2012 ANNUAL REPO RT to shareholders
SAUL CENTERS, INC.
is a self-managed, self-administered equity real estate
investment trust headquartered in Bethesda, Ma ryland.
Saul Centers operates and manages a real estate portfolio
of 59 community and neighborhood shopping centers, 7
mixed-use properties and 2 land parcels totaling
approximately 9.5 million square feet of leasable area.
Over 85% of the property operating income is generated
from properties in the metropolitan Washington, DC/
Baltimore area.
Saul Centers’ primary operating strategy is to focus on
continuing its program of internal growth, renovations,
and expansions of community and neighborhood shop-
ping centers that primarily serve the day-to-day necessities
and services sub-sector of the overall retail market. The
Company plans to supplement its growth through effec-
tive development of new retail and mixed-use properties,
and acquisitions of operating properties as appropriate
opportunities arise.
PORTFOLIO COMPOSITION
Based on 2012 Property Operating Income
75.4%
Shopping Centers
24.6%
Mixed-Use
85.2%
Metropolitan
Washington, DC/
Baltimore area
14.8%
Rest of U.S.
TOTAL REVENUE
(In millions)
NET INCOME
Available to Common Stockholders
(In millions)
FUNDS FROM OPERATIONS*
Available to Common Shareholders
(In millions)
$200
$160
$120
$80
$40
$30
$190.1
$30
$173.9
$26.2
$159.8 $160.5 $163.1
$21.6
$21.6
$18.2
$11.6
$25
$20
$15
$10
$5
$62.7
$56.0
$60.1
$50.6
$50.3
$70
$60
$50
$40
$30
$20
$10
2008
2009
2010
2011
2012
2008
2009
2010
2011
2012
2008
2009
2010
2011
2012
* Funds From Operations (FFO) is a non-GAAP financial measure. See page 24 for a definition of FFO and reconciliation from Net Income.
Year ended December 31,
2012 2011 2010 2009 2008
Summary Financial Data
Total Revenue $190,092,000 $ 173,878,000 $163,108,000 $160,539,000 $ 159,775, 000
Net Income Available to
Common Stockholders $ 18,234,000 $ 11,593,000 $ 21,623,000 $ 21,573,000 $ 26,241,000
FFO Available to Common
Shareholders $ 60,100,000 $ 50,309,000 $ 50,556,000 $ 56,025,000 $ 62,695,000
Weighted Average Common
Stock Outstanding 19,700,000 18,949,000 18,377,000 17,943,000 17,961,000
Weighted Average Shares
and Units Outstanding 26,614,000 24,740,000 23,793,000 23,359,000 23,377,000
Net Income Available to Common
Stockholders Per Share (Diluted) $ 0.93 $ 0.61 $ 1.18 $ 1.20 $ 1.46
FFO Available to Common
Shareholders Per Share (Diluted) $ 2.26 $ 2.03 $ 2.12 $ 2.40 $ 2.68
Common Dividend as a Percentage
of FFO (Per Share) 64% 71% 68% 64% 70%
Interest Expense Coveragea 2.68 2.61 3.20 3.27 3.33
Property Data
Number of Operating Propertiesb 57 58 55 52 50
Total Portfolio Square Feet 9,489,000 9,543,000 8,901,000 8,424,000 8,194,000
Shopping Center Square Feet 7,877,000 7,933,000 7,293,000 7,218,000 6,988,000
Mixed-Use Square Feet 1,612,000 1,610,000 1,608,000 1,206,000 1,206,000
Average Percentage Leased 91%c 90%c 91% 92% 95%
(a)
Interest expense coverage is defined as operating income before the sum of interest expense and amortization of deferred debt, predevelopment expenses and
depreciation and amortization of deferred leasing costs, divided by interest expense.
(b) Excludes development parcels (Ashland Square Phase II and New Market).
(c) Average percentage leased excludes Clarendon Center residential which averaged 98% and 97% leased during 2012 and 2011, respectively.
SAUL CENTERS, INC.
2012 ANNUAL REPORT
1
As a result of
good tenant
retention and
successful leasing
to new tenants,
retail space was
93.4% leased at
year-end 2012,
the highest level
during the past
three years.
MESSAGE TO
SHAREHOLDERS
Improving economic factors began to have a positive impact on our retail
and mixed-use property operating performance during 2012, following
the downturn of the last 5 years. The national unemployment rate has
improved from 9.3% in December 2010 to 7.7% in February 2013. Un-
employment in the Washington, D.C. metropolitan area, as reported by
the Department of Labor, also improved from 5.7% to 5.2% during
these past two years. The area’s housing recovery appears to have
gained momentum with home sales volume and median prices both up
from 2011 levels. These positive economic trends have improved con-
sumer confidence and helped fuel increased retail sales volume.
Within our shopping center portfolio, sales volumes of tenants reporting
sales increased 4.8% in 2012 to $339 per square foot. Stronger retail
demand is a primary driver of our overall property earnings, as 75% of
our overall property operating income is generated from our 50 shop-
ping centers. Over 80% of this shopping center operating income
is generated from properties in the Washington, D.C./Baltimore
metropolitan area.
Our shopping center tenants renewed their leases at a 70% rate in
2012, a healthy increase from the 60% renewal rate in 2011. As a result
of good tenant retention and successful leasing to new tenants, retail
space was 93.4% leased at year-end 2012, the highest level during the
past three years. Tenant delinquent rent payments have dropped to their
lowest levels since 2009.
In summary, we are cautiously optimistic for contin-
ued improvement in our core portfolio operating
performance because of better economic indicators,
improved tenant sales volume, solid leasing results
and reduced tenant delinquent rent payments.
However, our retail and mixed-use property operat-
ing fundamentals continue to be vulnerable to
potential challenges in public and private sector job
markets and the housing industry.
BALANCE SHEET
HIGHLIGHTS
Throughout 2012, the favorable interest rate environ-
ment allowed us to reduce our average cost of debt
by closing $93 million of new long-term non-recourse
property financings. At year-end 2012, fixed-rate
debt comprised 94% of our $828 million total bor-
rowings and has a weighted maturity of 10 years.
Only $53 million of fixed-rate debt matures during
the next 5 years. The fixed-rate debt weighted aver-
age interest rate decreased from 6.0% at the end of
2011 to the current 5.8%. In May 2012, we also
completed a new 4-year, $175 million line of credit,
which replaced an expiring $150 million line. The
current 2.1% interest rate payable under our new
credit line is nearly 3.2% lower than the previous rate.
Interest expense coverage
improved to 2.7
times and leverage, as measured by debt to total
capitalization, was 38% at December 31, 2012.
Currently, 24 of our 59 properties are unencum-
bered, and generated over 27% of our 2012 overall
property operating income.
Further improving our overall cost of capital, on Feb-
ruary 12, 2013, we closed on $140 million of Series
C perpetual preferred stock which has a coupon of
6.875%. The proceeds of this offering were used
to redeem all $79.3 million of our 9% Series B pre-
ferred shares and approximately $60 million of our
8% Series A preferred shares. As a result of this
offering, our weighted average cost of preferred
equity was reduced from 8.4% to 7.1%.
Improved operating performance, a strengthened
balance sheet and financing flexibility provide the
capability to fund future development and redevel-
opment activities.
FINANCIAL RESULTS
Total revenue increased to $190.1 million in 2012
from $173.9 million in 2011, and operating income
increased to $36.2 million from $34.0 million. Net
income available to common stockholders was $18.2
million in 2012 compared to $11.6 million in 2011.
The primary sources of the revenue increase were
$9.7 million of additional revenue from three subur-
ban Maryland grocery anchored shopping centers
acquired in 2011 and $4.9 million of additional rev-
enue from Clarendon Center. Operating income
2
SAUL CENTERS, INC.
2012 ANNUAL REPORT
3
Improved
operating
performance,
a strengthened
balance sheet
and financing
flexibility provide
the capability
to fund future
development and
redevelopment
activities.
increased $2.2 million, of which the core portfolio generated $4.1 million
and the three 2011 acquisitions produced $1.1 million, the combined
impact of which was partially offset by $2.7 million of predevelopment
expenses at Van Ness Square where we intend to develop a primarily res-
idential apartment project with complementary street-level retail space.
The 2012 results also included property sale gains totaling $4.5 million
from the sale of two underperforming, unanchored shopping centers,
partially offset by $1.1 million of costs incurred for the December 2012
acquisition of two operating shopping center properties.
During 2012, overall same property revenue increased 1.0% and same
property operating income increased 1.8%. Same property comparisons
exclude the results of properties not in operation for the entirety of the
comparable reporting periods. Shopping center same property operating
income increased 2.0% and mixed-use portfolio same property operating
income increased 0.6%. The same property results were adversely affected
by Van Ness Square. If Van Ness Square was excluded, overall same prop-
erty operating income would have increased 2.6% and mixed-use same
property operating income would have increased 5.0%.
FFO available to common stockholders (after deducting preferred stock
dividends) increased 19.5% to $60.1 million ($2.26 per diluted share)
from $50.3 million ($2.03 per diluted share) in 2011. FFO increased pri-
marily as a result of (a) the three shopping centers acquired in 2011 ($4.7
million), the core portfolio ($3.9 million), and Clarendon Center ($1.0
million), (b) reduced acquisition costs ($1.4 million) and (c) a change in
fair value of interest rate swaps ($1.4 million), the combined impact of
which was partially offset by Van Ness Square predevelopment
expenses ($2.7 million).
ACQUISITION AND
DEVELOPMENT ACTIVITY
The three shopping centers we acquired in late
2011 were a significant source of the portfolio’s
growth during 2012. Each of the three shopping
centers is anchored by a Giant Food store. Two of
the three grocery stores reported sales of over $600
per square foot and rank in the top 10 in sales
volume of our 33 grocery stores. The three centers
were 96.7% leased at year end, and exclusive of the
one-time acquisition costs, added $4.7 million to
2012 FFO.
During 2012, we substantially completed leasing
Clarendon Center, a mixed-use development on
two blocks adjacent to the Clarendon Metro
Station in Arlington, VA. At year-end 2012, the 244
apartments and 42,000 square feet of retail space
were 100% leased, and the 171,000 square feet of
office space was 97% leased. Clarendon Center
negatively impacted earnings during the lease-up
phase, but added $1.0 million to FFO in 2012. This
successful development is expected to provide
further growth throughout 2013 as tenant build-
out is completed and rent commences for the final
office tenants.
During 2012, we positioned our Van Ness Square
office/retail property for redevelopment by not
renewing expiring leases and entering into early
lease termination agreements. As a result, the
building’s leasing percentage decreased from 67%
in January 2012 to 44% in December 2012. As of
March 1, 2013, we successfully executed the final
tenant lease termination agreement and we antici-
pate that the building will be vacant in the spring
of this year. We incurred $2.7 million of redevelop-
ment expenses related to these lease terminations
in 2012 and expect to incur approximately $3.3 mil-
lion in 2013. In its place, we plan to construct a pri-
marily
apartment project with
complementary street-level retail space. Construc-
tion documents and governmental approvals are in
process, with a final development time table yet to
be determined.
residential
In December 2012, we purchased two operating
shopping center properties in Montgomery County,
MD for future redevelopment. The first property,
1500 Rockville Pike, which was acquired for $23.0
million, including acquisition costs, is a 6.7 acre
property with 53,000 rentable square feet located
near the Twinbrook Metro Station. The second
property, 5541 Nicholson Lane, which was acquired
for $12.2 million, including acquisition costs, is a 1.1
acre property with 20,000 rentable square feet lo-
cated adjacent to our 11503 Rockville Pike property
near the White Flint Metro Station. Although the
current zoning permits us to develop 1.1 million
square feet of new residential and commercial space
on these two properties, we do not anticipate rede-
veloping them in the foreseeable future.
4
SAUL CENTERS, INC.
2012 ANNUAL REPORT
5
We have
entered our
20th year as a
publicly-traded
REIT.
PROPERTY SALES
We sold two unanchored shopping centers during 2012 and recognized a
combined gain on sale of $4.5 million. In July, we sold the 77,000 square
foot and 11.7% leased West Park in Oklahoma City, OK and in December,
we sold the 55,000 square foot and 34.2% leased Belvedere Gardens in
Baltimore, MD.
SHOPPING CENTER OPERATIONS
While the economic downturn and anchor tenant bankruptcies contributed
to decreased same property operating results during 2010 and 2011, our
shopping center results trended positive in 2012. Anchor tenant spaces
vacated in 2011 by Borders, Superfresh, Syms and an independent grocer
totaling 168,000 square feet were substantially re-tenanted during 2012.
As of March 1, 2013, a total of 157,000 square feet of this space has been
leased. This and other core property improved leasing activity were key
drivers of the 2012 increase of 2.0% in same property operating income.
Overall leasing volume continued to be strong, with 222 new and renewal
retail leases executed, totaling 1.1 million square feet of space. The 2012
leasing volume compares similarly with the prior two annual averages of 223
leases signed for 1.1 million square feet of retail space. More significantly,
same property rental rate growth turned positive in 2012 for the first time
since 2008 for new and renewal leases. New and renewal cash rents
increased 1.6% over expiring rents on a same space basis. The renewal
percentage, as measured by expiring base rent, also trended positively to
70% of tenants renewing leases, up from 60% in 2011. Overall shopping
center credit loss decreased from the historic high level of $1.86 million in
2011, to $840,000 in 2012.
The improved leasing and rent collection trends
were impacted by increasing retail tenant sales. On
a same tenant basis, retail sales grew by 1.1% from
2011, after similarly modest 1.1% and 0.8%
increases in 2011 and 2010, respectively. Same
store grocery sales grew by 1.3% in 2012, after a
0.9% increase in 2011, which followed two years
of declines. While these overall operating trends are
encouraging, the recovery in the retail sector will
continue to be impacted by conditions in the overall
economy.
MIXED-USE RESULTS
Our 1.6 million square feet of mixed-use properties
produced 24.6% of our property operating income
in 2012. With the exclusion of our Van Ness Square
building, which is being positioned for redevelop-
ment, over 84% of our mixed-use property operat-
ing income is generated by three projects – our
newly developed Clarendon Center in Arlington,
VA, 601 Pennsylvania Avenue in Washington, DC
and Washington Square in Old Town Alexandria,
VA. Entering 2013, all 244 apartments at Claren-
don Center and 93.9% of the 676,000 square feet
of office and retail space at the three properties are
leased. Despite tepid office demand in the Wash-
ington, DC metropolitan area due to the uncertainty
surrounding federal government spending levels,
these three properties are well positioned for the
coming year with only 16,000 square feet of office
leases expiring during 2013.
We have entered our 20th year as a publicly-traded
REIT. In September 1993, Saul Centers was a
company with $500 million of total capitalization,
operating 5.3 million square feet of rentable space
in 26 properties and had a limited inventory of de-
velopment opportunities. We have grown to $2.2
billion in total capitalization, operate 9.5 million
rentable square feet in 57 properties, and have over
2.3 million square feet of zoned/master planned,
mixed-use redevelopment potential focused around
Washington, DC metropolitan area transit centers.
While our larger property base provides operational
efficiencies, we are small enough to generate mean-
ingful growth with paced development activity
throughout the coming years. We remain confident
that our loyal team of dedicated professionals will
meet the challenges and opportunities that lie
ahead, and expect to continue to deliver attractive
results for our loyal investors.
For the Board
B. Francis Saul II
March 15, 2013
6
SAUL CENTERS, INC.
2012 ANNUAL REPORT
7
FINANCIAL SECTION TABLE OF CONTENTS
Selected Financial Data
Page 10
Management’s Discussion and
Analysis of Financial Condition and
Results of Operations
Pages 11-27
Management’s Report on Internal Control Over
Financial Reporting
Page 27
Report of Independent Registered
Public Accounting Firm
Report of Independent Registered Public
Accounting Firm on Internal Control Over
Financial Reporting
Consolidated Balance Sheets
Page 28
Page 29
Page 30
Consolidated Statements of Operations
Page 31
Consolidated Statements of
Comprehensive Income
Consolidated Statements of
Stockholders’ Equity
Page 32
Page 33
Consolidated Statements of Cash Flows
Page 34
Notes to Consolidated Financial Statements
Pages 35-57
As of December 31, 2012, Saul
Centers’ portfolio properties were
located in Virginia, Maryland,
Washington, DC, North Carolina,
Delaware, Florida, Georgia, New
Jersey and Oklahoma. Properties in
the metropolitan Washington, DC/
Baltimore area represent 80% of
the portfolio’s gross leasable area.
PORTFO LIO PROPERTIES
GROSS LEASABLE
PROPERTY/LOCATION SQUARE FEET
Shopping Centers
ASHBURN VILLAGE, ASHBURN, VA 221,273
ASHLAND SQUARE PHASE I, DUMFRIES, VA 23,120
BEACON CENTER, ALEXANDRIA, VA 358,015
BJ’S WHOLESALE CLUB, ALEXANDRIA, VA 115,660
BOCA VALLEY PLAZA, BOCA RATON, FL 121,269
BOULEVARD, FAIRFAX, VA 49,140
BRIGGS CHANEY MARKETPLACE, SILVER SPRING, MD 194,347
BROADLANDS VILLAGE, ASHBURN, VA 159,734
COUNTRYSIDE MARKETPLACE, STERLING, VA 141,696
CRANBERRY SQUARE, WESTMINSTER, MD 141,569
CRUSE MARKETPLACE, CUMMING, GA 78,686
FLAGSHIP CENTER, ROCKVILLE, MD 21,500
FRENCH MARKET, OKLAHOMA CITY, OK 244,724
GERMANTOWN, GERMANTOWN, MD 27,241
GIANT, MILFORD MILL, MD 70,040
THE GLEN, WOODBRIDGE, VA 136,440
GREAT EASTERN, DISTRICT HEIGHTS, MD 255,398
GREAT FALLS CENTER, GREAT FALLS, VA 91,666
HAMPSHIRE LANGLEY, TAKOMA PARK, MD 131,700
HUNT CLUB CORNERS, APOPKA, FL 101,522
JAMESTOWN PLACE, ALTAMONTE SPRINGS, FL 96,372
KENTLANDS SQUARE I, GAITHERSBURG, MD 114,381
KENTLANDS SQUARE II, GAITHERSBURG, MD 240,683
KENTLANDS PLACE, GAITHERSBURG, MD 40,648
LANSDOWNE TOWN CENTER, LEESBURG, VA 189,352
LEESBURG PIKE PLAZA, BAILEYS CROSSROADS, VA 97,752
LUMBERTON PLAZA, LUMBERTON, NJ 193,044
METRO PIKE CENTER, ROCKVILLE, MD 67,488
SHOPS AT MONOCACY, FREDERICK, MD 109,144
NORTHROCK, WARRENTON, VA 99,789
OLDE FORTE VILLAGE, FT. WASHINGTON, MD 143,577
OLNEY, OLNEY, MD 53,765
GROSS LEASABLE
PROPERTY/LOCATION SQUARE FEET
ORCHARD PARK, DUNWOODY, GA 87,885
PALM SPRINGS CENTER, ALTAMONTE SPRINGS, FL 126,446
RAVENWOOD, BALTIMORE, MD 93,328
11503 ROCKVILLE PK / 5541 NICHOLSON LN,
ROCKVILLE, MD 40,249
1500 ROCKVILLE PIKE, ROCKVILLE, MD 52,681
SEABREEZE PLAZA, PALM HARBOR, FL 146,673
MARKETPLACE AT SEA COLONY, BETHANY BEACH, DE 21,677
SEVEN CORNERS, FALLS CHURCH, VA 574,831
SEVERNA PARK MARKETPLACE, SEVERNA PARK, MD 254,174
SHOPS AT FAIRFAX, FAIRFAX, VA 68,762
SMALLWOOD VILLAGE CENTER, WALDORF, MD 173,281
SOUTHDALE, GLEN BURNIE, MD 484,115
SOUTHSIDE PLAZA, RICHMOND, VA 371,761
SOUTH DEKALB PLAZA, ATLANTA, GA 163,418
THRUWAY, WINSTON-SALEM, NC 362,547
VILLAGE CENTER, CENTREVILLE, VA 146,309
WESTVIEW VILLAGE, FREDERICK, MD 97,611
WHITE OAK, SILVER SPRING, MD 480,676
TOTAL SHOPPING CENTERS 7,877,159
Mixed-Use Properties
AVENEL BUSINESS PARK, GAITHERSBURG, MD 390,683
CLARENDON CENTER – NORTH, ARLINGTON, VA 108,387
CLARENDON CENTER – SOUTH, ARLINGTON, VA 293,565
(INCLUDES 244 APARTMENTS AT 188,671 SQUARE FEET)
CROSSTOWN BUSINESS CENTER, TULSA, OK 197,127
601 PENNSYLVANIA AVE., WASHINGTON, DC 226,604
VAN NESS SQUARE, WASHINGTON, DC 159,411
WASHINGTON SQUARE, ALEXANDRIA, VA 236,376
TOTAL MIXED-USE PROPERTIES 1,612,153
TOTAL PORTFOLIO 9,489,312
8
SAUL CENTERS, INC.
2012 ANNUAL REPORT
9
SELECTED FINANCIAL DATA
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands, except per share data) Years Ended December 31,
2012 2011 2010 2009 2008
Operating Data:
Total revenue $ 190,092 $ 173,878 $ 163,108 $ 160,539 $ 159,775
Total operating expenses 153,867 139,908 119,121 115,177 113,149
Operating income 36,225 33,970 43,987 45,362 46,626
Non-operating income:
Acquisition related costs (1,129) (2,534) (1,179) – –
Change in fair value of derivatives 36 (1,332) – – –
Loss on early extinguishment of debt – – (5,405) (2,210) –
Gain on casualty settlements 219 245 2,475 329 1,301
Discontinued operations 4,429 (55) 3,307 (251) (261)
Net income 39,780 30,294 43,185 43,230 47,666
Income attibutable to the noncontrolling interest (6,406) (3,561) (6,422) (6,517) (7,972)
Net income attributable to Saul Centers, Inc. 33,374 26,733 36,763 36,713 39,694
Preferred dividends (15,140) (15,140) (15,140) (15,140) (13,453)
Net income available to common stockholders $ 18,234 $ 11,593 $ 21,623 $ 21,573 $ 26,241
Per Share Data (diluted):
Net income available to common stockholders $ 0.93 $ 0.61 $ 1.18 $ 1.20 $ 1.46
Basic and diluted shares outstanding:
Weighted average common shares - basic 19,649 18,888 18,267 17,904 17,816
Effect of dilutive options 51 61 110 39 145
Weighted average common shares - diluted 19,700 18,949 18,377 17,943 17,961
Weighted average convertible limited partnership units 6,914 5,791 5,416 5,416 5,416
Weighted average common shares and fully
converted limited partnership units - diluted 26,614 24,740 23,793 23,359 23,377
Dividends Paid:
Cash dividends to common stockholders (1) 28,134 $ 27,062 $ 26,186 $ 27,358 $ 33,450
Cash dividends per share $ 1.44 $ 1.44 $ 1.44 $ 1.50 $ 1.88
Balance Sheet Data:
Real estate investments
(net of accumulated depreciation) $ 1,112,763 $ 1,091,448 $ 927,250 $ 834,914 $ 774,718
Total assets 1,207,309 1,192,569 1,013,888 925,574 853,873
Total debt, including accrued interest 831,121 835,459 713,997 639,405 570,184
Preferred stock 179,328 179,328 179,328 179,328 179,328
Total stockholders’ equity 307,289 293,206 239,813 226,063 227,887
Other Data:
Cash flow provided by (used in):
Operating activities $ 78,423 $ 55,669 $ 62,887 $ 68,344 $ 73,101
Investing activities $ (46,873) $ (201,500) $ (98,239) $ (80,469) $ (115,070)
Financing activities $ (31,740) $ 145,186 $ 27,713 $ 19,726 $ 49,210
Funds from operations (2):
Net income $ 39,780 $ 30,294 $ 43,185 $ 43,230 $ 47,666
Real property depreciation and amortization 40,112 35,298 28,379 28,061 29,570
Real property depreciation - discontinued operations 77 102 198 203 213
Gain on property dispositions and casualty settlements (4,729) (245) (6,066) (329) (1,301)
Funds from operations 75,240 65,449 65,696 71,165 76,148
Preferred dividends (15,140) (15,140) (15,140) (15,140) (13,453)
Funds from operations available to common shareholders $ 60,100 $ 50,309 $ 50,556 $ 56,025 $ 62,695
(1) During 2012, 2011, 2010, 2009, and 2008, shareholders reinvested $23,124, $19,751, $16,696, $4,136, and $3,941, respectively, in newly
issued common stock through the Company’s dividend reinvestment plan.
(2) Funds From Operations (FFO) is a non-GAAP financial measure. See page 24 for a definition of FFO and reconciliation from Net Income.
10
SAUL CENTERS, INC.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations (MD&A) begins with the Company’s
primary business strategy to give the reader an overview of the
goals of the Company’s business. This is followed by a discussion
of the critical accounting policies that the Company believes are
important to understanding the assumptions and judgments in-
corporated in the Company’s reported financial results. The next
section, beginning on page 14, discusses the Company’s results
of operations for the past two years. Beginning on page 17, the
Company provides an analysis of its liquidity and capital re-
sources, including discussions of its cash flows, debt arrange-
ments, sources of capital and financial commitments. Finally, on
page 24, the Company discusses funds from operations, or FFO,
which is a non-GAAP financial measure of performance of an
equity REIT used by the REIT industry.
The MD&A contained in this Annual Report should be read in
conjunction with the Company’s Form 10-K, including the con-
solidated financial statements and notes thereto appearing in this
report. Historical results set forth in Selected Financial Informa-
tion, the Consolidated Financial Statements and Supplemental
Data should not be taken as indicative of the Company’s future
operations.
OVERVIEW
The Company’s principal business activity is the ownership, man-
agement and development of income-producing properties. The
Company’s long-term objectives are to increase cash flow from
operations and to maximize capital appreciation of its real estate
investments.
The Company’s primary operating strategy is to focus on its com-
munity and neighborhood shopping center business and to op-
erate its properties to achieve both cash flow growth and capital
appreciation. Management believes there is potential for long
term growth in cash flow as existing leases for space in the Shop-
ping Centers and Mixed-Use properties expire and are renewed,
or newly available or vacant space is leased. The Company in-
tends to renegotiate leases where possible and seek new tenants
for available space in order to optimize the mix of uses to improve
foot traffic through the Shopping Centers. As leases expire, man-
agement expects to revise rental rates, lease terms and condi-
tions, relocate existing tenants, reconfigure tenant spaces and
introduce new tenants with the goals of increasing occupancy,
improving overall retail sales, and ultimately increasing cash flow
as economic conditions improve. In those circumstances in which
leases are not otherwise expiring, management selectively at-
tempts to increase cash flow through a variety of means, or in
connection with renovations or relocations, recapturing leases
with below market rents and re-leasing at market rates, as well
as replacing financially troubled tenants. When possible, man-
agement also will seek to include scheduled increases in base
rent, as well as percentage rental provisions, in its leases.
