q32014sup-EX 99.2

EX-99.2 3 q32014sup-ex992.htm EXHIBIT q32014sup-EX 99.2

Exhibit 99.2

Associated Estates Realty Corporation

Third Quarter 2014

Earnings Release and Supplemental Financial Information



Lofts at Weston Lakeside
2101 Lakeside Lofts Circle	Phone:	(800) 338-1588
Cary, North Carolina 27513	Web Site:	LoftsatWestonLakeside.com



For more information, please contact:
Jeremy Goldberg
(216) 797-8715

Associated Estates Realty Corporation

Third Quarter 2014

Supplemental Financial Information



Table of Contents	Page

Earnings Release	3

Financial and Operating Highlights	6

Condensed Consolidated Balance Sheets	9

Consolidated Statements of Operations and Comprehensive Income	10

Reconciliation of Funds from Operations (FFO) and Funds Available for Distribution (FAD)	11

Development Pipeline	12

Overview of Operating Expenses Related to Repairs and Maintenance and Capitalized Expenditures	13

General and Administrative Expense, Personnel Expense - Allocated, Construction Services,

Development and Property Management	14

Same Community Data	15

Sequential Property Revenue, Operating Expenses and Net Operating Income	18

Third Quarter Property Revenue, Operating Expenses and Net Operating Income	19

Year-to-Date Property Revenue, Operating Expenses and Net Operating Income	20

Debt Structure	21

2014 Financial Outlook	22

Definitions of Non-GAAP Financial Measures	23

This news release contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on certain assumptions, as well as current expectations, estimates, projections, judgments and knowledge of management, all of which are subject to risks, trends and uncertainties that could cause actual results to vary from those projected. Factors which may cause the Company’s actual results or performance to differ materially from those contemplated by forward-looking statements include, without limitation, those described under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K and in other filings with the Securities and Exchange Commission, and the following: changes in the economic climate in the markets in which the Company owns and manages properties, including interest rates, the overall level of economic activity, the availability of consumer credit and mortgage financing, unemployment rates and other factors; risks of a lessening of demand for the multifamily units owned by the Company; competition from other available multifamily units, single family units available for rental or purchase, and changes in market rental rates; the failure of development projects or redevelopment activities to achieve expected results due to, among other causes, construction and contracting risks, unanticipated increases in materials and/or labor, and delays in project completion and/or lease-up that result in increased costs and/or reduce the profitability of a completed project; the results of litigation involving the Company; and risks associated with property acquisitions and dispositions, such as failure to achieve expected results. Readers should carefully review the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, and the other documents the Company files from time to time with the Securities and Exchange Commission. These forward-looking statements reflect management’s judgment as of this date, and the Company assumes no obligation to revise or update them to reflect future developments or circumstances.

Associated Estates Realty Corporation

Third Quarter Earnings

ASSOCIATED ESTATES REALTY CORPORATION REPORTS

THIRD QUARTER AND YEAR-TO-DATE 2014 RESULTS

Increased Year-to-Date Same Community Revenue by 2.7%

Achieved Year-to-Date Same Community Average Occupancy of 96%

Delivered First Units At Dallas Development Project

Cleveland, Ohio - October 28, 2014 - Associated Estates Realty Corporation (NYSE, NASDAQ: AEC) announced today its financial results for the third quarter ended September 30, 2014.

“Our solid third quarter results demonstrate that we are taking the right steps to grow our business and deliver returns for shareholders,” said Jeffrey I. Friedman, CEO and President. “We continue to focus on our fully funded development pipeline, which is progressing in line with our strategic plan. Associated Estates is well positioned in its markets and apartment fundamentals remain very positive. We are confident that the continued execution of our strategic plan is the best way to enhance value for all shareholders,” Friedman continued.

Funds from Operations (FFO) for the third quarter of 2014 were $0.32 per common share (diluted), compared to $0.32 per common share (diluted) for the third quarter of 2013. Net income applicable to common shares was $3.4 million, or $0.06 per common share (diluted), for the quarter ended September 30, 2014. For the third quarter of 2013, net income applicable to common shares was $19.9 million, or $0.40 per common share (diluted), which included an $18.1 million gain associated with a property sale. There were no property sales during the third quarter of 2014.

Same Community Portfolio Results

Net operating income (NOI) for the Company’s same community portfolio increased 2.7% for the third quarter of 2014 compared to the third quarter of 2013. Revenue increased 1.9%, while property operating expenses increased 0.7%. Average occupancy for the third quarter of 2014 was 95.4% compared to 95.7% for the third quarter of 2013.

Year-to-Date Performance

FFO for the nine months ended September 30, 2014 was $0.92 per common share (diluted), compared to $0.93 per common share (diluted) for the nine months ended September 30, 2013.

For the nine months ended September 30, 2014, net income applicable to common shares was $107.7 million, or $1.86 per common share (diluted), compared to net income applicable to common shares of $31.8 million, or $0.63 per common share (diluted), for the period ended September 30, 2013. Net income in the first three quarters of 2014 includes gains of $100.9 million, or $1.74 per common share (diluted), from the sale of four properties. Net income in the first three quarters of 2013 includes gains of $26.9 million, or $0.53 per common share (diluted), from the sale of two properties.

NOI year-to-date 2014 for the Company’s same community portfolio increased 3.1% compared to the first three quarters of 2013. Revenue increased 2.7%, while property operating expenses increased 1.9%.

A reconciliation of net income attributable to the Company to FFO is included on page 11.

Associated Estates Realty Corporation

Third Quarter Earnings

Capital Markets Activity

As previously announced, on July 25, 2014, the Company amended its $150 million term loan. Among other modifications, the amendment extends the maturity date from January 3, 2018 to January 3, 2020, and reduces the interest rate spread across the pricing grid, with a current rate of LIBOR plus 140 basis points. PNC Bank, N.A. and Wells Fargo, N.A. are Co-Lead Arrangers of the term loan.

On October 1, 2014, the Company repaid a $24.5 million property specific mortgage. The Company has no remaining debt maturities in 2014 and $19.7 million maturing in 2015.

Quarterly Dividend on Common Shares

The Company previously announced it increased its dividend from $0.19 per share per quarter to $0.20 per share per quarter, effective with the dividend payable on November 3, 2014. This represents a 5.3 percent increase to the dividend.

“Our modified term loan provides a more favorable pricing grid and further extends our maturity duration, which increases our financial flexibility," said Lou Fatica, Senior Vice President, Treasurer and Chief Financial Officer. "Our quarter over quarter fixed charge coverage ratio improved from 2.8 times to 3.4 times, or 21%. Additionally, after recently increasing the dividend by more than five percent, our payout ratio remains one of the lowest in the sector. We are pleased with our improving cash flow which has enabled us to reward our shareholders with a growing dividend," Fatica added.

Development Update

Cantabria at Turtle Creek, the Company’s 249-unit development in Dallas, TX, has begun unit deliveries and approximately 20% of the units have been leased. Construction is expected to be completed in the first quarter of 2015 and stabilization is expected in the second quarter of 2015. Full details relating to all of the Company's developments can be found on page 12.

2014 Outlook

The Company has maintained its full-year FFO and same community operating performance guidance ranges. Additional detailed assumptions relating to the Company's guidance can be found on page 22.

