2013
Annual Report
SAUL CENTERS, INC.
IS A SELF-MANAGED, SELF-ADMINISTERED EQUITY
REAL ESTATE INVESTMENT TRUST (REIT) HEADQUAR-
TERED IN BETHESDA, MARYLAND. SAUL CENTERS
CURRENTLY OPERATES AND MANAGES A REAL
ESTATE PORTFOLIO COMPRISED OF 59 PROPERTIES
WHICH INCLUDES (A) 56 COMMUNITY AND NEIGH-
BORHOOD SHOPPING CENTERS AND MIXED-USE
PROPERTIES WITH APPROXIMATELY 9.3 MILLION
SQUARE FEET OF LEASABLE AREA AND (B) THREE
LAND AND DEVELOPMENT PROPERTIES. OVER 85%
OF THE COMPANY’S PROPERTY OPERATING INCOME
IS GENERATED BY PROPERTIES IN THE METROPOLI-
TAN WASHINGTON, DC/BALTIMORE AREA.
TOTAL REVENUE
(In millions)
$197.9
$190.1
$173.9
$160.5
$163.1
$200
$175
$150
$125
$100
$75
$50
$25
NET INCOME
Available to Common Stockholders
(In millions)
FUNDS FROM OPERATIONS*
Available to Common Shareholders
(In millions)
$21.6
$21.6
$18.2
$11.6
$11.7
$30
$25
$20
$15
$10
$5
$70
$60
$56.0
$64.7
$60.1
$50.6
$50.3
$50
$40
$30
$20
$10
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
* Funds From Operations (FFO) is a non-GAAP financial measure. See page 24 for a definition
of FFO and reconciliation from Net Income.
PORTFOLIO COMPOSITION Based on 2013 Property Operating Income
75.6%
Shopping Centers
24.4%
Mixed-Use
85.3%
Metropolitan
Washington, DC/
Baltimore area
14.7%
Rest of U.S.
Year ended December 31,
2013 2012 2011 2010 2009
Summary Financial Data
Total Revenue $197,897,000 $ 190,092,000 $173,878,000 $163,108,000 $ 160,539,000
Net Income Available to
Common Stockholders $ 11,661,000 $ 18,234,000 $ 11,593,000 $ 21,623,000 $ 21,573,000
FFO Available to Common
Shareholders $ 64,684,000 $ 60,100,000 $ 50,309,000 $ 50,556,000 $ 56,025,000
Weighted Average Common
Stock Outstanding (Diluted) 20,401,000 19,700,000 18,949,000 18,377,000 17,943,000
Weighted Average Shares
and Units Outstanding 27,330,000 26,614,000 24,740,000 23,793,000 23,359,000
Net Income Per Share Available to
Common Stockholders (Diluted) $ 0.57 $ 0.93 $ 0.61 $ 1.18 $ 1.20
FFO Per Share Available to Common
Shareholders (Diluted) $ 2.37 $ 2.26 $ 2.03 $ 2.12 $ 2.40
Common Dividend as a Percentage
of FFO 61% 64% 71% 68% 63%
Interest Expense Coveragea 2.98 2.68 2.62 3.22 3.28
Property Data
Number of Operating Propertiesb 56 57 58 55 52
Total Portfolio Square Feet 9,333,000 9,489,000 9,543,000 8,901,000 8,424,000
Shopping Center Square Feet 7,880,000 7,877,000 7,933,000 7,293,000 7,218,000
Mixed-Use Square Feet 1,453,000 1,612,000 1,610,000 1,608,000 1,206,000
Average Percentage Leasedc 92% 91% 90% 91% 92%
(a)
Interest expense coverage is defined as operating income before the sum of interest expense and amortization of deferred debt, predevelopment expenses,
acquisition related costs, and depreciation and amortization of deferred leasing costs, divided by interest expense.
(b) Excludes development parcels (Ashland Square Phase II and New Market, 2009 – 2012 and Ashland Square Phase II, New Market and Park Van Ness in 2013).
(c) Average percentage leased for 2013, 2012 and 2011 excludes Clarendon Center residential, which averaged 98%, 98% and 97% leased, respectively.
2013 ANNUAL REPORT
1
MESSAGE to shareholders
MESSAGE to shareholders
Park Van Ness (artist’s rendering), Washington, DC
August 2013 marked our 20th anniversary
as a public REIT. Since our
1993 initial public offering, through expansion and
redevelopment of our core properties and selective
acquisitions and new developments, our portfolio has
grown from 29 operating properties with 5.3 million square
feet of leasable area to 56 operating properties with 9.3
million square feet of leasable area.
In addition, several of our recent acquisitions, on a com-
bined basis, are zoned for up to 2.4 million square feet of
mixed-use development. Due largely to this portfolio
growth and our core property cash flow growth, our total
capitalization increased from $500 million in 1993 to $2.3
billion as of December 31, 2013. Our total return to share-
holders, including both dividends and share price
appreciation, has averaged 11.5% compounded annually
over these 20 years.
Though we have been expanding our mixed-use, mass-
transit oriented holdings through land assemblage and
development, our core business continues to be neigh-
borhood and community shopping centers. In 2013, over
75% of our property operating income was produced by
our shopping center portfolio. During the past year, slow
and steady economic improvement allowed us to
increase portfolio leasing percentage and property
operating income, even as federal austerity continued to
hinder economic growth in and around the Washington,
DC region. We executed 287 new or renewed leases, the
most ever in a single year for our company, comprising 1.5
million square feet of commercial space. Entering 2014,
our properties are 93.9% leased, up from a low of 90.2%
during the recent recession.
Development & Redevelopment
In early 2013, the last office and retail tenants vacated our
159,000 square foot Van Ness Square office/retail building,
clearing the way for the redevelopment of the site with a
224,000 square foot apartment/retail building. This new
project, named Park Van Ness, has a prestigious and con-
venient Connecticut Avenue location just north of the Van
Ness Metro station, as well as a Rock Creek Park setting
typical of a quiet suburb. The new building will include
271 luxury apartments and 9,000 square feet of street-level
retail. The project will include underground parking and
amenities, including a community room, a fitness center,
landscaped courtyards, and a rooftop pool and deck.