The Company’s redevelopment and renovation objective is to se-
lectively and opportunistically redevelop and renovate its prop-
erties, by replacing leases that have below market rents with
strong, traffic-generating anchor stores such as supermarkets
and drug stores, as well as other desirable local, regional and
national tenants. The Company’s strategy remains focused on
continuing the operating performance and internal growth of
its existing Shopping Centers, while enhancing this growth with
selective retail redevelopments and renovations.
During the fourth quarter of 2012, the Company acquired two
properties along the Rockville Pike corridor of Rockville, Mary-
land, one of which is adjacent to one of the Company’s existing
properties. In December 2012, the Company purchased for
$23.0 million, including acquisition costs, approximately 52,700
square feet of retail space located on the east side of Rockville
Pike near the Twinbrook Metro Station. The property, which was
90.5% leased to multiple tenants at December 31, 2012, is
zoned for up to 745,000 square feet of rentable mixed-use
space. The Company intends to redevelop the site but has not
committed to any redevelopment plan or time table.
In December 2012, the Company purchased for $12.2 million,
including acquisition costs, approximately 20,100 square feet of
mixed-use space, which was 40.5% leased to multiple tenants,
located on the east side of Rockville Pike and adjacent to 11503
Rockville Pike, which was purchased in 2010. The property,
when combined with 11503 Rockville Pike, will provide zoning
for up to 331,000 square feet of rentable mixed-use space for a
total development potential of up to 622,000 square feet. The
Company intends to redevelop the site but has not committed
to any redevelopment plan or time table.
In 2011, the Company acquired three Giant Food-anchored
shopping centers located in the Maryland suburbs of the Wash-
ington, D.C. and Baltimore metropolitan area. The three centers,
Kentlands Square II, Severna Park MarketPlace and Cranberry
Square, total 636,000 square feet of leasable area, of which 98%
is leased. The $170.9 million purchase price, including acquisition
costs, was financed with (1) $60.0 million from two bridge loans
secured by Kentlands Square II and Cranberry Square, each with
an initial term of six months and accruing interest, payable
monthly, at a rate equal to LIBOR plus 175 basis points; (2) a
$38.0 million non-recourse permanent loan secured by Severna
Park MarketPlace; (3) approximately $17.1 million in cash and
borrowings from the Company’s revolving credit facility; and (4)
$55.8 million from the issuance of equity to a related party.
In light of the limited amount of quality properties for sale and
the escalated pricing of properties that the Company has been
presented with or has inquired about over the past year, man-
agement believes acquisition opportunities for investment in ex-
isting and new Shopping Center and Mixed-Use Properties in
the near future is uncertain. Because of its conservative capital
structure, including its cash and capacity under its revolving
credit facility, management believes that the Company is posi-
2012 ANNUAL REPORT
11
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
tioned to take advantage of additional investment opportunities
as attractive properties are located and market conditions im-
prove. (See “Item 1. Business - Capital Policies”). It is manage-
ment’s view that several of the sub-markets in which the
Company operates have, or are expected to have in the future,
attractive supply/demand characteristics. The Company will con-
tinue to evaluate acquisition, development and redevelopment
as integral parts of its overall business plan.
Although there has been a downturn in the national real estate
market, to date, the effects on the office and retail markets in
the metropolitan Washington, D.C. area, where the majority of
the Company’s properties are located, have generally been less
severe. However, continued economic stress in the local
economies where the Company’s properties are located may
lead to increased tenant bankruptcies, increased vacancies and
decreased rental rates.
While overall consumer confidence appears to have improved,
retailers continue to be cautious about capital allocation when
implementing store expansion. Vacancies continue to remain
elevated compared to pre-recession levels; however, the Com-
pany’s overall leasing percentage on a comparative same prop-
erty basis, which excludes the impact of properties not in
operation for the entirety of the comparable periods, at Decem-
ber 31, 2012 increased to 91.9% from 90.7% at December 31,
2011, an increase in leased space of approximately 107,000
square feet, primarily caused by the leasing of a portion of the
space vacated by major shopping center tenants in 2011.
Because of the Company’s conservative capital structure, its liq-
uidity has not been significantly affected by the recent turmoil
in the credit markets. The Company maintains a ratio of total
debt to total asset value of under 50%, which allows the Com-
pany to obtain additional secured borrowings if necessary. As
of December 31, 2012, amortizing fixed-rate mortgage debt
with staggered maturities from 2013 to 2027 represented ap-
proximately 93.6% of the Company’s notes payable, thus mini-
mizing refinancing risk. The Company has two fixed-rate debt
maturities scheduled for 2013, one of which was refinanced on
February 27, 2013. Management currently expects to repay in
full the $6.8 million remaining balance on the second loan when
it matures in July 2013. The Company’s variable-rate debt con-
sists of a $14.9 million bank term loan for the Northrock shop-
ping center, which was refinanced on February 27, 2013, and
$38.0 million outstanding under its line of credit. As of Decem-
ber 31, 2012, the Company has loan availability of approxi-
mately $136.8 million under its $175.0 million unsecured
revolving line of credit.
Although it is management’s present intention to concentrate
future acquisition and development activities on community and
neighborhood shopping centers and office properties in the
Washington, D.C./Baltimore metropolitan area and the south-
eastern region of the United States, the Company may, in the
future, also acquire other types of real estate in other areas of
12
SAUL CENTERS, INC.
the country as opportunities present themselves. While the
Company may diversify in terms of property locations, size and
market, the Company does not set any limit on the amount or
percentage of Company assets that may be invested in any one
property or any one geographic area.
CRITICAL ACCOUNTING POLICIES
The Company’s consolidated financial statements are prepared
in accordance with accounting principles generally accepted in
the United States (“GAAP”), which requires management to
make certain estimates and assumptions that affect the report-
ing of financial position and results of operations. See Note 2 to
the Consolidated Financial Statements in this report. The Com-
pany has identified the following policies that, due to estimates
and assumptions inherent in those policies, involve a relatively
high degree of judgment and complexity.
REAL ESTATE INVESTMENTS
Real estate investment properties are stated at historic cost less
depreciation. Although the Company intends to own its real es-
tate investment properties over a long term, from time to time it
will evaluate its market position, market conditions, and other
factors and may elect to sell properties that do not conform to
the Company’s investment profile. Management believes that
the Company’s real estate assets have generally appreciated in
value since their acquisition or development and, accordingly, the
aggregate current value exceeds their aggregate net book value
and also exceeds the value of the Company’s liabilities as reported
in the financial statements. Because the financial statements are
prepared in conformity with GAAP, they do not report the current
value of the Company’s real estate investment properties.
The Company purchases real estate investment properties from
time to time and records assets acquired and liabilities assumed,
including land, buildings, and intangibles related to in-place
leases and customer relationships based on their fair values. The
fair value of buildings generally is determined as if the buildings
were vacant upon acquisition and subsequently leased at market
rental rates and considers the present value of all cash flows ex-
pected to be generated by the property including an initial lease
up period. The Company determines the fair value of above and
below market intangibles associated with in-place leases by as-
sessing the net effective rent and remaining term of the in-place
lease relative to market terms for similar leases at acquisition tak-
ing into consideration the remaining contractual lease period, re-
newal periods, and the likelihood of the tenant exercising its
renewal options. The fair value of a below market lease compo-
nent is recorded as deferred income and accrued as additional
lease revenue over the remaining contractual lease period and
any renewal option periods included in the valuation analysis.
The fair value of above market lease intangibles is recorded as a
deferred asset and is amortized as a reduction of lease revenue
over the remaining contractual lease term. The Company deter-
mines the fair value of at-market in-place leases considering the
cost of acquiring similar leases, the foregone rents associated
with the lease-up period and carrying costs associated with the
lease-up period. Intangible assets associated with at-market in-
place leases are amortized as additional expense over the remain-
ing contractual lease term. To the extent customer relationship
intangibles are present in an acquisition, the fair value of the in-
tangibles are amortized over the life of the customer relationship.
From time to time the Company may purchase a property for fu-
ture development purposes. The property may be improved with
an existing structure that would be demolished as part of the de-
velopment. In such cases, the fair value of the building may be
determined based only on existing leases and not include esti-
mated cash flows related to future leases.
If there is an event or change in circumstance that indicates a po-
tential impairment in the value of a real estate investment prop-
erty, the Company prepares an analysis to determine whether the
carrying value of the real estate investment property exceeds its
estimated fair value. The Company considers both quantitative
and qualitative factors in identifying impairment indicators includ-
ing recurring operating losses, significant decreases in occupancy,
and significant adverse changes in legal factors and business cli-
mate. If impairment indicators are present, the Company com-
pares the projected cash flows of the property over its remaining
useful life, on an undiscounted basis, to the carrying value of that
property. The Company assesses its undiscounted projected cash
flows based upon estimated capitalization rates, historic operating
results and market conditions that may affect the property. If the
carrying value is greater than the undiscounted projected cash
flows, the Company would recognize an impairment loss equiva-
lent to an amount required to adjust the carrying amount to its
then estimated fair value. The fair value of any property is sensitive
to the actual results of any of the aforementioned estimated fac-
tors, either individually or taken as a whole. Should the actual re-
sults differ from management’s projections, the valuation could
be negatively or positively affected.
When incurred, the Company capitalizes the cost of improvements
that extend the useful life of property and equipment. All repair
and maintenance expenditures are expensed when incurred.
Leasehold improvements expenditures are capitalized when certain
criteria are met, including when we supervise construction and will
own the improvement. Tenant improvements we own are depre-
ciated over the life of the respective lease or the estimated useful
life of the improvements, whichever is shorter.
Interest, real estate taxes, development-related salary costs and
other carrying costs are capitalized on projects under construction.
Once construction is substantially complete and the assets are
placed in service, rental income, direct operating expenses, and
depreciation associated with such properties are included in current
operations. Commercial development projects are substantially
complete and available for occupancy upon completion of tenant
improvements, but no later than one year from the cessation of
major construction activity. Residential development projects are
considered substantially complete and available for occupancy
upon receipt of the certificate of occupancy from the appropriate
licensing authority. Substantially completed portions of a project
are accounted for as separate projects. Depreciation is calculated
using the straight-line method and estimated useful lives of gen-
erally between 35 and 50 years for base buildings, or a shorter pe-
riod if management determines that the building has a shorter
useful life, and up to 20 years for certain other improvements.
DEFERRED LEASING COSTS
Certain initial direct costs incurred by the Company in negotiat-
ing and consummating successful commercial leases are capital-
ized and amortized over the term of the leases. Deferred leasing
costs consist of commissions paid to third-party leasing agents
as well as internal direct costs such as employee compensation
and payroll-related fringe benefits directly related to time spent
performing successful leasing-related activities. Such activities
include evaluating prospective tenants’ financial condition, eval-
uating and recording guarantees, collateral and other security
arrangements, negotiating lease terms, preparing lease docu-
ments and closing transactions. In addition, deferred leasing
costs include amounts attributed to in-place leases associated
with acquisition properties.
REVENUE RECOGNITION
Rental and interest income are accrued as earned except when
doubt exists as to collectability, in which case the accrual is dis-
continued. Recognition of rental income commences when con-
trol of the space has been given to the tenant. When rental
payments due under leases vary from a straight-line basis be-
cause of free rent periods or scheduled rent increases, income is
recognized on a straight-line basis throughout the term of the
lease. Expense recoveries represent a portion of property oper-
ating expenses billed to tenants, including common area main-
tenance, real estate taxes and other recoverable costs. Expense
recoveries are recognized in the period when the expenses are
incurred. Rental income based on a tenant’s revenue, known as
percentage rent, is accrued when a tenant reports sales that ex-
ceed a specified breakpoint specified in the lease agreement.
ALLOWANCE FOR DOUBTFUL ACCOUNTS -
CURRENT AND DEFERRED RECEIVABLES
Accounts receivable primarily represent amounts accrued and
unpaid from tenants in accordance with the terms of the respec-
tive leases, subject to the Company’s revenue recognition policy.
Receivables are reviewed monthly and reserves are established
with a charge to current period operations when, in the opinion
of management, collection of the receivable is doubtful. In ad-
dition to rents due currently, accounts receivable include
amounts representing minimum rental income accrued on a
straight-line basis to be paid by tenants over the remaining term
of their respective leases. Reserves are established with a charge
to income for tenants whose rent payment history or financial
condition casts doubt upon the tenant’s ability to perform under
its lease obligations.
2012 ANNUAL REPORT
13
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LEGAL CONTINGENCIES
The Company is subject to various legal proceedings and claims
that arise in the ordinary course of business, which are generally
covered by insurance. While the resolution of these matters can-
not be predicted with certainty, the Company believes the final
outcome of current matters will not have a material adverse ef-
fect on its financial position or the results of operations. Once
it has been determined that a loss is probable to occur, the esti-
mated amount of the loss is recorded in the financial statements.
Both the amount of the loss and the point at which its occur-
rence is considered probable can be difficult to determine.
RESULTS OF OPERATIONS
Same property revenue and operating income were $160.1
million and $119.7 million, respectively, in 2012 representing
increases of $1.5 million (1.0%) and $2.1 million (1.8%) over
2011. Same property comparisons for 2012 and 2011 include
46 Shopping Centers and 5 Mixed-Use Properties which were in
operation for the entirety of 2012 and 2011.
Same property revenue and operating income were $151.8
million and $112.6 million, respectively, in 2011 representing
decreases of $8.9 million (5.6%) and $6.7 million (5.6%)
compared to 2010. Same property comparisons for 2011 and
2010 include 44 Shopping Centers and 5 Mixed-Use Properties
which were in operation for the entirety of 2011 and 2010.
The following is a discussion of the components of revenue and expense for the entire Company.
For the year ended December 31, Percentage Change
(Dollars in thousands) 2012 2011 2010 2012 to 2011 2011 to 2010
REVENUE
Expense recovery income decreased $1.1 million in 2011 com-
pared to 2010 due primarily to recovery in 2010 of snow removal
expenses incurred as a result of severe winter weather impacting
the Mid-Atlantic states during January and February 2010.
OTHER REVENUE
The decline in operating income in 2012 compared to 2011 is
primarily due to the collection in 2011 of $325,000 of past due
rents from a former tenant, partially offset by increased parking
income at the Mixed-Use Properties.
Other revenue decreased in 2011 primarily due to the collection
during 2010 of past due rents and other damages arising from
a long-standing dispute with a tenant over the non-payment of
rent over a period of time (approximately $1.9 million) partially
offset by increased residential tenant fees and parking income
(combined $755,000) at Clarendon Center.
OPERATING EXPENSES
For the year ended December 31, Percentage Change
(Dollars in thousands) 2012 2011 2010 2012 to 2011 2011 to 2010
Property operating expenses $ 23,794 $ 24,715 $ 22,897 (3.7)% 7.9%
Provision for credit losses 1,151 1,880 1,334 (38.8)% 40.9%
Real estate taxes 22,325 18,435 17,744 21.1% 3.9%
Interest expense and
amortization of deferred debt 49,544 45,324 34,799 9.3% 30.2%
Base rent $ 152,777 $ 138,486 $ 126,163 10.3% 9.8%
Depreciation and amortization 40,112 35,298 28,379 13.6% 24.4%
Expense recoveries 30,391 28,368 29,488 7.1% (3.8)%
General and administrative 14,274 14,256 13,968 0.1% 2.1%
Percentage rent 1,545 1,503 1,447 2.8% 3.9%
Predevelopment Expenses 2,667 – – N/A N/A
Other 5,379 5,521 6,010 (2.6)% (8.1)%
Total revenue $ 190,092 $ 173,878 $ 163,108 9.3% 6.6%
Note: Base rent includes $3,796, $3,694, and $227, for the years 2012, 2011, and 2010, respectively, to recognize base rent on a straight-line
basis. In addition, base rent includes $1,495, $1,119, and $1,024, for the years 2012, 2011, and 2010, respectively, to recognize income from
the amortization of in-place leases.
Total revenue increased 9.3% in 2012 compared to 2011 prima-
rily due to $14.5 million of aggregate revenue generated by
Clarendon Center and the three Shopping Center Properties ac-
quired in 2011 (collectively, the “New 2012 Properties”).
Total revenue increased 6.6% in 2011 compared to 2010. The
increased revenue resulted primarily from (a) rental income gen-
erated by a development property (Clarendon Center) and five
acquisition properties (11503 Rockville Pike, Metro Pike Center,
Kentlands Square II, Severna Park MarketPlace and Cranberry
Square), defined as the “2011 Acquisition Properties” and to-
gether with Clarendon Center, the “2011 Development and Ac-
quisition Properties” (approximately $19.1 million), offset in part
by (b) (x) decreased revenue from rental properties fully in oper-
ation during both 2011 and 2010 (approximately $8.9 million),
comprised primarily of a decline in revenue generated by the
Mixed-Use Properties (approximately $4.1 million) due to a de-
crease in occupancy that occurred in the latter part of 2010 and
the first quarter of 2011, (y) a decrease in other income com-
pared to 2010, when the collection of rent and other damages
arising from a long-standing dispute with a tenant over the
non-payment of rent over a period of time was recorded ($1.9
14
SAUL CENTERS, INC.
million), and (z) reduced expense recovery income resulting from
substantial snow removal expenses incurred in 2010.
A discussion of the components of revenue follows.
BASE RENT
The $14.3 million increase in base rent in 2012 compared to
2011 was attributable to $12.4 million of increased base rent
generated by the New 2012 Properties and $2.3 million of in-
creased base rent in the remainder of the portfolio.
The $12.3 million increase in base rent in 2011 compared to
2010 was primarily attributable to the 2011 Development and
Acquisition Properties (approximately $16.8 million) which was
offset in part by decreases at same center Mixed-Use Properties
(approximately $3.0 million) and the Shopping Centers (approx-
imately $1.9 million).
EXPENSE RECOVERIES
Expense recovery income increased $2.0 million in 2012 com-
pared to 2011 primarily due to $1.7 million of increased expense
recovery income generated by the New 2012 Properties.
Total operating expenses $ 153,867 $139,908 $119,121 10.0% 17.5%
Total operating expenses increased 10.0% in 2012 compared to
2011 primarily due to increased real estate taxes, interest ex-
pense, depreciation expense and predevelopment expense.
Total operating expenses increased 17.5% in 2011 compared to
2010 primarily due to increased interest and depreciation ex-
pense arising from the operation of the 2011 Development and
Acquisition Properties.
PROPERTY OPERATING EXPENSES
Property operating expenses decreased $900,000 in 2012 com-
pared to 2011 primarily due to lower snow removal costs.
Property operating expenses increased $1.8 million in 2011 pri-
marily due to operating expenses arising from the operation of
the 2011 Development and Acquisition Properties ($3.3 million)
and modest increases in non-snow removal same property op-
erating expenses offset in part by a $2.3 million decrease in
snow removal expense.
PROVISION FOR CREDIT LOSSES
The provision for credit losses represents the Company’s estimate
of amounts owed by tenants that may not be collectible. The
$729,000 decrease in 2012 compared to 2011 reflects a general
improvement in the retail economy and lack of significant bank-
ruptcy losses among the Company’s various tenants. The
$546,000 increase in 2011 compared to 2010 reflects the con-
tinued stress of a stagnant housing market and slowly recovering
jobs market in the local economies where the Current Portfolio
Properties are located. Approximately $505,000 of the increase
was caused by the SuperFresh and Borders Bookstore bankrupt-
cies and a local grocery store vacancy.
REAL ESTATE TAXES
The $3.9 million increase in real estate taxes in 2012 compared
to 2011 is comprised of increased property taxes charged by the
District of Columbia and taxes related to the New 2012 Proper-
ties. The $691,000 increase in real estate taxes in 2011 over
2010 resulted primarily from the operation of the 2011 Devel-
opment and Acquisition Properties.
INTEREST AND AMORTIZATION
OF DEFERRED DEBT
Interest expense increased $4.2 million in 2012 compared to
2011 primarily due to approximately $4.1 million of interest re-
lated to $67.2 million of higher average debt balances and $1.9
million of reduced capitalized interest, partially offset by $2.1 mil-
lion of lower interest resulting from lower average cost of debt.
Interest expense increased $10.5 million in 2011 compared to
2010 primarily due to Clarendon Center, because more than
85% of the project was placed in service during 2011, which
caused an $8.9 million increase in interest expense, net of
amounts capitalized, as well as increased interest expense arising
from the refinancing in March 2011 of the project’s construction
2012 ANNUAL REPORT
15
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
loan with a higher fixed-rate, 15 year mortgage. Interest ex-
pense also increased in 2011 by $1.3 million from debt incurred
to finance the 2011 Acquisition Properties.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization of deferred leasing costs in-
creased $4.8 million in 2012 compared to 2011 primarily due to
the New 2012 Properties.
Depreciation and amortization of deferred leasing costs in-
creased $6.9 million in 2011 compared to 2010 primarily as a
result of depreciation commencement for the 2011 Develop-
ment and Acquisition Properties placed in service during 2011.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased $288,000 in
2011 compared to 2010 primarily due to increased local taxes.
PREDEVELOPMENT EXPENSES
Predevelopment expenses represent costs incurred, primarily
lease termination costs, in preparation of the potential reposi-
tioning of Van Ness Square.
ACQUISITION RELATED COSTS
Acquisition related costs in 2012 totaling approximately $1.1
million arose from the December 2012 purchases of 1500
Rockville Pike and 5541 Nicholson Lane.
Acquisition related costs in 2011 totaling approximately $2.5
million arose from the Company’s September 23, 2011, pur-
chase of Kentlands Square II, Severna Park MarketPlace and
Cranberry Square and the February 17, 2011 purchase of a
3,000 square foot retail property located adjacent to the Com-
pany’s Van Ness Square in Washington, D.C.
Acquisition related costs totaling approximately $1.2 million in
2010 relate to the Company’s October 1, 2010 purchase of a
20,000 square foot property and December 17, 2010 purchase
of a 67,500 square foot property, both located near the White
Flint Metro Station in Montgomery County, Maryland.
GAIN ON CASUALTY SETTLEMENT
Gain on casualty settlement in 2012 reflects insurance proceeds
received in excess of the carrying value of assets damaged during
a hail storm at French Market in 2012. Gain on casualty settle-
ment in 2011 and 2010 reflects insurance proceeds received in
excess of the carrying value of assets damaged during a severe
hail storm at French Market in May 2010. In each instance, the
insurance proceeds funded substantially all of the restoration of
the damaged property.
LOSS ON EARLY EXTINGUISHMENT OF DEBT
In June 2010, the Company refinanced its Thruway shopping
center, located in Winston-Salem, North Carolina. The $45.6
million loan requires principal and interest payments calculated
using a 5.83% interest rate and a 25-year amortization schedule,
and matures in ten years. In December 2010, the Company re-
financed its Ravenwood shopping center, located in Baltimore,
Maryland. The $17.0 million loan requires principal and interest
payments calculated using a 6.18% interest rate and a 25-year
amortization schedule, and matures in 15 years. These loans re-
financed a portion of a 7.67%, multi-property loan that was
scheduled to mature in October 2012. In conjunction with the
refinancings, the Company incurred costs to retire the previous
Thruway debt totaling $4.5 million (approximately $4.4 million
to defease the original loan and write-offs of unamortized de-
ferred debt costs of approximately $54,000) and to retire the
previous Ravenwood debt totaling $926,000 (approximately
$912,000 to defease the original loan and write-offs of unamor-
tized deferred debt costs of approximately $14,000). The trans-
actions reduced the Company’s future refinancing risk by
decreasing the amount of debt maturing in 2012 from $95.7
million to $62.0 million, and provided net cash proceeds of ap-
proximately $17.4 million.
GAIN ON SALE OF PROPERTY
Gain on sales of properties in 2012 resulted from the July 2012
sale of West Park shopping center and the December 2012 sale
of the Belvedere shopping center.
Gain on sale of property in 2010 resulted from the sale of the
Lexington Center land parcel and Lexington pads.
IMPACT OF INFLATION
Inflation has remained relatively low during 2012 and 2011. The
impact of rising operating expenses due to inflation on the op-
erating performance of the Company’s portfolio would have
been mitigated by terms in substantially all of the Company’s
leases which contain provisions designed to increase revenues
to offset the adverse impact of inflation on the Company’s re-
sults of operations. These provisions include upward periodic
adjustments in base rent due from tenants, usually based on a
stipulated increase and to a lesser extent on a factor of the
change in the consumer price index, commonly referred to as
the CPI.
In addition, substantially all of the Company’s properties are
leased to tenants under long-term leases, which provide for re-
imbursement of operating expenses by tenants. These leases
tend to reduce the Company’s exposure to rising property ex-
penses due to inflation. Inflation and increased costs may have
an adverse impact on the Company’s tenants if increases in their
operating expenses exceed increases in their revenue.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $12.1 million and $12.3 million
at December 31, 2012 and 2011, respectively. The changes in
cash and cash equivalents during the years ended December 31,
2012 and 2011 were attributable to operating, investing and fi-
nancing activities, as described below.
• the repayment of mortgage notes payable totaling $117.6
million;
• distributions made to common stockholders and holders of
convertible limited partnership units in the Operating Partner-
ship during the year totaling $38.1 million;
• distributions made to preferred stockholders during the year
totaling $15.1 million;
Year Ended December 31,
(Dollars in thousands) 2012 2011
• repayments of $8.0 million on the revolving credit facility; and
• payments of $2.2 million for financing costs of new mortgage
Net cash provided by
operating activities $ 78,423 $ 55,669
Net cash used in
investing activities (46,873) (201,500)
Net cash provided by/used
in financing activities (31,740) 145,186
Decrease in cash
and cash equivalents $ (190 ) $ (645)
OPERATING ACTIVITIES
Net cash provided by operating activities increased $22.7 million
to $78.4 million for the year ended December 31, 2012 com-
pared to $55.7 million for the year ended December 31, 2011,
primarily reflecting the full year operating effect of properties
acquired in September 2011. Net cash provided by operating
activities represents, in each year, cash received primarily from
rental income, plus other income, less property operating ex-
penses, normal recurring general and administrative expenses
and interest payments on debt outstanding.
INVESTING ACTIVITIES
Net cash used in investing activities decreased $154.6 million to
$46.9 million for the year ended December 31, 2012 compared
to $201.5 million for the year ended December 31, 2011. In-
vesting activities in 2012 primarily reflect (a) the purchases of
1500 Rockville Pike and 5541 Nicholson Lane (b) tenant im-
provements and capital expenditures and (c) Clarendon Center
and Ashland Square Phase I development costs partially offset
by (d) proceeds from the sales of West Park and Belvedere and
(e) proceeds from casualty settlement. Investing activities for
2011 primarily reflect the purchase of Cranberry Square, Kent-
lands Square II and Severna Park MarketPlace and Clarendon
Center construction costs.
Tenant improvement and property capital expenditures totaled
$12.7 million and $11.6 million for 2012 and 2011, respectively.
FINANCING ACTIVITIES
Net cash used in financing activities was $31.7 million for the
year ended December 31, 2012. Net cash provided by financing
activities for the year ended December 31, 2011, was $145.2
million. Net cash used in financing activities for the year ended
December 31, 2012 primarily reflects:
loans;
which was partially offset by:
• proceeds received from one new and one modified mortgage
notes payable totaling $83.5 million;
• proceeds of $38.0 million from the revolving credit facility; and
• $27.8 million of proceeds received from the issuance of com-
mon stock under the dividend reinvestment program and from
the exercise of stock options.
