ASSOCIATED ESTATES REALTY CORP - FORM 8-K - EX-99.2 - EXHIBIT

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EX-99.2 - EXHIBIT 99.2 - ASSOCIATED ESTATES REALTY CORP	q42014sup992r142.pdf
8-K - 8-K - ASSOCIATED ESTATES REALTY CORP	a4q20148k.htm
EX-99.1 - EXHIBIT - ASSOCIATED ESTATES REALTY CORP	q42014pr-991.htm

Exhibit 99.2

Associated Estates Realty Corporation

Fourth Quarter 2014

Earnings Release and Supplemental Financial Data



Cantabria at Turtle Creek
2728 Hood Street	Phone:	(866) 609-5971
Dallas,Texas 75219	Web Site:	cantabriaturtlecreek.com



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

Associated Estates Realty Corporation

Fourth 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

Fourth 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

2015 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; losses resulting from property damage or personal injury that are not insured; the results of litigation involving the Company; the cost, disruption and diversion of management’s attention associated with campaigns commenced by activist investors seeking to influence the Company to take particular actions favored by the activist or gain representation on our Board of Directors; information security breaches and other disruptions that could compromise our information and expose us to business interruption, increased costs, liability and reputational damage; 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

Fourth Quarter Earnings

ASSOCIATED ESTATES REALTY CORPORATION REPORTS

FOURTH QUARTER AND FULL YEAR 2014 RESULTS

Full Year Same Community NOI up 3.3%

Full Year Same Community Average Occupancy of 95.7% and Operating Margins of 62.5%

2015 Operating FFO Per Share Growth of 7.1% at the Midpoint of Guidance

CLEVELAND - February 3, 2015 - Associated Estates Realty Corporation (NYSE, NASDAQ: AEC) announced today its financial results for the fourth quarter and full year ended December 31, 2014.

“2014 was another strong year for Associated Estates,” said Jeffrey I. Friedman, President and Chief Executive Officer. “We took decisive action to advance the interests of shareholders, optimize the portfolio and position the Company for continued growth and value creation. Through the continued execution of our proven strategic plan, we made significant progress on our portfolio transformation and extended our track record of delivering industry leading shareholder returns. Recognizing the strong performance of our portfolio, our Board was pleased to increase our quarterly dividend twice during the year, raising our annualized distribution by 10.5%, and further demonstrating our commitment to delivering value to shareholders.”

“Associated Estates enters 2015 with many Class A properties producing consistent, above market rents, a fully funded active development pipeline, a solid investment grade balance sheet, and a strong Board of Directors and management team whose interests are keenly aligned with those of our shareholders. Our asset sales were at very attractive cap rates and we have redeployed those funds into accretive acquisitions and developments with expected development stabilized yields approximately 250 basis points higher than the current market cap rates. In 2015, we look forward to continue building on our success over the last ten years for the benefit of all Associated Estates shareholders.”

Full Year Performance

Operating Funds from Operations (Operating FFO), which excludes $309,000 of extraordinary expenses incurred by the Company during 2014 related to the Land and Buildings activism campaign, was $1.26 per common share (diluted) for the full year ended December 31, 2014, compared to Funds from Operations (FFO) of $1.27 per common share (diluted) for the full year ended December 31, 2013. FFO for the full year ended December 31, 2014 was $1.26 per common share (diluted).

For the full year ended December 31, 2014, net income applicable to common shares was $144.2 million, or $2.49 per common share (diluted), compared to net income applicable to common shares of $61.0 million, or $1.17 per common share (diluted), for the full year ended December 31, 2013. Net income for the full year 2014 included gains of $133.3 million from the sale of five properties. Net income for the full year 2013 included gains of $52.8 million from the sale of four properties.

NOI for the year ended December 31, 2014 for the Company’s same community portfolio increased 3.3% compared to the year ended December 31, 2013. Revenue increased 2.5%, while property operating expenses increased by only 1.2%. Full year same community operating margins increased to 62.5% in 2014 compared to 62.0% in 2013. Average occupancy for the same community portfolio for 2014 was 95.7% compared to 95.6% for 2013.

Associated Estates Realty Corporation

Fourth Quarter Earnings

Quarterly Results

Operating FFO for the fourth quarter of 2014 was $0.34 per common share (diluted) compared to FFO of $0.33 per common share (diluted) for the fourth quarter of 2013. FFO for the fourth quarter of 2014 was $0.33 per common share (diluted), and included $309,000 of extraordinary expenses incurred by the Company during the period related to the Land and Buildings activism campaign. Net income applicable to common shares was $36.6 million, or $0.63 per common share (diluted), for the quarter ended December 31, 2014, which included a $32.4 million gain associated with a property sale. For the fourth quarter of 2013, net income applicable to common shares was $29.2 million, or $0.51 per common share (diluted), which included a $26.0 million gain associated with two property sales. Net operating income (NOI) for the Company’s same community portfolio increased 1.9% for the fourth quarter of 2014 compared to the fourth quarter of 2013. Revenue increased 1.5%, while property operating expenses increased by only 0.9%. Average occupancy for the same community portfolio during the fourth quarter of 2014 was 94.3% compared to 95.4% during the fourth quarter of 2013.

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

Transactional Activity

During the fourth quarter, the Company closed on the sale of Cypress Shores, a 300-unit property located in Coconut Creek, FL. For the full year 2014, the Company completed five dispositions representing 1,209 units and total proceeds of approximately $216 million. The blended, unlevered IRR on these sales was 16.2%, and the blended market cap rate was 5.4%, which is calculated on trailing twelve months NOI after a 3% management fee and marking real estate taxes to market.

Today, the Company bought out its partner’s interest in the 5^th and Huntington land site in Monrovia, California. The land site was originally purchased in a 50/50 joint venture.

Quarterly Dividend on Common Shares

The Company previously announced it increased its dividend from $0.20 per share per quarter to $0.21 per share per quarter, effective with the dividend paid on January 30, 2015. The most recent increase was the second dividend increase authorized by the Associated Estates Board of Directors in 2014. Together, these two dividend increases reflect a total increase of $0.02 per share, or 10.5%, as compared to the dividend paid on August 1, 2014. On an annualized basis, the two quarterly dividend increases announced during 2014 raised Associated Estates' dividend by $0.08 in the aggregate, from $0.76 to $0.84 per share.

