaves, P.C.
           
                         
 

 2


Report of Independent Accountants

To the Board of Directors and Shareholders of Associated Estates Realty Corporation:

We have audited the accompanying combined statement of revenue and certain operating expenses of the properties known as The Belvedere and River Forest (properties under common ownership and management) (the "Properties") for the year ended December 31, 2007.  The combined statement of revenue and certain operating expenses is the responsibility of the Properties' management.  Our responsibility is to express an opinion on the combined statement of revenue and certain operating expenses based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined statement of revenue and certain operating expenses is free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined statement of revenue and certain operating expenses.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the combined statement of revenue and certain operating expenses.  We believe that our audit provides a reasonable basis for our opinion.

The accompanying combined statement of revenue and certain operating expenses was prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission (for inclusion in the Form 8-K/A of Associated Estates Realty Corporation) as described in Note 1 to the combined statement of revenue and certain operating expenses and is not intended to be a complete presentation of the Properties' revenues and expenses.

In our opinion, the combined statement of revenue and certain operating expenses of the Properties presents fairly, in all material respects, the combined revenue and certain operating expenses described in Note 1 to the combined statement of revenue and certain operating expenses of the Properties for the year ended December 31, 2007, in conformity with accounting principles generally accepted in the United States.

/s/ Keiter, Stephens, Hurst, Gary & Shreaves, P.C.

July 3, 2008

 3


THE BELVEDERE AND RIVER FOREST
COMBINED STATEMENTS OF REVENUE AND CERTAIN OPERATING EXPENSES

           

(Unaudited)

Three Months

Year Ended

Ended March 31,

December 31,

(In thousands)

2008

2007

Revenue

Property revenue

 $

1,719 

 $

6,708 

Certain operating expenses

Operating and maintenance

608 

1,801 

Real estate taxes and insurance

147 

586 

Total certain operating expenses

755 

2,387 

Revenues in excess of certain operating expenses

 $

964 

 $

4,321 

See notes to Combined Statements of Revenue and Certain Operating Expenses

 4


THE BELVEDERE AND RIVER FOREST
NOTES TO COMBINED STATEMENTS OF REVENUE AND CERTAIN OPERATING EXPENSES

1.         BASIS OF PRESENTATION

            On April 21, 2008, Associated Estates Realty Corporation (the "Company") acquired through two of its wholly owned subsidiaries, The Belvedere (296 units) and River Forest (240 units), two Class A apartment communities located in the Richmond, Virginia metro area.  The properties were purchased from entities controlled by The Bogese Companies, an unrelated third party.  The statements of revenue and certain operating expenses for both properties are presented on a combined basis.

            The combined statements of revenue and certain operating expenses were prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for the acquisition of real estate properties, including Rule 3-14 of Regulation S-X.  Accordingly, certain expenses such as depreciation and amortization, interest, management fees, and other corporate expenses are not included in the combined statements of revenue and certain operating expenses.  Therefore, the amounts reported in the accompanying statements may not be comparable to the results of operations reported for the future operations of the properties.  Except as noted above, the Company is not aware of any material factors during the year ended December 31, 2007, or the three months ended March 31, 2008, that would cause the reported financial information not to be indicative of future operating results.

            The accompanying interim combined statement of revenues and certain expenses for the three months ended March 31, 2008, is unaudited.  In the opinion of management, all adjustments, consisting only of normal and recurring adjustments considered necessary for a fair statement, have been included.  The reported results are not necessarily indicative of the results that may be expected for the full year.

2.         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

            Revenue Recognition:  Apartment units are generally leased with terms of one year or less.  Rent payments are due at the beginning of each month and rental revenue is recognized at that time.

            Capitalization:  Significant improvements and replacements are capitalized and depreciated using the straight-line method over their estimated useful lives.  Repairs and maintenance costs are charged to expense as incurred.

            Advertising:  Advertising costs are expensed as incurred.

            Use of Estimates:  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of revenue and certain expenses during the reporting period.  Actual results could differ from these estimates.