2
SAUL CENTERS, INC.
Development site, Twinbrook Metro, Rockville, MD
Ashburn Village, Ashburn, VA
Demolition of the existing building is complete and new
construction is underway with completion scheduled in
late 2015. The total development costs are estimated to
be $93 million. While there are many new residential
projects underway in the Washington, DC metropolitan
area, high barriers to entry have limited new supply in the
Connecticut Avenue and Upper Northwest, Washington,
DC corridor.
Additionally, we continue to assemble acreage in the area
surrounding Montgomery County’s Twinbrook Metro sta-
tion along the east side of Rockville Pike at Congressional
Lane. In January 2014, we closed on a 1.2 acre site with a
12,000 square foot CVS pharmacy. When combined with
our adjacent 1500 Rockville Pike, we have 7.9 acres of land
zoned for up to 900,000 square feet of mixed-use,
transit-oriented development.
One Metro stop to the south, at White Flint, we acquired
a total of 7.6 acres on both sides of Rockville Pike between
2010 and 2012. These sites have a combined mixed-use
development potential of up to 1.5 million square feet.
The properties currently contain one- and two-story retail
buildings that produce an acceptable return on our land
investment while we are engaged in the plan approval and
permitting process.
implementing this 10-plus year
The timetable for
development pipeline along Rockville Pike at the
Twinbrook and White Flint Metro stations will be deter-
mined by the plan approval process and market conditions.
Balance Sheet Highlights
In 2013, we took advantage of the attractive capital
markets environment through several transactions. In
February 2013, we issued $140 million of Series C perpetual
preferred stock with a coupon of 6-7/8%. The proceeds
of this offering were used to redeem all $80 million of our
9% Series B and $60 million of our 8% Series A preferred
shares. As a result, our weighted average cost of preferred
equity was reduced to 7.1% from 8.4%, an annual savings
of $2.3 million. During 2013, we completed $71.0 million
of 15-year, fixed-rate property financings at a weighted
average interest rate of 3.77%, plus an additional $30.6
million of 3-year financings at LIBOR plus 1.65%. With
these financings, we reduced our weighted average cost
of debt by 30 basis points, to 5.54% from 5.84%. Finally, in
October 2013 we closed on a $71.6 million construction-
to-permanent loan for Park Van Ness which has an
18.8-year term and bears interest at a fixed-rate of 4.88%.
Draws under the loan will begin in the spring of 2014 and
continue as construction progresses.
Debt maturities over the next five years total only $72
million. At December 31, 2013, our interest expense cov-
erage was a comfortable 2.98 times, and our leverage was
a modest 35% debt to total capitalization. There are no
outstanding borrowings under our $175 million credit line,
and we have additional borrowing capacity with one of
our most valuable assets, 601 Pennsylvania Avenue, held
free and clear of debt. All these factors combine to give
us over $250 million of borrowing capacity to fund our
future development activities.
2013 ANNUAL REPORT
3
Harris Teeter, Lansdowne Town Center, Leesburg, VA
Beacon Center, Alexandria, VA
Kentlands Square II, Gaithersburg, MD
Hunt Club Corners, Apopka, FL
4
SAUL CENTERS, INC.
2013 Financial Results
As we moved further into the current economic recovery
cycle, 2013 brought us a continuation of improved Funds
From Operations (FFO), increased same property leasing per-
centage, and growth in property operating income. Total
revenue increased to $197.9 million in 2013 from $190.1 million
in 2012, and operating income increased to $35.3 million from
$35.1 million in 2012. Net income available to common stock-
holders was $11.7 million in 2013 compared to $18.2 million in
2012. While the commencement of our Park Van Ness
development and our successful preferred stock offering are
significant long-term positive events, they had a short term
negative impact on 2013 operating income and net income.
Excluding the impact of Park Van Ness’ depreciation and pre-
development expenses and preferred stock redemption
charges, net income available to common stockholders in
2013 would have been $4.2 million higher than in 2012.
During 2013, overall same property revenue increased 4.2% and
same property operating income increased 4.4%. Same prop-
erty comparisons exclude the results of properties not in
operation for the entirety of the comparable reporting periods.
Shopping center
income
increased 3.6% and mixed-use same property operating
income increased 7.0%. Shopping center results benefitted pri-
marily from higher revenue as a result of an 89,000 square foot
increase in leased space. Clarendon Center office space leasing
was the primary contributor to the mixed-use improvement.
same property operating
FFO available to common shareholders (after deducting pre-
ferred stock dividends and redemption charges) increased
7.6% to $64.7 million ($2.37 per share) from $60.1 million
($2.26 per share) in 2012. The increase was a result of:
• property operating income increases of $7.2 million;
• lower interest expense of $3.0 million; and
• $1.2 million of lower preferred stock dividends.
The combined impact was partially offset by preferred stock
redemption charges totaling $5.2 million.
Southdale, Glen Burnie, MD
Shopping Center Performance
The positive post-recession retail operating trend we ex-
perienced in 2012 continued in 2013. While our 2012
portfolio performance was highlighted by the re-leasing of
over 150,000 square feet of anchor tenant space vacated
during the downturn, our 2013 leasing percentage and
property operating income growth were driven by im-
provement from small shops. At year end 2012, small shop
space comprised approximately 2.5 million retail square
feet, which was 86.9% leased. Leasing improved by 71,000
square feet over the past year, to 89.8% at year end 2013.
Our pre-recession high for small shop leasing was over
94.0%, indicating that we have additional growth potential
within our core shopping centers.
Shopping center rental rate increases on expiring leases
have also shown signs of rebounding. For the three years
from 2006 through 2008, same space rental rates im-
proved an average of 10.3%. The recessionary period from
2009 to 2011 saw rents in our portfolio decline an average
of 4.8%. Since then, same space new and renewal rents
increased 1.6% in 2012 and 0.1% in 2013, stabilizing, but still
below earlier highs.