Board of Directors Appointment, Business Review and Corporate Governance Enhancements

On December 29, 2014, the Company announced the following actions:


•	Douglas Crocker II, Chairman of Pearlmark Multifamily Partners and the former Vice Chairman and Chief Executive Officer of Equity Residential, has been appointed to the Company's Board as an independent director, effective immediately. The appointment of Mr. Crocker follows the decision by Mark L. Milstein to retire from the Board.


•	The Company has engaged Citigroup Global Markets Inc. as a financial advisor to assist the Board in conducting a thorough review of the Company's business. Mr. Crocker, in his capacity as Chairman of the Finance and Planning Committee of the Board, together with the other committee members, have been tasked with overseeing this review of the Company's strategy, portfolio and business.


•	The Associated Estates Board of Directors has unanimously approved the following actions to further enhance the Company's corporate governance practices: redeemed the Company's shareholder rights plan; eliminated the Executive Committee of the Board; and seeking shareholder approval at the 2015 Annual Meeting of Shareholders to eliminate the Company's 4.0% share ownership limit.

Associated Estates Realty Corporation

Fourth Quarter Earnings

2015 Outlook



Ÿ	Same Community Revenue Growth	2.50% to 3.50%
Ÿ	Same Community Expense Growth	2.00% to 3.00%
Ÿ	Same Community Property NOI Growth	2.75% to 3.75%
Ÿ	Earnings Per Common Share	$1.72 to $1.78
Ÿ	Operating FFO Per Common Share	$1.32 to $1.38

Additional detailed assumptions relating to the Company's guidance can be found on page 22.

Conference Call

A conference call to discuss the Company’s fourth quarter results will be held today at 5:00 p.m. Eastern. To participate in the call:

Via Telephone: The dial-in number is (855) 233-8223, and the conference ID is 61168775. An operator will ask you for the conference ID. The call will be archived through February 17, 2015. 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 "Fourth 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 Twelve Months Ended December 31, 2014 and 2013

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



	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2014			2013			2014			2013
OPERATING INFORMATION
Total revenue	$	48,256		$	49,070		$	194,080		$	181,479
Property revenue ⁽¹⁾	$	47,445		$	48,574		$	191,306		$	179,982
Property management and construction services revenue	$	312		$	—		$	891		$	—
Net income applicable to common shares	$	36,552		$	29,164		$	144,238		$	61,022
Per share - basic	$	0.64		$	0.51		$	2.51		$	1.18
Per share - diluted	$	0.63		$	0.51		$	2.49		$	1.17
Funds from Operations (FFO) ⁽²⁾	$	19,283		$	19,033		$	72,780		$	66,078
Operating FFO ⁽²⁾	$	19,592		$	19,033		$	73,089		$	66,078
FFO per share - diluted	$	0.33		$	0.33		$	1.26		$	1.27
Operating FFO per share - diluted	$	0.34		$	0.33		$	1.26		$	1.27
Funds Available for Distribution (FAD) ⁽²⁾	$	17,824		$	17,238		$	66,281		$	58,311
Dividends per share	$	0.20		$	0.19		$	0.77		$	0.76
Payout ratio - FFO	60.6		%	57.6		%	61.1		%	59.8		%
Payout ratio - Operating FFO	58.8		%	57.6		%	61.1		%	59.8		%
Payout ratio - FAD	64.5		%	63.3		%	67.5		%	67.9		%
General and administrative expense	$	4,613		$	5,179		$	18,729		$	19,481
Development costs	$	88		$	249		$	779		$	912
Construction services expense	$	177		$	—		$	396		$	—
Personnel expense - allocated	$	1,121		$	1,136		$	4,514		$	4,236
Costs associated with acquisitions	$	13		$	67		$	185		$	524
Interest expense ⁽³⁾	$	5,573		$	6,431		$	24,097		$	27,340
Capitalized interest	$	1,388		$	1,172		$	4,819		$	3,556
Interest coverage ratio ⁽⁴⁾	3.50:1			3.30:1			3.29:1			2.98:1
Fixed charge coverage ratio ⁽⁴⁾	3.50:1			3.30:1			3.29:1			2.98:1
General and administrative expense to property revenue	9.7		%	10.7		%	9.8		%	10.8		%
Personnel - allocated as a percentage of property revenue	2.4		%	2.3		%	2.4		%	2.4		%
Interest expense to property revenue ⁽³⁾	11.7		%	13.2		%	12.6		%	15.2		%
Property NOI ⁽⁵⁾	$	30,016		$	30,888		$	118,305		$	112,103
Same Community revenue increase ⁽⁶⁾	1.5		%	3.0		%	2.5		%	3.3		%
Same Community expense increase ⁽⁶⁾	0.9		%	1.9		%	1.2		%	0.7		%
Same Community NOI increase ⁽⁶⁾	1.9		%	3.6		%	3.3		%	5.0		%


(1)	As reported per the Consolidated Statement of Operations and Comprehensive Income. Prior periods exclude discontinued operations.


(2)	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.


(3)	Excludes amortization of financing fees of $476 and $1,879 for 2014 and $461 and $2,002 for 2013.

(4)

Is calculated as EBITDA divided by interest expense, including capitalized interest and amortization of deferred financing costs and excluding prepayment costs/refunds if applicable. 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.


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

Associated Estates Realty Corporation

Financial and Operating Highlights

Fourth Quarter 2014

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



	December 31,			December 31,
	2014			2013
CAPITALIZATION DATA
Cash and cash equivalents	$	4,692		$	4,586
Cash held in escrow for 1031	$	43,295		$	—
Net real estate assets ⁽¹⁾	$	1,381,427		$	1,373,999
Total assets	$	1,465,697		$	1,422,497

Debt	$	749,113		$	812,974
Noncontrolling interests	$	350		$	350
Total shareholders' equity attributable to AERC	$	647,226		$	544,450

Common shares outstanding	57,650			57,476
Share price, end of period	$	23.21		$	16.05

Total capitalization	$	2,087,170		$	1,735,464

Undepreciated book value of real estate assets ⁽¹⁾	$	1,778,637		$	1,760,840

Net debt to undepreciated book value of real estate assets ⁽²⁾	39.4		%	45.9		%

Secured debt to undepreciated book value	15.3		%	15.9		%

Annual dividend ⁽³⁾	$	0.84		$	0.76

Annual dividend yield based on share price, end of period	3.6		%	4.7		%


(1)	Includes $54,800 and $9,321 of the Company's investment in unconsolidated entities at December 31, 2014 and December 31, 2013.