Cash provided by financing activities for the year ended
December 31, 2011 primarily reflects:
• proceeds of $226.0 million received from mortgage notes
payable;
• proceeds of $60.0 million received from secured bridge financ-
ing loans;
• proceeds of $13.4 million received from construction loan
draws;
• proceeds of $16.0 million received from revolving credit facility
draws;
• proceeds of $55.8 million from an equity offering of common
stock and limited partnership units in the Operating Partner-
ship; and
• proceeds of $20.9 million from the issuance of common stock
under the dividend reinvestment program, directors deferred
plan and the exercise of stock options;
which was partially offset by:
• the repayment of mortgage notes payable totaling $22.7
million;
• the repayment of secured bridge financing loans totaling
$60.0 million;
• the repayment of construction loans payable totaling $104.2
million;
• the repayment of amounts borrowed under the revolving
credit facility of $8.0 million;
• distributions to common stockholders totaling $27.1 million;
• distributions to holders of convertible limited partnership units
in the Operating Partnership totaling $8.3 million;
• distributions made to preferred stockholders totaling $15.1
million; and
• payments of $1.4 million for financing costs of mortgage
notes payable.
16
SAUL CENTERS, INC.
2012 ANNUAL REPORT
17
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY REQUIREMENTS
Short-term liquidity requirements consist primarily of normal re-
curring operating expenses and capital expenditures, debt serv-
ice requirements (including debt service relating to additional
and replacement debt), distributions to common and preferred
stockholders, distributions to unit holders and amounts required
for expansion and renovation of the Current Portfolio Properties
and selective acquisition and development of additional proper-
ties. In order to qualify as a REIT for federal income tax purposes,
the Company must distribute to its stockholders at least 90% of
its “real estate investment trust taxable income,” as defined in
the Code. The Company expects to meet these short-term liq-
uidity requirements (other than amounts required for additional
property acquisitions and developments) through cash provided
from operations, available cash and its existing line of credit.
Long-term liquidity requirements consist primarily of obligations
under our long-term debt and dividends paid to our preferred
shareholders. We anticipate that long-term liquidity require-
ments will also include amounts required for property acquisi-
tions and developments. Management anticipates that during
the coming years the Company will commence activities related
to the redevelopment of Van Ness Square and the adjacent 4469
Connecticut Avenue and may redevelop certain of the Current
Portfolio Properties and may develop additional freestanding
outparcels or expansions within certain of the Shopping Centers.
Although not currently planned, it is possible that the Company
may redevelop additional Current Portfolio Properties and may
develop expansions within certain of the Shopping Centers.
Acquisition and development of properties are undertaken only
after careful analysis and review, and management’s determina-
tion that such properties are expected to provide long-term
earnings and cash flow growth.
During the coming year, developments, expansions or acquisi-
tions are expected to be funded with available cash, bank
borrowings from the Company’s credit line, construction and
permanent financing, proceeds from the operation of the
Company’s dividend reinvestment plan or other external debt or
equity capital resources available to the Company.
Any future borrowings may be at the Saul Centers, Operating
Partnership or Subsidiary Partnership level, and securities offer-
ings may include (subject to certain limitations) the issuance of
additional limited partnership interests in the Operating Partner-
ship which can be converted into shares of Saul Centers
common stock. The availability and terms of any such financing
will depend upon market and other conditions.
CONTRACTUAL PAYMENT OBLIGATIONS
As of December 31, 2012, the Company had unfunded contrac-
tual payment obligations of approximately $110.6 million,
excluding operating obligations, due within the next 12 months.
The table below shows the total contractual payment obligations
as of December 31, 2012.
Payments Due By Period
(Dollars in thousands) One Year or Less 2-3 Years 4-5 Years After 5 Years Total
CONTRACTUAL PAYMENT OBLIGATIONS
Notes Payable:
Interest $ 44,095 $ 81,751 $ 75,052 $ 185,757 $ 386,655
Scheduled Principal 19,212 39,886 43,369 148,817 251,284
Balloon Payments 37,305 28,295 38,000 472,892 576,492
Subtotal 100,612 149,932 156,421 807,466 1,214,431
Ground Leases (1) 176 352 352 9,538 10,418
Corporate Headquarters Lease (1) 818 1,711 1,045 – 3,574
Development Obligations 8,953 – – – 8,953
Total Contractual Obligations $ 110,559 $ 151,995 $ 157,818 $ 817,004 $1,237,376
(1) See Note 7 to Consolidated Financial Statements. Corporate Headquarters Lease amounts represent an allocation to the Company based
upon employees’ time dedicated to the Company’s business as specified in the Shared Services Agreement. Future amounts are subject to
change as the number of employees employed by each of the parties to the lease fluctuates.
Management believes that the Company’s cash flow from oper-
ations and its capital resources, which at December 31, 2012 in-
cluded cash balances of $12.1 million and borrowing availability
of approximately $136.8 million on its revolving line of credit,
will be sufficient to meet its contractual obligations for the
foreseeable future.
18
SAUL CENTERS, INC.
PREFERRED STOCK ISSUES
In November 2003, the Company sold 4,000,000 depositary
shares, each representing 1/100th of a share of 8% Series A Cu-
mulative Redeemable Preferred Stock. The depositary shares
may be redeemed at the Company’s option, in whole or in part
from time to time, at the $25.00 liquidation preference plus ac-
crued but unpaid dividends. The depositary shares pay an an-
nual dividend of $2.00 per share, equivalent to 8% of the
$25.00 liquidation preference. The Series A preferred stock has
no stated maturity, is not subject to any sinking fund or manda-
tory redemption and is not convertible into any other securities
of the Company. Investors in the depositary shares generally
have no voting rights, but will have limited voting rights if the
Company fails to pay dividends for six or more quarters (whether
or not declared or consecutive) and in certain other events. On
January 31, 2013, the Company issued a notice to redeem 60%
of the outstanding depositary shares at a price of $25.00 per
depositary share, plus accrued dividends. The redemption was
completed on March 2, 2013.
In March 2008, the Company sold, in an underwritten public of-
fering, 3,173,115 depositary shares, each representing 1/100th
of a share of 9% Series B Cumulative Redeemable Preferred
Stock, providing net cash proceeds of $76.3 million. The de-
positary shares may be redeemed at the Company’s option, in
whole or in part, at the $25.00 liquidation preference plus ac-
crued but unpaid dividends on or after March 15, 2013. The
depositary shares pay an annual dividend of $2.25 per share,
equivalent to 9% of the $25.00 liquidation preference. The first
dividend was paid on July 15, 2008 and covered the period from
March 27, 2008 through June 30, 2008. The Series B preferred
stock has no stated maturity, is not subject to any sinking fund
or mandatory redemption and is not convertible into any other
securities of the Company. Investors in the depositary shares
generally have no voting rights, but will have limited voting
rights if the Company fails to pay dividends for six or more quar-
ters (whether or not declared or consecutive) and in certain other
events. On February 12, 2013, the Company issued a notice to
redeem all of the outstanding depositary shares at a price of
$25.00 per depositary share, plus accrued dividends. The re-
demption date is March 15, 2013.
In February 2013, the Company sold, in an underwritten public
offering, 5.6 million depositary shares, each representing 1/100th
of a share of 6.875% Series C Cumulative Redeemable Preferred
Stock, providing net cash proceeds of approximately $135.0 mil-
lion. The depositary shares may be redeemed at the Company’s
option, in whole or in part, at the $25.00 liquidation preference
plus accrued but unpaid dividends on or after February 12, 2018.
The depositary shares pay an annual dividend of $1.71875 per
share, equivalent to 6.875% of the $25.00 liquidation prefer-
ence. The first dividend is scheduled to be paid on April 15, 2013
and covers the period from February 12, 2013 through March
31, 2013. The Series C preferred stock has no stated maturity, is
not subject to any sinking fund or mandatory redemption and is
not convertible into any other securities of the Company except
in connection with certain changes of control or delisting events.
Investors in the depositary shares generally have no voting rights,
but will have limited voting rights if the Company fails to pay div-
idends for six or more quarters (whether or not declared or con-
secutive) and in certain other events.
DIVIDEND REINVESTMENTS
In December 1995, the Company established a Dividend Rein-
vestment Plan (the “Plan”) to allow its common stockholders
and holders of limited partnership interests an opportunity to
buy additional shares of common stock by reinvesting all or a
portion of their dividends or distributions. The Plan provides for
investing in newly issued shares of common stock at a 3% dis-
count from market price without payment of any brokerage
commissions, service charges or other expenses. All expenses
of the Plan are paid by the Company. The Company issued
586,838 and 489,890 shares under the Plan at a weighted av-
erage discounted price of $38.85 and $39.64 per share during
the years ended December 31, 2012 and 2011, respectively. The
Company also credited 8,551 and 8,358 shares to directors pur-
suant to the reinvestment of dividends specified by the Directors’
Deferred Compensation Plan at a weighted average discounted
price of $38.76 and $39.94 per share, during the years ended
December 31, 2012 and 2011, respectively.
CAPITAL STRATEGY AND FINANCING ACTIVITY
As a general policy, the Company intends to maintain a ratio of its
total debt to total asset value of 50% or less and to actively man-
age the Company’s leverage and debt expense on an ongoing
basis in order to maintain prudent coverage of fixed charges. Asset
value is the aggregate fair market value of the Current Portfolio
Properties and any subsequently acquired properties as reasonably
determined by management by reference to the properties’ aggre-
gate cash flow. Given the Company’s current debt level, it is man-
agement’s belief that the ratio of the Company’s debt to total asset
value was below 50% as of December 31, 2012.
The organizational documents of the Company do not limit the
absolute amount or percentage of indebtedness that it may
incur. The Board of Directors may, from time to time, reevaluate
the Company’s debt capitalization policy in light of current eco-
nomic conditions, relative costs of capital, market values of the
Company property portfolio, opportunities for acquisition, de-
velopment or expansion, and such other factors as the Board of
Directors then deems relevant. The Board of Directors may mod-
ify the Company’s debt capitalization policy based on such a
reevaluation without shareholder approval and consequently,
may increase or decrease the Company’s debt to total asset ratio
above or below 50% or may waive the policy for certain periods
of time. The Company selectively continues to refinance or rene-
gotiate the terms of its outstanding debt in order to achieve
longer maturities, and obtain generally more favorable loan
terms, whenever management determines the financing envi-
ronment is favorable.
2012 ANNUAL REPORT
19
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a summary of notes payable as of December 31, 2012 and 2011:
NOTES PAYABLE
December 31, Interest Scheduled
(Dollars in thousands) 2012 2011 Rate * Maturity *
Fixed rate mortgages: $ – (a) 64,844 7.67% Oct-2012
– (b) 10,244 6.12% Jan-2013
– (c) 24,598 7.88% Jan-2013
15,750 (d) 16,032 4.67% Jun-2013
6,936 (e) 7,203 5.77% Jul-2013
13,875 (f) 14,335 5.40% May-2014
16,798 (g) 17,415 7.45% Jun-2015
34,373 (h) 35,435 6.01% Feb-2018
38,388 (i) 39,757 5.88% Jan-2019
12,418 (j) 12,860 5.76% May-2019
17,145 (k) 17,755 5.62% Jul-2019
17,040 (l) 17,627 5.79% Sep-2019
15,176 (m) 15,713 5.22% Jan-2020
11,421 (n) 11,670 5.60% May-2020
10,288 (o) 10,636 5.30% Jun-2020
43,424 (p) 44,333 5.83% Jul-2020
8,934 (q) 9,204 5.81% Feb-2021
6,359 (r) 6,477 6.01% Aug-2021
36,699 (s) 37,377 5.62% Jun-2022
11,129 (t) 11,317 6.08% Sep-2022
11,989 (u) 12,172 6.43% Apr-2023
16,247 (v) 16,858 6.28% Feb-2024
17,469 (w) 17,791 7.35% Jun-2024
15,140 (x) 15,409 7.60% Jun-2024
26,635 (y) 16,494 7.02% Jul-2024
31,709 (z) 32,281 7.45% Jul-2024
31,490 (aa) 32,044 7.30% Jan-2025
16,419 (bb) 16,731 6.18% Jan-2026
120,822 (cc) 123,372 5.31% Apr-2026
36,986 (dd) 37,858 4.30% Oct-2026
41,970 (ee) 42,923 4.53% Nov-2026
19,569 (ff) 20,000 4.70% Dec-2026
72,233 (gg) – 5.84% May-2027
Total fixed rate 774,831 808,765 5.82% 10.0 Years
Variable rate loans:
Revolving credit facility 38,000 (hh) 8,000 LIBOR + 1.90% May-2016
Northrock bank term loan 14,945 (ii) 15,106 LIBOR + 3.00% May-2013
Total variable rate 52,945 23,106 2.80% 3.4 Years
Total notes payable $ 827,776 $ 831,871 5.77% 9.7 Years
* Interest rate and scheduled maturity data presented as of December 31, 2012. Totals computed using weighted averages.
(a) The loan was collateralized by seven shopping centers (Seven Cor-
ners, White Oak, Hampshire Langley, Great Eastern, Southside Plaza,
Belvedere and Giant) and required equal monthly principal and in-
terest payments of $734,000 based upon a 25-year amortization
schedule and a final payment of $62.0 million at loan maturity. The
loan was repaid in full in 2012.
(c)
(b) The loan was collateralized by Smallwood Village Center and re-
quired equal monthly principal and interest payments of $71,000
based upon a 30-year amortization schedule and a final payment of
$10.1 million at loan maturity. The loan was repaid in full in 2012.
The loan was collateralized by 601 Pennsylvania Avenue and re-
quired equal monthly principal and interest payments of $294,000
based upon a 25-year amortization schedule and a final payment of
$23.0 million at loan maturity. The loan was repaid in full in 2012.
(d) The loan, together with a corresponding interest-rate swap, was as-
sumed with the December 17, 2010 acquisition of, and is collater-
alized by, Metro Pike Center. On a combined basis, the loan and the
swap required interest only payments of $63,000 until August 1,
2011, then equal monthly payments of $86,000 based upon a 25-
year amortization schedule and a final payment of $15.6 million at
loan maturity. Principal of $282,000 was amortized during 2012.
(e) The loan is collateralized by Cruse MarketPlace and requires equal
monthly principal and interest payments of $56,000 based upon an
amortization schedule of approximately 24 years and a final pay-
ment of $6.8 million at loan maturity. Principal of $267,000 was
amortized during 2012.
The loan is collateralized by Seabreeze Plaza and requires equal
monthly principal and interest payments totaling $102,000 based
upon a weighted average 26-year amortization schedule and a final
payment of $13.3 million is due at loan maturity. Principal of
$460,000 was amortized during 2012.
(f)
(g) The loan is collateralized by Shops at Fairfax and Boulevard shopping
centers and requires equal monthly principal and interest payments
totaling $156,000 based upon a weighted average 23-year amorti-
zation schedule and a final payment of $15.2 million is due at loan
maturity. Principal of $617,000 was amortized during 2012.
(h) The loan is collateralized by Washington Square and requires equal
monthly principal and interest payments of $264,000 based upon a
27.5-year amortization schedule and a final payment of $28.0 million
at loan maturity. Principal of $1.1 million was amortized during 2012.
The loan is collateralized by three shopping centers, Broadlands Vil-
lage, The Glen and Kentlands Square I, and requires equal monthly
principal and interest payments of $306,000 based upon a 25-year
amortization schedule and a final payment of $28.4 million at loan
maturity. Principal of $1.4 million was amortized during 2012.
The loan is collateralized by Olde Forte Village and requires equal
monthly principal and interest payments of $98,000 based upon a
25-year amortization schedule and a final payment of $9.0 million
at loan maturity. Principal of $442,000 was amortized during 2012.
(j)
(i)
(l)
(k) The loan is collateralized by Countryside and requires equal monthly
principal and interest payments of $133,000 based upon a 25-year
amortization schedule and a final payment of $12.3 million at loan
maturity. Principal of $610,000 was amortized during 2012.
The loan is collateralized by Briggs Chaney MarketPlace and requires
equal monthly principal and interest payments of $133,000 based
upon a 25-year amortization schedule and a final payment of $12.2
million at loan maturity. Principal of $587,000 was amortized during
2012.
(m) The loan is collateralized by Shops at Monocacy and requires equal
monthly principal and interest payments of $112,000 based upon a
25-year amortization schedule and a final payment of $10.6 million
at loan maturity. Principal of $537,000 was amortized during 2012.
(n) The loan is collateralized by Boca Valley Plaza and requires equal
monthly principal and interest payments of $75,000 based upon a
30-year amortization schedule and a final payment of $9.1 million
at loan maturity. Principal of $249,000 was amortized during 2012.
(o) The loan is collateralized by Palm Springs Center and requires equal
monthly principal and interest payments of $75,000 based upon a
25-year amortization schedule and a final payment of $7.1 million
at loan maturity. Principal of $348,000 was amortized during 2012.
(p) The loan and a corresponding interest-rate swap closed on June 29,
2010 and are collateralized by Thruway. On a combined basis, the
loan and the interest-rate swap require equal monthly principal and
interest payments of $289,000 based upon a 25-year amortization
schedule and a final payment of $34.8 million at loan maturity. Prin-
cipal of $909,000 was amortized during 2012.
(t)
(r)
(s)
(q) The loan is collateralized by Jamestown Place and requires equal
monthly principal and interest payments of $66,000 based upon a
25-year amortization schedule and a final payment of $6.1 million
at loan maturity. Principal of $270,000 was amortized during 2012.
The loan is collateralized by Hunt Club Corners and requires equal
monthly principal and interest payments of $42,000 based upon a
30-year amortization schedule and a final payment of $5.0 million,
at loan maturity. Principal of $118,000 was amortized during 2012.
The loan is collateralized by Lansdowne Town Center and requires
monthly principal and interest payments of $230,000 based on a
30-year amortization schedule and a final payment of $28.2 million
at loan maturity. Principal of $678,000 was amortized during 2012.
The loan is collateralized by Orchard Park and requires equal monthly
principal and interest payments of $73,000 based upon a 30-year
amortization schedule and a final payment of $8.6 million at loan
maturity. Principal of $188,000 was amortized during 2012.
(u) The loan is collateralized by BJ’s Wholesale and requires equal
monthly principal and interest payments of $80,000 based upon a
30-year amortization schedule and a final payment of $9.3 million
at loan maturity. Principal of $183,000 was amortized during 2012.
(v) The loan is collateralized by Great Falls shopping center. The loan
consists of three notes which require equal monthly principal and
interest payments of $138,000 based upon a weighted average 26-
year amortization schedule and a final payment of $6.3 million at
maturity. Principal of $611,000 was amortized during 2012.
(w) The loan is collateralized by Leesburg Pike and requires equal
monthly principal and interest payments of $135,000 based upon a
25-year amortization schedule and a final payment of $11.5 million
at loan maturity. Principal of $322,000 was amortized during 2012.
The loan is collateralized by Village Center and requires equal
monthly principal and interest payments of $119,000 based upon a
25-year amortization schedule and a final payment of $10.1 million
at loan maturity. Principal of $269,000 was amortized during 2012.
The loan is collateralized by White Oak and requires equal monthly
principal and interest payments of $193,000 based upon a 24.4 year
weighted amortization schedule and a final payment of $18.5 mil-
lion at loan maturity. The loan was previously collateralized by Van
Ness Square. During 2012, the Company substituted White Oak as
the collateral and borrowed an additional $10.5 million. Principal
of $359,000 was amortized during 2012.
The loan is collateralized by Avenel Business Park and requires equal
monthly principal and interest payments of $246,000 based upon a
25-year amortization schedule and a final payment of $20.9 million
at loan maturity. Principal of $572,000 was amortized during 2012.
(aa) The loan is collateralized by Ashburn Village and requires equal
monthly principal and interest payments of $240,000 based upon a
25-year amortization schedule and a final payment of $20.5 million
at loan maturity. Principal of $554,000 was amortized during 2012.
(y)
(z)
(x)
20
SAUL CENTERS, INC.
2012 ANNUAL REPORT
21
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(bb) The loan is collateralized by Ravenwood and requires equal monthly
principal and interest payments of $111,000 based upon a 25-year
amortization schedule and a final payment of $10.1 million at loan
maturity. Principal of $312,000 was amortized during 2012.
(cc) The loan is collateralized by Clarendon Center and requires equal
monthly principal and interest payments of $753,000 based upon a
25-year amortization schedule and a final payment of $70.5 million
at loan maturity. Principal of $2.6 million was amortized during
2012.
(dd) The loan is collateralized by Severna Park MarketPlace and requires
equal monthly principal and interest payments of $207,000 based
upon a 25-year amortization schedule and a final payment of $20.3
million at loan maturity. Principal of $872,000 was amortized during
2012.
(ee) The loan is collateralized by Kentlands Square II and requires equal
monthly principal and interest payments of $240,000 based upon a
25-year amortization schedule and a final payment of $23.1 million
at loan maturity. Principal of $953,000 was amortized during 2012.
(ff) The loan is collateralized by Cranberry Square and requires equal
monthly principal and interest payments of $113,000 based upon a
25-year amortization schedule and a final payment of $10.9 million
at loan maturity. Principal of $431,000 was amortized during 2012.
(gg) The loan in the original amount of $73.0 million closed in May 2012,
is collateralized by Seven Corners and requires equal monthly prin-
cipal and interest payments of $463,200 based upon a 25-year
amortization schedule and a final payment of $42.3 million at loan
maturity. Principal of $767,000 was amortized during 2012.
(hh)The loan is a $175.0 million unsecured revolving credit facility. In-
terest accrues at a rate equal to the sum of one-month LIBOR plus
a spread of 1.90 %. The line may be extended at the Company’s
option for one year with payment of a fee of 0.20%. Monthly pay-
ments, if required, are interest only and vary depending upon the
amount outstanding and the applicable interest rate for any given
month.
The loan is collateralized by Northrock and requires monthly principal
and interest payments of $13,409 and a final payment of $14.9 mil-
lion at maturity. Principal of $161,000 was amortized during 2012.
(ii)
The carrying value of properties collateralizing the mortgage
notes payable totaled $916.1 million and $997.5 million as of
December 31, 2012 and 2011, respectively. The Company’s
credit facility requires the Company and its subsidiaries to main-
tain certain financial covenants, which are summarized below.
As of December 31, 2012, the Company was in compliance with
all such covenants:
• maintain tangible net worth, as defined in the loan agree-
ment, of at least $503.3 million plus 80% of the Company’s
net equity proceeds received after May 2012;
• limit the amount of debt as a percentage of gross asset value,
as defined in the loan agreement, to less than 60% (leverage
ratio);
• limit the amount of debt so that interest coverage will exceed
2.0x on a trailing four-quarter basis (interest expense coverage);
• limit the amount of debt so that interest, scheduled principal
amortization and preferred dividend coverage exceeds 1.3x
on a trailing four-quarter basis (fixed charge coverage); and
• limit the amount of variable rate debt and debt with initial
loan terms of less than five years to no more than 40% of
total debt.
2013 FINANCING ACTIVITY
On February 27, 2013, the Company closed on a three-year
$15.6 million mortgage loan secured by Metro Pike Center. The
loan matures in 2016, bears interest at a variable rate equal to
the sum of one-month LIBOR and 165 basis points, requires
monthly principal and interest payments based on a 25-year
amortization schedule and requires a final payment of $14.7
million at maturity. The loan may be extended for up to two-
years. Proceeds were used to pay-off the $15.9 million remain-
ing balance of existing debt secured by Metro Pike Center, and
to extinguish the related swap agreement, which were sched-
uled to mature in June 2013.
22
SAUL CENTERS, INC.
On February 27, 2013, the Company closed on a three-year $15.0
million mortgage loan secured by Northrock. The loan matures
in 2016, bears interest at a variable rate equal to the sum of one-
month LIBOR and 165 basis points, requires monthly principal and
interest payments based on a 25-year amortization schedule and
requires a final payment of $14.2 million at maturity. The loan
may be extended for up to two years. Proceeds were used to pay-
off the $15.0 million remaining balance of existing debt secured
by Northrock, which was scheduled to mature in May 2013.
2012 FINANCING ACTIVITY
On April 11, 2012, the Company closed on a 15-year non-re-
course mortgage loan in the amount of $73.0 million secured
by Seven Corners shopping center. The loan matures in May
2027, bears interest at a fixed rate of 5.84%, requires equal
monthly principal and interest payments totaling $463,226
based upon a 25-year amortization schedule and a final payment
of $42.5 million at maturity. Proceeds from the loan were used
to pay-off the $63 million remaining balance of existing debt se-
cured by Seven Corners and six other Shopping Center proper-
ties, which was scheduled to mature in October 2012, and to
provide cash of approximately $10 million.
On April 26, 2012, the Company substituted the White Oak
shopping center for Van Ness Square as collateral for one of its
existing mortgage loans which will allow the Company to ana-
lyze the feasibility of repositioning Van Ness Square. The terms
of the original loan, including its 8.11% interest rate, are un-
changed and, in conjunction with the collateral substitution, the
Company borrowed an additional $10.5 million, also secured by
White Oak. The new borrowing requires equal monthly pay-
ments based upon a fixed 4.90% interest rate and 25-year
amortization schedule, and will mature in July 2024, contermi-
nously with the original loan. The consolidated loan requires
equal monthly payments based upon a blended fixed interest
rate of 7.0% and will require a final payment of $18.5 million
at maturity.
On May 21, 2012, the Company replaced its existing unsecured
revolving credit facility with a new $175.0 million facility that ex-
pires on May 20, 2016. The facility, which provides working cap-
ital and funds for acquisitions, certain developments,
redevelopments and letters of credit, may be extended for one
year, at the Company’s option, subject to the satisfaction of cer-
tain conditions. Loans under the facility bear interest at a rate
equal to the sum of LIBOR and a margin, based on the Com-
pany’s leverage ratio, ranging from 160 basis points to 250 basis
points. Based on the leverage ratio of December 31, 2012, the
margin was 190 basis points.
2011 FINANCING ACTIVITY
On March 23, 2011, the Company closed on a 15-year non-re-
course mortgage loan in the amount of $125.0 million, secured
by Clarendon Center. The loan matures April 5, 2026, bears in-
terest at a fixed rate of 5.31%, requires equal monthly principal
and interest payments of $753,000, based upon a 25-year amor-
tization schedule, and requires a final principal payment of ap-
proximately $70.5 million at maturity. Proceeds from the loan
were used to repay $104.2 million outstanding on the Clarendon
Center construction loan.
On September 23, 2011, the Company closed on a 15-year non-
recourse mortgage loan in the amount of $38.0 million, secured
by Severna Park MarketPlace. The loan matures October 1,
2026, bears interest at a fixed rate of 4.30%, requires equal
monthly principal and interest payments of $207,000, based
upon a 25-year amortization schedule, and requires a final prin-
cipal payment of approximately $20.3 million at maturity. Pro-
ceeds from the loan were used to purchase Severna Park
MarketPlace.
Also on September 23, 2011, the Company closed on two six-
month bridge financing loans in the total amount of $60.0 mil-
lion, secured by Kentlands Square II and Cranberry Square.