One of the best indicators of the strength of our shopping
center locations and tenants is the percentage of tenants
who renew their leases at expiration. Over the past five
years, from 2008 through 2012, tenants representing an
average of 68% of our expiring base rents renewed their
leases, with a high of 74% in 2009. During 2013, tenants
representing over 78% of expiring base rents renewed. The
high renewal rate is significant because high tenant reten-
tion results in a continuation of rental income without
re-leasing expenses and revenue down time. In turn, this
contributes to improved same center property operating
income, as we saw in 2013.
Our core growth is supplemented by selected shopping
center renovations and pad site expansions. By example,
2014 results are expected to be positively impacted by the
2013 acquisition of a 7,000 square foot pad building
adjacent to our Kentlands shopping center which has been
leased to an upscale restaurant tenant. We also expect
increased leasing at Countryside shopping center follow-
ing site upgrades constructed during 2013 which improved
access, visibility, and parking convenience, three critical
ingredients to the success of retailers.
The grocery business continues to be very competitive
throughout the country. With continued challenges from
discounters such as Target and Wal-Mart, and grocery
superstores like Wegman’s, grocery sales within our port-
folio have been relatively flat over the past five years.
Sales volumes for the 25 grocery stores that have been in
our centers for the past five years are only 2% higher than
2013 ANNUAL REPORT
5
601 Pennsylvania Avenue, Washington, DC
2009 levels. Despite the slow sales growth, sales volumes
are healthy. For our 31 grocers that reported sales in 2013,
overall sales averaged $491 per square foot, and ten
of these stores reported sales in excess of $600 per
square foot.
due to office tenant occupancy and escalating residential
rents, contributed another $1.9 million to FFO in 2013. Fully
leased and occupied by mid-2013, this significant mixed-
use, transit-oriented development is now our largest asset
as measured by property operating income.
Our 37 core Washington, DC/Baltimore metropolitan area
centers, which produce over 80% of our shopping center
property operating income, are supported by three-mile
surrounding population counts averaging 101,000 and
household incomes averaging $114,000. These well
located in-fill shopping centers are positioned for
sustained growth in the future.
Mixed-Use Performance
During 2013, despite very slow office demand in most of
the Washington, DC submarkets, our mixed-use portfolio
leasing percentage improved to 90.5% from 87.7% in 2012.
Our Clarendon Center mixed-use project continued its
strong performance. Since its completion in late 2010,
Clarendon Center added $1.0 million to FFO in 2012 and,
Significant 2014 lease expirations at 601 Pennsylvania
Avenue were successfully renewed during 2013 and early
this year. This building had five tenant leases, representing
125,000 square feet of office space, or 55% of the building
square footage, scheduled to expire in 2014. All five have
been renewed and the weighted average lease term is 8.8
years. Additionally, we are currently upgrading and mod-
ernizing the building common areas, including the lobby,
fitness center and elevators. This combined effort will
well-situate the building, the second largest asset in our
portfolio as measured by property operating income, in
the current softness of the office market. Our four
Washington, DC area mixed-use projects should remain
stable over the next two years. Only 111,000 square feet
of leases, or 10% of the total square footage, are
scheduled to expire in 2014 and 2015.
6
SAUL CENTERS, INC.
Thruway, Winston-Salem, NC
Our increased leasing percentage and growth in property
operating income were the primary drivers behind our
Board’s recent decision to increase our quarterly common
stock dividend by 11.1%, to $0.40/share from $0.36/share.
We believe there is still room for growth within our core
shopping center portfolio as overall market occupancy rates
improve due to the limited new supply of centers under
development. Our development pipeline, beginning with
the Park Van Ness apartments, our Montgomery County
transit-oriented sites, and other opportunistic acquisitions
or developments which we continue to pursue, should
enhance our core operating performance for the foresee-
able future. We extend our appreciation to our dedicated
team of professionals and our loyal shareholders who have
supported our efforts over the past 20 years.
For the Board
B. Francis Saul II
March 10, 2014
Clarendon Center,
Arlington, VA
2013 ANNUAL REPORT
7
As of December 31, 2013, 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 75% 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 358,071
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 137,662
CRANBERRY SQUARE, WESTMINSTER, MD 141,450
CRUSE MARKETPLACE, CUMMING, GA 78,686
FLAGSHIP CENTER, ROCKVILLE, MD 21,500
FRENCH MARKET, OKLAHOMA CITY, OK 244,718
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 247,783
KENTLANDS PLACE, GAITHERSBURG, MD 40,648
LANSDOWNE TOWN CENTER, LEESBURG, VA 189,422
LEESBURG PIKE PLAZA, BAILEYS CROSSROADS, VA 97,752
LUMBERTON PLAZA, LUMBERTON, NJ 193,084
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
8
SAUL CENTERS, INC.