(2)	Net of cash and cash held in escrow for 1031 like kind exchange.


(3)	The quarterly dividend increased $0.01 to $0.21 per quarter, effective with the January 30, 2015 dividend payment.

Associated Estates Realty Corporation

Financial and Operating Highlights

Fourth 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	5	1,260	16
Southwest	3	842	11
Total Same Community	43	11,184	16

Acquisitions	6	1,451	8
Development ⁽¹⁾	—	99	1
Total Owned Portfolio	49	12,734	15
Properties Under Development:
Consolidated:
Dallas	1	249
Metro DC	1	140
Southern California	1	175
Unconsolidated:
Northern California	1	410
Southern California	1	472
Managed (under contract to acquire):
Atlanta	1	345
Central Florida	1	350
Southeast Florida	1	331
Total Company Portfolio	57	15,206


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

Associated Estates Realty Corporation

Condensed Consolidated Balance Sheets

Fourth Quarter 2014

(Unaudited; dollar amount in thousands)



	December 31,			December 31,
	2014			2013
ASSETS
Real estate assets
Investment in real estate	$	1,650,256		$	1,708,726
Construction in progress	73,581			42,793
Less: Accumulated depreciation	(397,210		)	(386,841		)
Net real estate owned	1,326,627			1,364,678
Investment in unconsolidated entities	54,800			9,321
Total net real estate	1,381,427			1,373,999
Cash and cash equivalents	4,692			4,586
Restricted cash	46,361			3,465
Other assets	33,217			40,447
Total assets	$	1,465,697		$	1,422,497

LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage notes payable	$	272,613		$	279,474
Unsecured notes	250,000			250,000
Unsecured revolving credit facility	76,500			133,500
Unsecured term loan	150,000			150,000
Total debt	749,113			812,974
Accounts payable and other liabilities	69,008			64,723
Total liabilities	818,121			877,697

Equity
Common shares, without par value; $.10 stated value; 91,000,000 authorized
57,708,675 issued and 57,649,609 outstanding at December 31, 2014, and
57,595,479 issued and 57,476,192 outstanding at December 31, 2013, respectively	5,771			5,760
Paid-in capital	758,079			754,582
Accumulated distributions in excess of accumulated net income	(114,551		)	(213,275		)
Accumulated other comprehensive loss	(1,093		)	(702		)
Less: Treasury shares, at cost, 59,066 and 119,287 shares
at December 31, 2014 and December 31, 2013, respectively	(980		)	(1,915		)
Total shareholders' equity attributable to AERC	647,226			544,450
Noncontrolling interest	350			350
Total equity	647,576			544,800
Total liabilities and equity	$	1,465,697		$	1,422,497

Associated Estates Realty Corporation

Consolidated Statements of Operations and Comprehensive Income

Three and Twelve Months Ended December 31, 2014 and 2013

(Unaudited; dollar and share amounts in thousands)



	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2014			2013			2014			2013
REVENUE
Property revenue	$	47,445		$	48,574		$	191,306		$	179,982
Office revenue	499			496			1,883			1,497
Property management and construction services revenue	312			—			891			—
Total revenue	48,256			49,070			194,080			181,479

EXPENSES
Property operating and maintenance	17,429			17,686			73,001			67,879
Depreciation and amortization	15,600			16,094			63,557			58,053
General and administrative	4,613			5,179			18,729			19,481
Development costs	88			249			779			912
Construction services	177			—			396			—
Costs associated with acquisitions	13			67			185			524
Total expenses	37,920			39,275			156,647			146,849
Operating income	10,336			9,795			37,433			34,630
Interest expense	(6,049		)	(6,892		)	(25,976		)	(29,342		)
Gain on disposition of properties	32,385			—			133,254			—
Income from continuing operations	36,672			2,903			144,711			5,288
Income from discontinued operations:
Operating income, net of interest expense	—			410			—			3,179
Gain on disposition of properties	—			25,960			—			52,828
Income from discontinued operations	—			26,370			—			56,007
Net income	36,672			29,273			144,711			61,295
Net income attributable to noncontrolling redeemable interest	—			—			—			(45		)
Net income attributable to AERC	36,672			29,273			144,711			61,250
Allocation to participating securities	(120		)	(109		)	(473		)	(228		)
Net income applicable to common shares	$	36,552		$	29,164		$	144,238		$	61,022

Earnings per common share - basic:
Income from continuing operations applicable to common shares	$	0.64		$	0.05		$	2.51		$	0.10
Income from discontinued operations	—			0.46			—			1.08
Net income applicable to common shares - basic	$	0.64		$	0.51		$	2.51		$	1.18

Earnings per common share - diluted:
Income from continuing operations applicable to common shares	$	0.63		$	0.05		$	2.49		$	0.10
Income from discontinued operations	—			0.46			—			1.07
Net income applicable to common shares - diluted	$	0.63		$	0.51		$	2.49		$	1.17

Comprehensive income:
Net income	$	36,672		$	29,273		$	144,711		$	61,295
Other comprehensive income:
Change in fair value and reclassification of hedge instruments	(459		)	545			(391		)	2,233
Total comprehensive income	36,213			29,818			144,320			63,528
Comprehensive income attributable to noncontrolling interests	—			—			—			(45		)
Total comprehensive income attributable to AERC	$	36,213		$	29,818		$	144,320		$	63,483

Weighted average shares outstanding - basic	57,542			57,039			57,478			51,622

Weighted average shares outstanding - diluted	58,118			57,608			57,975			52,184

Associated Estates Realty Corporation

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

For the Three and Twelve Months Ended December 31, 2014 and 2013

(In thousands; except per share data)



		Three Months Ended						Twelve Months Ended
		December 31,						December 31,
		2014			2013			2014			2013
CALCULATION OF FFO AND FAD
Net income attributable to AERC		$	36,672		$	29,273		$	144,711		$	61,250

Add:	Depreciation - real estate assets	14,622			14,839			58,039			53,779
	Amortization of intangible assets	374			881			3,284			3,877
Less:	Gain on disposition of properties	(32,385		)	(25,960		)	(133,254		)	(52,828		)