Proceeds from the loans were used to purchase Kentlands
Square II and Cranberry Square.
On October 5, 2011, the Company closed on a new 15-year
non-recourse mortgage loan in the amount of $43.0 million, se-
cured by Kentlands Square II. The loan matures November 5,
2026, bears interest at a fixed rate of 4.53%, requires equal
monthly principal and interest payments of $240,000, based
upon a 25-year principal amortization, and requires a final
principal payment of approximately $23.1 million at maturity.
Proceeds from the loan were used to repay the $40.0 million
bridge financing used to acquire Kentlands Square II.
On November 6, 2011, the Company closed on a new 15-year
non-recourse mortgage loan in the amount of $20.0 million, se-
cured by Cranberry Square. The loan matures December 1,
2026, bears interest at a fixed rate of 4.70%, requires equal
monthly principal and interest payments of $113,000, based
upon a 25-year principal amortization, and requires a final prin-
cipal payment of approximately $10.9 million at maturity.
Proceeds from the loan were used to repay the $20.0 million
bridge financing used to acquire Cranberry Square.
2010 FINANCING ACTIVITY
On June 29, 2010, the Company closed on a new 10-year mort-
gage loan in the amount of $45.6 million, secured by Thruway.
The loan matures July 1, 2020, and bears interest at a variable
rate equal to the sum of one-month LIBOR and 260 basis points.
In conjunction with the financing, the Company entered into an
interest rate swap agreement with a $45.6 million notional
amount to manage the interest rate risk associated with the
above $45.6 million of variable-rate mortgage debt. The swap
agreement was effective June 29, 2010, terminates on July 1,
2020 and effectively fixes the interest rate on the mortgage debt
at 5.83%. The Company has designated this agreement as a
cash flow hedge for accounting purposes. The Company rec-
ognizes interest expense on the combined variable-rate debt and
the interest-rate swap at the effective fixed rate of 5.83%. On
a combined basis, the loan and the interest-rate swap require
equal monthly principal and interest payments of approximately
$289,000, based upon an assumed interest rate of 5.83% and
a 25-year principal amortization, and requires a final principal
payment of approximately $34.8 million at maturity.
Prior to the refinancing, Thruway was one of nine properties se-
curing debt included in a collateralized mortgage-backed secu-
rity (CMBS) with an outstanding balance of $108.3 million, an
interest rate of 7.67% and due to mature October 2012. In
order to release Thruway, the Company defeased $30.2 million
of the outstanding balance at a cost of approximately $4.4 mil-
lion, using proceeds from the new mortgage financing.
On August 24, 2010, the Company entered into an amendment
to its Northrock construction loan to provide an option to extend
the loan for two years. The extension is available at the Com-
pany’s option subject to notice to the bank, and to a principal
repayment in an amount required to cause property operating
income to meet certain debt service coverage levels.
On December 9, 2010, the Company closed on a new 15-year,
fixed-rate mortgage loan in the amount of $17.0 million secured
by Ravenwood. The loan matures January 2026, requires
monthly interest and principal payments of approximately
$111,000 based upon a fixed interest rate of 6.18% and a 25-
year principal amortization and requires a final principal payment
of approximately $10.1 million at maturity.
Prior to the refinancing, Ravenwood was one of eight remaining
properties securing debt included in a CMBS with an outstand-
ing balance of $76.3 million, an interest rate of 7.67% and due
to mature October 2012. In order to release Ravenwood, the
Company defeased $7.8 million of the outstanding balance at a
cost of approximately $900,000, using proceeds from the new
mortgage financing.
On December 17, 2010, the Company purchased Metro Pike
Center, a 67,000 square foot retail property located in Rockville,
Maryland. In conjunction with the acquisition, the Company
2012 ANNUAL REPORT
23
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
assumed a mortgage loan with a principal balance of $16.2 mil-
lion. The loan matures June 30, 2013, bears interest at a variable
rate equal to the sum of one-month LIBOR and 245 basis points.
In conjunction with the loan assumption, the Company assumed
a corresponding interest rate swap agreement with a $16.2 mil-
lion notional amount to manage the interest rate risk associated
with the variable-rate mortgage debt. The swap agreement was
effective at closing, terminates on June 30, 2013 and effectively
fixes the interest rate on the mortgage debt at 4.67%. On a com-
bined basis, the loan and the interest-rate swap require interest-
only payments of approximately $63,000 until August 1, 2011,
followed by equal monthly principal and interest payments of ap-
proximately $86,000 based upon a 25-year amortization sched-
ule and a final payment of $15.6 million at loan maturity.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements that are
reasonably likely to have a current or future material effect on
the Company's financial condition, revenue or expenses, results
of operations, liquidity, capital expenditures or capital resources.
FUNDS FROM OPERATIONS
In 2012, the Company reported Funds From Operations (FFO)
available to common shareholders (common stockholders and lim-
ited partner unitholders) of $60.1 million, a 19.5% increase from
2011 FFO available to common shareholders of $50.3 million. The
following table presents a reconciliation from net income to FFO
available to common shareholders for the periods indicated:
FUNDS FROM OPERATIONS
The following table presents a reconciliation from net income to FFO available to common shareholders for the periods indicated:
For the Year Ended December 31,
(Dollars in thousands) 2012 2011 2010 2009 2008
Net income $ 39,780 $ 30,294 $ 43,185 $ 43,230 $ 47,666
Subtract:
Gain on property sales (4,510) – (3,591) – –
Gain on casualty settlement (219) (245) (2,475) (329) (1,301)
Add:
Real estate depreciation – discontinued operations 77 102 198 203 213
Real estate depreciation and amortization 40,112 35,298 28,379 28,061 29,570
FFO 75,240 65,449 65,696 71,165 76,148
Subtract:
Preferred dividends (15,140) (15,140) (15,140) (15,140) (13,453)
FFO available to common shareholders $ 60,100 $ 50,309 $ 50,556 $ 56,025 $ 62,695
Average shares and units used to
compute FFO per share 26,614 24,740 23,793 23,359 23,377
FFP per share $ 2.26 $ 2.03 $ 2.12 $ 2.40 $ 2.68
1 The National Association of Real Estate Investment Trusts (NAREIT) developed FFO as a relative non-GAAP financial measure of performance
of an equity REIT in order to recognize that income-producing real estate historically has not depreciated on the basis determined under GAAP.
FFO is defined by NAREIT as net income, computed in accordance with GAAP, plus real estate depreciation and amortization, and excluding ex-
traordinary items, impairment charges on depreciable real estate assets and gains or losses from property dispositions. FFO does not represent
cash generated from operating activities in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs, which
is disclosed in the Company’s Consolidated Statements of Cash Flows for the applicable periods. There are no material legal or functional re-
strictions on the use of FFO. FFO should not be considered as an alternative to net income, its most directly comparable GAAP measure, as a
indicator of the Company’s operating performance, or as an alternative to cash flows as a measure of liquidity. Management considers FFO a
meaningful supplemental measure of operating performance because it primarily excludes the assumption that the value of the real estate
assets diminishes predictably over time (i.e. depreciation), which is contrary to what we believe occurs with our assets, and because industry an-
alysts have accepted it as a performance measure. FFO may not be comparable to similarly titled measures employed by other REITs.
ACQUISITIONS, REDEVELOPMENTS
AND RENOVATIONS
Management anticipates that during the coming year the Com-
pany will commence activities related to the redevelopment of
Van Ness Square and the adjacent 4469 Connecticut Avenue
and may develop additional freestanding outparcels or expan-
sions within certain of the Shopping Centers. Although not cur-
rently planned, it is possible that the Company may redevelop
additional Current Portfolio Properties and may develop expan-
sions within certain of the Shopping Centers. Acquisition and
development of properties are undertaken only after careful
analysis and review, and management’s determination that such
properties are expected to provide long-term earnings and cash
flow growth. During the coming year, any developments, expan-
sions or acquisitions are expected to be funded with borrowings
from the Company’s credit line, construction financing, proceeds
from the operation of the Company’s dividend reinvestment plan
or other external capital resources available to the Company.
The Company has been selectively involved in acquisition, de-
velopment, redevelopment and renovation activities. It continues
to evaluate the acquisition of land parcels for retail and office
development and acquisitions of operating properties for oppor-
tunities to enhance operating income and cash flow growth. The
following describes the acquisitions, developments, redevelop-
ments and renovations which affected the Company’s financial
position and results of operations in 2012, 2011, and 2010.
ASHLAND SQUARE PHASE I
On December 15, 2004, the Company purchased for $6.3 mil-
lion, a 19.3 acre parcel of land in Manassas, Prince William
County, Virginia. The Company has an approved site plan to de-
velop a grocery-anchored neighborhood shopping center total-
ing approximately 160,000 square feet. Capital One Bank
operates a branch on the site and the Company previously exe-
cuted a lease with CVS. During 2012, the Company completed
the site work for two pads, constructed a 6,500 square foot
building that has been leased to a restaurant and CVS con-
structed a 13,000 square foot pharmacy building. Both facilities
have opened for business, and the cost to the Company was ap-
proximately $3.0 million. The balance of the center is being mar-
keted to grocers and other retail businesses, with a development
timetable yet to be finalized.
CLARENDON CENTER
In late 2010, the Company substantially completed construction
of a mixed-use project which includes approximately 42,000
square feet of retail space, 171,000 square feet of office space,
244 apartments and 600 underground parking spaces, on two
city blocks, adjacent to the Clarendon Metro Station in Arlington
County, Virginia. Development costs are expected to total ap-
proximately $195.0 million upon the completion of final office
tenant improvements which are expected to total approximately
$2.9 million. As of December 31, 2012, 208,900 square feet
(97.9%) of the commercial space (comprising of all of the retail
space and 167,200 square feet (97.4%) of the office space) as
well as 244 apartments (100.0%), were leased.
SEVEN CORNERS
During 2010, the Company expanded the Seven Corners shop-
ping center by approximately 6,000 square feet. Red Robin
Gourmet Burgers opened in November 2010 in a newly-con-
structed, free-standing building. The Company also completed
construction of parking lot, landscaping and site lighting im-
provements to enhance the common areas.
11503 ROCKVILLE PIKE
On October 1, 2010, the Company purchased for $15.6 million,
including acquisition costs, approximately 20,000 square feet of
retail space located on the east side of Rockville Pike (Route 355),
near the White Flint Metro Station in Montgomery County, Mary-
land. The property, which was fully leased to two tenants at De-
cember 31, 2012, is zoned for up to 297,000 square feet of
rentable mixed use space. The Company intends to redevelop
the property but has not committed to any redevelopment plan
or time table.
METRO PIKE CENTER
On December 17, 2010, the Company purchased for $34.3 mil-
lion, including acquisition costs, approximately 67,000 square
feet of retail space located on the west side of Rockville Pike
(Route 355) near the White Flint Metro Station in Montgomery
County, Maryland. The property was acquired subject to the as-
sumption of a $16.2 million mortgage loan and a corresponding
interest rate swap with a fair value of $0.5 million. The property,
which was 83.6% leased to multiple tenants at December 31,
2012, is zoned for up to 807,000 square feet of rentable mixed
use space. The Company does not anticipate redeveloping the
property in the foreseeable future.
4469 CONNECTICUT AVENUE
On February 17, 2011, the Company purchased for $1.7 million,
including acquisition costs, approximately 3,000 square feet of
retail space located adjacent to the Company’s Van Ness Square
in Washington D.C. The property is unoccupied and will be in-
cluded in the project to redevelop Van Ness Square.
KENTLANDS SQUARE II
On September 23, 2011, the Company purchased for $74.5 mil-
lion Kentlands Square II, and incurred acquisition costs of $1.1
million. Kentlands Square II is a 241,000 square foot neighbor-
hood shopping center located in Gaithersburg, Maryland, in
Montgomery County, the state’s most populous and affluent
county. More than 38,000 households, with annual household
incomes averaging over $114,000, are located within a three-
mile radius of the center. As of December 31, 2012, the center
was 95.8% leased and anchored by a 61,000 square foot Giant
Food supermarket and a 104,000 square foot Kmart. The prop-
erty is adjacent to the Company’s Kentlands Square I, which is
anchored by Lowe’s Home Improvement and Kentlands Place.
SEVERNA PARK MARKETPLACE
On September 23, 2011, the Company purchased for $61.0 mil-
lion Severna Park MarketPlace, and incurred acquisition costs of
$0.8 million. Severna Park MarketPlace is a 254,000 square foot
neighborhood shopping center located in Severna Park, Mary-
land, in Anne Arundel County. More than 15,000 households,
with annual household incomes averaging over $112,000, are
located within a three-mile radius of the center. As of December
31, 2012, the center was 100% leased and anchored by a
63,000 square foot Giant Food supermarket and a 92,000
square foot Kohl’s.
24
SAUL CENTERS, INC.
2012 ANNUAL REPORT
25
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CRANBERRY SQUARE
On September 23, 2011, the Company purchased for $33.0 mil-
lion Cranberry Square, and incurred acquisition costs of $0.5 mil-
lion. Cranberry Square is a 140,000 square foot neighborhood
shopping center located in Westminster, Maryland, in Carroll
County. More than 12,000 households, with annual household
incomes averaging over $72,000, are located within a three-mile
radius of the center. As of December 31, 2012, the center was
92.2% leased and anchored by a 56,000 square foot Giant Food
supermarket and a 24,000 square foot Staples.
1500 ROCKVILLE PIKE
In December 2012, the Company purchased for $23.0 million,
including acquisition costs, approximately 52,700 square feet of
retail space located on the east side of Rockville Pike near the
Twinbrook Metro Station. The property, which was 90.5%
leased to multiple tenants at December 31, 2012, is zoned for
up to 745,000 square feet of rentable mixed-use space. The
Company intends to redevelop the site but has not committed
to any redevelopment plan or time table.
5541 NICHOLSON LANE
In December 2012, the Company purchased for $12.2 million,
including acquisition costs, approximately 20,100 square feet of
mixed-use space, which was 40.5% leased to multiple tenants,
located on the east side of Rockville Pike and adjacent to 11503
Rockville Pike, which was purchased in 2010. The property,
when combined with 11503 Rockville Pike, will provide zoning
for up to 331,000 square feet of rentable mixed-use space for a
total development potential of up to 622,000 square feet. The
Company intends to redevelop the site but has not committed
to any redevelopment plan or time table.
VAN NESS SQUARE
The Company recently completed negotiation of lease termina-
tion agreements with the tenants of Van Ness Square and ex-
pects the building will be vacant on or about April 30, 2013.
Costs incurred related to those termination arrangements are
being amortized to expense using the straight-line method over
the remaining terms of the leases, are included in “Predevelop-
ment Expenses” in the Consolidated Statements of Operations,
totaled $2.7 million in 2012 and are expected to total approxi-
mately $3.3 million over the first two quarters of 2013. The
Company intends to develop a primarily residential project with
street-level retail and will recognize additional predevelopment
expenses in future periods when the existing improvements of
Van Ness Square and the adjacent 4469 Connecticut Avenue are
demolished, the timing of which is uncertain and dependent on
the issuance of various governmental approvals and permits.
PROPERTY SALES
WEST PARK
On July 25, 2012, the Company sold for $2.0 million the 77,000
square foot West Park shopping center in Oklahoma City, Okla-
homa and recorded a $1.1 million gain. As of June 30, 2012,
West Park was 11.7% leased and the carrying amounts of the
associated assets and liabilities were $1.0 million and $207,000,
respectively. There was no debt associated with the property.
BELVEDERE
In December 2012, the Company sold for $4.0 million, the
54,900 square foot Belvedere shopping center in Baltimore,
Maryland and recorded a $3.4 million gain. As of September 30,
2012, Belvedere was 34% leased and the carrying amounts of
the associated assets and liabilities were $488,000 and $22,000,
respectively. There was no debt associated with the property.
PORTFOLIO LEASING STATUS
The following chart sets forth certain information regarding commercial leases at our properties for the periods indicated.
Total Properties Total Square Footage Percentage Leased
As of December 31, Shopping Centers Mixed-Use Shopping Centers Mixed-Use Shopping Centers Mixed-Use
2012 50 7 7,877,200 1,612,200 93.4% 82.8%
2011 51 7 7,930,000 1,610,400 90.8% 85.8%
2010 48 6 7,293,000 1,608,000 92.0% 81.5%
The 2012 shopping center leasing percentages include 1500
Rockville Pike and 5541 Nicholson Lane, which were acquired in
December 2012, and exclude West Park and Belvedere, which
were sold during 2012. The 2012 mixed-use leasing percent-
ages include Clarendon Center commercial area, which was
97.9% leased at December 31, 2012. The Clarendon Center
residential component was 100% leased at December 31, 2012.
On a same property basis, which excludes the impact of proper-
ties not in operation for the entirety of the comparable periods,
Shopping Center leasing percentages increased to 93.5% from
91.6% and Mixed-Use leasing percentages decreased to 82.8%
from 85.8%. The overall portfolio leasing percentage, on a com-
parative same center basis, ended the year at 91.9%, an increase
from 90.7% at yearend 2011. The 2012 shopping center leas-
ing percentages were impacted by a net increase of approxi-
mately 151,000 square feet of leased space, the majority of
which resulted from the leasing of space vacated by major ten-
ants during 2011. The 2012 mixed-use leasing percentages
were adversely impacted by a net decrease of approximately
44,000 square feet of leased space, the majority of which
resulted from the early termination of leases at Van Ness Square
in preparation for redevelopment.
The 2011 shopping center percentages leased included three
centers acquired September 23, 2011, Kentlands Square II (100%
leased), Severna Park MarketPlace (100% leased) and Cranberry
Square (91% leased). The 2011 and 2010 mixed-use percentages
include Clarendon Center commercial area, which was 92.4%
and 58.6% leased at December 31, 2011 and 2010, respectively.
The Clarendon Center residential component was 100% and
43.9% leased at December 31, 2011 and 2010, respectively. On
a same property basis, shopping center leasing percentages de-
creased to 90.2% from 92.0% and mixed-use leasing percent-
ages decreased to 84.9% from 85.5%. Overall portfolio leasing
percentage, on a comparative same center basis, ended the year
at 89.4%, a decrease from 91.1% at year end 2010. The 2011
commercial leasing percentages were adversely impacted by a
net decrease of approximately 140,000 square feet of leased
space, of which approximately 98,000 square feet was caused
by the Syms, SuperFresh and Borders Books bankruptcies and the
balance resulting from the early lease termination of a local gro-
cer. As of March 1, 2012, a total of 61,000 square feet of these
four vacant spaces had been leased.
The 2010 shopping center percentage leased included recently
constructed but not yet fully leased Northrock and Westview Vil-
lage, which were 72.3% and 36.1% leased as of December 31,
2010, respectively. On a same property basis, shopping center
leasing percentages increased to 93.1% from 93.0%. The 2010
mixed-use percentage leased included Clarendon Center, whose
construction was substantially completed at year end 2010 and
whose residential component was 43.9% leased and office and
retail component was 58.6% leased as of December 31, 2010.
Including Clarendon Center, overall mixed-use property leasing
percentages decreased to 81.5% from 90.6%. On a compara-
tive same property basis, overall property leasing ended the year
at 92.0%, a decrease from 92.7% at year end 2009, a space
leased reduction of approximately 55,000 square feet. Shopping
center same property leasing was 93.1% and 93.0%, and
mixed-use same property leasing was 85.5% and 90.5%, as of
December 31, 2010 and 2009, respectively.
The following table shows selected dates for leases executed in
the indicated periods. The information is based on executed
leases without adjustment for the timing of occupancy, tenant
defaults, or landlord concessions. The base rent for an expiring
lease is the annualized contractual base rent, on a cash basis, as
of the expiration date of the lease. The base rent for a new or
renewed lease is the annualized contractual base rent, on a cash
basis, as of the expected rent commencement date. Because
tenants that execute leases may not ultimately take possession
of their space or pay all of their contractual rent, the changes
presented in the table provide information only about trends in
market rental rates. The actual changes in rental income re-
ceived by the Company may be different.
Year Ended
December 31,
2012
2011
2010
Square
Feet
1,579,000
1,178,000
1,336,000
Number
of Leases
256
245
253
Base Rent per Square Foot
New/Renewed
Leases
$
16.39
15.21
13.19
$
Expiring
Leases
16.30
16.41
14.62
During 2012, the Company entered into 216 new or renewed
apartment leases. The monthly rent per square foot for these
leases increased to $3.31 from $3.11.
MANAGEMENT’S REPORT on Internal Control Over Financial Reporting
ASSESSMENT OF EFFECTIVENESS OF INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining
adequate internal control over financial reporting. Manage-
ment used the criteria issued by the Committee of Sponsor-
ing Organizations of the Treadway Commission in Internal
Control - Integrated Framework to assess the effectiveness
of the Company’s internal control over financial reporting.
Based upon the assessments, the Company’s management
has concluded that, as of December 31, 2012, the Company’s
internal control over financial reporting was effective. The
Company’s independent registered public accounting firm
has issued a report on the effectiveness of the Company’s in-
ternal control over financial reporting, which appears on page
28 in this Annual Report.
26
SAUL CENTERS, INC.
2012 ANNUAL REPORT
27
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
on Internal Control Over Financial Reporting
Board of Directors and Stockholders
Saul Centers, Inc.
We have audited the accompanying consolidated balance sheets
of Saul Centers, Inc. as of December 31, 2012 and 2011, and
the related consolidated statements of operations, comprehen-
sive income, stockholders’ equity, and cash flows for each of the
three years in the period ended December 31, 2012. Our audits
also included the financial statement schedule listed in the Index
at Item 15(a)2(b). These financial statements and schedule are
the responsibility of the Company’s management. Our responsi-
bility is to express an opinion on these financial statements and
schedule based on our audits.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Saul Centers, Inc. at December 31, 2012 and 2011, and the
consolidated results of its operations and its cash flows for each
of the three years in the period ended December 31, 2012, in
conformity with U.S. generally accepted accounting principles.
Also, in our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial state-
ments taken as a whole, presents fairly in all material respects
the information set forth therein.
We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial state-
ments are free of material misstatement. An audit includes ex-
amining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes as-
sessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a rea-
sonable basis for our opinion.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Saul Centers, Inc.’s internal control over financial reporting as of
December 31, 2012, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Spon-
soring Organizations of the Treadway Commission and our report
dated March 13, 2013 expressed an unqualified opinion thereon.
Ernst & Young LLP
McLean, Virginia
March 13, 2013
Board of Directors and Stockholders
Saul Centers, Inc.
We have audited Saul Centers, Inc.’s internal control over finan-
cial reporting as of December 31, 2012, based on criteria es-
tablished in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). Saul Centers, Inc.’s manage-
ment is responsible for maintaining effective internal control
over financial reporting, and for its assessment of the effective-
ness of internal control over financial reporting included in the
accompanying Assessment of Effectiveness of Internal Control
over Financial Reporting. Our responsibility is to express an
opinion on the Company’s internal control over financial re-
porting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material re-
spects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reason-
able basis for our opinion.
A company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted ac-
counting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accu-
rately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted ac-
counting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s as-
sets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projec-
tions of any evaluation of effectiveness to future periods are sub-
ject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, Saul Centers, Inc. maintained, in all material re-
spects, effective internal control over financial reporting as of De-
cember 31, 2012, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Saul Centers, Inc. as of December
31, 2012 and 2011 and the related consolidated statements of
operations, comprehensive income, stockholders’ equity, and
cash flows for each of the three years in the period ended De-
cember 31, 2012 of Saul Centers, Inc. and our report dated
March 13, 2013 expressed an unqualified opinion thereon.
Ernst & Young LLP
McLean, Virginia
March 13, 2013
28
SAUL CENTERS, INC.
2012 ANNUAL REPORT
29
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
December 31, December 31,
(Dollars in thousands, except per share amounts) 2012 2011
For The Year Ended December 31,
(Dollars in thousands, except per share amounts) 2012 2011 2010
Assets
Real estate investments
Land $ 353,890 $ 324,183
Buildings and equipment 1,109,911 1,092,533
Construction in progress 2,267 1,129
1,466,068 1,417,845
Accumulated depreciation (353,305) (326,397)
1,112,763 1,091,448
Cash and cash equivalents 12,133 12,323
Revenue
Base rent $ 152,777 $ 138,486 $ 126,163
Expense recoveries 30,391 23,368 29,488
Percentage rent 1,545 1,503 1,447
Other 5,379 5,521 6,010
Total revenue 190,092 173,878 163,108
Operating expenses
Property operating expenses 23,794 24,715 22,897
Provision for credit losses 1,151 1,880 1,334
Real estate taxes 22,325 18,435 17,744
Accounts receivable and accrued income, net 41,406 39,094
Interest expense and amortization of deferred debt costs 49,544 45,324 34,799
Deferred leasing costs, net 26,102 25,876
Prepaid expenses, net 3,895 3,868
Deferred debt costs, net 7,713 7,090
Other assets 3,297 12,870
Total assets $ 1,207,309 $ 1,192,569
Liabilities
Depreciation and amortization of deferred leasing costs 40,112 35,298 28,379
General and administrative 14,274 14,256 13,968
Predevelopment expenses 2,667 – –
Total operating expenses 153,867 139,908 119,121
Operating income 36,225 33,970 43,987
Acquisition related costs (1,129) (2,534) (1,179)
Change in fair value of derivatives 36 (1,332) –
Mortgage notes payable $ 789,776 $ 823,871
Loss on early extinguishment of debt – – (5,405)
Revolving credit facility payable 38,000 8,000
Gain on casualty settlement 219 245 2,475
Dividends and distributions payable 13,490 13,219
Income from continuing operations 35,351 30,349 39,878
Accounts payable, accrued expenses and other liabilities 27,434 22,992
Discontinued Operations
Deferred income 31,320 31,281
Total liabilities 900,020 899,363
Stockholders’ equity
Preferred stock, 1,000,000 shares authorized:
Series A Cumulative Redeemable, 40,000 shares issued and outstanding 100,000 100,000
Series B Cumulative Redeemable, 31,731 shares issued and outstanding 79,328 79,328
Common stock, $0.01 par value, 30,000,000 shares authorized,
20,045,452 and 19,291,845 shares issued and outstanding, respectively 201 193
Additional paid-in capital 246,557 217,829
Accumulated deficit (154,830) (144,659)
Accumulated other comprehensive loss (3,553) (2,863)
Total Saul Centers, Inc. stockholders’ equity 267,703 249,828
Noncontrolling interest 39,586 43,378
Loss from operations of properties sold (81) (55) (284)
Gain on sales of properties 4,510 – 3,591
Income (loss) from discontinued operations 4,429 (55) 3,307
Net income 39,780 30,294 43,185
Noncontrolling interest
Income from continuing operations attributable to
noncontrolling interests (5,693) – (5,930)
Income from discontinued operations attributable to
noncontrolling interests (713) (3,561) (492)
Income attibutable to noncontrolling interests (6,406) (3,561) (6,422)
Net income attributable to Saul Centers, Inc. 33,374 26,733 36,763
Preferred dividends (15,140) (15,140) (15,140)
Net income available to common stockholders $ 18,234 $ 11,593 $ 21,623
Per share net income available to common stockholders
Total stockholders’ equity 307,289 293,206
Basic and diluted:
Total liabilities and stockholders’ equity $ 1,207,309 $ 1,192,569
Continuing operations $ 0.70 $ 0.61 $ 1.00
Discontinued operations 0.23 – 0.18
$ 0.93 $ 0.61 $ 1.18
The Notes to Financial Statements are an integral part of these statements.