GROSS LEASABLE
PROPERTY/LOCATION SQUARE FEET
OLNEY, OLNEY, MD 53,765
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 174,518
SOUTHDALE, GLEN BURNIE, MD 484,115
SOUTHSIDE PLAZA, RICHMOND, VA 371,761
SOUTH DEKALB PLAZA, ATLANTA, GA 163,418
THRUWAY, WINSTON-SALEM, NC 362,056
VILLAGE CENTER, CENTREVILLE, VA 146,032
WESTVIEW VILLAGE, FREDERICK, MD 97,145
WHITE OAK, SILVER SPRING, MD 480,676
TOTAL SHOPPING CENTERS 7,880,269
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
WASHINGTON SQUARE, ALEXANDRIA, VA 236,376
TOTAL MIXED-USE PROPERTIES 1,452,742
TOTAL PORTFOLIO 9,333,011
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
Quantitative and Qualitative Disclosures
About Market Risk
Management’s Report on Internal Control Over
Financial Reporting
Report of Independent Registered
Public Accounting Firm
Report of Independent Registered Public
Accounting Firm on Internal Control Over
Financial Reporting
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of
Comprehensive Income
Consolidated Statements of
Stockholders’ Equity
Consolidated Statements of Cash Flows
Page 27
Page 27
Page 28
Page 29
Page 30
Page 31
Page 32
Page 33
Page 34
Notes to Consolidated Financial Statements
Pages 35-56
2013 ANNUAL REPORT
9
SELECTED FINANCIAL DATA
(In thousands, except per share data) Years Ended December 31,
2013 2012 2011 2010 2009
Operating Data:
Total revenue $ 197,897 $ 190,092 $ 173,878 $ 163,108 $ 160,539
Total operating expenses 162,628 154,996 142,442 120,300 115,177
Operating income 35,269 35,096 31,436 42,808 45,362
Non-operating income:
Change in fair value of derivatives (7) 36 (1,332) – –
Loss on early extinguishment of debt (497) – – (5,405) (2,210)
Gain on casualty settlements 77 219 245 2,475 329
Income from continuing operations 34,842 35,351 30,349 39,878 43,481
Discontinued operations – 4,429 (55) 3,307 (251)
Net income 34,842 39,780 30,294 43,185 43,230
Income attibutable to the noncontrolling interest (3,970) (6,406) (3,561) (6,422) (6,517)
Net income attributable to Saul Centers, Inc. 30,872 33,374 26,733 36,763 36,713
Preferred stock redemption (5,228) – – – –
Preferred dividends (13,983) (15,140) (15,140) (15,140) (15,140)
Net income available to common stockholders $ 11,661 $ 18,234 $ 11,593 $ 21,623 $ 21,573
Per Share Data (diluted):
Net income (loss) available to common stockholders:
Continuing operations $ 0.57 $ 0.70 $ 0.61 $ 1.00 $ 1.21
Discontinued operations – 0.23 – 0.18 (0.01)
Total $ 0.57 $ 0.93 $ 0.61 $ 1.18 $ 1.20
Basic and diluted shares outstanding:
Weighted average common shares - basic 20,364 19,649 18,889 18,267 17,904
Effect of dilutive options 37 51 60 110 39
Weighted average common shares - diluted 20,401 19,700 18,949 18,377 17,943
Weighted average convertible limited partnership units 6,929 6,914 5,791 5,416 5,416
Weighted average common shares and fully
converted limited partnership units - diluted 27,330 26,614 24,740 23,793 23,359
Dividends Paid:
Cash dividends to common stockholders (1) $ 29,205 28,135 $ 27,062 $ 26,186 $ 27,358
Cash dividends per share $ 1.44 $ 1.44 $ 1.44 $ 1.44 $ 1.50
Balance Sheet Data:
Real estate investments (net of accumulated depreciation) $ 1,094,776 $ 1,112,763 $ 1,091,448 $ 927,250 $ 834,914
Total assets 1,198,675 1,207,309 1,192,569 1,013,888 925,574
Total debt, including accrued interest 823,328 831,121 835,459 713,997 639,405
Preferred stock 180,000 179,328 179,328 179,328 179,328
Total stockholders’ equity 315,126 307,289 293,206 239,813 226,063
Other Data:
Cash flow provided by (used in):
Operating activities $ 73,527 $ 78,423 $ 55,669 $ 62,887 $ 68,344
Investing activities $ (26,034) $ (46,873) $ (201,500) $ (98,239) $ (80,469)
Financing activities $ (42,329) $ (31,740) $ 145,186 $ 27,713 $ 19,726
Funds from operations (2):
Net income $ 34,842 $ 39,780 $ 30,294 $ 43,185 $ 43,230
Real property depreciation and amortization 49,130 40,112 35,298 28,379 28,061
Real property depreciation - discontinued operations – 77 102 198 203
Gain on property dispositions and casualty settlements (77) (4,729) (245) (6,066) (329)
Funds from operations 83,895 75,240 65,449 65,696 71,165
Preferred stock redemption (5,228) – – – –
Preferred dividends (13,983) (15,140) (15,140) (15,140) (15,140)
Funds from operations available to common shareholders $ 64,684 $ 60,100 $ 50,309 $ 50,556 $ 56,025
(1) During 2013, 2012, 2011, 2010, and 2009, shareholders reinvested $20.7 million, $23.1 million, $19.8 million, $16.7 million and $4.1 million, respectively, in newly
issued common stock through the Company’s dividend reinvestment plan.
(2) Funds from operations (FFO) is a non-GAAP financial measure and is defined in “Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations-Funds From Operations.”
10
SAUL CENTERS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 incorporated 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 16, the Company provides an
analysis of its liquidity and capital resources, including discussions
of its cash flows, debt arrangements, sources of capital and finan-
cial 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 should be read in conjunction with the other sections
of this Annual Report, including the consolidated financial state-
ments and notes thereto beginning on page 30. Historical results
set forth in Selected Financial Information and the Consolidated
Financial Statements should not be taken as indicative of the
Company’s future operations.
OVERVIEW
The Company’s principal business activity is the ownership,
management 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
community and neighborhood shopping center business and to
operate 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
Shopping Center and Mixed-Use Properties expire and are
renewed, or newly available or vacant space is leased. The
Company intends 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, management expects to revise rental rates, lease
terms and conditions, 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 selec-
tively attempts 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
selectively 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 re-
tail redevelopments and renovations.
During the fourth quarter of 2012, the Company acquired two
properties along the Rockville Pike corridor of Rockville, Maryland,
one of which is adjacent to one of the Company’s existing prop-
erties. 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 is zoned for up to
745,000 square feet of rentable mixed-use space. The Company
is actively engaged in a plan for redevelopment but has not com-
mitted to any timetable for commencement of construction.
In December 2012, the Company purchased for $12.2 million,
including acquisition costs, approximately 20,100 square feet of
retail space, located on the east side of Rockville Pike near the
White Flint Metro station 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 720,000 square
feet of rentable mixed-use space. When combining these two
properties with our Metro Pike shopping center on the west side
of Rockville Pike, the Company's holdings at White Flint total 7.6
acres which are zoned for a development potential of up to 1.5
million square feet of mixed-use space. The Company is actively
engaged in a plan for redevelopment but has not committed to
any timetable for commencement of construction.