	Funds from Operations (FFO) ⁽¹⁾	19,283			19,033			72,780			66,078

Add:	Shareholder activism costs	309			—			309			—

	Operating FFO ⁽¹⁾	19,592			19,033			73,089			66,078

Add:	Depreciation - other assets	604			549			2,234			2,176
	Amortization of deferred financing fees	476			461			1,879			2,002
Less:	Recurring fixed asset additions ⁽²⁾	(2,848		)	(2,805		)	(10,921		)	(11,945		)
	Funds Available for Distribution (FAD) ⁽¹⁾	$	17,824		$	17,238		$	66,281		$	58,311

Weighted average shares outstanding - diluted ⁽³⁾		58,118			57,608			57,975			52,184

PER SHARE INFORMATION:
FFO - diluted		$	0.33		$	0.33		$	1.26		$	1.27
Operating FFO - diluted		$	0.34		$	0.33		$	1.26		$	1.27
Dividends		$	0.20		$	0.19		$	0.77		$	0.76

Payout ratio - FFO		60.6		%	57.6		%	61.1		%	59.8		%
Payout ratio - Operating FFO		58.8		%	57.6		%	61.1		%	59.8		%
Payout ratio - FAD		64.5		%	63.3		%	67.5		%	67.9		%


(1)	See page 23 for the Company's definition of these non-GAAP measurements. Individual line items included in FFO, operating 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 10 stock options for the three and twelve months ended December 31, 2013, as their inclusion would be anti-dilutive.

Associated Estates Realty Corporation

Development Pipeline

As of December 31, 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	$	52,373	$	32,006	Q2 2013	Q3 2014	Q1 2015	Q2 2015	$	2,286	N/A		31.3%	24.5%

7001 Arlington at Bethesda	Bethesda, MD	98.1% ⁽⁴⁾	140	$	53,400	$	46,658	$	16,673	Q4 2012	Q1 2015	Q2 2015	Q3 2015	$	2,781	$	39,000	N/A	N/A

The Desmond on Wilshire	Los Angeles, CA	100.0%	175	$	76,300	$	44,982	$	—	Q2 2013	Q3 2015	Q4 2015	Q1 2016	$	3,338	N/A		N/A	N/A

Total			564	$	186,500	$	144,013	$	48,679

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	$	82,647	$	39,172	$	—	$	—	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	$	38,505	$	7,730	$	—	—		Q3 2014	Q3 2016	Q1 2017	Q4 2017	$	2,651	$	66,000	N/A	N/A

Total			882	$	409,000	$	121,152	$	46,902	$	—	$	—

Future Development Pipeline - Unimproved Land



			Estimated			AEC
		Ownership	Number	Cost to		Investment
Name	Location	%	of Units ⁽⁶⁾	Date		to Date
5th and Huntington ⁽⁷⁾	Monrovia, CA	50.0%	154	$	15,331	$	7,898	Unconsolidated

Warner Center	Woodland Hills, CA	100.0%	379	$	17,519	$	17,519	Consolidated


(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 February 3, 2015.


(7)	On February 3, 2015, the Company acquired its joint venture partners' 50% interest in the partnership for $8.4 million, increasing our ownership percentage in the development site to 100%.

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)



		Twelve Months Ended
	Estimated	December 31, 2014
	GAAP Useful			Cost Per
	Life (Years)	Amount		Unit ⁽¹⁾
OPERATING EXPENSES RELATED TO REPAIRS AND MAINTENANCE
Repairs and maintenance ⁽²⁾		$	11,274	$	858
Maintenance personnel labor cost ⁽²⁾		6,556		499
Total Operating Expenses Related to Repairs and Maintenance		17,830		1,357

CAPITAL EXPENDITURES
Recurring Capital Expenditures ⁽³⁾
Amenities	5	543		41
Appliances	5	1,134		86
Building improvements	14	1,200		91
Carpet and flooring	5	3,517		268
Furnishings	5	141		11
Office/Model	5	157		12
HVAC and mechanicals	15	942		72
Landscaping and grounds	14	2,412		184
Unit improvements	5	166		13
Total Recurring Capital Expenditures - Properties		10,212		778
Corporate Capital Expenditures		709		54
Total Recurring Capital Expenditures		10,921		832
Total Recurring Capital Expenditures and Repairs and Maintenance		$	28,751	$	2,189

Total Recurring Capital Expenditures		$	10,921
Investment/Revenue Enhancing/Non-Recurring Expenditures ⁽⁴⁾
Building improvements - unit upgrades	Various	2,438
Building improvements - other	20	2,603
Ground improvements	Various	72
Corporate capital expenditures	Various	212
Total Investment/Revenue Enhancing/Non-Recurring Expenditures		5,325
Grand Total Capital Expenditures		$	16,246


(1)	Calculated using weighted average units owned during the twelve months ended December 31, 2014 of 13,134.


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


(3)	See page 24 for our definition of recurring fixed asset additions.


(4)	See page 24 for our 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 Twelve Months Ended December 31, 2014 and 2013

(Unaudited; in thousands)



	Three Months Ended					Twelve Months Ended
	December 31,					December 31,
	2014			2013		2014			2013
General and Administrative, Personnel - Allocated, Construction
Services, Development and Property Management
General and administrative expense	$	4,613		$	5,179	$	18,729		$	19,481
Personnel - allocated ⁽¹⁾	1,121			1,136		4,514			4,236
Total	5,734			6,315		23,243			23,717
Construction services revenue	(223		)	—		(611		)	—
Construction services expense	177			—		396			—
Construction services, net	(46		)	—		(215		)	—
Development costs	88			249		779			912
Net development	42			249		564			912
Property management revenue	(89		)	—		(280		)	—
Net overhead	$	5,687		$	6,564	$	23,527		$	24,629


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

Associated Estates Realty Corporation

Same Community Data ⁽¹⁾

Operating Results for the Last Five Quarters

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



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

Property Revenue	$	42,375		$	42,583		$	42,319		$	41,922		$	41,743
Property Operating and
Maintenance Expenses
Personnel - on site	3,177			3,225			3,396			3,360			3,140
Personnel - allocated	999			1,005			1,002			993			988
Advertising	438			465			428			462			415
Utilities	2,001			2,026			1,796			1,968			1,914
Repairs and maintenance	1,959			2,650			2,719			2,539			2,288
Real estate taxes and insurance	5,837			5,847			6,072			6,401			5,641
Other operating	1,006			990			889			908			894
Total Expenses	15,417			16,208			16,302			16,631			15,280

Property Net Operating Income	$	26,958		$	26,375		$	26,017		$	25,291		$	26,463

Operating Margin	63.6		%	61.9		%	61.5		%	60.3		%	63.4		%

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

Total Number of Units	11,724			11,724			11,724			11,724			11,724

Property NOI Per Unit	$	2,299		$	2,250		$	2,219		$	2,157		$	2,257

Monthly Property Revenue
Per Occupied Unit	$	1,277		$	1,277		$	1,251		$	1,239		$	1,244

Average Occupancy ⁽²⁾	94.3		%	94.8		%	96.2		%	96.2		%	95.4		%


(1)	The results for all quarters include Doral West and Rienzi at Turtle Creek, which were acquired during 2013.