 

 5


ASSOCIATED ESTATES REALTY CORPORATION
UNAUDITED PRO FORMA FINANCIAL INFORMATION

            The following unaudited Pro Forma Consolidated Balance Sheet of Associated Estates Realty Corporation is presented as if The Belvedere and River Forest had been acquired on March 31, 2008.  Additionally, the Company disposed of one property during April 2008 that was classified as held for sale at March 31, 2008.  This Pro Forma Consolidated Balance Sheet is presented as if this disposition had occurred on March 31, 2008.  This Pro Forma Consolidated Balance Sheet is not necessarily indicative of what the Company's actual financial condition would have been had the acquisition been consummated on March 31, 2008, nor does it purport to represent the future financial position of the Company.

            The following unaudited Pro Forma Consolidated Statement of Operations for the year ended December 31, 2007 of the Company is presented as if The Belvedere and River Forest had been acquired on January 1, 2007.  Additionally, the Company disposed of 14 properties during the three months ended March 31, 2008 and one property during April 2008, which was classified as held for sale at March 31, 2008.  This Pro Forma Consolidated Statement of Operations reflects the impact to the Company's operating results as if the 15 properties sold in 2008 were classified as discontinued operations during the year ended December 31, 2007.  This Pro Forma Consolidated Statement of Operations is not necessarily indicative of what the Company's actual results of operations would have been had the acquisition been consummated on January 1, 2007, nor does it purport to represent the future results of operations of the Company.

            The following unaudited Pro Forma Consolidated Statement of Operations for the three months ended March 31, 2008 of the Company is presented as if The Belvedere and River Forest had been acquired on January 1, 2007.  This Pro Forma Consolidated Statement of Operations is not necessarily indicative of what the Company's actual results of operations would have been had the acquisition been consummated on January 1, 2007, nor does it purport to represent the future results of operations of the Company.

            This unaudited pro forma consolidated information should be read in conjunction with the historical financial information and notes thereto contained in the Company's Annual Report on Form10-K for the year ended December 31, 2007 and the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2008.

 6


ASSOCIATED ESTATES REALTY CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 2008
(UNAUDITED)

The Belvedere

(In thousands, except share amounts)

Historical

Disposition

and

Pro Forma

ASSETS

Amounts (A)

Adjustments (B)

River Forest (C)

Amounts

Real estate assets

Land

 $

99,650 

 $

- 

 $

10,698 

 $

110,348 

Buildings and improvements

747,504 

- 

55,849 

803,353 

Furniture and fixtures

27,807 

- 

6,458 

34,265 

874,961 

- 

73,005 

947,966 

Less:  accumulated depreciation

(261,002)

- 

- 

(261,002)

613,959 

- 

73,005 

686,964 

Construction in progress

789 

- 

- 

789 

Real estate associated with property held for sale, net

935 

(935)

- 

- 

Real estate, net

615,683 

(935)

73,005 

687,753 

Cash and cash equivalents

2,911 

3,333 

- 

6,244 

Restricted cash

29,278 

(23,596)

5,682 

Accounts and notes receivable, net

Rents

1,456 

- 

- 

1,456 

Affiliates

394 

- 

- 

394 

Other

1,278 

- 

- 

1,278 

Goodwill

1,725 

- 

- 

1,725 

Other assets, net

13,209 

- 

386 

13,595 

Other assets associated with property held for sale, net

57 

(57)

- 

- 

Total assets

 $

665,991 

 $

2,341 

 $

49,795 

 $

718,127 

LIABILITIES AND SHAREHOLDERS' EQUITY

Mortgage notes payable

 $

467,321 

 $

- 

 $

45,002 

 $

512,323 

Unsecured revolving credit facility

13,000 

- 

4,793 

17,793 

Unsecured debt

25,780 

- 

- 

25,780 

Total debt

506,101 

- 

49,795 

555,896 

Accounts payable, accrued expenses and other liabilities

24,444 

- 

- 

24,444 

Dividends payable

2,847 

- 

- 

2,847 

Resident security deposits

3,315 

- 

- 

3,315 

Funds held on behalf of managed properties - affiliates

199 

- 

- 

199 

Funds held on behalf of managed properties - other

386 

- 

- 

386 

Accrued interest

2,394 

- 

- 

2,394 

Accumulated losses in excess of investments in joint ventures

1,368 

- 

- 

1,368 

Other liabilities associated with property held for sale

28 

(28)

- 

- 

Total liabilities

541,082 

(28)