Upcoming Events

The Company will participate in REITWorld 2014, NAREIT's Annual Convention, being held from Wednesday, November 5 through Friday, November 7 at the Atlanta Marriott Marquis. Members of the Company’s management team will be hosting scheduled meetings with investors throughout the conference. A copy of all presentation materials will be accessible, beginning November 5, in the Investors section of the Company's website at AssociatedEstates.com.

Associated Estates Realty Corporation

Third Quarter Earnings

Conference Call

A conference call to discuss the Company’s third quarter results will be held on October 29, 2014, at 2:00 p.m. Eastern. To participate in the call:

Via Telephone: The dial-in number is (855) 233-8223, and the conference ID is 2107576. An operator will ask you for the conference ID. The call will be archived through November 13, 2014. The dial-in number for the replay is (855) 859-2056.

Via the Internet (listen only): Access the Investors section of the Company's website at AssociatedEstates.com. Please log on at least 15 minutes prior to the scheduled start time in order to register, download and install any necessary audio software. Select the "Third Quarter 2014 Earnings Conference Call" link. The webcast will be archived for 90 days.

Associated Estates Realty Corporation

Financial and Operating Highlights

For the Three and Nine Months Ended September 30, 2014 and 2013

(Unaudited; in thousands, except per share and ratio data)



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
OPERATING INFORMATION
Total revenue	$	48,207		$	46,069		$	145,824		$	132,409
Property revenue	$	47,444		$	45,619		$	143,862		$	131,409
Property management and construction services revenue	$	312		$	—		$	578		$	—
Net income applicable to common shares	$	3,418		$	19,908		$	107,674		$	31,841
Per share - basic	$	0.06		$	0.40		$	1.87		$	0.64
Per share - diluted	$	0.06		$	0.40		$	1.86		$	0.63
Funds from Operations (FFO) ⁽¹⁾	$	18,618		$	16,028		$	53,497		$	47,046
FFO per share - diluted	$	0.32		$	0.32		$	0.92		$	0.93
Funds Available for Distribution (FAD) ⁽¹⁾	$	16,641		$	13,114		$	48,455		$	41,073
Dividends per share	$	0.19		$	0.19		$	0.57		$	0.57
Payout ratio - FFO	59.4		%	59.4		%	62.0		%	61.3		%
Payout ratio - FAD	65.5		%	73.1		%	67.9		%	69.5		%
General and administrative expense	$	4,200		$	4,946		$	14,116		$	14,302
Development costs	$	162		$	220		$	690		$	662
Construction services expense	$	129		$	—		$	219		$	—
Personnel expense - allocated	$	1,119		$	1,072		$	3,393		$	3,101
Costs associated with acquisitions	$	59		$	392		$	172		$	457
Interest expense ⁽²⁾	$	5,916		$	7,156		$	18,526		$	20,908
Capitalized interest	$	1,238		$	1,123		$	3,431		$	2,384
Interest coverage ratio ⁽³⁾	3.37:1			2.77:1			3.22:1			2.87:1
Fixed charge coverage ratio ⁽⁴⁾	3.37:1			2.77:1			3.22:1			2.87:1
General and administrative expense to property revenue	8.9		%	10.8		%	9.8		%	10.9		%
Personnel - allocated as a percentage of property revenue	2.4		%	2.3		%	2.4		%	2.4		%
Interest expense to property revenue ⁽²⁾	12.5		%	15.7		%	12.9		%	15.9		%
Property NOI ⁽⁵⁾	$	29,371		$	28,283		$	88,289		$	81,215
ROA ⁽⁶⁾	7.7		%	8.0		%	7.7		%	8.0		%
Same Community revenue increase ⁽⁷⁾	1.9		%	3.0		%	2.7		%	3.7		%
Same Community expense increase (decrease) ⁽⁷⁾	0.7		%	(1.7		)%	1.9		%	0.8		%
Same Community NOI increase ⁽⁷⁾	2.7		%	6.1		%	3.1		%	5.6		%


(1)	See page 11 for a reconciliation of net income attributable to AERC to these non-GAAP measurements and page 23 for the Company's definition of these non-GAAP measurements.


(2)	Excludes amortization of financing fees of $471 and $1,402 for 2014 and $477 and $1,541 for 2013.


(3)	Is calculated as EBITDA divided by interest expense, including capitalized interest and amortization of deferred financing costs and excluding prepayment costs/refunds. Individual line items in this calculation include results from discontinued operations where applicable. See page 23 for a reconciliation of net income applicable to common shares to EBITDA and the Company's definition of EBITDA.


(4)	Represents interest expense, including capitalized interest, and preferred stock dividend payment coverage, excluding prepayment costs/refunds. Individual line items in this calculation include discontinued operations where applicable.


(5)	See page 24 for a reconciliation of net income attributable to AERC to this non-GAAP measurement and the Company's definition of this non-GAAP measurement.


(6)	ROA is calculated as trailing twelve month Property NOI divided by average gross real estate assets, excluding properties currently under development. Gross real estate assets for acquired properties are prorated based upon the percentage of time owned.


(7)	Same Community percentages for prior periods are as previously reported.

Associated Estates Realty Corporation

Financial and Operating Highlights

Third Quarter 2014

(Unaudited; in thousands, except per share and ratio data)



	September 30,			December 31,
	2014			2013
CAPITALIZATION DATA
Cash and cash equivalents	$	5,328		$	4,586
Net real estate assets	$	1,356,422		$	1,373,999
Total assets	$	1,421,831		$	1,422,497

Debt	$	729,324		$	812,974
Noncontrolling interests	$	350		$	350
Total shareholders' equity attributable to AERC	$	622,474		$	544,450

Common shares outstanding	57,648			57,476
Share price, end of period	$	17.51		$	16.05

Total capitalization	$	1,738,740		$	1,735,464

Undepreciated book value of real estate assets ⁽¹⁾	$	1,752,917		$	1,760,840

Net debt to undepreciated book value of real estate assets	41.3		%	45.9		%

Secured debt to undepreciated book value	16.4		%	15.9		%

Annual dividend ⁽²⁾	$	0.80		$	0.76

Annual dividend yield based on share price, end of period	4.6		%	4.7		%


(1)	Includes $45,921 and $9,321 of the Company's investment in unconsolidated entities at September 30, 2014 and December 31, 2013.


(2)	The quarterly dividend increased $0.01 to $0.20 per quarter, effective with the November 3, 2014 dividend payment.

Associated Estates Realty Corporation

Financial and Operating Highlights

Third Quarter 2014

(Unaudited)



		Number of
	Properties	Units	Average Age
PORTFOLIO INFORMATION
Company Portfolio:
Same Community:
Midwest	25	5,936	21
Mid-Atlantic	10	3,146	8
Southeast	6	1,560	18
Southwest	3	842	11
Total Same Community	44	11,484	16

Acquisitions	6	1,451	8
Development ⁽¹⁾	—	99	1
Total Owned Portfolio	50	13,034	15
Properties Under Development:
Wholly Owned:
Dallas	1	249
Southern California	1	175
Joint Ventures:
Metro DC	1	140
Northern California	1	410
Southern California	1	472
Third Party Managed:
Atlanta	1	345
Central Florida	1	350
Southeast Florida	1	331
Total Company Portfolio	58	15,506


(1)	Reflects a 99-unit expansion to a community located in Dallas, Texas.