(2)	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 ⁽¹⁾

Operating Results for the Twelve Months Ended December 31, 2014 and 2013

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



	Twelve Months Ended
	December 31,
	2014			2013

Property Revenue	$	156,851		$	153,050
Property Operating and Maintenance Expenses
Personnel - on site	12,433			12,430
Personnel - allocated	3,709			3,622
Advertising	1,644			1,594
Utilities	7,202			7,017
Repairs and maintenance	8,843			9,003
Real estate taxes and insurance	21,454			20,957
Other operating	3,559			3,544
Total Expenses	58,844			58,167

Property Net Operating Income	$	98,007		$	94,883

Operating Margin	62.5		%	62.0		%

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

Total Number of Units	11,184			11,184

Property NOI Per Unit	$	8,763		$	8,484

Monthly Property Revenue Per Occupied Unit	$	1,221		$	1,193

Average Occupancy ⁽²⁾	95.7		%	95.6		%


(1)	The results shown for both years exclude Doral West and Rienzi at Turtle Creek, which were all acquired during 2013.


(2)	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 December 31, 2014 and 2013

(Unaudited)



			Property Revenue per						Average				Turnover
			Occupied Unit						Occupancy ⁽¹⁾				Ratio ⁽²⁾
	No. of	Average	Q4		Q4		%		Q4		Q4		Q4		Q4
	Units	Age ⁽³⁾	2014		2013		Change		2014		2013		2014		2013
Midwest Properties
Indianapolis	836	18	$	994	$	954	4.2	%	95.3	%	95.1	%	49.8	%	49.8	%
Southeast Michigan	1,778	21	1,043		1,017		2.6	%	94.4	%	95.1	%	48.1	%	47.2	%
Western Michigan	438	23	954		927		2.9	%	95.0	%	97.4	%	48.4	%	44.7	%
Central Ohio	1,581	23	1,039		1,016		2.3	%	93.8	%	95.8	%	49.3	%	52.6	%
Northeast Ohio	1,303	19	1,243		1,200		3.6	%	93.2	%	94.6	%	58.6	%	58.3	%
Total Midwest	5,936	21	1,072		1,041		3.0	%	94.1	%	95.3	%	51.0	%	51.3	%

Mid-Atlantic Properties
Metro DC	250	6	2,094		2,121		(1.3	)%	95.9	%	94.6	%	38.4	%	73.6	%
Raleigh-Durham	760	7	1,254		1,209		3.7	%	95.5	%	96.9	%	54.2	%	53.7	%
Northern Virginia	1,272	9	1,648		1,652		(0.2	)%	94.9	%	94.4	%	53.1	%	52.2	%
Southeast Virginia	864	8	1,246		1,225		1.7	%	94.8	%	94.2	%	54.2	%	48.1	%
Total Mid-Atlantic	3,146	8	1,478		1,465		0.9	%	95.1	%	94.9	%	52.5	%	53.1	%

Southeast Properties
Southeast Florida	1,294	15	1,616		1,549		4.3	%	94.4	%	96.1	%	51.0	%	48.5	%
Atlanta	354	22	1,210		1,135		6.6	%	96.1	%	97.4	%	47.5	%	52.0	%
Total Southeast	1,648	16	1,529		1,460		4.7	%	94.7	%	96.3	%	50.2	%	49.3	%

Southwest Properties
Dallas	994	11	1,451		1,396		3.9	%	92.2	%	96.0	%	50.7	%	42.3	%
Total Southwest	994	11	1,451		1,396		3.9	%	92.2	%	96.0	%	50.7	%	42.3	%

Total/Average Same
Community	11,724	16	$	1,277	$	1,244	2.7	%	94.3	%	95.4	%	51.3	%	50.7	%


(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 December 31, 2014 and September 30, 2014

(Unaudited; in thousands, except unit totals)