The Notes to Financial Statements are an integral part of these statements.
30
SAUL CENTERS, INC.
2012 ANNUAL REPORT
31
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For The Year Ended December 31,
(Dollars in thousands) 2012 2011 2010
Net income $ 39,780 $ 30,294 $ 43,185
Other comprehensive income
Change in unrealized loss on cash flow hedge (932) (3,195) (543)
Total comprehensive income 38,848 27,099 42,642
Comprehensive income attributable to noncontrolling interests 6,164 2,811 6,298
Total comprehensive income attributable to Saul Centers, Inc. 32,684 24,288 36,344
Preferred dividends (15,140) (15,140) (15,140)
Total comprehensive income available to common stockholders $ 17,544 $ 9,148 $ 21,204
Accumulated
Additional Other
Preferred Common Paid-in Accumulated Comprehensive Total Saul Noncontrolling
(Dollars in thousands,except per share amounts) Stock Stock Capital Deficit (Loss) Centers, Inc. Interest Total
Balance, December 31, 2009 $179,328 $ 180 $169,363 $(124,167) $ – $224,704 $ 1,359 $226,063
Issuance of 544,643 shares of common stock:
426,847 shares pursuant to dividend reinvestment plan – 4 16,696 – – 16,700 – 16,700
117,796 shares due to exercise of employee stock options and
issuance of directors’ deferred stock – 2 3,728 – – 3,730 – 3,730
Net income – – – 36,763 – 36,763 6,422 43,185
Change in unrealized loss on cash flow hedge – – – – (419) (419) (124) (543)
Preferred stock distributions:
Series A – – – (6,000) – (6,000) – (6,000)
Series B – – – (5,355) – (5,355) – (5,355)
Common stock distributions – – – (19,701) – (19,701) (5,850) (25,551)
Distributions payable preferred stock:
Series A, $50.00 per share – – – (2,000 ) – (2,000) – (2,000)
Series B, $56.25 per share – – – (1,785) – (1,785) – (1,785)
Distributions payable common stock ($0.36/share) and
distributions payable partnership units ($0.36/unit) –
– – (6,681) – (6,681) (1,950) (8,631)
Balance, December 31, 2010 179,328 186 189,787 (128,926) (419) 239,956 (143) 239,813
Issuance of 734,786 shares of common stock:
186,968 restricted shares – 2 6,159 – – 6,161 – 6,161
498,248 shares pursuant to dividend reinvestment plan – 3 19,751 – – 19,754 – 19,754
49,570 shares due to exercise of employee stock options
and issuance of directors’ deferred stock – 2 2,132 – – 2,134 – 2,134
Issuance of 1,497,814 partnership units – – – – – – 49,589 49,589
Net income – – – 26,733 – 26,733 3,561 30,294
Change in unrealized loss on cash flow hedge – – – – (2,444) (2,444) (751) (3,195)
Preferred stock distributions:
Series A – – – (6,000) – (6,000) – (6,000)
Series B – – – (5,355) – (5,355) – (5,355)
Common stock distributions – – – (20,381) – (20,381) (6,389) (26,770)
Distributions payable preferred stock:
Series A, $50.00 per share – – – (2,000 ) – (2,000) – (2,000)
Series B, $56.25 per share – – – (1,785) – (1,785) – (1,785)
Distributions payable common stock ($0.36/share) and
distributions payable partnership units ($0.36/unit) –
– – (6,945) – (6,945) (2,489) (9,434)
Balance, December 31, 2011 179,328 193 217,829 (144,659) (2,863) 249,828 43,378 293,206
Issuance of 753,607 shares of common stock:
595,388 shares pursuant to dividend reinvestment plan – 6 23,124 – – 23,130 – 23,130
158,219 shares due to exercise of employee stock options
and issuance of directors’ deferred stock – 2 5,604 – – 5,606 – 5,606
Net income – – – 33,374 – 33,374 6,406 39,780
Change in unrealized loss on cash flow hedge – – – – (690) (690) (242) (932)
Preferred stock distributions:
Series A – – – (6,000) – (6,000) – (6,000)
Series B – – – (5,355) – (5,355) – (5,355)
Common stock distributions – – – (21,189) – (21,189) (7,467) (28,656)
Distributions payable preferred stock:
Series A, $50.00 per share – – – (2,000 ) – (2,000) – (2,000)
Series B, $56.25 per share – – – (1,785) – (1,785) – (1,785)
Distributions payable common stock ($0.36/share) and
distributions payable partnership units ($0.36/unit) –
– – (7,216) – (7,216) (2,489) (9,705)
Balance, December 31, 2012 $179,328 $ 201 $246,557 $(154,830) $(3,553) $267,703 $39,586 $307,289
The Notes to Financial Statements are an integral part of these statements.
The Notes to Financial Statements are an integral part of these statements.
32
SAUL CENTERS, INC.
2012 ANNUAL REPORT
33
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended December 31,
(Dollars in thousands) 2012 2011 2010
Cash flows from operating activities:
Net income $ 39,780 $ 30,294 $ 43,185
Adjustments to reconcile net income to net cash provided by operating activities:
Change in fair value of derivatives (36) 1,332 –
Gain on sale of property, discontinued operations (4,510) – (3,591)
Gain on casualty settlement, continuing operations (219) (245) (2,475)
Depreciation and amortization of deferred leasing costs 40,189 35,400 28,576
Amortization of deferred debt costs 1,576 1,547 1,467
Non cash compensation costs of stock grants and options 952 948 951
Provision for credit losses 1,151 1,883 1,337
(Increase) decrease in accounts receivable and accrued income (3,240) (5,291) 703
Additions to deferred leasing costs (5,362) (6,257) (4,902)
(Increase) decrease in prepaid expenses (54) (844) 72
(Increase) decrease in other assets 9,573 (3,668) (2,894)
Increase (decrease) in accounts payable, accrued expenses and other liabilities (930) 1,478 1,069
Decrease in deferred income (447) (908) (611)
Net cash provided by operating activities 78,423 55,669 62,887
Cash flows from investing activities:
Acquisitions of real estate investments, net (1) (34,050) (170,100) (32,747)
Additions to real estate investments (12,680) (11,624) (6,573)
Additions to development and redevelopment projects (7,913) (20,780) (68,867)
Proceeds from sale of properties 5,818 – 8,132
Proceeds from casualty settlement 1,952 1,004 1,816
Net cash used in investing activities (46,873) (201,500) (98,239)
Cash flows from financing activities:
Proceeds from mortgage notes payable 83,500 286,000 62,600
Repayments on mortgage notes payable (117,595) (82,685) (53,691)
Proceeds from construction loans payable – 13,410 49,505
Repayments on construction loans payable – (104,243) –
Proceeds from revolving credit facility 38,000 16,000 –
Repayments on revolving credit facility (8,000) (8,000) –
Additions to deferred debt costs (2,199) (1,445) (1,054)
Proceeds from the issuance of:
Common Stock 27,784 27,101 19,479
Partnership Units – 49,589 –
Distributions to:
Series A preferred stockholders (8,000) (8,000) (8,000)
Series B preferred stockholders (7,140) (7,140) (7,140)
Common stockholders (28,135) (27,062) (26,186)
Noncontrolling interest (9,955) (8,339) (7,800)
Net cash provided by (used in) financing activities (31,740) 145,186 27,713
Net decrease in cash and cash equivalents (190) (645) (7,639)
Cash and cash equivalents, beginning of year 12,323 12,968 20,607
Cash and cash equivalents, end of year $ 12,133 $ 12,323 $ 12,968
Supplemental disclosure of cash flow information:
Cash paid for interest $ 48,302 $ 42,948 $ 40,678
Supplemental discussion of non-cash investing and financing activities:
(1) The 2010 real estate acquisition costs of $32,747 are presented exclusive of a mortgage loan assumed of $16,169 with a $546 swap fair value.
The Notes to Financial Statements are an integral part of these statements.
34
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FORMATION AND STRUCTURE OF COMPANY
Saul Centers was formed to continue and expand the shopping
center business previously owned and conducted by the B. F.
Saul Real Estate Investment Trust, the B. F. Saul Company and
certain other affiliated entities, each of which is controlled by
B. Francis Saul II and his family members (collectively, “The Saul
Organization”). On August 26, 1993, members of The Saul
Organization transferred to Saul Holdings Limited Partnership, a
newly formed Maryland limited partnership (the “Operating
Partnership”), and two newly formed subsidiary limited partner-
ships (the “Subsidiary Partnerships,” and collectively with the
Operating Partnership, the “Partnerships”), shopping center and
mixed-used properties, and the management functions related
to the transferred properties. Since its formation, the Company
has developed and purchased additional properties.
1. ORGANIZATION, FORMATION, AND
BASIS OF PRESENTATION
ORGANIZATION
Saul Centers, Inc. (“Saul Centers”) was incorporated under the
Maryland General Corporation Law on June 10, 1993. Saul
Centers operates as a real estate investment trust (a “REIT”)
under the Internal Revenue Code of 1986, as amended (the
“Code”). The Company is required to annually distribute at least
90% of its REIT taxable income (excluding net capital gains) to
its stockholders and meet certain organizational and other re-
quirements. Saul Centers has made and intends to continue to
make regular quarterly distributions to its stockholders. Saul
Centers, together with its wholly owned subsidiaries and the lim-
ited partnerships of which Saul Centers or one of its subsidiaries
is the sole general partner, are referred to collectively as the
“Company.” B. Francis Saul II serves as Chairman of the Board
of Directors and Chief Executive Officer of Saul Centers.
The following table lists the properties acquired, developed and/or disposed of by the Company since January 1, 2010.
Name of Property
Location
Type
Year of Acquisition/
Development/Disposal
ACQUISITIONS
11503 Rockville Pike
Metro Pike Center
4469 Connecticut Ave
Kentlands Square II
Severna Park MarketPlace
Cranberry Square
1500 Rockville Pike
5541 Nicholson Lane
DEVELOPMENTS
Clarendon Center North
Clarendon Center South
DISPOSITIONS
Lexington
West Park
Belvedere
Rockville, MD
Rockville, MD
Washington, DC
Gaithersburg, MD
Severna Park, MD
Westminster, MD
Rockville, MD
Rockville, MD
Shopping Center
Shopping Center
Mixed-Use
Shopping Center
Shopping Center
Shopping Center
Shopping Center
Shopping Center
Arlington, VA
Arlington, VA
Mixed-Use
Mixed-Use
Lexington, KY
Oklahoma City, OK
Baltimore, MD
Shopping Center
Shopping Center
Shopping Center
2010
2010
2011
2011
2011
2011
2012
2012
2010/2011
2010/2011
2010
2012
2012
2012 ANNUAL REPORT
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2012, the Company’s properties (the
“Current Portfolio Properties”) consisted of 50 shopping center
properties (the “Shopping Centers”), seven mixed-use properties
which are comprised of office, retail and multi-family residential
uses (the “Mixed-Use Properties”) and two (non-operating) de-
velopment properties.
BASIS OF PRESENTATION
The accompanying financial statements are presented on the
historical cost basis of The Saul Organization because of affili-
ated ownership and common management and because the as-
sets and liabilities were the subject of a business combination
with the Operating Partnership, the Subsidiary Partnerships and
Saul Centers, all newly formed entities with no prior operations.
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company, which conducts all of its activities through its sub-
sidiaries, the Operating Partnership and Subsidiary Partnerships,
engages in the ownership, operation, management, leasing, ac-
quisition, renovation, expansion, development and financing of
community and neighborhood shopping centers and mixed-use
properties, primarily in the Washington, DC/Baltimore metropol-
itan area. Because the properties are located primarily in the
Washington, DC/Baltimore metropolitan area, a disproportionate
economic downturn in the local economy would have a greater
negative impact on our overall financial performance than on
the overall financial performance of a company with a portfolio
that is more geographically diverse. A majority of the Shopping
Centers are anchored by several major tenants. As of December
31, 2012, 33 of the Shopping Centers were anchored by a gro-
cery store and offer primarily day-to-day necessities and services.
Two retail tenants, Giant Food (5.0%), a tenant at ten Shopping
Centers, and Safeway (2.7%), a tenant at eight Shopping Cen-
ters, individually accounted for more than 2.5% of the Com-
pany’s total revenue for the year ended December 31, 2012.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of Saul Centers, its subsidiaries, and the Operating
Partnership and Subsidiary Partnerships which are majority
owned by Saul Centers. All significant intercompany balances
and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make certain estimates and assump-
tions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could
differ from those estimates.
REAL ESTATE INVESTMENT PROPERTIES
The Company purchases real estate investment properties from
time to time and records assets acquired and liabilities assumed,
including land, buildings, and intangibles related to in-place
leases and customer relationships, based on their fair values. The
fair value of buildings generally is determined as if the buildings
were vacant upon acquisition and then subsequently leased at
market rental rates and considers the present value of all cash
flows expected to be generated by the property including an ini-
tial lease up period. From time to time the Company may pur-
chase a property, for future development purposes. The
property may be improved with an existing structure that would
be demolished as part of the development. In such cases, the
fair value of the building may be determined based only on ex-
isting leases and not include estimated cash flows related to fu-
ture leases. The Company determines the fair value of above
and below market intangibles associated with in-place leases by
assessing the net effective rent and remaining term of the lease
relative to market terms for similar leases at acquisition taking
into consideration the remaining contractual lease period, re-
newal periods, and the likelihood of the tenant exercising its re-
newal options. The fair value of a below market lease
component is recorded as deferred income and accreted as ad-
ditional lease revenue over the remaining contractual lease pe-
riod and any renewal option periods included in the valuation
analysis. The fair value of above market lease intangibles is
recorded as a deferred asset and is amortized as a reduction of
lease revenue over the remaining contractual lease term. The
Company determines the fair value of at-market in-place leases
considering the cost of acquiring similar leases, the foregone
rents associated with the lease-up period and carrying costs as-
sociated with the lease-up period. Intangible assets associated
with at-market in-place leases are amortized as additional ex-
pense over the remaining contractual lease term. To the extent
customer relationship intangibles are present in an acquisition,
the fair values of the intangibles are amortized over the lives of
the customer relationships. The Company has never recorded a
customer relationship intangible asset. Acquisition-related
transaction costs are expensed as incurred.
If there is an event or change in circumstance that indicates a
potential impairment in the value of a real estate investment
property, the Company prepares an analysis to determine
whether the carrying value of the real estate investment property
exceeds its estimated fair value. The Company considers both
quantitative and qualitative factors including recurring operating
losses, significant decreases in occupancy, and significant adverse
changes in legal factors and business climate. If impairment in-
dicators are present, the Company compares the projected cash
flows of the property over its remaining useful life, on an undis-
counted basis, to the carrying value of that property. The Com-
pany assesses its undiscounted projected cash flows based upon
estimated capitalization rates, historic operating results and mar-
ket conditions that may affect the property. If the carrying value
is greater than the undiscounted projected cash flows, the Com-
pany would recognize an impairment loss equivalent to an
amount required to adjust the carrying amount to its then esti-
mated fair value. The fair value of any property is sensitive to the
actual results of any of the aforementioned estimated factors,
either individually or taken as a whole. Should the actual results
differ from management’s projections, the valuation could be
negatively or positively affected. The Company did not recog-
nize an impairment loss on any of its real estate in 2012, 2011,
or 2010.
Interest, real estate taxes, development related salary costs and
other carrying costs are capitalized on projects under develop-
ment and construction. Once construction is substantially com-
pleted and the assets are placed in service, their rental income,
real estate tax expense, property operating expenses (consisting
of payroll, repairs and maintenance, utilities, insurance and other
property related expenses) and depreciation are included in cur-
rent operations. Property operating expenses are charged to op-
erations as incurred. Interest expense capitalized totaled
$42,000, $1.9 million, and $7.2 million during 2012, 2011, and
2010, respectively. Commercial development projects are con-
sidered substantially complete and available for occupancy upon
completion of tenant improvements, but no later than one year
from the cessation of major construction activity. Multi-family
residential development projects are considered substantially
complete and available for occupancy upon receipt of the cer-
tificate of occupancy from the appropriate licensing authority.
Substantially completed portions of a project are accounted for
as separate projects.
Depreciation is calculated using the straight-line method and es-
timated useful lives of generally between 35 and 50 years for
base buildings, or a shorter period if management determines
that the building has a shorter useful life, and up to 20 years for
certain other improvements that extend the useful lives. Lease-
hold improvements expenditures are capitalized when certain
criteria are met, including when the Company supervises con-
struction and will own the improvements. Tenant improvements
are amortized, over the shorter of the lives of the related leases
or the useful life of the improvement, using the straight-line
method. Depreciation expense and amortization of leasehold
improvements for the years ended December 31, 2012, 2011,
and 2010, was $40.1 million, $35.3 million, and $28.4 million,
respectively. Repairs and maintenance expense totaled $9.3 mil-
lion, $10.9 million, and $12.0 million for 2012, 2011, and 2010,
respectively, and is included in property operating expenses in
the accompanying consolidated financial statements.
DEFERRED LEASING COSTS
Deferred leasing costs consist of commissions paid to third-party
leasing agents, internal direct costs such as employee compen-
sation and payroll-related fringe benefits directly related to time
spent performing leasing-related activities for successful com-
mercial leases and amounts attributed to in place leases associ-
ated with acquired properties. Leasing related activities include
evaluating the prospective tenant’s financial condition, evaluat-
ing and recording guarantees, collateral and other security
arrangements, negotiating lease terms, preparing lease docu-
ments and closing the transaction. Unamortized deferred costs
are charged to expense if the applicable lease is terminated prior
to expiration of the initial lease term. Deferred leasing costs are
amortized over the term of the lease or remaining term of ac-
quired leases. Collectively, deferred leasing costs totaled $26.1
million and $25.9 million, net of accumulated amortization of
approximately $16.2 million and $14.7 million, as of December
31, 2012 and 2011, respectively. Amortization expense, in-
cluded in depreciation and amortization in the consolidated
statements of operations, totaled approximately $5.6 million,
$4.8 million, and $3.7 million, for the years ended December
31, 2012, 2011, and 2010, respectively.
CONSTRUCTION IN PROGRESS
Construction in progress includes preconstruction and develop-
ment costs of active projects. Preconstruction costs include legal,
zoning and permitting costs and other project carrying costs
incurred prior to the commencement of construction. Develop-
ment costs include direct construction costs and indirect costs
incurred subsequent to the start of construction such as archi-
tectural, engineering, construction management and carrying
costs consisting of interest, real estate taxes and insurance. Con-
struction in progress totaled $2.3 million and $1.1 million,
respectively, as of December 31, 2012 and 2011.
36
SAUL CENTERS, INC.
2012 ANNUAL REPORT
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACCOUNTS RECEIVABLE AND ACCRUED INCOME
Accounts receivable primarily represent amounts currently due
from tenants in accordance with the terms of the respective
leases. Receivables are reviewed monthly and reserves are es-
tablished with a charge to current period operations when, in
the opinion of management, collection of the receivable is
doubtful. Accounts receivable in the accompanying consoli-
dated financial statements are shown net of an allowance for
doubtful accounts of $1.2 million and $671,000, at December
31, 2012 and 2011, respectively.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
For the Year Ended
December 31,
(In thousands) 2012 2011 2010
Beginning Balance $ 671 $ 898 $1,265
Provision for Credit Losses 1,160 1,883 1,337
Charge-offs (623) (2,110) (1,704)
Ending Balance $ 1,208 $ 671 $ 898
In addition to rents due currently, accounts receivable also in-
cludes $34.4 million and $31.0 million, at December 31, 2012
and 2011, respectively, net of allowance for doubtful accounts
totaling $92,000 and $63,000, respectively, representing mini-
mum rental income accrued on a straight-line basis to be paid
by tenants over the remaining term of their respective leases.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include short-term investments.
Short-term investments include money market accounts and
other investments which generally mature within three months,
measured from the acquisition date, and/or are readily convert-
ible to cash. Substantially all of the Company’s cash balances at
December 31, 2012 are held in non-interest bearing accounts
at various banks.
DEFERRED DEBT COSTS
Deferred debt costs consist of fees and costs incurred to obtain
long-term financing, construction financing and the revolving
line of credit. These fees and costs are being amortized on a
straight-line basis over the terms of the respective loans or agree-
ments, which approximates the effective interest method. De-
ferred debt costs totaled $7.7 million and $7.1 million, net of
accumulated amortization of $3.8 million and $6.9 million at
December 31, 2012 and 2011, respectively.
DEFERRED INCOME
Deferred income consists of payments received from tenants
prior to the time they are earned and recognized by the Com-
pany as revenue, including tenant prepayment of rent for future
periods, real estate taxes when the taxing jurisdiction has a fiscal
year differing from the calendar year reimbursements specified
38
SAUL CENTERS, INC.
in the lease agreement and tenant construction work provided
by the Company. In addition, deferred income includes the fair
value of certain below market leases.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company may, when appropriate, employ derivative instru-
ments, such as interest-rate swaps, to mitigate the risk of interest
rate fluctuations. The Company does not enter into derivative
or other financial instruments for trading or speculative pur-
poses. Derivative financial instruments are carried at fair value
as either assets or liabilities on the consolidated balance sheets.
For those derivative instruments that qualify, the Company may
designate the hedging instrument, based upon the exposure
being hedged, as a fair value hedge or a cash flow hedge. De-
rivative instruments that are designated as a hedge are evaluated
to ensure they continue to qualify for hedge accounting. The ef-
fective portion of any gain or loss on the hedge instruments is
reported as a component of accumulated other comprehensive
income (loss) and recognized in earnings within the same line
item associated with the forecasted transaction in the same pe-
riod or periods during which the hedged transaction affects
earnings. Any ineffective portion of the change in fair value of
a derivative instrument is immediately recognized in earnings.
For derivative instruments that do not meet the criteria for hedge
accounting, or that qualify and are not designated, changes in
fair value are immediately recognized in earnings.
DISCONTINUED OPERATIONS
During 2012, the Company sold its West Park and Belvedere
properties for $2.0 million and $4.0 million and recognized gains
of $1.1 million and $3.4 million, respectively. During 2010, the
Company sold its Lexington property for $8.1 million and rec-
ognized a gain of $3.6 million. The results of operations of West
Park and Belvedere for the years ended December 31, 2012,
2011 and 2010 and of the Lexington property for the year ended
December 31, 2010 are included in the statements of operations
as “Loss from operations of property sold.” The Company has
no other discontinued operations.
REVENUE RECOGNITION
Rental and interest income are accrued as earned except when
doubt exists as to collectability, in which case the accrual is dis-
continued. Recognition of rental income commences when con-
trol of the space has been given to the tenant. When rental
payments due under leases vary from a straight-line basis be-
cause of free rent periods or stepped increases, income is rec-
ognized on a straight-line basis. Expense recoveries represent a
portion of property operating expenses billed to the tenants, in-
cluding common area maintenance, real estate taxes and other
recoverable costs. Expense recoveries are recognized in the pe-
riod in which the expenses are incurred. Rental income based
on a tenant’s revenue (“percentage rent”) is accrued when a
tenant reports sales that exceed a specified breakpoint, pursuant
to the terms of their respective leases.
INCOME TAXES
The Company made an election to be treated, and intends to
continue operating so as to qualify, as a REIT under the Code,
commencing with its taxable year ended December 31, 1993. A
REIT generally will not be subject to federal income taxation, pro-
vided that distributions to its stockholders equal or exceed its REIT
taxable income and complies with certain other requirements.
Therefore, no provision has been made for federal income taxes
in the accompanying consolidated financial statements.
As of December 31, 2012, the Company had no material unrec-
ognized tax benefits and there exist no potentially significant un-
recognized tax benefits which are reasonably expected to occur
within the next twelve months. The Company recognizes penal-
ties and interest accrued related to unrecognized tax benefits, if
any, as general and administrative expense. No penalties and
interest have been accrued in years 2012, 2011, and 2010. The
tax basis of the Company’s real estate investments was approx-
imately $1.1 billion, as of December 31, 2012 and 2011. With
few exceptions, the Company is no longer subject to U.S. fed-
eral, state, and local tax examinations by tax authorities for years
before 2007.
STOCK BASED EMPLOYEE COMPENSATION,
DEFERRED COMPENSATION AND STOCK PLAN
FOR DIRECTORS
The Company uses the fair value method to value and account
for employee stock options. The fair value of options granted is
determined at the time of each award using the Black-Scholes
model, a widely used method for valuing stock based employee
compensation, and the following assumptions: (1) Expected
Volatility determined using the most recent trading history of the
Company’s common stock (month-end closing prices) correspon-
ding to the average expected term of the options; (2) Average
Expected Term of the options is based on prior exercise history,
scheduled vesting and the expiration date; (3) Expected Dividend
Yield determined by management after considering the Com-
pany’s current and historic dividend yield rates, the Company’s
yield in relation to other retail REITs and the Company’s market
yield at the grant date; and (4) a Risk-free Interest Rate based
upon the market yields of US Treasury obligations with maturities
corresponding to the average expected term of the options at
the grant date. The Company amortizes the value of options
granted ratably over the vesting period and includes the amounts
as compensation in general and administrative expenses.
At the annual meeting of the Company’s stockholders in 2004,
the stockholders approved the adoption of the 2004 stock plan
for the purpose of attracting and retaining executive officers, di-
rectors and other key personnel. The 2004 stock plan was sub-
sequently amended by the Company’s stockholders at the 2008
Annual Meeting (the “Amended 2004 Plan”) and terminates in
April 2018. Pursuant to the Amended 2004 Plan, the Compen-
sation Committee established a Deferred Compensation Plan for
Directors for the benefit of its directors and their beneficiaries,
which replaced a previous Deferred Compensation and Stock
Plan for Directors. A director may make an annual election to
defer all or part of his or her director’s fees and has the option
to have the fees paid in cash, in shares of common stock or in a
combination of cash and shares of common stock upon separa-
tion from the Board. If the director elects to have fees paid in
stock, fees earned during a calendar quarter are aggregated and
divided by the common stock’s closing market price on the first
trading day of the following quarter to determine the number
of shares to be allocated to the director. As of December 31,
2012, 220,500 shares are in the directors’ deferred fee accounts.
The Compensation Committee has also approved an annual
award of shares of the Company’s common stock as additional
compensation to each director serving on the Board of Directors
as of the record date for the Annual Meeting of Stockholders.
The shares are awarded as of each Annual Meeting of Share-
holders, and their issuance may not be deferred. Each director
was issued 200 shares for each of the years ended December
31, 2012, 2011, and 2010. The shares were valued at the clos-
ing stock price on the dates the shares were awarded and
included in general and administrative expenses in the total
amounts of $110,000, $109,000, and $101,000, for the years
ended December 31, 2012, 2011, and 2010, respectively.