Associated Estates Realty Corporation

Condensed Consolidated Balance Sheets

Third Quarter 2014

(Unaudited; dollar amounts in thousands)



	September 30,			December 31,
	2014			2013
ASSETS
Real estate assets
Investment in real estate	$	1,621,559		$	1,708,726
Construction in progress	85,437			42,793
Less: Accumulated depreciation	(396,495		)	(386,841		)
Net real estate owned	1,310,501			1,364,678
Investment in unconsolidated entities	45,921			9,321
Total net real estate	1,356,422			1,373,999
Cash and cash equivalents	5,328			4,586
Restricted cash	24,071			3,465
Other assets	36,010			40,447
Total assets	$	1,421,831		$	1,422,497

LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage notes payable	$	287,824		$	279,474
Unsecured notes	250,000			250,000
Unsecured revolving credit facility	41,500			133,500
Unsecured term loan	150,000			150,000
Total debt	729,324			812,974
Accounts payable and other liabilities	69,683			64,723
Total liabilities	799,007			877,697

Equity
Common shares, without par value; $.10 stated value; 91,000,000 authorized;
57,708,675 issued and 57,647,647 outstanding at September 30, 2014 and
57,595,479 issued and 57,476,192 outstanding at December 31, 2013, respectively	5,771			5,760
Paid-in capital	757,323			754,582
Accumulated distributions in excess of accumulated net income	(138,990		)	(213,275		)
Accumulated other comprehensive loss	(634		)	(702		)
Less: Treasury shares, at cost, 61,028 and 119,287 shares
at September 30, 2014 and December 31, 2013, respectively	(996		)	(1,915		)
Total shareholders' equity attributable to AERC	622,474			544,450
Noncontrolling interest	350			350
Total equity	622,824			544,800
Total liabilities and equity	$	1,421,831		$	1,422,497

Associated Estates Realty Corporation

Consolidated Statements of Operations and Comprehensive Income

Three and Nine Months Ended September 30, 2014 and 2013

(Unaudited; dollar and share amounts in thousands)



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
REVENUE
Property revenue	$	47,444		$	45,619		$	143,862		$	131,409
Office revenue	451			450			1,384			1,000
Property management and construction services revenue	312			—			578			—
Total revenue	48,207			46,069			145,824			132,409

EXPENSES
Property operating and maintenance	18,073			17,336			55,573			50,194
Depreciation and amortization	15,779			14,212			47,958			41,960
General and administrative	4,200			4,946			14,116			14,302
Development costs	162			220			690			662
Construction services	129			—			219			—
Costs associated with acquisitions	59			392			172			457
Total expenses	38,402			37,106			118,728			107,575
Operating income	9,805			8,963			27,096			24,834
Interest expense	(6,387		)	(7,633		)	(19,928		)	(22,449		)
Gain on disposition of properties	—			—			100,870			—
Income from continuing operations	3,418			1,330			108,038			2,385
Income from discontinued operations:
Operating income, net of interest expense	—			605			—			2,769
Gain on disposition of properties	—			18,072			—			26,868
Income from discontinued operations	—			18,677			—			29,637
Net income	3,418			20,007			108,038			32,022
Net income attributable to noncontrolling redeemable interest	—			(14		)	—			(45		)
Net income attributable to AERC	$	3,418		$	19,993		$	108,038		$	31,977
Allocation to participating securities	—			(85		)	(364		)	(136		)
Net income applicable to common shares	$	3,418		$	19,908		$	107,674		$	31,841

Earnings per common share - basic:
Income from continuing operations applicable to common shares	$	0.06		$	0.02		$	1.87		$	0.04
Income from discontinued operations	—			0.38			—			0.60
Net income applicable to common shares - basic	$	0.06		$	0.40		$	1.87		$	0.64

Earnings per common share - diluted:
Income from continuing operations applicable to common shares	$	0.06		$	0.02		$	1.86		$	0.04
Income from discontinued operations	—			0.38			—			0.59
Net income applicable to common shares - diluted	$	0.06		$	0.40		$	1.86		$	0.63

Comprehensive income:
Net income	$	3,418		$	20,007		$	108,038		$	32,022
Other comprehensive income:
Change in fair value and reclassification of hedge instruments	814			(622		)	68			1,687
Total comprehensive income	4,232			19,385			108,106			33,709
Comprehensive income attributable to noncontrolling interests	—			(14		)	—			(45		)
Total comprehensive income attributable to AERC	$	4,232		$	19,371		$	108,106		$	33,664

Weighted average shares outstanding - basic	57,531			49,949			57,456			49,816

Weighted average shares outstanding - diluted	58,033			50,267			57,928			50,376

Associated Estates Realty Corporation

Reconciliation of Funds from Operations (FFO) and Funds Available for Distribution (FAD)

Three and Nine Months Ended September 30, 2014 and 2013

(Unaudited; in thousands, except per share data)



		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2014			2013			2014			2013
CALCULATION OF FFO AND FAD
Net income attributable to AERC		$	3,418		$	19,993		$	108,038		$	31,977

Add:	Depreciation - real estate assets	14,272			13,456			43,419			38,941
	Amortization of intangible assets	928			651			2,910			2,996
Less:	Gain on disposition of properties	—			(18,072		)	(100,870		)	(26,868		)

	Funds from Operations (FFO) ⁽¹⁾	18,618			16,028			53,497			47,046

Add:	Depreciation - other assets	579			539			1,629			1,627
	Amortization of deferred financing fees	471			477			1,402			1,541
Less:	Recurring fixed asset additions ⁽²⁾	(3,027		)	(3,930		)	(8,073		)	(9,141		)
	Funds Available for Distribution (FAD) ⁽¹⁾	$	16,641		$	13,114		$	48,455		$	41,073

Weighted average shares outstanding - diluted ⁽³⁾		58,033			50,267			57,928			50,376

PER SHARE INFORMATION:
FFO - diluted		$	0.32		$	0.32		$	0.92		$	0.93
Dividends		$	0.19		$	0.19		$	0.57		$	0.57

Payout ratio - FFO		59.4		%	59.4		%	62.0		%	61.3		%
Payout ratio - FAD		65.5		%	73.1		%	67.9		%	69.5		%


(1)	See page 23 for the Company's definition of these non-GAAP measurements. Individual line items included in FFO and FAD calculations include results from discontinued operations where applicable.


(2)	Fixed asset additions exclude development, investment, revenue enhancing and non-recurring capital additions.


(3)	The Company has excluded 93 stock options for the three and nine months ended September 30, 2013, as their inclusion would be anti-dilutive.

Associated Estates Realty Corporation

Development Pipeline

As of September 30, 2014

(Unaudited; dollar amounts in thousands, except per unit data)

This table includes forward-looking statements based on current judgments and current knowledge of management, which are subject to certain risks, trends and uncertainties that could cause results to vary from those projected. Please see the paragraph on forward-looking statements on page 2 of this document for a list of risk factors.