In 2011, the Company acquired three Giant Food-anchored
shopping centers located in the Maryland suburbs of the Wash-
ington, D.C./Baltimore metropolitan area. The three centers,
Kentlands Square II, Severna Park MarketPlace and Cranberry
Square, total 636,000 square feet of leasable area. The $170.9 mil-
lion purchase price, including acquisition costs, was financed with
(1) $98.0 million of debt secured by the properties; (2) approxi-
mately $17.1 million in cash and borrowings from the Company’s
revolving credit facility; and (3) $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, manage-
ment believes acquisition opportunities for investment in existing
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 positioned to take ad-
vantage of additional investment opportunities as attractive
properties are located and market conditions improve. (See “Item
2013 ANNUAL REPORT
11
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1. Business - Capital Policies”). It is management’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 charac-
teristics. The Company will continue to evaluate acquisition,
development and redevelopment as integral parts of its overall
business plan.
During the most recent downturn in the national real estate mar-
ket, the effects on the office and retail markets in the
metropolitan Washington, DC area, where the majority of the
Company’s properties are located, initially were generally less se-
vere than in many other areas of the country. However, continued
economic uncertainty in the local economies where the Com-
pany’s properties are located resulting from issues facing the
Federal government relating to spending cuts and budget policies
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 ele-
vated in certain submarkets compared to pre-recession levels;
however, the Company’s overall leasing percentage on a compar-
ative same property basis, which excludes the impact of properties
not in operation for the entirety of the comparable periods, at De-
cember 31, 2013 increased to 93.9% from 92.6% at December 31,
2012, an increase in leased space of approximately 123,100 square
feet, primarily caused by the leasing of 70,800 square feet of small
shop space in the Shopping Centers and improved leasing at
Avenel Business Park.
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 Company to
obtain additional secured borrowings if necessary. As of December
31, 2013, amortizing fixed-rate mortgage debt with staggered ma-
turities from 2015 to 2032 represented approximately 96.3% of the
Company’s notes payable, thus minimizing refinancing risk. The
Company’s variable-rate debt consists of a $14.8 million bank term
loan secured by the Northrock shopping center and a $15.4 million
bank term loan secured by the Metro Pike Center. As of December
31, 2013, the Company has loan availability of approximately $164.2
million under its $175.0 million unsecured revolving line of credit.
Although it is management’s present intention to concentrate fu-
ture acquisition and development activities on community and
neighborhood shopping centers and office properties in the Wash-
ington, DC/Baltimore metropolitan area and the southeastern
region of the United States, the Company may, in the future, also
acquire other types of real estate in other areas of the country as
opportunities present themselves. While the Company may diver-
sify 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 cer-
tain estimates and assumptions that affect the reporting of
financial position and results of operations. See Note 2 to the Con-
solidated Financial Statements in this report. The Company has
identified the following policies that, due to estimates and as-
sumptions 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 estate
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 Com-
pany’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 ag-
gregate 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 pre-
pared 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 expected
to be generated by the property including an initial lease up pe-
riod. 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 in-place lease relative
to market terms for similar leases at acquisition taking into con-
sideration the remaining contractual lease period, renewal periods,
and the likelihood of the tenant exercising its renewal options.
The fair value of a below market lease component is recorded as
deferred income and accreted as additional lease revenue over
the remaining contractual lease period. If the fair value of the
below market lease intangible includes fair value associated with
a renewal option, such amounts are not accreted until the renewal
option is exercised. If the renewal option is not exercised the
value is recognized at that time. 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 associated with the lease-up period. Intangible assets asso-
ciated with at-market in-place leases are amortized as additional
12
SAUL CENTERS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
expense over the remaining contractual lease term. To the extent
customer relationship intangibles are present in an acquisition, the
fair value of the intangibles are amortized over the life of the cus-
tomer relationship. From time to time the Company may purchase
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 existing leases and not
include estimated cash flows related to future leases.
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 in identifying impairment indicators includ-
ing recurring operating losses, significant decreases in occupancy,
and significant adverse changes in legal factors and business
climate. If impairment indicators are present, the Company
compares the projected cash flows of the property over its re-
maining useful life, on an undiscounted basis, to the carrying value
of that property. The Company assesses its undiscounted pro-
jected 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 impair-
ment loss equivalent to an amount required to adjust the carrying
amount to its then estimated fair value. The fair value of any prop-
erty 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 valu-
ation could be negatively or positively affected.
When incurred, the Company capitalizes the cost of improve-
ments that extend the useful life of property and equipment. All
repair and maintenance expenditures are expensed when incurred.
Leasehold improvements expenditures are capitalized when cer-
tain criteria are met, including when we supervise construction
and will own the improvement. Tenant improvements we own are
depreciated 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 de-
preciation 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 gener-
ally 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.
DEFERRED LEASING COSTS
Certain initial direct costs incurred by the Company in negotiating
and consummating successful commercial leases are capitalized 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 evaluat-
ing prospective tenants’ financial condition, evaluating and recording
guarantees, collateral and other security arrangements, negotiating
lease terms, preparing lease documents 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
control of the space has been given to the tenant. When rental
payments due under leases vary from a straight-line basis because
of free rent periods or scheduled rent increases, income is recog-
nized on a straight-line basis throughout the term of the lease.
Expense recoveries represent a portion of property operating ex-
penses billed to tenants, including common area maintenance, 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 exceed a specified break-
point specified in the lease agreement.
ALLOWANCE FOR DOUBTFUL ACCOUNTS -
CURRENT AND DEFERRED RECEIVABLES
Accounts receivable primarily represent amounts accrued and un-
paid from tenants in accordance with the terms of the respective
leases, subject to the Company’s revenue recognition policy. Re-
ceivables are reviewed monthly and reserves are established with
a charge to current period operations when, in the opinion of man-
agement, collection of the receivable is doubtful. In addition to
rents due currently, accounts receivable include amounts repre-
senting 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.
2013 Annual REPORT
13
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 effect
on its financial position or the results of operations. Once it has
been determined that a loss is probable to occur, the estimated
amount of the loss is recorded in the financial statements. Both
the amount of the loss and the point at which its occurrence is
considered probable can be difficult to determine.