NONCONTROLLING INTEREST
Saul Centers is the sole general partner of the Operating Part-
nership, owning a 74.4% common interest as of December 31,
2012. Noncontrolling interest in the Operating Partnership is
comprised of limited partnership units owned by The Saul Or-
ganization. Noncontrolling interest reflected on the accompa-
nying consolidated balance sheets is increased for earnings
allocated to limited partnership interests and distributions rein-
vested in additional units, and is decreased for limited partner
distributions. Noncontrolling interest reflected on the consoli-
dated statements of operations represents earnings allocated to
limited partnership interests held by The Saul Organization.
PER SHARE DATA
Per share data for net income (basic and diluted) is computed
using weighted average shares of common stock. Convertible
limited partnership units and employee stock options are the
Company’s potentially dilutive securities. For all periods pre-
sented, the convertible limited partnership units are anti-dilutive.
For the years ended December 31, 2012, 2011, and 2010, certain
options are dilutive because the average share price of the Com-
pany’s common stock exceeded the exercise prices. The treasury
stock method was used to measure the effect of the dilution.
2012 ANNUAL REPORT
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIC AND DILUTED SHARES OUTSTANDING
December 31
(In thousands) 2012 2011 2010
Weighted average common
shares outstanding – Basic 19,649 18,888 18,267
Effect of dilutive options 51 61 110
Weighted average common
shares outstanding – Diluted 19,700 18,949 18,377
Average Share Price $40.94 $39.39 $40.87
LEGAL CONTINGENCIES
The Company is subject to various legal proceedings and claims
that arise in the ordinary course of business, which are generally
covered by insurance. Upon determination that a loss is proba-
ble to occur and can be reasonably estimated, the estimated
amount of the loss is recorded in the financial statements.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year and prior
quarter information to conform to the presentation used for the
three-months and year ended December 31, 2012.
3. REAL ESTATE ACQUIRED
11503 ROCKVILLE PIKE
On October 1, 2010, the Company purchased for $15.1 million
a retail property located in Rockville, Maryland, and incurred ac-
quisition costs of $0.5 million.
METRO PIKE CENTER
On December 17, 2010, the Company purchased for $33.6 mil-
lion (including the assumption of a $16.2 million mortgage loan
and a related interest-rate swap with a value of $0.5 million) the
Metro Pike Center located in Rockville, Maryland, and incurred
acquisition costs of $0.7 million. As of the date of acquisition,
management determined the fair value of the mortgage loan
equaled its outstanding balance because the terms of the loan
were market terms.
4469 CONNECTICUT AVENUE
In February 2011, the Company purchased for $1.6 million 4469
Connecticut Avenue, a one retail space property, currently un-
leased, located adjacent to Van Ness Square in northwest Wash-
ington, DC and incurred acquisition costs of $74,000.
KENTLANDS SQUARE II
In September 2011, the Company purchased for $74.5 million
Kentlands Square II, a retail property located adjacent to the
Company’s Kentlands Square I and Kentlands Place shopping
centers in Gaithersburg, Maryland, and incurred acquisition costs
of $1.1 million.
40
SAUL CENTERS, INC.
SEVERNA PARK MARKETPLACE
In September 2011, the Company purchased for $61.0 million
Severna Park MarketPlace, a retail property located in Severna
Park, Maryland, and incurred acquisition costs of $0.8 million.
CRANBERRY SQUARE
In September 2011, the Company purchased for $33.0 million
Cranberry Square, a retail property located in Westminster, Mary-
land, and incurred acquisition costs of $0.5 million.
1500 ROCKVILLE PIKE
In December 2012, the Company purchased for $22.4 million
1500 Rockville Pike, a retail property located in Rockville, Mary-
land, and incurred acquisition costs of $0.6 million.
5541 NICHOLSON LANE
In December 2012, the Company purchased for $11.7 million
5541 Nicholson Lane, a retail property located in Rockville, Mary-
land, and incurred acquisition costs of $0.5 million.
The revenue and expenses of 1500 Rockville Pike and 5541
Nicholson Lane have been included in the Consolidated State-
ments of Operations for the period subsequent to acquisition.
Revenue and earnings (defined as revenue less the sum of oper-
ating expenses, provision for credit losses and real estate taxes,
all arising from the operation of a property) totaled $101,000
and $14,000, respectively, from acquisition through December
31, 2012. The proforma results for the year ended December
31, 2012 and 2011 have been prepared for comparative pur-
poses only and do not purport to be indicative of the results of
operations that would have actually occurred had the transac-
tion taken place on January 1, 2011, or of future results of op-
erations. The following table shows proforma revenue and
earnings of the Company assuming the acquisitions occurred as
of January 1, 2011.
Year ended December 31
(In thousands) 2012 2011
Revenue $ 191,866 $ 175,262
Earnings 144,320 129,981
ALLOCATION OF PURCHASE PRICE
OF REAL ESTATE ACQUIRED
The Company allocates the purchase price of real estate invest-
ment properties to various components, such as land, buildings
and intangibles related to in-place leases and customer relation-
ships, based on their fair values. See Note 2. Summary of Sig-
nificant Accounting Policies-Real Estate Investment Properties.
During 2012, the Company purchased two properties at an ag-
gregate cost of $34.1 million and incurred acquisition costs of
$1.1 million. Of the total purchase price, $3.8 million was allo-
cated to buildings, $30.4 million was allocated to land, and $0.5
million was allocated to in-place leases and $0.7 million was
allocated to below market leases which is included in deferred
income and is being accreted to income over the lives of the
underlying leases, which is approximately 3.1 years.
During 2011, the Company purchased four properties at an ag-
gregate cost of $170.1 million, and incurred acquisition costs of
$2.5 million. Of the total purchase price, $5.5 million was allo-
cated to below market leases which is included in deferred income
and is being accreted to income over the lives of the underlying
leases, or approximately 10.9 years, and $28,000 was allocated
to above market leases, which is included as a deferred asset in
accounts receivable and is being amortized against income over
the lives of the underlying leases, which is approximately 4.1 years.
The allocation of the purchase prices for Severna Park Market-
Place, Kentlands Square II, and Cranberry Square to the acquired
assets and liabilities based on their fair values was as follows:
Severna Three
Kentlands Park Cranberry Property
(In thousands) Square II MarketPlace Square Total
Land $ 20,500 $ 12,700 $ 6,700 $ 39,900
Buildings 51,973 50,554 24,878 127,405
In-Place Leases 2,697 2,433 1,499 6,629
Above Market
Rents 6 4 18 28
Below Market
Rents (676) (4,691) (95) (5,462)
Total Purchase
Price $ 74,500 $ 61,000 $33,000 $168,500
The gross carrying amount of lease intangible assets included in
deferred leasing costs as of December 31, 2012 and 2011 was
$21.9 million and $21.4 million, respectively, and accumulated
amortization was $14.7 million and $12.7 million, respectively.
Amortization expense totaled $2.0 million, $1.3 million and
$747,000, for the years ended December 31, 2012, 2011, and
2010, respectively. The gross carrying amount of below market
lease intangible liabilities included in deferred income as of De-
cember 31, 2012 and 2011 was $24.8 million and $24.1 million,
respectively, and accumulated amortization was $8.3 million and
$6.7 million, respectively. Accretion income totaled $1.6 million,
$1.2 million, and $1.1 million, for the years ended December
31, 2012, 2011, and 2010, respectively. The gross carrying
amount of above market lease intangible assets included in ac-
counts receivable as of December 31, 2012 and 2011 was $1.0
million and $1.0 million, respectively, and accumulated amorti-
zation was $930,000 and $870,000, respectively. Amortization
expense totaled $60,000, $62,000, and $62,000, for the years
ended December 31, 2012, 2011, and 2010, respectively.
As of December 31, 2012, scheduled amortization of intangible
assets and deferred income related to in place leases is as follows:
AMORTIZATION OF INTANGIBLE ASSETS AND
DEFERRED INCOME RELATED TO IN-PLACE LEASES
Lease Above Below
acquisition market market
(In thousands) costs leases leases
2013 $ 1,957 $ 45 $ 1,694
2014 1,066 21 1,482
2015 721 3 1,182
2016 566 1 1,116
2017 517 – 1,095
Thereafter 2,403 – 9,933
Total $ 7,230 $ 70 $ 16,502
4. NONCONTROLLING INTEREST - HOLDERS
OF CONVERTIBLE LIMITED PARTNERSHIP
UNITS IN THE OPERATING PARTNERSHIP
The Saul Organization holds a 25.6% limited partnership interest
in the Operating Partnership represented by 6,914,000 limited
partnership units, as of December 31, 2012. The units are con-
vertible into shares of Saul Centers’ common stock, at the option
of the unit holder, on a one-for-one basis provided that, in ac-
cordance with the Saul Centers, Inc. Articles of Incorporation,
the rights may not be exercised at any time that The Saul Or-
ganization beneficially owns, directly or indirectly, in the aggre-
gate more than 39.9% of the value of the outstanding common
stock and preferred stock of Saul Centers (the “Equity Securi-
ties”). As of December 31, 2012, 987,000 units were eligible
for conversion.
The impact of The Saul Organization’s 25.6% limited partnership
interest in the Operating Partnership is reflected as Noncontrol-
ling Interest in the accompanying consolidated financial state-
ments. Fully converted partnership units and diluted weighted
average shares outstanding for the years ended December 31,
2012, 2011, and 2010, were 26,613,900, 24,739,700, and
23,793,000, respectively.
2012 ANNUAL REPORT
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. MORTGAGE NOTES PAYABLE, REVOLVING
CREDIT FACILITY, INTEREST EXPENSE
AND AMORTIZATION OF DEFERRED
DEBT COSTS
At December 31, 2012, outstanding debt totaled $827.8 million,
of which $774.9 million was fixed rate debt and $52.9 million
was variable rate debt. The Company’s outstanding debt totaled
$831.9 million at December 31, 2011, of which $808.8 million
was fixed rate debt and $23.1 million was variable rate debt. At
December 31, 2012, the Company had a $175.0 million unse-
cured revolving credit facility, which can be used for working
capital, property acquisitions or development projects, under
which $38.0 million was outstanding. The revolving credit fa-
cility matures on May 20, 2016, and may be extended by the
Company for one additional year subject to the Company’s sat-
isfaction of certain conditions. Saul Centers and certain consol-
idated subsidiaries of the Operating Partnership have guaranteed
the payment obligations of the Operating Partnership under the
revolving credit facility. Letters of credit may be issued under the
revolving credit facility. On December 31, 2012, approximately
$136.8 million was available under the line and approximately
$224,000 was committed for letters of credit. The interest rate
under the facility is based on the Company’s leverage and is the
sum of LIBOR and a margin ranging from 160 basis points to
250 basis points.. As of December 31, 2012, the margin was
1.90%.
Saul Centers is a guarantor of the revolving credit facility, of which
the Operating Partnership is the borrower. Saul Centers is also
the guarantor of 50% of the Northrock bank term loan (approx-
imately $7.5 million of the $14.9 million outstanding at Decem-
ber 31, 2012). The fixed-rate notes payable are all non-recourse
debt except for $3.9 million of the Great Falls Center mortgage,
25% of the Metro Pike Center loan (approximately $3.7 million
of the $15.7 million outstanding at December 31, 2012), and
$27.6 million of the Clarendon Center mortgage which will be
eliminated upon the achievement of certain leasing and debt serv-
ice covenants which are guaranteed by Saul Centers.
On June 29, 2010, the Company closed on a new 10-year mort-
gage loan in the amount of $45.6 million, secured by Thruway.
The loan matures July 1, 2020, bears interest at a variable rate
equal to the sum of one-month LIBOR and 260 basis points. In
conjunction with the financing, the Company entered into an
interest rate swap agreement with a $45.6 million notional
amount to manage the interest rate risk associated with the
above $45.6 million of variable-rate mortgage debt. The swap
agreement was effective June 29, 2010, terminates on July 1,
2020 and effectively fixes the interest rate on the mortgage debt
at 5.83%. The Company has designated this agreement as a
cash flow hedge for accounting purposes. The Company, there-
fore, will recognize interest expense on the variable-rate debt at
the effective fixed rate of 5.83%. The Company tests the hedge
for effectiveness on a quarterly basis. On a combined basis, the
loan and the interest-rate swap require equal monthly principal
and interest payments of $289,081, based upon an assumed in-
terest rate of 5.83% and a 25-year principal amortization, and
requires a final principal payment of approximately $34.8 million
at maturity.
Immediately prior to the refinancing, Thruway was one of nine
properties securing debt included in a collateralized mortgage-
backed security (CMBS) with an outstanding balance of $108.3
million, an interest rate of 7.67% and due to mature October
2012. In order to release Thruway, the Company defeased $30.2
million of the outstanding balance at a cost of approximately
$4.4 million, using proceeds from the new mortgage financing.
On August 24, 2010, the Company entered into an amendment
to its Northrock construction loan to provide an option to extend
the loan for two years. The extension is available at the Com-
pany’s option subject to notice to the bank, and to a principal
repayment in an amount required to cause property operating
income to meet certain debt service coverage levels.
On December 9, 2010, the Company closed on a new 15-year,
fixed-rate mortgage loan in the amount of $17.0 million secured
by Ravenwood. The loan matures January 2026, requires
monthly interest and principal payments of $111,409 based
upon a fixed interest rate of 6.18% and a 25-year principal
amortization and requires a final principal payment of approxi-
mately $10.1 million at maturity.
Immediately prior to the refinancing, Ravenwood was one of
eight remaining properties securing debt included in a CMBS
with an outstanding balance of $76.3 million, an interest rate
of 7.67% and due to mature October 2012. In order to release
Ravenwood, the Company defeased $7.8 million of the out-
standing balance at a cost of approximately $900,000, using
proceeds from the new mortgage financing.
On December 17, 2010, the Company purchased Metro Pike
Center, a 62,000 square foot retail property located in Rockville,
Maryland. In conjunction with the acquisition, the Company as-
sumed a mortgage loan with a principal balance of $16.2 mil-
lion. The loan matures June 30, 2013, bears interest at a variable
rate equal to the sum of one-month LIBOR and 245 basis points.
In conjunction with the loan assumption, the Company assumed
a corresponding interest rate swap agreement with a $16.2 mil-
lion notional amount to manage the interest rate risk associated
with the variable-rate mortgage debt. The swap agreement was
effective at closing, terminates on June 30, 2013 and effectively
fixes the interest rate on the mortgage debt at 4.67%. Although
the swap is an effective hedge of the loan, the Company elected
not to designate this agreement as a hedge for accounting pur-
poses. Interest expense on the loan is recognized at its variable
interest rate. The swap agreement is carried at its fair value with
changes in fair value recognized in change in fair value of
derivatives in the Consolidated Statements of Operations as they
occur. On a combined basis, the loan and the interest-rate swap
require interest-only payments of $62,925, based upon an as-
sumed interest rate of 4.67% until August 1, 2011, followed by
equal monthly payments of $86,000 based upon a 25-year
amortization schedule and a final payment of $15.6 million at
loan maturity.
On March 23, 2011, the Company closed on a 15-year non-re-
course mortgage loan in the amount of $125.0 million, secured
by Clarendon Center. The loan matures April 5, 2026, bears in-
terest at a fixed rate of 5.31%, requires equal monthly principal
and interest payments of $753,491, based upon a 25-year prin-
cipal amortization, and requires a final principal payment of ap-
proximately $70.5 million at maturity. Proceeds from the loan
were used to repay $104.2 million outstanding on the Clarendon
Center construction loan.
On September 23, 2011, the Company closed on a 15-year non-
recourse mortgage loan in the amount of $38.0 million, secured
by Severna Park MarketPlace. The loan matures October 1,
2026, bears interest at a fixed rate of 4.30%, requires equal
monthly principal and interest payments of $206,926, based
upon a 25-year principal amortization, and requires a final prin-
cipal payment of approximately $20.3 million at maturity. Pro-
ceeds from the loan were used to purchase Severna Park
MarketPlace.
Also on September 23, 2011, the Company closed on two six-
month bridge financing loans in the total amount of $60.0 mil-
lion, secured by Kentlands Square II and Cranberry Square.
Proceeds from the loans were used to purchase Kentlands
Square II and Cranberry Square.
On October 5, 2011, the Company closed on a new 15-year
non-recourse mortgage loan in the amount of $43.0 million, se-
cured by Kentlands Square II. The loan matures November 5,
2026, bears interest at a fixed rate of 4.53%, requires equal
monthly principal and interest payments of $239,741, based
upon a 25-year principal amortization, and requires a final prin-
cipal payment of approximately $23.3 million at maturity. Pro-
ceeds from the loan were used to repay the $40.0 million bridge
financing used to acquire Kentlands Square II.
On November 6, 2011, the Company closed on a new 15-year
non-recourse mortgage loan in the amount of $20.0 million, se-
cured by Cranberry Square. The loan matures December 1,
2026, bears interest at a fixed rate of 4.70%, requires equal
monthly principal and interest payments of $113,449, based
upon a 25-year principal amortization, and requires a final prin-
cipal payment of approximately $10.9 million at maturity. Pro-
ceeds from the loan were used to repay the $20.0 million bridge
financing used to acquire Cranberry Square.
On April 11, 2012, the Company closed on a 15-year non-re-
course mortgage loan in the amount of $73.0 million secured
by Seven Corners shopping center. The loan matures in May
2027, bears interest at a fixed rate of 5.84%, requires equal
monthly principal and interest payments totaling $463,226
based upon a 25-year amortization schedule and a final payment
of $42.5 million at maturity. Proceeds from the loan were used
to pay-off the $63 million remaining balance of existing debt se-
cured by Seven Corners and six other shopping center proper-
ties, which was scheduled to mature in October 2012, and to
provide cash of approximately $10 million.
On April 26, 2012, the Company substituted the White Oak
shopping center for Van Ness Square as collateral for one of its
existing mortgage loans which allowed the Company to analyze
the feasibility of repositioning Van Ness Square. The terms of
the original loan, including its 8.11% interest rate, are un-
changed and, in conjunction with the collateral substitution, the
Company borrowed an additional $10.5 million, also secured by
White Oak. The new borrowing requires equal monthly pay-
ments based upon a fixed 4.90% interest rate and 25-year
amortization schedule, and will mature in July 2024, cotermi-
nously with the original loan. The consolidated loan requires
equal monthly payments based upon a blended fixed interest
rate of 7.0% and will require a final payment of $18.5 million
at maturity.
On May 21, 2012, the Company replaced its existing unsecured
revolving credit facility with a new $175.0 million facility that ex-
pires on May 20, 2016. The facility, which provides working cap-
ital and funds for acquisitions, certain developments,
redevelopments and letters of credit, may be extended for one
year, at the Company’s option, subject to the satisfaction of cer-
tain conditions. Loans under the facility bear interest at a rate
equal to the sum of LIBOR and a margin, based on the Com-
pany’s leverage ratio, ranging from 160 basis points to 250 basis
points. Based on the leverage ratio of December 31, 2012, the
margin was 190 basis points.
42
SAUL CENTERS, INC.
2012 ANNUAL REPORT
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of notes payable as of December 31, 2012 and 2011:
NOTES PAYABLE
December 31, Interest Scheduled
(Dollars in thousands) 2012 2011 Rate * Maturity *
Fixed rate mortgages: $ – (a) 64,844 7.67% Oct-2012
– (b) 10,244 6.12% Jan-2013
– (c) 24,598 7.88% Jan-2013
15,750 (d) 16,032 4.67% Jun-2013
6,936 (e) 7,203 5.77% Jul-2013
13,875 (f) 14,335 5.40% May-2014
16,798 (g) 17,415 7.45% Jun-2015
34,373 (h) 35,435 6.01% Feb-2018
38,388 (i) 39,757 5.88% Jan-2019
12,418 (j) 12,860 5.76% May-2019
17,145 (k) 17,755 5.62% Jul-2019
17,040 (l) 17,627 5.79% Sep-2019
15,176 (m) 15,713 5.22% Jan-2020
11,421 (n) 11,670 5.60% May-2020
10,288 (o) 10,636 5.30% Jun-2020
43,424 (p) 44,333 5.83% Jul-2020
8,934 (q) 9,204 5.81% Feb-2021
6,359 (r) 6,477 6.01% Aug-2021
36,699 (s) 37,377 5.62% Jun-2022
11,129 (t) 11,317 6.08% Sep-2022
11,989 (u) 12,172 6.43% Apr-2023
16,247 (v) 16,858 6.28% Feb-2024
17,469 (w) 17,791 7.35% Jun-2024
15,140 (x) 15,409 7.60% Jun-2024
26,635 (y) 16,494 7.02% Jul-2024
31,709 (z) 32,281 7.45% Jul-2024
31,490 (aa) 32,044 7.30% Jan-2025
16,419 (bb) 16,731 6.18% Jan-2026
120,822 (cc) 123,372 5.31% Apr-2026
36,986 (dd) 37,858 4.30% Oct-2026
41,970 (ee) 42,923 4.53% Nov-2026
19,569 (ff) 20,000 4.70% Dec-2026
72,233 (gg) – 5.84% May-2027
Total fixed rate 774,831 808,765 5.82% 10.0 Years
Variable rate loans:
Revolving credit facility 38,000 (hh) 8,000 LIBOR + 1.90% May-2016
Northrock bank term loan 14,945 (ii) 15,106 LIBOR + 3.00% May-2013
Total variable rate 52,945 23,106 2.80% 3.4 Years
Total notes payable $ 827,776 $ 831,871 5.77% 9.7 Years
* Interest rate and scheduled maturity data presented as of December 31, 2012. Totals computed using weighted averages.
(a) The loan was collateralized by seven shopping centers (Seven Cor-
ners, White Oak, Hampshire Langley, Great Eastern, Southside Plaza,
Belvedere and Giant) and required equal monthly principal and in-
terest payments of $734,000 based upon a 25-year amortization
schedule and a final payment of $62.0 million at loan maturity. The
loan was repaid in full in 2012.
(c)
(b) The loan was collateralized by Smallwood Village Center and re-
quired equal monthly principal and interest payments of $71,000
based upon a 30-year amortization schedule and a final payment of
$10.1 million at loan maturity. The loan was repaid in full in 2012.
The loan was collateralized by 601 Pennsylvania Avenue and re-
quired equal monthly principal and interest payments of $294,000
based upon a 25-year amortization schedule and a final payment of
$23.0 million at loan maturity. The loan was repaid in full in 2012.
(d) The loan, together with a corresponding interest-rate swap, was as-
sumed with the December 17, 2010 acquisition of, and is collater-
alized by, Metro Pike Center. On a combined basis, the loan and the
swap required interest only payments of $63,000 until August 1,
2011, then equal monthly payments of $86,000 based upon a 25-
year amortization schedule and a final payment of $15.6 million at
loan maturity. Principal of $282,000 was amortized during 2012.
(e) The loan is collateralized by Cruse MarketPlace and requires equal
monthly principal and interest payments of $56,000 based upon an
amortization schedule of approximately 24 years and a final pay-
ment of $6.8 million at loan maturity. Principal of $267,000 was
amortized during 2012.
The loan is collateralized by Seabreeze Plaza and requires equal
monthly principal and interest payments totaling $102,000 based
upon a weighted average 26-year amortization schedule and a final
payment of $13.3 million is due at loan maturity. Principal of
$460,000 was amortized during 2012.
(f)
(g) The loan is collateralized by Shops at Fairfax and Boulevard shopping
centers and requires equal monthly principal and interest payments
totaling $156,000 based upon a weighted average 23-year amorti-
zation schedule and a final payment of $15.2 million is due at loan
maturity. Principal of $617,000 was amortized during 2012.
(h) The loan is collateralized by Washington Square and requires equal
monthly principal and interest payments of $264,000 based upon a
27.5-year amortization schedule and a final payment of $28.0 million
at loan maturity. Principal of $1.1 million was amortized during 2012.
The loan is collateralized by three shopping centers, Broadlands Vil-
lage, The Glen and Kentlands Square I, and requires equal monthly
principal and interest payments of $306,000 based upon a 25-year
amortization schedule and a final payment of $28.4 million at loan
maturity. Principal of $1.4 million was amortized during 2012.
The loan is collateralized by Olde Forte Village and requires equal
monthly principal and interest payments of $98,000 based upon a
25-year amortization schedule and a final payment of $9.0 million
at loan maturity. Principal of $442,000 was amortized during 2012.
(j)
(i)
(l)
(k) The loan is collateralized by Countryside and requires equal monthly
principal and interest payments of $133,000 based upon a 25-year
amortization schedule and a final payment of $12.3 million at loan
maturity. Principal of $610,000 was amortized during 2012.
The loan is collateralized by Briggs Chaney MarketPlace and requires
equal monthly principal and interest payments of $133,000 based
upon a 25-year amortization schedule and a final payment of $12.2
million at loan maturity. Principal of $587,000 was amortized during
2012.
(m) The loan is collateralized by Shops at Monocacy and requires equal
monthly principal and interest payments of $112,000 based upon a
25-year amortization schedule and a final payment of $10.6 million
at loan maturity. Principal of $537,000 was amortized during 2012.
(n) The loan is collateralized by Boca Valley Plaza and requires equal
monthly principal and interest payments of $75,000 based upon a
30-year amortization schedule and a final payment of $9.1 million
at loan maturity. Principal of $249,000 was amortized during 2012.
(o) The loan is collateralized by Palm Springs Center and requires equal
monthly principal and interest payments of $75,000 based upon a
25-year amortization schedule and a final payment of $7.1 million
at loan maturity. Principal of $348,000 was amortized during 2012.
(p) The loan and a corresponding interest-rate swap closed on June 29,
2010 and are collateralized by Thruway. On a combined basis, the
loan and the interest-rate swap require equal monthly principal and
interest payments of $289,000 based upon a 25-year amortization
schedule and a final payment of $34.8 million at loan maturity. Prin-
cipal of $909,000 was amortized during 2012.
(t)
(r)
(s)
(q) The loan is collateralized by Jamestown Place and requires equal
monthly principal and interest payments of $66,000 based upon a
25-year amortization schedule and a final payment of $6.1 million
at loan maturity. Principal of $270,000 was amortized during 2012.
The loan is collateralized by Hunt Club Corners and requires equal
monthly principal and interest payments of $42,000 based upon a
30-year amortization schedule and a final payment of $5.0 million,
at loan maturity. Principal of $118,000 was amortized during 2012.
The loan is collateralized by Lansdowne Town Center and requires
monthly principal and interest payments of $230,000 based on a
30-year amortization schedule and a final payment of $28.2 million
at loan maturity. Principal of $678,000 was amortized during 2012.
The loan is collateralized by Orchard Park and requires equal monthly
principal and interest payments of $73,000 based upon a 30-year
amortization schedule and a final payment of $8.6 million at loan
maturity. Principal of $188,000 was amortized during 2012.
(u) The loan is collateralized by BJ’s Wholesale and requires equal
monthly principal and interest payments of $80,000 based upon a
30-year amortization schedule and a final payment of $9.3 million
at loan maturity. Principal of $183,000 was amortized during 2012.
(v) The loan is collateralized by Great Falls shopping center. The loan
consists of three notes which require equal monthly principal and
interest payments of $138,000 based upon a weighted average 26-
year amortization schedule and a final payment of $6.3 million at
maturity. Principal of $611,000 was amortized during 2012.