Consolidated Current Developments



				Total
				Estimated		Cost				Estimated/Actual Dates for				Average		Commercial
Under		Ownership	Total	Capital		to		Total		Construction	Initial	Construction	Stabilized	Rent		Rent		%	%
Construction	Location	%	Units	Cost ^{(1) (6)}		Date		Debt		Start	Occupancy	Completion	Operations ⁽²⁾	Per Unit ⁽³⁾		Per Month ⁽⁵⁾		Leased	Occupied
Cantabria at Turtle Creek	Dallas, TX	100.0%	249	$	56,800	$	46,436	$	25,688	Q2 2013	Q3 2014	Q1 2015	Q2 2015	$	2,286	N/A		13.3%	2.4%

7001 Arlington at Bethesda	Bethesda, MD	98.1% ⁽⁴⁾	140	$	53,400	$	40,725	$	12,954	Q4 2012	Q4 2014	Q2 2015	Q3 2015	$	2,781	$	39,000	N/A	N/A

The Desmond on Wilshire	Los Angeles, CA	100.0%	175	$	76,300	$	40,528	$	—	Q2 2013	Q3 2015	Q4 2015	Q1 2016	$	3,338	N/A		N/A	N/A

Total			564	$	186,500	$	127,689	$	38,642

Unconsolidated Current Developments



				Total
				Estimated		Cost		AEC				AEC		Estimated/Actual Dates for				Average		Commercial
Under		Ownership	Total	Capital		to		Investment		Total		Share		Construction	Initial	Construction	Stabilized	Rent		Rent		%	%
Construction	Location	%	Units	Cost ^{(1) (6)}		Date		to Date		Debt		of Debt		Start	Occupancy	Completion	Operations ⁽²⁾	Per Unit ⁽³⁾		Per Month ⁽⁵⁾		Leased	Occupied
350 8th	San Francisco, CA	50.0%	410	$	245,000	$	72,500	$	33,609	$	—	$	—	Q2 2014	Q4 2015	Q4 2016	Q1 2017	$	3,837	$	152,000	N/A	N/A

950 East Third	Los Angeles, CA	50.0%	472	$	164,000	$	35,566	$	4,547	$	—	—		Q3 2014	Q3 2016	Q1 2017	Q4 2017	$	2,651	$	66,000	N/A	N/A

Total			882	$	409,000	$	108,066	$	38,156	$	—	$	—

Unconsolidated Future Development Pipeline - Unimproved Land

Estimated

AEC

Ownership

Number

Cost to

Investment

Name

Location

of Units ⁽⁶⁾

Date

to Date

5th and Huntington

Monrovia, CA

50.0%

154

15,223

7,765


(1)	Total capital cost are calculated as if owned 100.0% by the Company and represent estimated costs for projects under development inclusive of all capitalized costs in accordance with GAAP.


(2)	We define stabilized occupancy as the earlier of the attainment of 93.0% physical occupancy or one year after the completion of construction.


(3)	Reflects our projected stabilized rents. We expect to update these projections periodically to reflect market rents and rents achieved.


(4)	Ownership percentage based on current equity of the joint venture and is subject to change based on changes in total equity. Joint venture partner contribution is $350.


(5)	Based on 6,898 square feet of commercial space at 7001 Arlington at Bethesda, 40,000 square feet of commercial space at 350 8th and 19,700 square feet of commercial space at 950 East Third.


(6)	Based on current projections as of October 28, 2014.

Associated Estates Realty Corporation

Overview of Operating Expenses Related to Repairs and Maintenance and Capitalized Expenditures

(In thousands; except estimated GAAP useful life and cost per unit)



		Nine Months Ended
	Estimated	September 30, 2014
	GAAP Useful			Cost Per
	Life (Years)	Amount		Unit ⁽¹⁾
OPERATING EXPENSES RELATED TO REPAIRS AND MAINTENANCE
Repairs and maintenance ⁽²⁾		$	8,971	$	685
Maintenance personnel labor cost ⁽²⁾		5,028		384
Total Operating Expenses Related to Repairs and Maintenance		13,999		1,069

CAPITAL EXPENDITURES
Recurring Capital Expenditures ⁽³⁾
Amenities	5	460		35
Appliances	5	849		65
Building improvements	14	1,276		98
Carpet and flooring	5	2,662		203
Furnishings	5	117		9
Office/Model	5	111		8
HVAC and mechanicals	15	699		54
Landscaping and grounds	14	1,306		100
Unit improvements	5	119		9
Total Recurring Capital Expenditures - Properties		7,599		581
Corporate capital expenditures		474		36
Total Recurring Capital Expenditures		8,073		617
Total Recurring Capital Expenditures and Repairs and Maintenance		$	22,072	$	1,686

Total Recurring Capital Expenditures		$	8,073
Investment/Revenue Enhancing/Non-Recurring Expenditures ⁽⁴⁾
Building improvements - unit upgrades	Various	982
Building improvements - other	20	768
Ground improvements	Various	62
Total Investment/Revenue Enhancing/Non-Recurring Expenditures		1,812
Grand Total Capital Expenditures		$	9,885


(1)	Calculated using weighted average units owned during the nine months ended September 30, 2014 of 13,090.


(2)	Included in property operating and maintenance expense in the Consolidated Statements of Operations and Comprehensive Income.


(3)	See page 24 for the Company's definition of recurring fixed asset additions.


(4)	See page 24 for the Company's definition of investment/revenue enhancing and/or non-recurring fixed asset additions.

Associated Estates Realty Corporation

General and Administrative Expense, Personnel Expense - Allocated, Construction Services,

Development and Property Management

For the Three and Nine Months Ended September 30, 2014 and 2013

(Unaudited; in thousands)



	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2014			2013		2014			2013
General and Administrative, Personnel - Allocated, Construction
Services, Development and Property Management
General and administrative expense ⁽¹⁾	$	4,200		$	4,946	$	14,116		$	14,302
Personnel expense - allocated ⁽²⁾	1,119			1,072		3,393			3,101
Total	5,319			6,018		17,509			17,403
Construction services revenue ⁽¹⁾	(223		)	—		(387		)	—
Construction services expense ⁽¹⁾	129			—		219			—
Construction services, net	(94		)	—		(168		)	—
Development costs ⁽¹⁾	162			220		690			662
Net development	68			220		522			662
Property management revenue ⁽¹⁾	(89		)	—		(191		)	—
Net overhead	$	5,298		$	6,238	$	17,840		$	18,065


(1)	As reported per the Consolidated Statement of Operations and Comprehensive Income.


(2)	Represents general and administrative expense allocations to property operating and maintenance expenses.

Associated Estates Realty Corporation

Same Community Data

Operating Results for the Last Five Quarters

(Unaudited; in thousands, except unit totals and per unit amounts)



	Quarter Ended
	September 30,			June 30,			March 31,			December 31,			September 30,
	2014			2014			2014			2013			2013

Property Revenue	$	40,690		$	40,360		$	39,891		$	39,696		$	39,914
Property Operating and
Maintenance Expenses
Personnel - on site	3,109			3,309			3,288			3,054			3,262
Personnel - allocated	962			956			945			940			945
Advertising	432			405			442			397			406
Utilities	1,932			1,723			1,861			1,846			1,904
Repairs and maintenance	2,424			2,561			2,457			2,067			2,450
Real estate taxes and insurance	5,593			5,453			5,798			5,383			5,440
Other operating	967			863			885			879			899
Total Expenses	15,419			15,270			15,676			14,566			15,306

Property Net Operating Income	$	25,271		$	25,090		$	24,215		$	25,130		$	24,608

Operating Margin	62.1		%	62.2		%	60.7		%	63.3		%	61.7		%

Personnel - Allocated as a
Percentage of Property Revenue	2.4		%	2.4		%	2.4		%	2.4		%	2.4		%

Total Number of Units	11,484			11,484			11,484			11,484			11,484

Property NOI Per Unit	$	2,201		$	2,185		$	2,109		$	2,188		$	2,143

Monthly Property Revenue
Per Occupied Unit	$	1,238		$	1,215		$	1,202		$	1,208		$	1,211

Average Occupancy ⁽¹⁾	95.4		%	96.4		%	96.3		%	95.4		%	95.7		%


(1)	Is defined as the average number of units occupied during the quarter divided by total number of units.