		Q4		Q3		Q4		Q3							Q4		Q3							Q4			Q3
		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	95.3	%	95.9	%	$	2,375	$	2,360	$	15		0.6	%	$	857	$	950	$	(93	)	(9.8	)%	$	1,518		$	1,410	$	108		7.7	%
Southeast Michigan	1,778	94.4	%	94.9	%	5,251		5,303		(52		)	(1.0	)%	1,832		2,074		(242		)	(11.7	)%	3,419			3,229		190			5.9	%
Western Michigan	438	95.0	%	96.6	%	1,191		1,207		(16		)	(1.3	)%	430		491		(61		)	(12.4	)%	761			716		45			6.3	%
Central Ohio	1,581	93.8	%	95.5	%	4,623		4,711		(88		)	(1.9	)%	1,770		1,980		(210		)	(10.6	)%	2,853			2,731		122			4.5	%
Northeast Ohio	1,303	93.2	%	94.6	%	4,528		4,621		(93		)	(2.0	)%	1,493		1,673		(180		)	(10.8	)%	3,035			2,948		87			3.0	%
	5,936	94.1	%	95.2	%	17,968		18,202		(234		)	(1.3	)%	6,382		7,168		(786		)	(11.0	)%	11,586			11,034		552			5.0	%
Mid-Atlantic Properties
Metro DC	250	95.9	%	95.7	%	1,506		1,532		(26		)	(1.7	)%	477		491		(14		)	(2.9	)%	1,029			1,041		(12		)	(1.2	)%
Raleigh-Durham	760	95.5	%	96.0	%	2,730		2,717		13			0.5	%	850		880		(30		)	(3.4	)%	1,880			1,837		43			2.3	%
Northern Virginia	1,272	94.9	%	95.2	%	5,966		5,981		(15		)	(0.3	)%	1,819		1,817		2			0.1	%	4,147			4,164		(17		)	(0.4	)%
Southeast Virginia	864	94.8	%	96.3	%	3,059		3,090		(31		)	(1.0	)%	971		1,023		(52		)	(5.1	)%	2,088			2,067		21			1.0	%
	3,146	95.1	%	95.7	%	13,261		13,320		(59		)	(0.4	)%	4,117		4,211		(94		)	(2.2	)%	9,144			9,109		35			0.4	%
Southeast Properties
Southeast Florida	1,294	94.4	%	92.8	%	5,921		5,800		121			2.1	%	2,376		2,275		101			4.4	%	3,545			3,525		20			0.6	%
Atlanta	354	96.1	%	96.1	%	1,235		1,210		25			2.1	%	517		528		(11		)	(2.1	)%	718			682		36			5.3	%
	1,648	94.7	%	93.3	%	7,156		7,010		146			2.1	%	2,893		2,803		90			3.2	%	4,263			4,207		56			1.3	%
Southwest Properties
Dallas	994	92.2	%	92.7	%	3,990		4,051		(61		)	(1.5	)%	2,025		2,026		(1		)	—	%	1,965			2,025		(60		)	(3.0	)%
	994	92.2	%	92.7	%	3,990		4,051		(61		)	(1.5	)%	2,025		2,026		(1		)	—	%	1,965			2,025		(60		)	(3.0	)%
Total Same Community	11,724	94.3	%	94.8	%	42,375		42,583		(208		)	(0.5	)%	15,417		16,208		(791		)	(4.9	)%	26,958			26,375		583			2.2	%
Acquisitions ⁽²⁾
Charlotte	562	95.3	%	89.4	%	2,155		2,015		140			6.9	%	656		716		(60		)	(8.4	)%	1,499			1,299		200			15.4	%
Raleigh-Durham	349	95.2	%	94.4	%	1,346		1,341		5			0.4	%	376		427		(51		)	(11.9	)%	970			914		56			6.1	%
Development
Metro DC ⁽³⁾	—	N/A		N/A		—		—		—			N/A		38		—		38			N/A		(38		)	—		(38		)	N/A
Dallas ⁽⁴⁾	99	95.4	%	97.6	%	545		354		191			54.0	%	404		225		179			79.6	%	141			129		12			9.3	%
Properties owned at 12/31	12,734	94.4	%	94.6	%	46,421		46,293		128			0.3	%	16,891		17,576		(685		)	(3.9	)%	29,530			28,717		813			2.8	%
Dispositions ⁽⁵⁾	1,209					1,024		1,151							538		497							486			654
Total	13,943					$	47,445	$	47,444						$	17,429	$	18,073						$	30,016		$	29,371


(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)	Pre-leasing and administrative costs for our 140-unit 7001 Arlington at Bethesda development.


(4)	Includes revenue of $203 and $12 for Q4 and Q3, respectively and administrative costs of $255 and $82 for Q4 and Q3, respectively for our 249-unit Cantabria development in Dallas.


(5)	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

Fourth Quarter Property Revenue, Operating Expenses and Net Operating Income (NOI)

For the Three Months Ended December 31, 2014 and 2013

(Unaudited; in thousands, except unit totals)



		Q4		Q4		Q4		Q4							Q4		Q4							Q4			Q4
		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	95.3	%	95.1	%	$	2,375	$	2,275	$	100		4.4	%	$	857	$	838	$	19		2.3	%	$	1,518		$	1,437	$	81		5.6	%
Southeast Michigan	1,778	94.4	%	95.1	%	5,251		5,160		91			1.8	%	1,832		1,935		(103		)	(5.3	%)	3,419			3,225		194			6.0	%
Western Michigan	438	95.0	%	97.4	%	1,191		1,186		5			0.4	%	430		478		(48		)	(10.0	%)	761			708		53			7.5	%
Central Ohio	1,581	93.8	%	95.8	%	4,623		4,616		7			0.2	%	1,770		1,816		(46		)	(2.5	%)	2,853			2,800		53			1.9	%
Northeast Ohio	1,303	93.2	%	94.6	%	4,528		4,439		89			2.0	%	1,493		1,516		(23		)	(1.5	)%	3,035			2,923		112			3.8	%
	5,936	94.1	%	95.3	%	17,968		17,676		292			1.7	%	6,382		6,583		(201		)	(3.1	)%	11,586			11,093		493			4.4	%
Mid-Atlantic Properties
Metro DC	250	95.9	%	94.6	%	1,506		1,505		1			0.1	%	477		471		6			1.3	%	1,029			1,034		(5		)	(0.5	)%
Raleigh-Durham	760	95.5	%	96.9	%	2,730		2,672		58			2.2	%	850		870		(20		)	(2.3	)%	1,880			1,802		78			4.3	%
Northern Virginia	1,272	94.9	%	94.4	%	5,966		5,954		12			0.2	%	1,819		1,836		(17		)	(0.9	)%	4,147			4,118		29			0.7	%
Southeast Virginia	864	94.8	%	94.2	%	3,059		2,992		67			2.2	%	971		1,007		(36		)	(3.6	)%	2,088			1,985		103			5.2	%
	3,146	95.1	%	94.9	%	13,261		13,123		138			1.1	%	4,117		4,184		(67		)	(1.6	)%	9,144			8,939		205			2.3	%
Southeast Properties
Southeast Florida	1,294	94.4	%	96.1	%	5,921		5,777		144			2.5	%	2,376		2,307		69			3.0	%	3,545			3,470		75			2.2	%
Atlanta	354	96.1	%	97.4	%	1,235		1,174		61			5.2	%	517		479		38			7.9	%	718			695		23			3.3	%
	1,648	94.7	%	96.3	%	7,156		6,951		205			2.9	%	2,893		2,786		107			3.8	%	4,263			4,165		98			2.4	%
Southwest Properties
Dallas	994	92.2	%	96.0	%	3,990		3,993		(3		)	(0.1	%)	2,025		1,727		298			17.3	%	1,965			2,266		(301		)	(13.3	%)
	994	92.2	%	96.0	%	3,990		3,993		(3		)	(0.1	%)	2,025		1,727		298			17.3	%	1,965			2,266		(301		)	(13.3	%)
Total Same Community	11,724	94.3	%	95.4	%	42,375		41,743		632			1.5	%	15,417		15,280		137			0.9	%	26,958			26,463		495			1.9	%
Acquisitions ⁽²⁾
Charlotte	562	95.3	%	96.6	%	2,155		1,009		1,146			N/A		656		335		321			N/A		1,499			674		825			N/A
Raleigh-Durham	349	95.2	%	84.1	%	1,346		532		814			N/A		376		223		153			N/A		970			309		661			N/A
Development
Metro DC ⁽³⁾	—	N/A		N/A		—		—		—			N/A		38		—		38			N/A		(38		)	—		(38		)	N/A
Dallas ⁽⁴⁾	99	95.4	%	N/A		545		141		404			N/A		404		68		336			N/A		141			73		68			N/A
Properties owned at 12/31	12,734	94.4	%	95.1	%	46,421		43,425		$	2,996		6.9	%	16,891		15,906		985			6.2	%	29,530			27,519		2,011			7.3	%
Dispositions ⁽⁵⁾	1,209					1,024		5,149							538		1,780							486			3,369
Total	13,943					$	47,445	$	48,574						$	17,429	$	17,686						$	30,016		$	30,888