(w) The loan is collateralized by Leesburg Pike and requires equal
monthly principal and interest payments of $135,000 based upon a
25-year amortization schedule and a final payment of $11.5 million
at loan maturity. Principal of $322,000 was amortized during 2012.
The loan is collateralized by Village Center and requires equal
monthly principal and interest payments of $119,000 based upon a
25-year amortization schedule and a final payment of $10.1 million
at loan maturity. Principal of $269,000 was amortized during 2012.
The loan is collateralized by White Oak and requires equal monthly
principal and interest payments of $193,000 based upon a 24.4 year
weighted amortization schedule and a final payment of $18.5 mil-
lion at loan maturity. The loan was previously collateralized by Van
Ness Square. During 2012, the Company substituted White Oak as
the collateral and borrowed an additional $10.5 million. Principal
of $359,000 was amortized during 2012.
The loan is collateralized by Avenel Business Park and requires equal
monthly principal and interest payments of $246,000 based upon a
25-year amortization schedule and a final payment of $20.9 million
at loan maturity. Principal of $572,000 was amortized during 2012.
(aa) The loan is collateralized by Ashburn Village and requires equal
monthly principal and interest payments of $240,000 based upon a
25-year amortization schedule and a final payment of $20.5 million
at loan maturity. Principal of $554,000 was amortized during 2012.
(y)
(z)
(x)
44
SAUL CENTERS, INC.
2012 ANNUAL REPORT
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(bb) The loan is collateralized by Ravenwood and requires equal monthly
principal and interest payments of $111,000 based upon a 25-year
amortization schedule and a final payment of $10.1 million at loan
maturity. Principal of $312,000 was amortized during 2012.
(cc) The loan is collateralized by Clarendon Center and requires equal
monthly principal and interest payments of $753,000 based upon a
25-year amortization schedule and a final payment of $70.5 million
at loan maturity. Principal of $2.6 million was amortized during
2012.
(dd) The loan is collateralized by Severna Park MarketPlace and requires
equal monthly principal and interest payments of $207,000 based
upon a 25-year amortization schedule and a final payment of $20.3
million at loan maturity. Principal of $872,000 was amortized during
2012.
(ee) The loan is collateralized by Kentlands Square II and requires equal
monthly principal and interest payments of $240,000 based upon a
25-year amortization schedule and a final payment of $23.1 million
at loan maturity. Principal of $953,000 was amortized during 2012.
(ff) The loan is collateralized by Cranberry Square and requires equal
monthly principal and interest payments of $113,000 based upon a
25-year amortization schedule and a final payment of $10.9 million
at loan maturity. Principal of $431,000 was amortized during 2012.
(gg) The loan in the original amount of $73.0 million closed in May 2012,
is collateralized by Seven Corners and requires equal monthly prin-
cipal and interest payments of $463,200 based upon a 25-year
amortization schedule and a final payment of $42.3 million at loan
maturity. Principal of $767,000 was amortized during 2012.
(hh)The loan is a $175.0 million unsecured revolving credit facility. In-
terest accrues at a rate equal to the sum of one-month LIBOR plus
a spread of 1.90 %. The line may be extended at the Company’s
option for one year with payment of a fee of 0.20%. Monthly pay-
ments, if required, are interest only and vary depending upon the
amount outstanding and the applicable interest rate for any given
month.
The loan is collateralized by Northrock and requires monthly principal
and interest payments of $13,409 and a final payment of $14.9 mil-
lion at maturity. Principal of $161,000 was amortized during 2012.
(ii)
The carrying value of the properties collateralizing the mortgage
notes payable totaled $916.1 million and $997.5 million, as of
December 31, 2012 and 2011, respectively. The Company’s
credit facility requires the Company and its subsidiaries to main-
tain certain financial covenants, which are summarized below.
The Company was in compliance as of December 31, 2012.
• maintain tangible net worth, as defined in the loan agreement,
of at least $503.3 million plus 80% of the Company’s net equity
proceeds received after May 2012;
• limit the amount of debt as a percentage of gross asset value,
as defined in the loan agreement, to less than 60% (leverage
ratio);
• limit the amount of debt so that interest coverage will exceed
2.0x on a trailing four-quarter basis (interest expense coverage);
• limit the amount of debt so that interest, scheduled principal
amortization and preferred dividend coverage exceeds 1.3x on
a trailing four-quarter basis (fixed charge coverage); and
• limit the amount of variable rate debt and debt with initial loan
terms of less than five years to no more than 40% of total debt.
Mortgage notes payable at December 31, 2012 and 2011, total-
ing $51.0 million and $99.4 million, respectively, are guaranteed
by members of The Saul Organization. As of December 31, 2012,
the scheduled maturities of all debt including scheduled principal
amortization for years ended December 31, are as follows:
DEBT MATURITY SCHEDULE
(In thousands) Scheduled
Balloon Principal
Payments Amortization Total
2013 $ 37,305 $ 19,212 $ 56,517
2014 13,218 19,677 32,895
2015 15,077 20,209 35,286
2016 38,000 (a) 21,058 59,058
2017 – 22,311 22,311
Thereafter 472,892 148,817 621,709
Total $ 576,492 $ 251,284 $ 827,776
(a) Includes $38 million outstanding under the line of credit.
INTEREST EXPENSE AND AMORTIZATION OF
DEFERRED DEBT COSTS
Year ended December 31,
(In thousands) 2012 2011 2010
The majority of the leases provide for rental increases and ex-
pense recoveries based on fixed annual increases or increases in
the Consumer Price Index and increases in operating expenses.
The expense recoveries generally are payable in equal install-
ments throughout the year based on estimates, with adjust-
ments made in the succeeding year. Expense recoveries for the
years ended December 31, 2012, 2011, and 2010, amounted
to $30.4 million, $28.4 million, and $29.5 million, respectively.
In addition, certain retail leases provide for percentage rent
based on sales in excess of the minimum specified in the tenant’s
lease. Percentage rent amounted to $1.5 million, $1.5 million,
and $1.5 million, for the years ended December 31, 2012, 2011,
and 2010, respectively.
6. LEASE AGREEMENTS
Lease income includes primarily base rent arising from noncance-
lable leases. Base rent (including straight-line rent) for the years
ended December 31, 2012, 2011, and 2010, amounted to
$152.8 million, $138.4 million, and $126.2 million, respectively.
Future contractual payments under noncancelable leases for
years ended December 31 (which exclude the effect of straight-
line rents), are as follows:
FUTURE CONTRACTUAL PAYMENTS
(In thousands)
2013 $ 146,293
2014 123,137
2015 104,558
2016 87,335
2017 70,306
Thereafter 310,790
Total $ 842,419
7. LONG-TERM LEASE OBLIGATIONS
Certain properties are subject to noncancelable long-term leases
which apply to land underlying the Shopping Centers. Certain
of the leases provide for periodic adjustments of the base annual
rent and require the payment of real estate taxes on the under-
lying land. The leases will expire between 2058 and 2068.
Reflected in the accompanying consolidated financial statements
is minimum ground rent expense of $176,000, $173,000, and
$169,000, for the years ended December 31, 2012, 2011, and
2010, respectively. The future minimum rental commitments
under these ground leases are as follows:
GROUND LEASE RENTAL COMMITMENTS
Year ending December 31,
(In thousands) 2013 2014 2015 2016 2017 Thereafter Total
Beacon Center $ 60 $ 60 $ 60 $ 60 $ 60 $ 2,660 $ 2,960
Olney 56 56 56 56 56 3,873 4,153
Southdale 60 60 60 60 60 3,005 3,305
Interest incurred $ 48,010 $ 45,673 $ 40,528
Total $ 176 $ 176 $ 176 $ 176 $ 176 $ 9,538 $10,418
Amortization of deferred
debt costs 1,576 1,547 1,467
Capitalized interest (42) (1,896) (7,196)
Total $ 49,544 $ 45,324 $ 34,799
Deferred debt costs capitalized in 2012 totaled $2.2 million. No
deferred debt costs were capitalized during 2011 and 2010.
In addition to the above, Flagship Center consists of two devel-
oped out parcels that are part of a larger adjacent community
shopping center formerly owned by The Saul Organization and
sold to an affiliate of a tenant in 1991. The Company has a 90-
year ground leasehold interest which commenced in September
1991 with a minimum rent of one dollar per year. Countryside
shopping center was acquired in February, 2004. Because of
certain land use considerations, approximately 3.4% of the un-
derlying land is held under a 99-year ground lease. The lease
requires the Company to pay minimum rent of one dollar per
year as well as its pro-rata share of the real estate taxes.
46
SAUL CENTERS, INC.
2012 ANNUAL REPORT
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company’s corporate headquarters space is leased by a
member of The Saul Organization. The lease commenced in
March 2002 was extended in 2012 for five years, and provides
for base rent increases of 3% per year, with payment of a pro-
rata share of operating expenses over a base year amount. The
Company and The Saul Organization entered into a Shared Serv-
ices Agreement whereby each party pays an allocation of total
rental payments based on a percentage proportionate to the
number of employees employed by each party. The Company’s
rent expense for the years ended December 31, 2012, 2011, and
2010 was $850,000, $945,000, and $893,000, respectively. Ex-
penses arising from the lease are included in general and admin-
istrative expense (see Note 9 – Related Party Transactions).
8. STOCKHOLDERS’ EQUITY AND
NONCONTROLLING INTEREST
The Consolidated Statements of Operations for the years ended
December 31, 2012, 2011, and 2010 reflect noncontrolling in-
terest of $6.4 million, $3.6 million, and $6.4 million, respectively,
representing The Saul Organization’s share of the net income for
the year.
In November 2003, the Company sold 4,000,000 depositary
shares, each representing 1/100th of a share of 8% Series A Cu-
mulative Redeemable Preferred Stock. The depositary shares are
redeemable, in whole or in part at the Company’s option, from
time to time, at $25.00 per share. The depositary shares pay an
annual dividend of $2.00 per share, equivalent to 8% of the
$25.00 per share liquidation preference. The Series A preferred
stock has no stated maturity, is not subject to any sinking fund or
mandatory redemption and is not convertible into any other secu-
rities of the Company. Investors in the depositary shares generally
have no voting rights, but will have limited voting rights if the Com-
pany fails to pay dividends for six or more quarters (whether or not
declared or consecutive) and in certain other events.
In March 2008, the Company sold 3,173,115 depositary shares,
each representing 1/100th of a share of 9% Series B Cumulative
Redeemable Preferred Stock. The depositary shares may be re-
deemed at the Company’s option, on or after March 15, 2013,
in whole or in part, at $25.00 per share. The depositary shares
pay an annual dividend of $2.25 per share, equivalent to 9% of
the $25.00 per share liquidation preference. The Series B pre-
ferred stock has no stated maturity, is not subject to any sinking
fund or mandatory redemption and is not convertible into any
other securities of the Company. Investors in the depositary
shares generally have no voting rights, but will have limited vot-
ing rights if the Company fails to pay dividends for six or more
quarters (whether or not declared or consecutive) and in certain
other events.
In September 2011, in connection with the acquisition of three
shopping centers, the Company and the Operating Partnership
issued to members of The Saul Organization 186,968 shares of
48
SAUL CENTERS, INC.
the Company’s common stock, par value $0.01 per share
(“Shares”) and 1,497,814 units of limited partnership interests
in the Operating Partnership (“Units”) with an aggregate value
of $55.8 million. The price of the Shares and Units was equal
to the average closing prices of the Company’s common stock
listed on the New York Stock Exchange for the five trading days
ending with the trading day immediately preceding the date of
closing of the property acquisition.
9. RELATED PARTY TRANSACTIONS
The Chairman and Chief Executive Officer, the President, the Ex-
ecutive Vice President-Real Estate and the Senior Vice President-
Chief Accounting Officer of the Company are also officers of
various members of The Saul Organization and their manage-
ment time is shared with The Saul Organization. Their annual
compensation is fixed by the Compensation Committee of the
Board of Directors, with the exception of the Senior Vice Presi-
dent-Chief Accounting Officer whose share of annual compen-
sation allocated to the Company is determined by the shared
services agreement (described below).
The Company participates in a multiemployer 401K plan with
entities in The Saul Organization which covers those full-time
employees who meet the requirements as specified in the plan.
Company contributions, which are included in general and ad-
ministrative expense or property operating expenses in the con-
solidated statements of operations, at the discretionary amount
of up to six percent of the employee’s cash compensation, sub-
ject to certain limits, were $379,000, $378,000, and $358,000,
for 2012, 2011, and 2010, respectively. All amounts deferred
by employees and the Company are fully vested.
The Company also participates in a multiemployer nonqualified
deferred compensation plan with entities in The Saul Organiza-
tion which covers those full-time employees who meet the re-
quirements as specified in the plan. According to the plan,
which can be modified or discontinued at any time, participating
employees defer 2% of their compensation in excess of a spec-
ified amount. For the years ended December 31, 2012, 2011,
and 2010, the Company contributed three times the amount
deferred by employees. The Company’s expense, included in
general and administrative expense, totaled $238,000,
$231,000, and $213,000, for the years ended December 31,
2012, 2011, and 2010, respectively. All amounts deferred by
employees and the Company are fully vested. The cumulative
unfunded liability under this plan was $2.2 million and $1.9 mil-
lion, at December 31, 2012 and 2011, respectively, and is in-
cluded in accounts payable, accrued expenses and other
liabilities in the consolidated balance sheets.
The Company has entered into a shared services agreement (the
“Agreement”) with The Saul Organization that provides for the
sharing of certain personnel and ancillary functions such as
computer hardware, software, and support services and certain
direct and indirect administrative personnel. The method for de-
termining the cost of the shared services is provided for in the
Agreement and is based upon head count, estimates of usage
or estimates of time incurred, as applicable. Senior management
has determined that the final allocations of shared costs are rea-
sonable. The terms of the Agreement and the payments made
thereunder are reviewed annually by the Audit Committee of
the Board of Directors, which consists entirely of independent
directors. Billings by The Saul Organization for the Company’s
share of these ancillary costs and expenses for the years ended
December 31, 2012, 2011, and 2010, which included rental ex-
pense for the Company’s headquarters lease (see Note 7. Long
Term Lease Obligations), totaled $6.0 million, $6.1 million, and
$6.5 million, respectively. The amounts are expensed when in-
curred and are primarily reported as general and administrative
expenses or capitalized to specific development projects in these
consolidated financial statements. As of December 31, 2012
and 2011, accounts payable, accrued expenses and other liabil-
ities included $499,000 and $560,000, respectively, representing
billings due to The Saul Organization for the Company’s share
of these ancillary costs and expenses.
The B. F. Saul Insurance Agency of Maryland, Inc., a subsidiary
of the B. F. Saul Company and a member of the Saul Organiza-
tion, is a general insurance agency that receives commissions
and counter-signature fees in connection with the Company’s
insurance program. Such commissions and fees amounted to
approximately $372,000, $341,000, and $324,000, for the years
ended December 31, 2012, 2011, and 2010, respectively.
Effective as of September 4, 2012, the Company entered into a
consulting agreement with B. F. Saul III, the Company’s former
president, whereby Mr. Saul III will provide certain consulting
services to the Company as an independent contractor. Under
the consulting agreement, Mr. Saul III will be paid at a rate of
$60,000 per month. The consulting agreement includes certain
noncompete, nonsolicitation and nondisclosure covenants, and
has a term of up to two years, although the consulting agree-
ment is terminable by the Company at any time. During 2012,
such consulting fees totaled $225,000.
10. STOCK OPTION PLAN
The Company established a stock option plan in 1993 (the
“1993 Plan”) for the purpose of attracting and retaining execu-
tive officers and other key personnel. The 1993 Plan provides
for grants of options to purchase up to 400,000 shares of com-
mon stock. The 1993 Plan authorizes the Compensation Com-
mittee of the Board of Directors to grant options at an exercise
price which may not be less than the market value of the com-
mon stock on the date the option is granted. On May 23, 2003,
the Compensation Committee granted options to purchase a
total of 220,000 shares (80,000 shares from incentive stock op-
tions and 140,000 shares from nonqualified stock options) to six
Company officers (the “2003 Options”). Following the grant of
the 2003 Options, no additional shares remained for issuance
under the 1993 Plan. The 2003 Options vested 25% per year
over four years and have a term of ten years, subject to earlier
expiration upon termination of employment. The exercise price
of $24.91 per share was the closing market price of the Com-
pany’s common stock on the date of the award.
At the annual meeting of the Company’s stockholders in 2004,
the stockholders approved the adoption of the 2004 stock plan
for the purpose of attracting and retaining executive officers, di-
rectors and other key personnel. The 2004 stock plan was sub-
sequently amended by the Company’s stockholders at the 2008
Annual Meeting (the “Amended 2004 Plan”). The Amended
2004 Plan, which terminates in April 2018, provides for grants
of options to purchase up to 1,000,000 shares of common stock
as well as grants of up to 200,000 shares of common stock to
directors. The Amended 2004 Plan authorizes the Compensa-
tion Committee of the Board of Directors to grant options at an
exercise price which may not be less than the market value of
the common stock on the date the option is granted.
Effective April 26, 2004, the Compensation Committee granted
options to purchase a total of 152,500 shares (27,500 shares
from incentive stock options and 125,000 shares from nonqual-
ified stock options) to eleven Company officers and to the twelve
Company directors (the “2004 Options”), which expire on April
25, 2014. The officers’ 2004 Options vested 25% per year over
four years and are subject to early expiration upon termination
of employment. The directors’ options were immediately exer-
cisable. The exercise price of $25.78 per share was the closing
market price of the Company’s common stock on the date of
the award. Using the Black-Scholes model, the Company de-
termined the total fair value of the 2004 Options to be
$360,000, of which $293,000 and $67,000 were the values as-
signed to the officer options and director options, respectively.
Because the directors’ options vested immediately, the entire
$67,000 was expensed as of the date of grant. The expense of
the officers’ options was recognized as compensation expense
monthly during the four years the options vested.
Effective May 6, 2005, the Compensation Committee granted
options to purchase a total of 162,500 shares (35,500 shares
from incentive stock options and 127,000 shares from nonqual-
ified stock options) to twelve Company officers and to twelve
Company directors (the “2005 Options”), which expire on May
5, 2015. The officers’ 2005 Options vested 25% per year over
four years and are subject to early expiration upon termination
of employment. The directors’ options were immediately exer-
cisable. The exercise price of $33.22 per share was the closing
market price of the Company’s common stock on the date of
the award. Using the Black-Scholes model, the Company de-
termined the total fair value of the 2005 Options to be
$484,500, of which $413,400 and $71,100 were the values as-
signed to the officer options and director options, respectively.
2012 ANNUAL REPORT
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Because the directors’ options vested immediately, the entire
$71,100 was expensed as of the date of grant. The expense of
the officers’ options was recognized as compensation expense
monthly during the four years the options vested.
determined the total fair value of the 2009 Options to be
$222,950. Because the directors’ options vested immediately,
the entire $222,950 was expensed as of the date of grant. No
options were granted to the Company’s officers in 2009.
The following table summarizes the amount and activity of each grant, the total value and variables used in the computation and the
amount expensed and included in general and administrative expense in the Consolidated Statements of Operations for the years ended
December 31, 2012, 2011 and 2010:
Effective May 1, 2006, the Compensation Committee granted
options to purchase a total of 30,000 shares (all nonqualified
stock options) to twelve Company directors (the “2006 Op-
tions”), which were immediately exercisable and expire on April
30, 2016. The exercise price of $40.35 per share was the closing
market price of the Company’s common stock on the date of
the award. Using the Black-Scholes model, the Company de-
termined the total fair value of the 2006 Options to be
$143,400. Because the directors’ options vested immediately,
the entire $143,400 was expensed as of the date of grant. No
options were granted to the Company’s officers in 2006.
Effective April 27, 2007, the Compensation Committee granted
options to purchase a total of 165,000 shares (27,560 shares
from incentive stock options and 137,440 shares from nonqual-
ified stock options) to thirteen Company officers and twelve
Company Directors (the “2007 options”), which expire on April
26, 2017. The officers’ 2007 Options vest 25% per year over
four years and are subject to early expiration upon termination
of employment. The directors’ options were immediately exer-
cisable. The exercise price of $54.17 per share was the closing
market price of the Company’s common stock on the date of
award. Using the Black-Scholes model, the Company deter-
mined the total fair value of the 2007 Options to be $1.5 million,
of which $1.3 million and $285,300 were the values assigned
to the officer options and director options, respectively. Because
the directors’ options vested immediately, the entire $285,300
was expensed as of the date of grant. The expense for the offi-
cers’ options was recognized as compensation expense monthly
during the four years the options vested.
Effective April 25, 2008, the Compensation Committee granted
options to purchase a total of 30,000 shares (all nonqualified
stock options) to twelve Company directors (the “2008 Op-
tions”), which were immediately exercisable and expire on April
24, 2018. The exercise price of $50.15 per share was the closing
market price of the Company’s common stock on the date of
the award. Using the Black-Scholes model, the Company de-
termined the total fair value of the 2008 Options to be
$254,700. Because the directors’ options vest immediately, the
entire $254,700 was expensed as of the date of grant. No op-
tions were granted to the Company’s officers in 2008.
Effective April 24, 2009, the Compensation Committee granted
options to purchase a total of 32,500 shares (all nonqualified
stock options) to thirteen Company directors (the “2009 Op-
tions”), which were immediately exercisable and expire on April
23, 2019. The exercise price of $32.68 per share was the closing
market price of the Company’s common stock on the date of
the award. Using the Black-Scholes model, the Company
Effective May 7, 2010, the Compensation Committee granted
options to purchase a total of 32,500 shares (all nonqualified
stock options) to thirteen Company directors (the “2010 Op-
tions”), which were immediately exercisable and expire on May
6, 2020. The exercise price of $38.76 per share was the closing
market price of the Company’s common stock on the date of
the award. Using the Black-Scholes model, the Company de-
termined the total fair value of the 2010 Options to be
$287,950. Because the directors’ options vested immediately,
the entire $287,950 was expensed as of the date of grant. No
options were granted to the Company’s officers in 2010.
Effective May 13, 2011, the Compensation Committee granted
options to purchase a total of 195,000 shares (65,300 shares
from incentive stock options and 129,700 shares from nonqual-
ified stock options) to 15 Company officers and 13 Company
Directors (the “2011 options”), which expire on May 12, 2021.
The officers’ 2011 Options vest 25% per year over four years
and are subject to early expiration upon termination of employ-
ment. The directors’ 2011 options were immediately exercisable.
The exercise price of $41.82 per share was the closing market
price of the Company’s common stock on the date of award.
Using the Black-Scholes model, the Company determined the
total fair value of the 2011 Options to be $1.6 million, of which
$1.3 million and $297,000 were assigned to the officer options
and director options, respectively. Because the directors’ options
vested immediately, the entire $297,000 was expensed as of the
date of grant. The expense for the officers’ options is being rec-
ognized as compensation expense monthly during the four years
the options vest.
Effective May 4, 2012, the Compensation Committee granted
options to purchase a total of 277,500 shares (26,157 shares
from incentive stock options and 251,343 shares from nonqual-
ified stock options) to 15 Company officers and 14 Company
Directors (the “2012 options”), which expire on May 3, 2022.
The officers’ 2012 Options vest 25% per year over four years
and are subject to early expiration upon termination of employ-
ment. The directors’ 2012 options were immediately exercisable.
The exercise price of $39.29 per share was the closing market
price of the Company’s common stock on the date of award.
Using the Black-Scholes model, the Company determined the
total fair value of the 2012 Options to be $1.7 million, of which
$1.44 million and $244,000 were assigned to the officer options
and director options, respectively. Because the directors’ options
vested immediately, the entire $244,000 was expensed as of the
date of grant. The expense for the officers’ options is being rec-
ognized as compensation expense monthly during the four years
the options vest.
Grant date
Total grant
Vested
Exercised
Forfeited
Exercisable at
December 31, 2012
Remaining unexercised
Exercise price
Volatility
Expected life (years)
Assumed yield
Risk-free rate
Total value at
grant date
Forfeited options
Expensed in
previous years
Expensed in 2010
Expensed in 2011
Expensed in 2012
Future expense
Grant date
Total grant
Vested
Exercised
Forfeited
Exercisable at
$
December 31, 2012
Remaining unexercised
Exercise price
Volatility
Expected life (years)
Assumed yield
Risk-free rate
Total value at
grant date
Forfeited options
Expensed in
previous years
Expensed in 2010
Expensed in 2011
Expensed in 2012
Future expense
Remaining weighted
average term of
future expense
STOCK OPTIONS ISSUED TO DIRECTORS
04/26/2004
05/06/2005
05/01/2006
04/27/2007
04/25/2008
04/24/2009
05/07/2010
05/13/2011
5/4/2012
Subtotals
30,000
30,000
21,200
–
8,800
8,800
$ 25.78
0.183
5.0
30,000
30,000
17,500
–
30,000
30,000
2,500
2,500
12,500
12,500
$ 33.22
0.198
10.0
25,000
25,000
$ 40.35
0.206
9.0
30,000
30,000
–
5,000
25,000
25,000
$ 54.17
0.225
8.0
30,000
30,000
–
5,000
25,000
25,000
$ 50.15
0.237
7.0
32,500
32,500
10,000
–
22,500
22,500
$ 32.68
0.344
6.0
32,500
32,500
2,500
2,500
32,500
32,500
2,500
2,500
35,000
35,000
2,500
–
282,500
282,500
58,700
17,500
27,500
27,500
$ 38.76
0.369
5.0
27,500
27,500
$ 41.82
0.358
5.0
32,500
32,500
$ 39.29
0.348
5.0
206,300
206,300
5.75%
3.57%
6.91%
4.28%
5.93%
5.11%
4.39%
4.65%
4.09%
3.49%
4.54%
2.19%
4.23%
2.17%
4.16%
1.86%
4.61%
0.78%
$66,600
–
$71,100
–
$143,400
–
$285,300
–
66,600
–
–
–
–
71,100
–
–
–
–
143,400
–
–
–
–
285,300
–
–
–
–
$254,700
–
–
254,700
–
–
–
–
$222,950
–
$287,950
–
$ 297,375
–
$ 244,388
–
$1,873,763
–
222,950
–
–
–
–
–
287,950
–
–
–
–
–
297,375
–
–
–
–
–
244,388
–
1,044,050
287,950
297,375
244,388
–
STOCK OPTIONS ISSUED TO OFFICERS AND GRAND TOTALS
05/23/2003
04/26/2004
05/06/2005
04/27/2007
05/13/2011
5/4/2012
Subtotals
Grand Totals
220,000
212,500
211,585
7,500
122,500
115,000
91,250
7,500
132,500
118,750
66,375
13,750
135,000
67,500
–
67,500
162,500
40,625
13,750
41,250
242,500
–
–
130,000
$
915
915
24.91
0.175
7.0
7.00%
4.00%
23,750
23,750
25.78
0.183
7.0
5.75%
4.05%
$
$
52,375
52,375
33.22
0.207
8.0
6.37%
4.15%
67,500
67,500
54.17
0.233
6.5
4.13%
4.61%
$
26,875
107,500
41.82
0.330
8.0
4.81%
2.75%
$
–
112,500
39.29
0.315
8.0
5.28%
1.49%
1,015,000
554,375
382,960
267,500
171,415
364,540
1,297,500
836,875
441,660
285,000
377,715
570,840
$ 332,200
11,325
$ 292,775
17,925
$ 413,400
35,100
$1,258,848
–
$1,277,794
252,300
$1,442,148
813,800
$ 5,017,165
1,130,450
$ 6,890,928
1,130,450
320,875
–
–
–
–
274,850
–
–
–
–
378,300
–
–
–
–
2.9 years
839,245
314,712
104,891
–
–
–
–
186,347
270,391
568,756
–
–
–
104,724
523,624
1,813,270
314,712
291,238
375,115
1,092,380
2,857,320
602,662
588,613
619,503
1,092,380
50
SAUL CENTERS, INC.