49,795 

590,849 

Operating partnership minority interest

1,829 

- 

- 

1,829 

Shareholders' equity

Preferred shares, without par value; 9,000,000 shares authorized; 8.70%

Class B Series II cumulative redeemable, $250 per share liquidation

preference, 232,000 issued and 220,850 outstanding at March 31, 2008

55,213 

- 

- 

55,213 

Common shares, without par value, $.10 stated value; 41,000,000 authorized;

22,995,763 issued and 16,378,722 outstanding at March 31, 2008

2,300 

- 

- 

2,300 

Paid-in capital

281,008 

- 

- 

281,008 

Accumulated distributions in excess of accumulated net income

(145,774)

2,369 

- 

(143,405)

Accumulated other comprehensive loss

(2,743)

- 

- 

(2,743)

Less:  Treasury shares, at cost, 6,617,041 shares at March 31, 2008

(66,924)

- 

- 

(66,924)

Total shareholders' equity

123,080 

2,369 

- 

125,449 

Total liabilities and shareholders' equity

 $

665,991 

 $

2,341 

 $

49,795 

 $

718,127 

                                  

See notes to Pro Forma Consolidated Balance Sheet

 7


ASSOCIATED ESTATES REALTY CORPORATION
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)

A.

Represents the unaudited historical consolidated balance sheet of the Company as of March 31, 2008, as contained in the consolidated financial statements filed in the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2008.

                           

B.

Represents the pro forma adjustments to reflect the disposition of the property that was disposed of during April 2008 as if the disposition had occurred on March 31, 2008.

                           

C.

Represents the pro forma adjustments to reflect the acquisition of The Belvedere and River Forest as if the acquisitions had occurred on March 31, 2008.  The total consideration paid for the acquisition of the properties, including the vacant parcel of land adjacent to River Forest, was $75.5 million, of which $540,000 is related to closing costs.


            The sources of funding for the acquisition were as follows:
           

(In thousands)

Assumption of mortgage debt

 $

45,002 

Restricted cash released from qualified intermediary

23,596 

Deposits made prior to March 31, 2008 (Other assets)

2,150 

Borrowings on revolving credit facility

4,793 

Total consideration

 $

75,541 

                          

            The preliminary allocation of the purchase price was as follows:
          

(In thousands)

Land

 $

10,698 

Buildings and improvements

55,849 

Furniture and fixtures

6,458 

Existing leases and tenant relationships (Other assets)

2,536 

Total

 $

75,541 

                        
     

 8


ASSOCIATED ESTATES REALTY CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2007
(UNAUDITED)

Discontinued

The Belvedere

Historical

Operations

and

Pro Forma

Pro Forma

(In thousands, except per share amounts)

Amounts (A)

Adjustments (B)

River Forest (C)

Adjustments

Amounts

Revenue

Property revenue

 $

138,224 

 $

(19,645)

 $

6,708 

 $

- 

 $

125,287 

Management and service company revenue:

Fees, reimbursements and other

10,914 

- 

- 

- 

10,914 

Painting services

2,218 

- 

- 

- 

2,218 

Total revenue

151,356 

(19,645)

6,708 

- 

138,419 

Expenses

Property operating and maintenance

61,627 

(9,418)

2,387 

- 

54,596 

Depreciation and amortization

33,368 

(2,985)

- 

4,921 

 (D)

35,304 

Direct property management and

service company expenses

12,863 

- 

- 

- 

12,863 

Painting services

2,164 

- 

- 

- 

2,164 

General and administrative

10,327 

- 

- 

- 

10,327 

Total expenses

120,349 

(12,403)

2,387 

4,921 

115,254 

Operating income

31,007 

(7,242)

4,321 

(4,921)

23,165 

Interest income

458 

(73)

- 

- 

385 

Interest expense

(41,824)

1,439 

- 

(2,550)

 (E)

(42,935)

(Loss) income before equity in net loss of joint

ventures and minority interest

(10,359)

(5,876)

4,321 

(7,471)

(19,385)

Equity in net loss of joint ventures

(258)

- 

- 

- 

(258)

Minority interest in operating partnership

(53)

- 

- 

- 

(53)

(Loss) income from continuing operations

(10,670)

(5,876)

4,321 

(7,471)

(19,696)

Preferred share dividends

(4,924)

- 

- 

- 

(4,924)

Preferred share repurchase costs

(172)

- 

- 

- 

(172)

(Loss) income from continuing operations

applicable to common shares

 $

(15,766)