Associated Estates Realty Corporation

Same Community Data

Operating Results for the Nine Months Ended September 30, 2014 and 2013

(Unaudited; in thousands, except unit totals and per unit amounts)



	Nine Months Ended
	September 30,
	2014			2013

Property Revenue	$	120,941		$	117,813
Property Operating and Maintenance Expenses
Personnel - on site	9,706			9,713
Personnel - allocated	2,863			2,788
Advertising	1,279			1,237
Utilities	5,516			5,378
Repairs and maintenance	7,442			7,280
Real estate taxes and insurance	16,845			16,286
Other operating	2,715			2,810
Total Expenses	46,366			45,492

Property Net Operating Income	$	74,575		$	72,321

Operating Margin	61.7		%	61.4		%

Personnel - Allocated as a Percentage to Property Revenue	2.4		%	2.4		%

Total Number of Units	11,484			11,484

Property NOI Per Unit	$	6,494		$	6,298

Monthly Property Revenue Per Occupied Unit	$	1,219		$	1,192

Average Occupancy ⁽¹⁾	96.0		%	95.7		%


(1)	Is defined as the average number of units occupied during the quarter divided by total number of units.

Associated Estates Realty Corporation

Same Community Data

As of September 30, 2014 and 2013

(Unaudited)



			Property Revenue per						Average				Turnover
			Occupied Unit						Occupancy ⁽¹⁾				Ratio ⁽²⁾
	No. of	Average	Q3		Q3		%		Q3		Q3		Q3		Q3
	Units	Age ⁽³⁾	2014		2013		Change		2014		2013		2014		2013
Midwest Properties
Indianapolis	836	18	$	981	$	966	1.6	%	95.9	%	94.7	%	88.0	%	92.8	%
Southeast Michigan	1,778	21	1,047		1,008		3.9	%	94.9	%	96.2	%	75.1	%	65.0	%
Western Michigan	438	23	952		941		1.2	%	96.6	%	97.3	%	84.9	%	85.8	%
Central Ohio	1,581	23	1,040		1,029		1.1	%	95.5	%	96.2	%	75.6	%	75.9	%
Northeast Ohio	1,303	19	1,250		1,209		3.4	%	94.6	%	96.1	%	78.6	%	60.8	%
Total Midwest	5,936	21	1,073		1,047		2.5	%	95.2	%	96.0	%	78.6	%	72.4	%

Mid-Atlantic Properties
Metro DC	250	6	2,134		2,146		(0.6	)%	95.7	%	96.3	%	80.0	%	75.2	%
Raleigh-Durham	760	7	1,241		1,211		2.5	%	96.0	%	96.3	%	60.5	%	65.8	%
Northern Virginia	1,272	9	1,646		1,649		(0.2	)%	95.2	%	95.3	%	68.9	%	61.0	%
Southeast Virginia	864	8	1,237		1,242		(0.4	)%	96.3	%	94.1	%	63.9	%	78.2	%
Total Mid-Atlantic	3,146	8	1,475		1,471		0.3	%	95.7	%	95.4	%	66.4	%	68.0	%

Southeast Properties
Southeast Florida	1,206	16	1,470		1,400		5.0	%	95.7	%	95.7	%	64.7	%	55.4	%
Atlanta	354	22	1,186		1,122		5.7	%	96.1	%	97.3	%	74.6	%	58.8	%
Total Southeast	1,560	18	1,406		1,337		5.2	%	95.8	%	96.0	%	66.9	%	56.2	%

Southwest Properties
Dallas	842	11	1,206		1,156		4.3	%	94.2	%	94.6	%	80.3	%	67.9	%
Total Southwest	842	11	1,206		1,156		4.3	%	94.2	%	94.6	%	80.3	%	67.9	%

Total/Average Same
Community	11,484	16	$	1,238	$	1,211	2.2	%	95.4	%	95.7	%	73.8	%	68.7	%


(1)	Is defined as the average number of units occupied during the quarter divided by total number of units.


(2)	Represents the number of units turned over for the quarter, divided by the number of units in a market, annualized.


(3)	Age shown in years.



Associated Estates Realty Corporation
Sequential Property Revenue, Operating Expenses and Net Operating Income (NOI)
For the Three Months Ended September 30, 2014 and June 30, 2014
(Unaudited, in thousands, except unit totals)

		Q3		Q2		Q3		Q2							Q3		Q2						Q3		Q2
		2014		2014		2014		2014							2014		2014						2014		2014
	No. of	Average		Average						Incr/			%						Incr/		%						Incr/		%
	Units	Occupancy ⁽¹⁾		Occupancy ⁽¹⁾		Revenue		Revenue		(Decr)			Change		Expenses		Expenses		(Decr)		Change		NOI		NOI		(Decr)		Change
Same Community
Midwest Properties
Indianapolis	836	95.9	%	97.0	%	$	2,360	$	2,318	$	42		1.8	%	950		$	948	2		0.2	%	1,410		$	1,370	40		2.9	%
Southeast Michigan	1,778	94.9	%	95.5	%	5,303		5,207		96			1.8	%	2,074		2,030		44		2.2	%	3,229		3,177		52		1.6	%
Western Michigan	438	96.6	%	97.9	%	1,207		1,186		21			1.8	%	491		469		22		4.7	%	716		717		(1	)	(0.1	)%
Central Ohio	1,581	95.5	%	96.5	%	4,711		4,660		51			1.1	%	1,980		2,012		(32	)	(1.6	)%	2,731		2,648		83		3.1	%
Northeast Ohio	1,303	94.6	%	96.4	%	4,621		4,583		38			0.8	%	1,673		1,658		15		0.9	%	2,948		2,925		23		0.8	%
	5,936	95.2	%	96.3	%	18,202		17,954		248			1.4	%	7,168		7,117		51		0.7	%	11,034		10,837		197		1.8	%
Mid-Atlantic Properties
Metro DC	250	95.7	%	96.3	%	1,532		1,518		14			0.9	%	491		493		(2	)	(0.4	)%	1,041		1,025		16		1.6	%
Raleigh-Durham	760	96.0	%	96.9	%	2,717		2,701		16			0.6	%	880		832		48		5.8	%	1,837		1,869		(32	)	(1.7	)%
Northern Virginia	1,272	95.2	%	96.4	%	5,981		6,001		(20		)	(0.3	)%	1,816		1,826		(10	)	(0.5	)%	4,165		4,175		(10	)	(0.2	)%
Southeast Virginia	864	96.3	%	96.3	%	3,090		3,096		(6		)	(0.2	)%	1,023		1,005		18		1.8	%	2,067		2,091		(24	)	(1.1	)%
	3,146	95.7	%	96.5	%	13,320		13,316		4			0.0	%	4,210		4,156		54		1.3	%	9,110		9,160		(50	)	(0.5	)%
Southeast Properties
Southeast Florida	1,206	95.7	%	96.8	%	5,090		5,044		46			0.9	%	2,169		2,074		95		4.6	%	2,921		2,970		(49	)	(1.6	)%
Atlanta	354	96.1	%	96.2	%	1,210		1,178		32			2.7	%	528		561		(33	)	(5.9	)%	682		617		65		10.5	%
	1,560	95.8	%	96.7	%	6,300		6,222		78			1.3	%	2,697		2,635		62		2.4	%	3,603		3,587		16		0.4	%
Southwest Properties
Dallas	842	94.2	%	96.0	%	2,868		2,868		0			0.0	%	1,344		1,362		(18	)	(1.3	)%	1,524		1,506		18		1.2	%
	842	94.2	%	96.0	%	2,868		2,868		0			0.0	%	1,344		1,362		(18	)	(1.3	)%	1,524		1,506		18		1.2	%
Total Same Community	11,484	95.4	%	96.4	%	40,690		40,360		330			0.8	%	15,419		15,270		149		1.0	%	25,271		25,090		181		0.7	%
Acquisitions ⁽²⁾
Southeast Florida	388	87.0	%	92.4	%	1,861		1,912		(51		)	(2.7	)%	602		816		(214	)	(26.2	)%	1,259		1,096		163		14.9	%
Charlotte	562	89.4	%	80.0	%	2,015		1,292		723			56.0	%	717		433		284		65.6	%	1,298		859		439		51.1	%
Raleigh-Durham	349	94.4	%	96.5	%	1,341		1,346		(5		)	(0.4	)%	427		362		65		18.0	%	914		984		(70	)	(7.1	)%
Dallas	152	89.3	%	95.9	%	1,183		1,206		(23		)	(1.9	)%	683		691		(8	)	(1.2	)%	500		515		(15	)	(2.9	)%
Development
Dallas ⁽³⁾	99	97.6	%	98.0	%	354		337		17			5.0	%	225		215		10		4.7	%	129		122		7		5.7	%
Properties owned at 9/30	13,034	94.6	%	95.5	%	47,444		46,453		991			2.1	%	18,073		17,787		286		1.6	%	29,371		28,666		705		2.5	%
Dispositions ⁽⁴⁾	909					—		815							—		345						—		470
Total	13,943					$	47,444	$	47,268						$	18,073	$	18,132					$	29,371	$	29,136