(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)	Pre-leasing and administrative costs for our 140-unit 7001 Arlington at Bethesda development.


(4)	Includes revenue of $203 for Q4 2014 and administrative costs of $255 for Q4 2014 for our 249-unit Cantabria development in Dallas.


(5)	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 Twelve Months Ended December 31, 2014 and 2013

(Unaudited; in thousands, except unit totals)



		YTD		YTD		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	96.5	%	95.5	%	$	9,372	$	9,067	$	305		3.4	%	$	3,610	$	3,694	$	(84	)	(2.3	)%	$	5,762		$	5,373	$	389		7.2	%
Southeast Michigan	1,778	95.3	%	95.8	%	20,947		20,346		601			3.0	%	7,962		7,973		(11		)	(0.1	)%	12,985			12,373		612			4.9	%
Western Michigan	438	96.8	%	97.4	%	4,760		4,723		37			0.8	%	1,910		1,998		(88		)	(4.4	)%	2,850			2,725		125			4.6	%
Central Ohio	1,581	95.4	%	95.7	%	18,560		18,327		233			1.3	%	7,744		7,834		(90		)	(1.1	)%	10,816			10,493		323			3.1	%
Northeast Ohio	1,303	94.9	%	95.6	%	18,166		17,715		451			2.5	%	6,583		6,463		120			1.9	%	11,583			11,252		331			2.9	%
	5,936	95.5	%	95.8	%	71,805		70,178		1,627			2.3	%	27,809		27,962		(153		)	(0.5	)%	43,996			42,216		1,780			4.2	%
Mid-Atlantic Properties
Metro DC	250	95.6	%	96.2	%	6,057		6,137		(80		)	(1.3	)%	1,969		2,020		(51		)	(2.5	)%	4,088			4,117		(29		)	(0.7	)%
Raleigh-Durham	760	96.4	%	95.7	%	10,829		10,370		459			4.4	%	3,471		3,401		70			2.1	%	7,358			6,969		389			5.6	%
Northern Virginia	1,272	95.6	%	95.1	%	23,945		23,808		137			0.6	%	7,485		7,475		10			0.1	%	16,460			16,333		127			0.8	%
Southeast Virginia	864	95.7	%	94.5	%	12,287		12,046		241			2.0	%	4,055		3,820		235			6.2	%	8,232			8,226		6			0.1	%
	3,146	95.8	%	95.2	%	53,118		52,361		757			1.4	%	16,980		16,716		264			1.6	%	36,138			35,645		493			1.4	%
Southeast Properties
Southeast Florida	906	96.5	%	95.7	%	15,670		14,873		797			5.4	%	6,557		6,370		187			2.9	%	9,113			8,503		610			7.2	%
Atlanta	354	96.3	%	96.8	%	4,783		4,570		213			4.7	%	2,099		1,960		139			7.1	%	2,684			2,610		74			2.8	%
	1,260	96.5	%	95.9	%	20,453		19,443		1,010			5.2	%	8,656		8,330		326			3.9	%	11,797			11,113		684			6.2	%
Southwest Properties
Dallas	842	95.4	%	95.7	%	11,475		11,068		407			3.7	%	5,399		5,159		240			4.7	%	6,076			5,909		167			2.8	%
	842	95.4	%	95.7	%	11,475		11,068		407			3.7	%	5,399		5,159		240			4.7	%	6,076			5,909		167			2.8	%
Total Same Community	11,184	95.7	%	95.6	%	156,851		153,050		3,801			2.5	%	58,844		58,167		677			1.2	%	98,007			94,883		3,124			3.3	%
Acquisitions ⁽²⁾
Southeast Florida	388	91.0	%	96.9	%	7,659		3,672		3,987			N/A		2,995		1,423		1,572			N/A		4,664			2,249		2,415			N/A
Charlotte	562	92.4	%	96.6	%	6,581		1,009		5,572			N/A		2,218		336		1,882			N/A		4,363			673		3,690			N/A
Raleigh-Durham	349	94.8	%	84.1	%	5,297		532		4,765			N/A		1,578		222		1,356			N/A		3,719			310		3,409			N/A
Dallas	152	91.9	%	96.1	%	4,690		1,235		3,455			N/A		2,720		501		2,219			N/A		1,970			734		1,236			N/A
Development
Metro DC ⁽³⁾	—	N/A		N/A		—		—		—			N/A		38		—		38			N/A		(38		)	—		(38		)	N/A
Dallas ⁽⁴⁾	99	93.6	%	N/A		1,528		145		1,383			N/A		948		87		861			N/A		580			58		522			N/A
Properties owned at 12/31	12,734	95.2	%	95.3	%	182,606		159,643		$	22,963		14.4	%	69,341		60,736		$	8,605		14.2	%	113,265			98,907		$	14,358		14.5	%
Dispositions ⁽⁵⁾	1,209					8,700		20,339							3,660		7,143							5,040			13,196
Total	13,943					$	191,306	$	179,982						$	73,001	$	67,879						$	118,305		$	112,103


(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)	Pre-leasing and administrative costs for our 140-unit 7001 Arlington at Bethesda development.