 $

(5,876)

 $

4,321 

 $

(7,471)

 $

(24,792)

Earnings per common share - basic and diluted:

(Loss) income from continuing operations

applicable to common shares

 $

(0.93)

 $

(1.47)

Weighted average number of common shares

outstanding - basic and diluted

16,871 

16,871 

                

See notes to Pro Forma Consolidated Statements of Operations

 

 

 9


ASSOCIATED ESTATES REALTY CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2008
(UNAUDITED)

The Belvedere

Historical

and

Pro Forma

Pro Forma

(In thousands, except per share amounts)

Amounts (F)

River Forest (G)

Adjustments

Amounts

Revenue

Property revenue

 $

31,431 

 $

1,719 

 $

- 

 $

33,150 

Management and service company revenue:

Fees, reimbursements and other

553 

- 

- 

553 

Painting services

137 

- 

- 

137 

Total revenue

32,121 

1,719 

- 

33,840 

Expenses

Property operating and maintenance

13,239 

755 

- 

13,994 

Depreciation and amortization

8,548 

- 

989 

 (D)

9,537 

Direct property management and

service company expenses

396 

- 

- 

396 

Painting services

243 

- 

- 

243 

General and administrative

3,528 

- 

- 

3,528 

Total expenses

25,954 

755 

989 

27,698 

Operating income

6,167 

964 

(989)

6,142 

Interest income

16 

- 

- 

16 

Interest expense

(9,133)

- 

(635)

 (E)

(9,768)

(Loss) income before equity in net loss of joint

ventures and minority interest

(2,950)

964 

(1,624)

(3,610)

Equity in net loss of joint ventures

(22)

- 

- 

(22)

Minority interest in operating partnership

(14)

- 

- 

(14)

(Loss) income from continuing operations

(2,986)

964 

(1,624)

(3,646)

Preferred share dividends

(1,200)

- 

- 

(1,200)

(Loss) income from continuing operations

applicable to common shares

 $

(4,186)

 $

964 

 $

(1,624)

 $

(4,846)

Earnings per common share - basic and diluted:

(Loss) income from continuing operations

applicable to common shares

 $

(0.26)

 $

(0.30)

Weighted average number of common shares

outstanding - basic and diluted

16,167 

16,167 

                           
 

See notes to Pro Forma Consolidated Statements of Operations

  

 10


ASSOCIATED ESTATES REALTY CORPORATION
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

A.

Represents historical income from continuing operations included in the consolidated income statement of the Company for the year ended December 31, 2007, as contained in the consolidated financial statements filed in the Company's Annual Report on Form 10-K for the year ended December 31, 2007.

                     

B.

Represents adjustments necessary to reflect the operating results of the 15 properties that were disposed of during 2008 as if the properties were classified as discontinued operations for the year ended December 31, 2007.

                    

C.

Represents the historical revenue and certain expenses of The Belvedere and River Forest for the year ended December 31, 2007.

                     

D.

Represents depreciation and amortization attributable to The Belvedere and River Forest , as follows:

           

Year ended

Three months

Estimated

December 31,

ended March 31,

(Dollars in thousands)

useful life

2007

2008

Buildings and improvements

28.5 years

(1)

 $

2,388 

 $

596 

Furniture and fixtures

5 years

148 

38 

Intangible assets:

Existing leases

 1 year

1,857 

223 

Tenant relationships

 1.3 years

528 

132 

Total

 $

4,921 

 $

989 

                           

(1)  Represents weighted average estimated useful life.

E.

Represents interest expense associated with the fair market value of the debt assumed in the acquisition of The Belvedere and River Forest for the periods presented.

                  

F.

Represents historical income from continuing operations included in the consolidated income statement of the Company for the three months ended   March 31, 2008, as filed in the Company's Quarterly Report on Form 10-Q for the three months ended March 31, 2008.

                      

G.

Represents the historical revenue and certain expenses of The Belvedere and River Forest for the three months ended March 31, 2008.

                        

 11


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 hereunto duly authorized.

ASSOCIATED ESTATES REALTY CORPORATION

         

                    

             

                     

                 

                   

July 3, 2008

/s/ Lou Fatica

(Date)

Lou Fatica, Vice President

Chief Financial Officer and Treasurer

                         

                    

                     

                   

 12