(1)	Is defined as the average number of units occupied during the quarter divided by total number of units.


(2)	We define acquisition properties as acquired properties which have been owned less than one year.


(3)	Includes pre-leasing and administrative costs of our 249-unit Cantabria development in Dallas of approximately $70 and $21 for Q3 and Q2, respectively.


(4)	Effective Q1 2014 for the Company, per ASU No. 2014-08, only disposals representing a major strategic shift in operations will be presented as discontinued operations.



Associated Estates Realty Corporation
Third Quarter Property Revenue, Operating Expenses and Net Operating Income (NOI)
For the Three Months Ended September 30, 2014 and 2013
(Unaudited; in thousands, except unit totals)

		Q3		Q3		Q3		Q3							Q3		Q3							Q3		Q3
		2014		2013		2014		2013							2014		2013							2014		2013
	No. of	Average		Average						Incr/			%						Incr/			%							Incr/			%
	Units	Occupancy ⁽¹⁾		Occupancy ⁽¹⁾		Revenue		Revenue		(Decr)			Change		Expenses		Expenses		(Decr)			Change		NOI		NOI			(Decr)			Change
Same Community
Midwest Properties
Indianapolis	836	95.9	%	94.7	%	$	2,360	$	2,293	$	67		2.9	%	$	950	$	978	$	(28	)	(2.9	)%	$	1,410	$	1,315		$	95		7.2	%
Southeast Michigan	1,778	94.9	%	96.2	%	5,303		5,175		128			2.5	%	2,074		2,062		12			0.6	%	3,229		3,113			116			3.7	%
Western Michigan	438	96.6	%	97.3	%	1,207		1,203		4			0.3	%	491		515		(24		)	(4.7	)%	716		688			28			4.1	%
Central Ohio	1,581	95.5	%	96.2	%	4,711		4,693		18			0.4	%	1,980		2,029		(49		)	(2.4	)%	2,731		2,664			67			2.5	%
Northeast Ohio	1,303	94.6	%	96.1	%	4,621		4,543		78			1.7	%	1,673		1,588		85			5.4	%	2,948		2,955			(7		)	(0.2	)%
	5,936	95.2	%	96.0	%	18,202		17,907		295			1.6	%	7,168		7,172		(4		)	(0.1	)%	11,034		10,735			299			2.8	%
Mid-Atlantic Properties
Metro DC	250	95.7	%	96.3	%	1,532		1,550		(18		)	(1.2	)%	491		509		(18		)	(3.5	)%	1,041		1,041			0			0.0	%
Raleigh-Durham	760	96.0	%	96.3	%	2,717		2,659		58			2.2	%	880		891		(11		)	(1.2	)%	1,837		1,768			69			3.9	%
Northern Virginia	1,272	95.2	%	95.3	%	5,981		5,996		(15		)	(0.3	)%	1,816		1,863		(47		)	(2.5	)%	4,165		4,133			32			0.8	%
Southeast Virginia	864	96.3	%	94.1	%	3,090		3,030		60			2.0	%	1,023		967		56			5.8	%	2,067		2,063			4			0.2	%
	3,146	95.7	%	95.4	%	13,320		13,235		85			0.6	%	4,210		4,230		(20		)	(0.5	)%	9,110		9,005			105			1.2	%
Southeast Properties
Southeast Florida	1,206	95.7	%	95.7	%	5,090		4,850		240			4.9	%	2,169		2,074		95			4.6	%	2,921		2,776			145			5.2	%
Atlanta	354	96.1	%	97.3	%	1,210		1,160		50			4.3	%	528		480		48			10.0	%	682		680			2			0.3	%
	1,560	95.8	%	96.0	%	6,300		6,010		290			4.8	%	2,697		2,554		143			5.6	%	3,603		3,456			147			4.3	%
Southwest Properties
Dallas	842	94.2	%	94.6	%	2,868		2,762		106			3.8	%	1,344		1,350		(6		)	(0.4	)%	1,524		1,412			112			7.9	%
	842	94.2	%	94.6	%	2,868		2,762		106			3.8	%	1,344		1,350		(6		)	(0.4	)%	1,524		1,412			112			7.9	%
Total Same Community	11,484	95.4	%	95.7	%	40,690		39,914		776			1.9	%	15,419		15,306		113			0.7	%	25,271		24,608			663			2.7	%
Acquisitions ⁽²⁾
Southeast Florida	388	87.0	%	97.9	%	1,861		1,671		190			11.4	%	602		702		(100		)	(14.2	)%	1,259		969			290			29.9	%
Charlotte	562	89.4	%	N/A		2,015		—		2,015			N/A		717		—		717			N/A		1,298		—			1,298			N/A
Raleigh-Durham	349	94.4	%	N/A		1,341		—		1,341			N/A		427		—		427			N/A		914		—			914			N/A
Dallas	152	89.3	%	95.0	%	1,183		60		1,123			N/A		683		30		653			N/A		500		30			470			N/A
Development
Dallas ⁽³⁾	99	97.6	%	N/A		354		5		349			N/A		225		19		206			N/A		129		(14		)	143			N/A
Properties owned at 9/30	13,034	94.6	%	95.8	%	47,444		41,650		5,794			13.9	%	18,073		16,057		2,016			12.6	%	29,371		25,593			3,778			14.8	%
Dispositions ⁽⁴⁾	909					—		3,969							—		1,279							—		2,690
Total	13,943					$	47,444	$	45,619						$	18,073	$	17,336						$	29,371	$	28,283


(1)	Is defined as the average number of units occupied during the quarter divided by total number of units.


