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| AEC > SEC Filings for AEC > Form 8-K/A on 3-Jul-2008 | All Recent SEC Filings |
3-Jul-2008
Completion of Acquisition or Disposition of Assets, Financial St
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.
(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.
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
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
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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.
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.
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
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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 |
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
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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
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