RESULTS OF OPERATIONS
Same property revenue and operating income were $194.4 million
and $147.3 million, respectively, in 2013 representing increases of
$7.8 million (4.2%) and $6.2 million (4.4%) over 2012. Same property
comparisons for 2013 and 2012 include 49 Shopping Centers and
six Mixed-Use Properties which were in operation for the entirety
of 2013 and 2012.
Same property revenue and operating income were $160.1 million
and $119.7 million, respectively, in 2012 representing decreases of
$1.5 million (0.9%) and $1.9 million (1.6%) compared to 2011. Same
property comparisons for 2012 and 2011 include 46 Shopping Cen-
ters and five Mixed-Use Properties which were in operation for
the entirety of 2012 and 2011.
The following is a discussion of the components of revenue and expense for the entire Company.
REVENUE
For the year ended December 31, Percentage Change
(Dollars in thousands) 2013 2012 2011 2013 from 2012 2012 from 2011
Base rent $ 159,898 $ 152,777 $ 138,486 4.7% 10.3%
Expense recoveries 30,949 30,391 28,368 1.8% 7.1%
Percentage rent 1,575 1,545 1,503 1.9% 2.8%
Other 5,475 5,379 5,521 1.8% (2.6)%
Total revenue $ 197,897 $ 190,092 $ 173,878 4.1% 9.3%
Base rent includes $3,035, $3,796, and $3,694, for the years 2013, 2012, and 2011, respectively, to recognize base rent on a straight-line basis. In addition,
base rent includes $1,692, $1,495, and $1,119, for the years 2013, 2012, and 2011, respectively, to recognize income from the amortization of in-place leases.
EXPENSE RECOVERIES
Expense recovery income increased $0.6 million in 2013 compared
to 2012. Expense recovery income increased $2.0 million in 2012
compared to 2011 primarily due to $1.7 million of increased
expense recovery income generated by the New 2011 Properties.
OTHER REVENUE
Other revenue increased $0.1 million in 2013 compared to 2012.
The decline in other revenue 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.
Total revenue increased 4.1% in 2013 compared to 2012 primarily
due to $7.1 million of higher base rent (a) generated by properties
acquired or developed in 2012 (the "New 2012 Properties") ($2.3
million) and (b) increases throughout the portfolio ($6.6 million)
partially offset by (c) Van Ness Square ($2.0 million). Total revenue
increased 9.3% in 2012 compared to 2011 primarily due to $14.5
million of aggregate revenue generated by Clarendon Center and
the three Shopping Center Properties acquired in 2011 (collectively,
the “New 2011 Properties”). A discussion of the components of
revenue follows.
BASE RENT
The $7.1 million increase in base rent in 2013 compared to 2012 was
attributable to (a) the New 2012 Properties ($2.3 million) and (b) in-
creases throughout the portfolio ($6.6 million) partially offset by
(c) Van Ness Square ($2.0 million). 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 2011 Properties and $2.3
million of increased base rent in the remainder of the portfolio.
14
SAUL CENTERS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATING EXPENSES
For the year ended December 31, Percentage Change
(Dollars in thousands) 2013 2012 2011 2013 from 2012 2012 from 2011
Property operating expenses $ 24,559 $ 23,794 $ 24,715 3.2% (3.7)%
Provision for credit losses 968 1,151 1,880 (15.9)% (38.8)%
Real estate taxes 22,415 22,325 18,435 0.4% 21.1%
Interest expense and
amortization of deferred debt costs 46,589 49,544 45,324 (6.0)% 9.3%
Depreciation and amortization of
deferred leasing costs 49,130 40,112 35,298 22.5% 13.6%
General and administrative 14,951 14,274 14,256 4.7% 0.1%
Acquisition related costs 106 1,129 2,534 (90.6)% (55.4)%
Predevelopment expenses 3,910 2,667 – 46.6% –
Total operating expenses $ 162,628 $ 154,996 $ 142,442 4.9% 8.8%
Total operating expenses increased 4.9% in 2013 compared to 2012
primarily due to $8.0 million of additional depreciation expense
and $1.2 million of higher predevelopment expenses related to the
redevelopment of Park Van Ness. Total operating expenses in-
creased 8.8% in 2012 compared to 2011 primarily due to increased
real estate taxes, interest expense, depreciation expense and pre-
development expense.
PROPERTY OPERATING EXPENSES
Property operating expenses increased $765,000 in 2013 compared
to 2012. Property operating expenses decreased $921,000 in 2012
compared to 2011 primarily due to lower snow removal costs.
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
$183,000 decrease in 2013 compared to 2012 as well as the
$729,000 decrease in 2012 compared to 2011 reflects a general im-
provement in the retail economy and lack of significant
bankruptcy losses among the Company’s various tenants.
REAL ESTATE TAXES
Real estate taxes increased $90,000 in 2013 compared to 2012. 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 2011 Properties.
INTEREST AND AMORTIZATION OF DEFERRED DEBT
Interest expense decreased $3.0 million in 2013 compared to 2012
primarily due to a 30 basis point decrease in the average cost of
debt to 5.54% from 5.84%. Interest expense increased $4.2 million
in 2012 compared to 2011 primarily due to approximately $4.1 mil-
lion of interest related to $67.2 million of higher average debt
balances and $1.9 million of reduced capitalized interest, partially
offset by $2.1 million of lower interest resulting from lower average
cost of debt.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization of deferred leasing costs increased
by $9.0 million in 2013 compared to 2012 primarily due to $8.0 mil-
lion of additional depreciation expense on the building at the
former Van Ness Square as a result of the reduction of its useful
life to four months effective January 1, 2013. Depreciation and
amortization of deferred leasing costs increased $4.8 million in
2012 compared to 2011 primarily due to the New 2011 Properties.
GENERAL AND ADMINISTRATIVE
General and administrative costs increased $677,000 in 2013 com-
pared to 2012 primarily due to (a) increased consulting expense
($495,000) and (b) increased stock option expense ($245,000).