(2)	We define acquisition properties as acquired properties which have been owned less than one year.


(3)	Includes pre-leasing and administrative costs of our 249-unit Cantabria development in Dallas of approximately $70 for Q3 2014.


(4)	Effective Q1 2014 for the Company, per ASU No. 2014-08, only disposals representing a major strategic shift in operations will be presented as discontinued operations.



Associated Estates Realty Corporation
Year-to-Date Property Revenue, Operating Expenses and Net Operating Income (NOI)
For the Nine Months Ended September 30, 2014 and 2013
(Unaudited; in thousands, except unit totals)

						YTD		YTD							YTD		YTD							YTD		YTD
		2014		2013		2014		2013							2014		2013							2014		2013
	No. of	Average		Average						Incr/			%						Incr/			%							Incr/			%
	Units	Occupancy ⁽¹⁾		Occupancy ⁽¹⁾		Revenue		Revenue		(Decr)			Change		Expenses		Expenses		(Decr)			Change		NOI		NOI			(Decr)			Change
Same Community
Midwest Properties
Indianapolis	836	96.9	%	95.6	%	$	6,997	$	6,792	$	205		3.0	%	$	2,753	$	2,856	$	(103	)	(3.6	)%	$	4,244	$	3,936		$	308		7.8	%
Southeast Michigan	1,778	95.6	%	96.0	%	15,696		15,186		510			3.4	%	6,129		6,038		91			1.5	%	9,567		9,148			419			4.6	%
Western Michigan	438	97.3	%	97.4	%	3,569		3,537		32			0.9	%	1,480		1,519		(39		)	(2.6	)%	2,089		2,018			71			3.5	%
Central Ohio	1,581	95.9	%	95.6	%	13,938		13,710		228			1.7	%	5,974		6,019		(45		)	(0.7	)%	7,964		7,691			273			3.5	%
Northeast Ohio	1,303	95.5	%	95.9	%	13,637		13,277		360			2.7	%	5,090		4,947		143			2.9	%	8,547		8,330			217			2.6	%
	5,936	95.9	%	95.9	%	53,837		52,502		1,335			2.5	%	21,426		21,379		47			0.2	%	32,411		31,123			1,288			4.1	%
Mid-Atlantic Properties
Metro DC	250	95.5	%	96.8	%	4,551		4,632		(81		)	(1.7	)%	1,491		1,549		(58		)	(3.7	)%	3,060		3,083			(23		)	(0.7	)%
Raleigh-Durham	760	96.7	%	95.2	%	8,099		7,699		400			5.2	%	2,621		2,531		90			3.6	%	5,478		5,168			310			6.0	%
Northern Virginia	1,272	95.9	%	95.3	%	17,978		17,854		124			0.7	%	5,666		5,639		27			0.5	%	12,312		12,215			97			0.8	%
Southeast Virginia	864	96.1	%	94.6	%	9,228		9,054		174			1.9	%	3,083		2,813		270			9.6	%	6,145		6,241			(96		)	(1.5	)%
	3,146	96.0	%	95.3	%	39,856		39,239		617			1.6	%	12,861		12,532		329			2.6	%	26,995		26,707			288			1.1	%
Southeast Properties
Southeast Florida	1,206	96.5	%	95.7	%	15,117		14,426		691			4.8	%	6,433		6,198		235			3.8	%	8,684		8,228			456			5.5	%
Atlanta	354	96.3	%	96.6	%	3,549		3,397		152			4.5	%	1,582		1,480		102			6.9	%	1,967		1,917			50			2.6	%
	1,560	96.5	%	95.9	%	18,666		17,823		843			4.7	%	8,015		7,678		337			4.4	%	10,651		10,145			506			5.0	%
Southwest Properties
Dallas	842	95.5	%	95.6	%	8,582		8,249		333			4.0	%	4,064		3,903		161			4.1	%	4,518		4,346			172			4.0	%
	842	95.5	%	95.6	%	8,582		8,249		333			4.0	%	4,064		3,903		161			4.1	%	4,518		4,346			172			4.0	%
Total Same Community	11,484	96.0	%	95.7	%	120,941		117,813		3,128			2.7	%	46,366		45,492		874			1.9	%	74,575		72,321			2,254			3.1	%
Acquisitions ⁽²⁾
Southeast Florida	388	91.4	%	97.9	%	5,737		1,671		4,066			243.3	%	2,242		702		1,540			219.4	%	3,495		969			2,526			260.7	%
Charlotte	562	89.9	%	N/A		4,427		N/A		4,427			N/A		1,562		N/A		1,562			N/A		2,865		N/A			2,865			N/A
Raleigh-Durham	349	94.6	%	N/A		3,951		N/A		3,951			N/A		1,202		N/A		1,202			N/A		2,749		N/A			2,749			N/A
Dallas	152	93.9	%	95.0	%	3,594		60		3,534			N/A		2,032		30		2,002			N/A		1,562		30			1,532			N/A
Development
Dallas ⁽³⁾	99	93.0	%	N/A		982		5		977			N/A		544		19		525			N/A		438		(14		)	452			N/A
Properties owned at 9/30	13,034	95.4	%	95.7	%	139,632		119,549		20,083			16.8	%	53,948		46,243		7,705			16.7	%	85,684		73,306			12,378			16.9	%
Dispositions ⁽⁴⁾	909					4,230		11,860							1,625		3,951							2,605		7,909
Total	13,943					$	143,862	$	131,409						$	55,573	$	50,194						$	88,289	$	81,215


(1)	Is defined as the average number of units occupied during the quarter divided by total number of units.


(2)	We define acquisition properties as acquired properties which have been owned less than one year.


(3)	Includes pre-leasing and administrative costs of our 249-unit Cantabria development in Dallas of approximately $91 for YTD 2014.


(4)	Effective Q1 2014 for the Company, per ASU No. 2014-08, only disposals representing a major strategic shift in operations will be presented as discontinued operations.

Associated Estates Realty Corporation

Debt Structure

As of September 30, 2014

(Dollar amounts in thousands)



	Balance		Percentage		Weighted
	Outstanding		of		Average
	September 30, 2014		Total Debt		Interest Rate
Fixed Rate Debt:
Secured	$	249,182	34.2	%	4.9	%
Unsecured - notes	250,000		34.3	%	4.4	%
Total Fixed Rate Debt	499,182		68.5	%	4.6	%

Variable Rate Debt Swapped to Fixed:
Unsecured - term loan⁽¹⁾	125,000		17.1	%	2.7	%
Total Variable Rate Debt Swapped to Fixed	125,000		17.1	%	2.7	%

Variable Rate Debt Unhedged:
Secured	38,642		5.3	%	1.5	%
Unsecured - revolver	41,500		5.7	%	1.5	%
Unsecured - term loan	25,000		3.4	%	1.6	%
Total Variable Rate Debt Unhedged	105,142		14.4	%	1.5	%

TOTAL DEBT	$	729,324	100.0	%	3.9	%

Interest coverage ratio ⁽²⁾	3.22:1
Fixed charge coverage ratio ⁽³⁾	3.22:1
Weighted average maturity	5.5 years



Scheduled Principal Maturities:	Secured		Unsecured		Total
2014 ⁽⁴⁾	$	24,500	$	—	$	24,500
2015	19,658		—		19,658
2016	80,138		—		80,138
2017	—		41,500		41,500
2018	47,591		—		47,591
Thereafter	115,937		400,000		515,937
TOTAL	$	287,824	$	441,500	$	729,324

(1)

The Company entered into a forward starting swap in December 2011 fixing the rate beginning in June 2013 until June 2016 at a rate of 1.26% plus the credit spread which was 1.40% as of September 30, 2014, or an all-in rate of 2.66%. Additionally, the Company entered into a forward starting swap in April 2013 fixing the rate beginning June 2016 at a rate of 1.55% plus the credit spread which was 1.40% as of September 30, 2014, or an all-in rate of 2.95% until January 2018.