2012 ANNUAL REPORT
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below summarizes the option activity for the years 2012, 2011, and 2010:
2012 2011 2010
Wtd Avg Wtd Avg Wtd Avg
Shares Exercise Price Shares Exercise Price Shares Exercise Price
Outstanding at January 1 674,585 $ 40.40 532,881 $ 39.12 609,253 $ 36.71
Granted 277,500 39.29 195,000 41.82 32,500 38.76
Exercised (149,995) 31.03 (40,796) 29.03 (108,872) 25.52
Expired/Forfeited (231,250) 43.56 (12,500) 45.05 – –
Outstanding December 31 570,840 41.04 674,585 40.40 532,881 39.12
Exercisable at December 31 377,715 41.41 512,085 39.96 502,256 38.21
The intrinsic value of options exercised in 2012, 2011, and 2010,
was $1.6 million, $688,000, and $2.0 million, respectively. The
intrinsic value of options outstanding and exercisable at year end
2012 was $2.2 million and $1.7 million, respectively. The intrin-
sic value measures the difference between the options’ exercise
price and the closing share price quoted by the New York Stock
Exchange as of the date of measurement. The date of exercise
was the measurement date for shares exercised during the pe-
riod. At December 31, 2012, the final trading day of calendar
2012, the closing price of $42.79 per share was used for the cal-
culation of aggregate intrinsic value of options outstanding and
exercisable at that date. Options having an exercise price in ex-
cess of the December 31, 2012 closing price have no intrinsic
value. The weighted average remaining contractual life of the
Company’s exercisable and outstanding options at December
31, 2012 are 5.0 and 6.4 years, respectively.
11. NON-OPERATING ITEMS
Gain on casualty settlement in 2012 reflects insurance proceeds
received in excess of the carrying value of assets damaged during
a hail storm at French Market in 2012. Gain on casualty settle-
ment in 2011 and 2010 reflects the excess of insurance proceeds
over the carrying value of assets damaged during a severe hail
storm at French Market. The insurance proceeds funded sub-
stantially all of the restoration of the damaged property.
to the carrying value of $774.8 million and $808.8 million at De-
cember 31, 2012 and 2011, respectively. A change in any of the
significant inputs may lead to a change in the Company’s fair
value measurement of its debt.
Effective June 30, 2011, the Company determined that one of
its interest-rate swap arrangements was a highly effective hedge
of the cash flows under one of its variable-rate mortgage loans
and designated the swap as a cash flow hedge of that mort-
gage. The swap is carried at fair value with changes in fair value
recognized either in income or comprehensive income depend-
ing on the effectiveness of the swap. The following chart sum-
marizes the changes in fair value of the Company’s swaps for
the indicated periods.
Year Ended December 31,
(In thousands)
2012 2011 2010
Increase (decrease)
in fair value:
Recognized in earnings $ 36 $ (1,332) $ –
Recognized in other
comprehensive
income (932) (3,195) (543)
and correlations of such inputs. The swap agreements terminate
on June 30, 2013 and July 1, 2020. As of December 31, 2012,
the fair value of the interest-rate swaps was approximately $5.9
million and is included in “Accounts payable, accrued expenses
and other liabilities” in the consolidated balance sheets. The de-
crease in value from inception of the swap designated as a cash
flow hedge is reflected in “Other Comprehensive Income” in the
Consolidated Statements of Comprehensive Income.
13. COMMITMENTS AND CONTINGENCIES
Neither the Company nor the Current Portfolio Properties are
subject to any material litigation, nor, to management’s knowl-
edge, is any material litigation currently threatened against the
Company, other than routine litigation and administrative pro-
ceedings arising in the ordinary course of business. Management
believes that these items, individually or in the aggregate, will
not have a material adverse impact on the Company or the Cur-
rent Portfolio Properties.
14. DISTRIBUTIONS
In December 1995, the Company established a Dividend Rein-
vestment and Stock Purchase Plan (the “Plan”), to allow its
stockholders and holders of limited partnership interests an op-
portunity to buy additional shares of common stock by reinvest-
ing all or a portion of their dividends or distributions. The Plan
provides for investing in newly issued shares of common stock
at a 3% discount from market price without payment of any
brokerage commissions, service charges or other expenses. All
expenses of the Plan are paid by the Company. The Operating
Partnership also maintains a similar dividend reinvestment plan
that mirrors the Plan, which allows holders of limited partnership
interests the opportunity to buy either additional limited part-
nership units or common stock shares of the Company.
The Company paid common stock distributions of $1.44 per
share, $1.44 per share, and $1.44 per share, during 2012, 2011,
and 2010, respectively, and Series A preferred stock dividends
of $2.00 per depositary share and Series B preferred stock divi-
dends of $2.25 per share during each of the years in the period
ended December 31, 2012. Of the common stock dividends
paid, $0.95 per share, $0.72 per share, and $1.008 per share,
represented ordinary dividend income and $0.49 per share,
$0.72 per share, and $0.432 per share represented return of
capital to the shareholders. All of the preferred stock dividends
paid were considered ordinary dividend income.
The following summarizes distributions paid during the years ended December 31, 2012, 2011, and 2010, and includes activity in
the Plan as well as limited partnership units issued from the reinvestment of unit distributions:
Total Distributions to Dividend Reinvestments
Limited Common
Preferred Common Partnership Stock Shs Discounted
(In thousands) Stockholders Stockholders Unitholders Issued Share Price
Distributions during 2012
October 31 $ 3,785 $ 7,121 $ 2,489 141,960 $ 42.23
July 31 3,785 7,063 2,489 144,881 40.43
April 30 3,785 7,005 2,489 145,118 38.93
January 31 3,785 6,946 2,489 163,429 34.44
Total $ (896) $ (4,527) $ (543)
Total 2012 $ 15,140 $ 28,135 $ 9,956 595,388
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, accounts re-
ceivable, accounts payable and accrued expenses are reasonable
estimates of their fair value. The aggregate fair value of the notes
payable with fixed-rate payment terms was determined using
Level 3 data in a discounted cash flow approach, which is based
upon management’s estimate of borrowing rates and loan terms
currently available to the Company for fixed rate financing, and
assuming long term interest rates of approximately 4.0% and
4.30%, would be approximately $848.1 million and $889.2 mil-
lion, as of December 31, 2012 and 2011, respectively, compared
The Company carries its interest rate swaps at fair value. The
Company has determined the majority of the inputs used to
value its derivative fall within Level 2 of the fair value hierarchy
with the exception of the impact of counter-party risk, which
was determined using Level 3 inputs and are not significant. De-
rivative instruments are classified within Level 2 of the fair value
hierarchy because their values are determined using third-party
pricing models which contain inputs that are derived from ob-
servable market data. Where possible, the values produced by
the pricing models are verified by the market prices. Valuation
models require a variety of inputs, including contractual terms,
market prices, yield curves, credit spreads, measure of volatility,
Distributions during 2011
October 31 $ 3,785 $ 6,867 $ 2,489 160,589 $ 34.82
July 31 3,785 6,772 1,950 125,973 38.30
April 30 3,785 6,730 1,950 111,592 42.49
January 31 3,785 6,693 1,950 100,094 45.92
Total 2011 $ 15,140 $ 27,062 $ 8,339 498,248
Distributions during 2010
October 31 $ 3,785 $ 6,608 $ 1,950 114,854 $ 41.14
July 31 3,785 6,567 1,950 107,932 41.27
April 30 3,785 6,525 1,950 103,496 39.07
January 31 3,785 6,486 1,950 100,565 34.58
Total 2010 $ 15,140 $ 26,186 $ 7,800 426,847
52
SAUL CENTERS, INC.
2012 ANNUAL REPORT
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In December 2012, the Board of Directors of the Company au-
thorized a distribution of $0.36 per common share payable in
January 2013, to holders of record on January 17, 2013. As a
result, $7.2 million was paid to common shareholders on January
31, 2013. Also, $2.5 million was paid to limited partnership
unitholders on January 31, 2013 ($0.36 per Operating Partner-
ship unit). The Board of Directors authorized preferred stock div-
idends of $0.50 per Series A depositary share, to holders of
record on January 7, 2013 and $0.5625 per Series B depositary
share to holders of record on January 7, 2013. As a result, $3.8
million was paid to preferred shareholders on January 15, 2013.
These amounts are reflected as a reduction of stockholders’ eq-
uity in the case of common stock and preferred stock dividends
and noncontrolling interest deductions in the case of limited part-
ner distributions and are included in dividends and distributions
payable in the accompanying consolidated financial statements.
15. INTERIM RESULTS (UNAUDITED)
The following summary presents the results of operations of the Company for the quarterly periods of calendar years 2012 and 2011.
(In thousands, except per share amounts) 2012
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Revenue $46,989 $47,373 $47,443 $48,287
Operating income before loss on early extinguishment of debt,
gain on casualty settlement, acquisition costs, discontinued
operations and noncontrolling interest 9,318 9,598 8,160 9,149
Gain on sales of properties – – – 4,510
Net income attributable to Saul Centers, Inc. 7,864 8,079 7,948 9,483
Net income available to common shareholders 4,079 4,294 4,163 5,698
Net income available to common shareholders per share (diluted) 0.21 0.22 0.21 0.29
2011
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Revenue $41,608 $42,666 $42,756 $46,848
Operating income before loss on early extinguishment of debt,
gain on casualty settlement, acquisition costs, discontinued
operations and noncontrolling interest 8,340 8,247 8,636 8,747
Net income attributable to Saul Centers, Inc. 7,309 6,398 5,504 7,522
Net income available to common shareholders 3,524 2,613 1,719 3,737
Net income available to common shareholders per share (diluted) 0.19 0.14 0.09 0.19
16. BUSINESS SEGMENTS
The Company has two reportable business segments: Shopping Centers and Mixed-Use Properties. The accounting policies of the
segments are the same as those described in the summary of significant accounting policies (see Note 2). The Company evaluates per-
formance based upon income and cash flows from real estate for the combined properties in each segment. All of our properties
within each segment generate similar types of revenues and expenses related to tenant rent, reimbursements and operating expenses.
Although services are provided to a range of tenants, the types of services provided to them are similar within each segment. The
properties in each portfolio have similar economic characteristics and the nature of the products and services provided to our tenants
and the method to distribute such services are consistent throughout the portfolio. Certain reclassifications have been made to prior
year information to conform to the 2012 presentation.
Shopping Mixed-Use Corporate Consolidated
(In thousands) Centers Properties and Other Totals
As of or for the year ended December 31, 2012
Real estate rental operations:
Revenue $ 137,647 $ 52,309 $ 136 $ 190,092
Expenses (30,139) (17,131) – (47,270)
Income from real estate 107,508 35,178 136 142,822
Interest expense and amortization of deferred debt costs – – (49,544) (49,544)
General and administrative – – (14,274) (14,274)
Subtotal 107,508 35,178 (63,682) 79,004
Depreciation and amortization of deferred leasing costs (25,667) (14,445) – (40,112)
Predevelopment expenses – (2,667) – (2,667)
Acquisition related costs (1,129) – – (1,129)
Change in fair value of derivatives – – 36 36
Gain on casualty settlement 219 – – 219
Loss from operations of property sold (81) – – (81)
Gain on property dispositions 4,510 – – 4,510
Net income $ 85,360 $ 18,066 $ (63,646) $ 39,780
Capital investment $ 46,353 $ 8,290 $ – $ 54,643
Total assets $ 894,027 $ 301,355 $ 11,927 $ 1,207,309
As of or for the year ended December 31, 2011
Real estate rental operations:
Revenue $ 127,767 $ 46,035 $ 76 $ 173,878
Expenses (30,372) (14,658) – (45,030)
Income from real estate 97,395 31,377 76 128,848
Interest expense and amortization of deferred debt costs – – (45,324) (45,324)
General and administrative – – (14,256) (14,256)
Subtotal 97,395 31,377 (59,504) 69,268
Depreciation and amortization of deferred leasing costs (23,077) (12,221) – (35,298)
Decrease in fair value of derivatives – – (1,332) (1,332)
Acquisition related costs (2,534) – – (2,534)
Loss from operations of property sold (55) – – (55)
Gain on casualty settlement 245 – – 245
Net income $ 71,974 $ 19,156 $ (60,836) $ 30,294
Capital investment $ 177,958 $ 24,546 $ – $ 202,504
Total assets $ 871,409 $ 308,053 $ 13,107 $ 1,192,569
54
SAUL CENTERS, INC.
2012 ANNUAL REPORT
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. BUSINESS SEGMENTS (CONTINUED)
Shopping Mixed-Use Corporate Consolidated
(In thousands) Centers Properties and Other Totals
As of or for the year ended December 31, 2010
Real estate rental operations:
Revenue $ 125,015 $ 38,060 $ 33 $ 163,108
Expenses (29,923) (12,052) – (41,975)
Income from real estate 95,092 26,008 33 121,133
Interest expense and amortization of deferred debt costs – – (34,799) (34,799)
General and administrative – – (13,968) (13,968)
Subtotal 95,092 26,008 (48,734) 72,366
Depreciation and amortization of deferred leasing costs (20,491) (7,888) – (28,379)
Loss on early extinguishment of debt – – (5,405) (5,405)
Acquisition related costs (1,179) – – (1,179)
Gain on casualty settlement 2,475 – – 2,475
Loss from operations of property sold (284) – – (284)
Gain on property sale 3,591 – – 3,591
Net income $ 79,204 $ 18,120 $ (54,139) $ 43,185
Capital investment $ 29,253 $ 68,986 $ – $ 98,239
Total assets $ 704,624 $ 294,791 $ 14,473 $1,013,888
17. SUBSEQUENT EVENTS
On January 31, 2013, the Company issued a notice to redeem
60% of the depositary shares related to the 8% Series A Cumu-
lative Redeemable Preferred Stock at a price of $25.00 per de-
positary share, plus accrued dividends. The depositary shares
were redeemed pro-rata on March 2, 2013.
On February 12, 2013, the Company sold, in an underwritten
public offering, 5.6 million depositary shares, each representing
1/100th of a share of 6.875% Series C Cumulative Redeemable
Preferred Stock, providing net cash proceeds of approximately
$134.8 million. The depositary shares may be redeemed at the
Company’s option, in whole or in part, at the $25.00 liquidation
preference plus accrued but unpaid dividends on or after Febru-
ary 12, 2018. The depositary shares pay an annual dividend of
$1.71875 per share, equivalent to 6.875% of the $25.00 liqui-
dation preference. The first dividend is scheduled to be paid on
April 15, 2013 and covers the period from February 12, 2013
through March 31, 2013. The Series C preferred stock has no
stated maturity, is not subject to any sinking fund or mandatory
redemption and is not convertible into any other securities of the
Company except in connection with certain changes of control
or delisting events. Investors in the depositary shares generally
have no voting rights, but will have limited voting rights if the
Company fails to pay dividends for six or more quarters (whether
or not declared or consecutive) and in certain other events.
On February 12, 2013, the Company issued a notice to redeem
all of the outstanding depositary shares related to the 9% Series
B Cumulative Redeemable Preferred Stock at a price of $25.00
per depositary share, plus accrued dividends. The redemption
date is March 15, 2013.
On February 27, 2013, the Company closed on a three-year
$15.6 million mortgage loan secured by Metro Pike Center. The
loan matures in 2016, bears interest at a variable rate equal to
the sum of one-month LIBOR and 165 basis points, requires
monthly principal and interest payments based on a 25-year
amortization schedule and a final payment of $14.7 million at
maturity. The loan may be extended for up to two-years. Pro-
ceeds were used to pay-off the $15.9 million remaining balance
of existing debt secured by Metro Pike Center, and to extinguish
the related swap agreement, which were scheduled to mature
in June 2013.
On February 27, 2013, the Company closed on a three-year
$15.0 million mortgage loan secured by Northrock. The loan
matures in 2016, bears interest at a variable rate equal to the
sum of one-month LIBOR and 165 basis points, requires monthly
principal and interest payments based on a 25-year amortization
schedule and a final payment of $14.2 million at maturity. The
loan may be extended for up to two years. Proceeds were
used to pay-off the $15.0 million remaining balance of existing
debt secured by Northrock, which was scheduled to mature in
May 2013.
The Company recently completed negotiation of lease termina-
tion agreements with the tenants of Van Ness Square and ex-
pects the building will be vacant on or about April 30, 2013.
Costs incurred related to those termination arrangements are
being amortized to expense using the straight-line method over
the remaining terms of the leases. In addition, the remaining
lives of (a) straight line rent recognition and (b) the building, have
been adjusted to end on April 30, 2013.
56
SAUL CENTERS, INC.
2012 ANNUAL REPORT
57
DIVIDEND REINVESTMENT PLAN AND DISTRIBUTIONS
MARKET INFORMATION
DIVIDEND REINVESTMENT PLAN
Saul Centers, Inc. offers a dividend reinvestment plan which
enables its shareholders to automatically invest some of or all div-
idends in additional shares. The plan provides shareholders with
a convenient and cost-free way to increase their investment in
Saul Centers. Shares purchased under the dividend reinvestment
plan are issued at a 3% discount from the average price of the
stock on the dividend payment date. The Plan’s prospectus is
available for review in the Shareholders Information section of
the Company’s web site.
To receive more information please call the plan administrator at
(800) 509-5586 and request to speak with a service representa-
tive or write:
Continental Stock Transfer and Trust Company
Attention: Saul Centers, Inc.
Dividend Reinvestment Plan
17 Battery Place
New York, NY 10004
DIVIDENDS AND DISTRIBUTIONS
Under the Code, REITs are subject to numerous organizational
and operating requirements, including the requirement to dis-
tribute at least 90% of REIT taxable income. The Company dis-
tributed amounts greater than the required amount in 2012 and
2011. Distributions by the Company to common stockholders
and holders of limited partnership units in the Operating Part-
nership were $38.1 million and $35.4 million in 2012 and 2011,
respectively. Distributions to preferred stockholders were $15.1
million in both 2012 and 2011. See Notes to Consolidated Finan-
cial Statements, No. 14, “Distributions.” The Company may or
may not elect to distribute in excess of 90% of REIT taxable
income in future years.
The Company’s estimate of cash flow available for distributions
is believed to be based on reasonable assumptions and represents
a reasonable basis for setting distributions. However, the actual
results of operations of the Company will be affected by a variety
of factors, including but not limited to actual rental revenue, op-
erating expenses of the Company, interest expense, general eco-
nomic conditions, federal, state and local taxes (if any),
unanticipated capital expenditures, the adequacy of reserves and
preferred dividends. While the Company intends to continue pay-
ing regular quarterly distributions, any future payments will be
determined solely by the Board of Directors and will depend on
a number of factors, including cash flow of the Company, its fi-
nancial condition and capital requirements, the annual distribu-
tion amounts required to maintain its status as a REIT under the
Code, and such other factors as the Board of Directors deems
relevant. We are obligated to pay regular quarterly distributions
to holders of depositary shares of Series A preferred stock, 60%
of which was redeemed on March 2, 2013, at the rate of $2.00
per annum per depositary share, to holders of depositary shares
of Series B preferred stock at the rate of $2.25 per annum per
depositary share through its March 15, 2013 redemption, and to
holders of depositary shares of Series C preferred stock at the
rate of $1.71875 per annum per depositary share beginning Feb-
ruary 12, 2013, prior to distributions on the common stock.
The Company paid four quarterly distributions totaling $1.44 per
common share during each of the years in the three-year period
ended December 31, 2012. The annual distribution amounts paid
by the Company exceed the distribution amounts required for
tax purposes. Distributions to the extent of our current and ac-
cumulated earnings and profits for federal income tax purposes
generally will be taxable to a stockholder as ordinary dividend in-
come. Distributions in excess of current and accumulated earn-
ings and profits will be treated as a nontaxable reduction of the
stockholder’s basis in such stockholder’s shares, to the extent
thereof, and thereafter as taxable gain. Distributions that are
treated as a reduction of the stockholder’s basis in its shares will
have the effect of deferring taxation until the sale of the stock-
holder’s shares. Of the $1.44 per common share dividend paid
in 2012, 66% was treated as a taxable dividend and 34% was
treated as a return of capital. Of the $1.44 per common share
dividend paid in 2011, 50% was treated as a taxable dividend
income and 50% was treated as a return of capital. Of the $1.44
per common share dividend paid in 2010, 70.0% was taxable
dividend income and 30.0% was considered return of capital.
No assurance can be given regarding what portion, if any, of dis-
tributions in 2013 or subsequent years will constitute a return of
capital for federal income tax purposes. All of the preferred stock
dividends paid are treated as ordinary dividend income.
Shares of Saul Centers common stock are listed on the New York Stock Exchange under the symbol “BFS”. The composite high and low closing sale
prices for the shares of common stock were reported by the New York Stock Exchange for each quarter of 2012 and 2011 as follows:
COMMON STOCK PRICES
Period Share Price
High Low
October 1, 2012 – December 31, 2012 $45.34 $40.81
July 1, 2012 – September 30, 2012 $45.83 $40.59
April 1, 2012 – June 30, 2012 $43.32 $39.01
January 1, 2012 – March 31, 2012 $40.62 $33.44
October 1, 2011 – December 31, 2011 $36.66 $32.26
July 1, 2011 – September 30, 2011 $41.72 $31.54
April 1, 2011 – June 30, 2011 $44.29 $37.16
January 1, 2011 – March 31, 2011 $48.40 $42.30
On March 1, 2013, the closing price was $44.34 per share.
The approximate number of holders of record of the common stock was 220 as of March 1, 2013.
PERFORMANCE GRAPH
Rules promulgated under the Exchange Act require the Company to present a graph comparing the cumulative total stockholder return on its Common
Stock with the cumulative total stockholder return of (i) a broad equity market index, and (ii) a published industry index or peer group. The following
graph compares the cumulative total stockholder return of the Company’s common stock, based on the market price of the common stock and
assuming reinvestment of dividends, with the National Association of Real Estate Investment Trust Equity Index (“NAREIT Equity”), the S&P 500 Index
(“S&P 500”) and the Russell 2000 Index (“Russell 2000”). The graph assumes the investment of $100 on January 1, 2008.
COMPARISON OF CUMULATIVE TOTAL RETURN
$130
$120
$110
$100
$90
$80
$70
$60
58
SAUL CENTERS, INC.
2012 ANNUAL REPORT
59
Jan. 1, 2008
Dec. 31, 2008
Dec. 31, 2009
Dec. 31, 2010
Dec. 31, 2011
Dec. 31, 2012
Jan. 1, 2008
Dec. 31, 2008
Dec. 31, 2009
Dec. 31, 2010
Dec. 31, 2011
Dec. 31, 2012
Saul Centers
S&P 500
Russell 2000
NAREIT Equity
$100
$100
$100
$100
$77
$63
$66
$62
$67
$80
$84
$80
$101
$92
$107
$102
$78
$94
$102
$110
$98
$109
$119
$130
SAUL CENTERS CORPORATE INFORMATION
DIRECTORS
B. Francis Saul II
Chairman and Chief
Executive Officer
EXECUTIVE OFFICERS
B. Francis Saul II
Chairman and Chief
Executive Officer
Thomas H. McCormick
President and Chief Operating Officer
Thomas H. McCormick
President and Chief Operating Officer
J. Page Lansdale
Executive Vice President,
Real Estate
Scott V. Schneider
Senior Vice President,
Chief Financial Officer,
Treasurer and Secretary
Debra Stencel
Senior Vice President and
General Counsel
Joel A. Friedman
Senior Vice President,
Chief Accounting Officer
Christopher H. Netter
Senior Vice President, Leasing
John F. Collich
Senior Vice President,
Acquisitions and Development
Charles W. Sherren, Jr.
Senior Vice President, Management
COUNSEL
Pillsbury Winthrop
Shaw Pittman LLP
Washington, DC 20037
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Ernst and Young LLP
McLean, Virginia 22102
Philip D. Caraci
Vice Chairman
The Honorable
John E. Chapoton
Partner, Brown Investment Advisory
George P. Clancy, Jr.
Executive Vice President, Emeritus
Chevy Chase Bank
Gilbert M. Grosvenor
Chairman Emeritus of
the Board of Trustees,
National Geographic Society
Philip C. Jackson, Jr.
Adjunct Professor Emeritus,
Birmingham-Southern College
General Paul X. Kelley
28th Commandant of
the Marine Corps
Charles R. Longsworth
Chairman Emeritus, Colonial
Williamsburg Foundation
Patrick F. Noonan
Chairman Emeritus,
The Conservation Fund
H. Gregory Platts
Senior Vice President and
Treasurer, Emeritus,
National Geographic Society
Mark Sullivan III
Financial and Legal Consultant
The Honorable
James W. Symington
Of Counsel, O’Connor and Hannan,
Attorneys at Law
John R. Whitmore
Financial Consultant
60
SAUL CENTERS, INC.
WEB SITE
www.saulcenters.com
EXCHANGE LISTING
New York Stock
Exchange (NYSE) Symbol:
Common Stock: BFS
Preferred Stock: BFS.PrA
BFS.PrC
TRANSFER AGENT
Continental Stock Transfer and
Trust Company
17 Battery Place
New York, NY 10004
(800) 509-5586
INVESTOR RELATIONS
A copy of the Saul Centers, Inc. annual
report to the Securities and Exchange
Commission on Form 10-K, which
includes as exhibits the Chief Executive
Officer and Chief Financial Officer
Certifications required by Section 302 of
the Sarbanes-Oxley Act, may be printed
from the Company’s web site or
obtained at no cost to stockholders by
writing to the address below or calling
(301) 986-6016. In 2012, the Company
filed with the NYSE the Certification of
its Chief Executive Officer confirming
that he was not aware of any violation
by the Company of the NYSE’s corporate
governance listing standards.
HEADQUARTERS
7501 Wisconsin Ave.
Suite 1500E
Bethesda, MD 20814-6522
Phone: (301) 986-6200
Annual Meeting of Shareholders
The Annual Meeting of Shareholders will be held at 11:00 a.m., local
time, on May 10, 2013, at the Hyatt Regency Bethesda, One Bethesda
Metro Center, Bethesda, MD (at the southwest corner of the Wisconsin
Avenue and Old Georgetown Road intersection, adjacent to the
Bethesda Metro Stop on the Metro Red Line.)
7501 Wisconsin Avenue, Suite 1500E
Bethesda, MD 20814-6522
Phone: (301) 986-6200
Website: www.saulcenters.com