ACQUISITION RELATED COSTS
Acquisition related costs in 2013 totaling approximately $106,000
relate to the purchase of a retail pad with a 7,100 square foot
restaurant located in Gaithersburg, Maryland which is contiguous
with and an expansion of the Company's other Kentlands assets.
Acquisition related costs in 2012 totaling approximately $1.1 million
related to the December 2012 purchases of 1500 Rockville Pike and
5541 Nicholson Lane.
Acquisition related costs in 2011 totaling approximately $2.5 million
related to the Company’s September 23, 2011, purchase of Kent-
lands 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 Company’s Van Ness Square in
Washington, DC.
PREDEVELOPMENT EXPENSES
Predevelopment expenses represent costs, primarily lease termi-
nation and demolition costs, incurred with the repositioning and
redevelopment of Van Ness Square.
2013 Annual REPORT
15
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GAIN ON CASUALTY SETTLEMENT
Gain on casualty settlement in 2013 and 2012 reflect insurance
proceeds received in excess of the carrying value of assets damaged
during a hail storm at French Market in 2012. Gain on casualty set-
tlement in 2011 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 pro-
ceeds funded substantially all of the restoration of the damaged
property.
LOSS ON EARLY EXTINGUISHMENT OF DEBT
On September 4, 2013, the Company closed on a 15-year, non-
recourse $18.0 million mortgage loan secured by Seabreeze Plaza.
The loan matures in 2028, bears interest at a fixed rate of 3.99%,
requires monthly principal and interest payments totaling $94,900
based on a 25-year amortization schedule and requires a final pay-
ment of $9.5 million at maturity. Proceeds were used to pay off
the $13.5 million remaining balance of existing debt secured by
Seabreeze Plaza which was scheduled to mature in May 2014 and
the Company incurred $497,000 of related debt extinguishment
costs.
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.
IMPACT OF INFLATION
Inflation has remained relatively low during 2013 and 2012. The im-
pact of rising operating expenses due to inflation on the operating
performance of the Company’s portfolio would have been miti-
gated by terms in substantially all of the Company’s leases which
contain provisions designed to increase revenues to offset the ad-
verse impact of inflation on the Company’s results 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 reim-
bursement of operating expenses by tenants. These leases tend to
reduce the Company’s exposure to rising property expenses due
to inflation. Inflation and increased costs may have an adverse im-
pact 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 $17.3 million and $12.1 million at
December 31, 2013 and 2012, respectively. The changes in cash and
cash equivalents during the years ended December 31, 2013 and
2012 were attributable to operating, investing and financing activ-
ities, as described below.
Year Ended December 31,
(Dollars in thousands) 2013 2012
Net cash provided by
operating activities $ 73,527 $ 78,423
Net cash used in
investing activities (26,034) (46,873)
Net cash used in
financing activities (42,329) (31,740)
Increase (decrease) in cash
and cash equivalents $ 5,164 $ (190 )
OPERATING ACTIVITIES
Net cash provided by operating activities decreased $4.9 million
to $73.5 million for the year ended December 31, 2013 compared
to $78.4 million for the year ended December 31, 2012. Net cash
provided by operating activities represents, in each year, cash
received primarily from rental income, plus other income, less
property operating expenses, normal recurring general and admin-
istrative expenses and interest payments on debt outstanding.
INVESTING ACTIVITIES
Net cash used in investing activities decreased $20.8 million to
$26.0 million for the year ended December 31, 2013 from $46.9 mil-
lion for the year ended December 31, 2012. Investing activities in
2013 primarily reflect tenant improvements and capital expendi-
tures ($14.0 million), the Company's development activities ($7.3
million) and the acquisition of a retail pad in Gaithersburg,
Maryland ($5.1 million). Net cash used in investing activities
decreased $154.6 million to $46.9 million for the year ended
December 31, 2012 from $201.5 million for the year ended
December 31, 2011. Investing activities in 2012 primarily reflect (a)
the purchases of 1500 Rockville Pike and 5541 Nicholson Lane (b)
tenant improvements 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.
Tenant improvement and property capital expenditures totaled
$14.0 million and $12.7 million for 2013 and 2012, respectively.
16
SAUL CENTERS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCING ACTIVITIES
Net cash used in financing activities was $42.3 million and $31.7 mil-
lion for the years ended December 31, 2013 and 2012, respectively.
Net cash used in financing activities in 2013 primarily reflects:
• preferred stock redemption payments totaling $139.3 million;
• the repayment of mortgage notes payable totaling $71.3 million;
• the repayment of amounts borrowed under the revolving credit
facility totaling $180.0 million;
• distributions to common stockholders totaling $29.2 million;
• distributions to holders of convertible limited partnership units
in the Operating Partnership totaling $10.0 million;
• distributions made to preferred stockholders totaling $14.6 mil-
lion; and
• payments of $3.2 million for financing costs of mortgage notes
payable
which was partially offset by:
• proceeds of $101.6 million received from mortgage notes payable;
• proceeds of $135.2 million received from the sale of Series C pre-
ferred stock;
• proceeds of $142.0 million received from revolving credit facility
draws;
• proceeds of $4.1 million from the issuance of limited partnership
units in the Operating Partnership under the dividend reinvest-
ment program; and
• proceeds of $22.3 million from the issuance of common stock
under the dividend reinvestment program, directors deferred plan
and the exercise of stock options.
Net cash used in financing activities for the year ended December
31, 2012 primarily reflects:
• 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 Partnership
during the year totaling $38.1 million;
• distributions made to preferred stockholders during the year
totaling $15.1 million;
• repayments of $8.0 million on the revolving credit facility; and
• payments of $2.2 million for financing costs of new mortgage
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 common
stock under the dividend reinvestment program and from the
exercise of stock options.
LIQUIDITY REQUIREMENTS
Short-term liquidity requirements consist primarily of normal
recurring operating expenses and capital expenditures, debt serv-
ice requirements (including debt service relating to additional and
replacement debt), distributions to common and preferred stock-
holders, distributions to unit holders and amounts required for
expansion and renovation of the Current Portfolio Properties and
selective acquisition and development of additional properties.