(2)	Is calculated as EBITDA divided by interest expense, including capitalized interest and amortization of deferred financing costs and excluding prepayment costs/credits. Individual line items in this calculation include results from discontinued operations where applicable. See page 23 for a reconciliation of net income available to common shares to EBITDA and the Company's definition of EBITDA.


(3)	Represents interest expense, including capitalized interest and preferred stock dividend payment coverage, excluding costs/refunds. Individual line items in this calculation include discontinued operations where applicable.


(4)	Loan was repaid on October 1, 2014.

Associated Estates Realty Corporation

2014 Financial Outlook

As of October 28, 2014



Earnings Guidance Per Common Share
Expected net income attributable to AERC		$2.66 to $3.23
Expected real estate depreciation and amortization		1.06
Expected gains on disposition of properties		-2.46 to -2.99
Expected Funds from Operations ⁽¹⁾		$1.26 to $1.30

Same Community Portfolio
Revenue growth		2.25% to 3.00%
Expense growth		0.75% to 1.50%
Property NOI ⁽²⁾ growth		3.20% to 3.90%

Transactions
Acquisitions	$125.6 million
Dispositions	$210.0 to $275.0 million
Development	$80.0 to $100.0 million

Corporate Revenue/Expenses
Construction services revenue, net ⁽³⁾	$0.2 to $0.5 million
Property management fee revenue		$0.2 to $0.3 million
General and administrative expense	$18.6 to $19.1 million
Development costs ⁽³⁾		$0.8 to $1.0 million
Costs associated with acquisitions		$0.2 million

Debt
Capitalized interest	$5.0 million
Expensed interest ⁽⁴⁾	$25.2 to $25.7 million

Capital Structure⁽⁵⁾
Weighted average shares outstanding		58.0 million


(1)	See page 23 for our definition of this non-GAAP measurement.


(2)	See page 24 for our definition of this non-GAAP measurement.


(3)	Net of construction services expense.


(4)	Includes $1.8 million of deferred financing costs.


(5)	Earnings guidance reflects no common share issuances.

Associated Estates Realty Corporation

Definitions of Non-GAAP Financial Measures

The foregoing supplemental financial data includes certain non-GAAP financial measures that we believe are helpful in understanding our business, as further described below. Our definition and calculation of these non-GAAP financial measures may differ from those of other REITs, and may, therefore, not be comparable.

Funds from Operations ("FFO")

We define FFO in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT"). This definition includes all operating results, both recurring and non-recurring, except those results defined as "extraordinary items" under GAAP, adjusted for depreciation on real estate assets and amortization of intangible assets, and excludes impairment write-downs of depreciable real estate and gains and losses from the disposition of properties and land. FFO does not represent cash generated from operating activities in accordance with GAAP, 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 our operating performance or as an alternative to cash flow as a measure of liquidity. We generally consider FFO to be a useful measure for reviewing our comparative operating and financial performance because FFO can help one compare the operating performance of a company's real estate between periods or as compared to different REITs.

Funds Available for Distribution ("FAD")

We define FAD as FFO, as defined above, plus depreciation other and amortization of deferred financing fees less recurring fixed asset additions. Fixed asset additions exclude development, investment, revenue enhancing and non-recurring capital additions. We consider FAD to be an appropriate supplemental measure of the performance of an equity REIT because, like FFO, it captures real estate performance by excluding gains or losses from the disposition of properties and land, depreciation on real estate assets and amortization of intangible assets. Unlike FFO, FAD also reflects the recurring capital expenditures that are necessary to maintain the associated real estate.

Earnings Before Interest, Income Taxes, Depreciation and Amortization ("EBITDA")

EBITDA is defined as earnings before interest, income taxes, depreciation and amortization. We consider EBITDA to be an appropriate supplemental measure of our performance because it eliminates depreciation, income taxes and interest which permits investors to view income from operations unclouded by non-cash depreciation or the cost of debt. Below is a reconciliation of net income applicable to common shares to EBITDA.



	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(In thousands)	2014		2013			2014			2013

Net income applicable to common shares	$	3,418	$	19,908		$	107,674		$	31,841
Allocation to participating securities	—		85			364			136
Interest expense	6,387		7,633			19,928			22,449
Depreciation and amortization	15,779		14,646			47,958			43,564
Gain on disposition of properties	—		(18,072		)	(100,870		)	(26,868		)
Income taxes	106		64			301			275

Total EBITDA	$	25,690	$	24,264		$	75,355		$	71,397

Associated Estates Realty Corporation

Definitions of Non-GAAP Financial Measures

Property Net Operating Income ("Property NOI")

Property NOI is determined by deducting property operating and maintenance expenses from total property revenue. We consider Property NOI to be an appropriate supplemental measure of our performance because it reflects the operating performance of our real estate portfolio at the property level and is used to assess regional property level performance. Property NOI should not be considered an alternative to net income as a measure of performance or cash generated from operating activities in accordance with GAAP and, therefore, it should not be considered indicative of cash available to fund cash needs. The following is a reconciliation of Property NOI to total consolidated net income attributable to AERC.



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In thousands)	2014			2013			2014			2013

Property NOI	$	29,371		$	28,283		$	88,289		$	81,215
Office NOI	451			450			1,384			1,000
Property management and construction services NOI	183			—			359			—
Depreciation and amortization	(15,779		)	(14,212		)	(47,958		)	(41,960		)
General and administrative expense	(4,200		)	(4,946		)	(14,116		)	(14,302		)
Development costs	(162		)	(220		)	(690		)	(662		)
Costs associated with acquisitions	(59		)	(392		)	(172		)	(457		)
Interest expense	(6,387		)	(7,633		)	(19,928		)	(22,449		)
Gain on disposition of properties	—			—			100,870			—
Income from continuing operations	3,418			1,330			108,038			2,385
Income from discontinued operations:
Operating income, net of interest expense	—			605			—			2,769
Gain on disposition of properties	—			18,072			—			26,868
Income from discontinued operations	—			18,677			—			29,637
Net income	3,418			20,007			108,038			32,022
Net income attributable to noncontrolling redeemable interest	—			(14		)	—			(45		)
Consolidated net income attributable to AERC	$	3,418		$	19,993		$	108,038		$	31,977

Recurring Fixed Asset Additions

We consider recurring fixed asset additions to a property to be capital expenditures made to replace worn out assets so as to maintain the property's value.

Investment/Revenue Enhancing and/or Non-Recurring Fixed Asset Additions

We consider investment/revenue enhancing and/or non-recurring fixed assets to be capital expenditures if such improvements increase the value of the property and/or enable us to increase rents.

Same Community Properties

Same Community properties are conventional multifamily residential apartments which were owned and operational for the entire periods presented.