(4)	Includes revenue of $216 for YTD 2014 and administrative costs of $359 for YTD 2014 for our 249-unit Cantabria development in Dallas.


(5)	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 December 31, 2014

(Dollar amounts in thousands)



	Balance		Percentage		Weighted
	Outstanding		of		Average
	December 31, 2014		Total Debt		Interest Rate
Fixed Rate Debt:
Secured	$	223,934	29.9	%	4.8	%
Unsecured - notes	250,000		33.4	%	4.4	%
Total Fixed Rate Debt	473,934		63.3	%	4.6	%

Variable Rate Debt Swapped to Fixed:
Unsecured - term loan ^{(1) (2)}	125,000		16.7	%	2.7	%
Total Variable Rate Debt Swapped to Fixed	125,000		16.7	%	2.7	%

Variable Rate Debt Unhedged:
Secured	48,679		6.5	%	1.5	%
Unsecured - revolver	76,500		10.2	%	1.5	%
Unsecured - term loan ⁽³⁾	25,000		3.3	%	1.6	%
Total Variable Rate Debt Unhedged	150,179		20.0	%	1.5	%

TOTAL DEBT	$	749,113	100.0	%	3.7	%

Interest coverage ratio ⁽⁴⁾	3.29:1
Fixed charge coverage ratio ⁽⁴⁾	3.29:1
Weighted average maturity	5.2 years



Scheduled Principal Maturities:	Secured		Unsecured		Total
2015	$	19,560	$	—	$	19,560
2016	89,855		—		89,855
2017	—		76,500		76,500
2018	47,591		—		47,591
2019	12,025		—		12,025
Thereafter	103,582		400,000		503,582
Total	$	272,613	$	476,500	$	749,113

(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 December 31, 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 December 31, 2014, or an all-in rate of 2.95% until January 2018.


(2)	The Company entered into a forward starting swap in January 2015 fixing the rate beginning January 2018 at a rate of 1.75% plus the credit spread which was 1.40% as of December 31, 2014, or an all-in rate of 3.15% until the loan matures in January 2020.


(3)	The Company entered into a forward starting swap in January 2015 fixing the rate beginning January 2016 at a rate of 1.42% plus the credit spread which was 1.40% as of December 31, 2014, or an all-in rate of 2.82% until the loan matures in January 2020.

(4)

Is calculated as EBITDA divided by interest expense, including capitalized interest and amortization of deferred financing costs and excluding prepayment costs/credits if applicable. 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.

Associated Estates Realty Corporation

2015 Financial Outlook

As of February 3, 2015



Earnings Guidance Per Common Share
Expected net income attributable to AERC		$1.72 to $1.78
Expected real estate depreciation and amortization		1.14
Expected gains on disposition of properties		-1.54
Expected Operating FFO ⁽¹⁾		$1.32 to $1.38

Same Community Portfolio
Revenue growth		2.5% to 3.5%
Expense growth		2.0% to 3.0%
Property NOI ⁽²⁾ growth		2.75% to 3.75%

Transactions
Acquisitions	$250.0 million
Dispositions	$150.0 million
Development	$125.0 million

Corporate Revenue/Expenses
Construction services revenue, net		$0.3 million
Property management fee revenue		$0.3 million
General and administrative expense ⁽³⁾	$18.7 to $19.3 million
Development costs ⁽⁴⁾		$0.5 to $0.7 million
Costs associated with acquisitions		$0.2 million

Debt
Capitalized interest	$5.6 million
Expensed interest ⁽⁵⁾	$25.8 to $26.6 million

Capital Structure⁽⁶⁾
Weighted average shares outstanding		58.3 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)	Excludes shareholder activism costs.


(4)	Net of construction services expense.


(5)	Includes $2.1 million of deferred financing costs.


(6)	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, amortization of intangible asset and lease up costs for development properties, and excludes impairment write-downs of depreciable real estate and gains and losses from the disposition of previously depreciated real estate. 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.

Operating FFO

We define Operating FFO as FFO, as defined above, excluding $309 of shareholder activism costs for the three and twelve months ended December 31, 2014. These shareholder activism costs are included in general and administrative expense in the Company's Consolidated Statement of Operations and Comprehensive Income. We are providing this calculation as an alternative FFO calculation as we consider it a more appropriate measure of comparing 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 Operating 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 Operating FFO, it captures real estate performance by excluding gains or losses from the disposition of previously depreciated real estate, depreciation on real estate assets and amortization of intangible assets. Unlike Operating 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						Twelve Months Ended
	December 31,						December 31,
(In thousands)	2014			2013			2014			2013

Net income applicable to common shares	$	36,552		$	29,164		$	144,238		$	61,022
Allocation to participating securities	120			109			473			228
Interest expense	6,049			6,892			25,976			29,342
Gain on disposition of properties	(32,385		)	(25,960		)	(133,254		)	(52,828		)
Depreciation and amortization	15,600			16,269			63,557			59,832
Income taxes	84			179			385			453
Total EBITDA	$	26,020		$	26,653		$	101,375		$	98,049

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						Twelve Months Ended
	December 31,						December 31,
(In thousands)	2014			2013			2014			2013

Property NOI	$	30,016		$	30,888		$	118,305		$	112,103
Office NOI	499			496			1,883			1,497
Property management and construction services NOI	135			—			495			—
Depreciation and amortization	(15,600		)	(16,094		)	(63,557		)	(58,053		)
General and administrative expense	(4,613		)	(5,179		)	(18,729		)	(19,481		)
Development costs	(88		)	(249		)	(779		)	(912		)
Costs associated with acquisitions	(13		)	(67		)	(185		)	(524		)
Interest expense	(6,049		)	(6,892		)	(25,976		)	(29,342		)
Gain on disposition of properties	32,385			—			133,254			—
Income from continuing operations	36,672			2,903			144,711			5,288
Income from discontinued operations:
Operating income, net of interest expense	—			410			—			3,179
Gain on disposition of properties	—			25,960			—			52,828
Income from discontinued operations	—			26,370			—			56,007
Net income	36,672			29,273			144,711			61,295
Net income attributable to noncontrolling redeemable interest	—			—			—			(45		)
Consolidated net income attributable to AERC	$	36,672		$	29,273		$	144,711		$	61,250

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.

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