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 liquidity
requirements (other than amounts required for additional property
acquisitions and developments) through cash provided from op-
erations, 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 requirements
will also include amounts required for property acquisitions and
developments. In October 2013, the Company entered into an
arrangement with a general contractor and intends to develop Park
Van Ness, a primarily residential project with street-level retail.
The total cost of the project, excluding predevelopment expense
and land costs, is expected to be approximately $93.0 million, a
portion of which will be funded with a $71.6 million construction-
to-permanent loan that closed in October 2013 and the remainder
will be funded with the Company's working capital, including its
existing line of credit. The Company may also redevelop certain
of the Current Portfolio Properties and may develop additional
freestanding outparcels or expansions 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, developments, expansions or acquisitions
are expected to be funded with available cash, bank borrowings
from the Company’s credit line, construction and permanent fi-
nancing, proceeds from the operation of the Company’s dividend
reinvestment plan or other external debt or equity capital re-
sources available to the Company.
Any future borrowings may be at the Saul Centers, Operating Part-
nership or Subsidiary Partnership level, and securities offerings may
include (subject to certain limitations) the issuance of additional
limited partnership interests in the Operating Partnership which
can be converted into shares of Saul Centers common stock. The
availability and terms of any such financing will depend upon mar-
ket and other conditions.
2013 Annual REPORT
17
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONTRACTUAL PAYMENT OBLIGATIONS
As of December 31, 2013, the Company had unfunded contractual
payment obligations of approximately $101.2 million, excluding
operating obligations, due within the next 12 months. The table
below shows the total contractual payment obligations as of
December 31, 2013.
CONTRACTUAL PAYMENT OBLIGATIONS
Payments Due By Period
(Dollars in thousands) One Year or Less 2-3 Years 4-5 Years After 5 Years Total
Notes Payable:
Interest $ 44,181 $ 82,986 $ 75,729 $ 167,876 $ 370,772
Scheduled Principal 22,191 46,452 49,377 154,901 272,921
Balloon Payments – 44,008 27,872 475,267 547,147
Subtotal 66,372 173,446 152,978 798,044 1,190,840
Ground Leases (1) 176 352 351 9,364 10,243
Corporate Headquarters Lease (1) 859 1,796 153 – 2,808
Development Obligations 26,073 38,220 – – 64,293
Tenant Improvements 7,730 – 278 – 8,008
Total Contractual Obligations $ 101,210 $ 213,814 $ 153,760 $ 807,408 $ 1,276,192
(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 opera-
tions and its capital resources, which at December 31, 2013 included
cash balances of $17.3 million and borrowing availability of approx-
imately $164.2 million on its revolving line of credit, will be
sufficient to meet its contractual obligations for the foreseeable
future.
18
SAUL CENTERS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PREFERRED STOCK ISSUES
In March 2013, the Company redeemed 60% of its then-outstand-
ing 8% Series A Cumulative Redeemable Preferred Stock (the
“Series A Stock”) and all of its 9% Series B Cumulative Redeemable
Preferred Stock.
The Company has outstanding 1.6 million depositary shares, each
representing 1/100th of a share of Series A 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
accrued but unpaid dividends. The depositary shares pay an annual
dividend of $2.00 per share, equivalent to 8% of the $25.00 liqui-
dation preference. The Series A 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 div-
idends for six or more quarters (whether or not declared or
consecutive) and in certain other events.
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 (the "Series C Stock"), providing net cash proceeds of ap-
proximately $135.2 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 February 12, 2018. The depositary shares pay an annual
dividend of $1.71875 per share, equivalent to 6.875% of the $25.00
liquidation preference. The first dividend was paid on April 15, 2013
and covered the period from February 12, 2013 through March 31,
2013. The Series C 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.
DIVIDEND REINVESTMENTS
In December 1995, the Company established a Dividend Reinvest-
ment Plan (the “Plan”) to allow its common stockholders and
holders of limited partnership interests an opportunity to buy ad-
ditional 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% discount from mar-
ket 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 468,014 and 586,838 shares
under the Plan at a weighted average discounted price of $43.52
and $38.85 per share during the years ended December 31, 2013 and
2012, respectively. The Company issued 88,309 limited partner-
ship units under the Plan at a weighted average price of $46.93 per
unit during the year ended December 31, 2013. No limited part-
nership units were issued under the Plan during 2012. The
Company also credited 7,148 and 8,551 shares to directors pursuant
to the reinvestment of dividends specified by the Directors’ De-
ferred Compensation Plan at a weighted average discounted price
of $43.92 and $38.76 per share, during the years ended December
31, 2013 and 2012, 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 Proper-
ties 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
management’s belief that the ratio of the Company’s debt to total
asset value was below 50% as of December 31, 2013.
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 economic
conditions, relative costs of capital, market values of the Company
property portfolio, opportunities for acquisition, development or
expansion, and such other factors as the Board of Directors then
deems relevant. The Board of Directors may modify 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 renegotiate the terms of its
outstanding debt in order to achieve longer maturities, and obtain
generally more favorable loan terms, whenever management de-
termines the financing environment is favorable.
2013 Annual REPORT
19
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a summary of notes payable as of December 31, 2013 and 2012:
NOTES PAYABLE
December 31, Interest Scheduled
(Dollars in thousands) 2013 2012 Rate * Maturity *
Fixed rate mortgages: $ — (a) $ 15,750
— (b) 6,936
— (c) 13,875
16,128 (d) 16,798 7.45% Jun-2015
33,246 (e) 34,373 6.01% Feb-2018
36,937 (f) 38,388 5.88% Jan-2019
11,949 (g) 12,418 5.76% May-2019
16,501 (h) 17,145 5.62% Jul-2019
16,419 (i) 17,040 5.79% Sep-2019
14,610 (j) 15,176 5.22% Jan-2020
11,159 (k) 11,421 5.60% May-2020
9,921 (l) 10,288 5.30% Jun-2020
42,462 (m) 43,424 5.83% Jul-2020
8,649 (n) 8,934 5.81% Feb-2021
6,233 (o) 6,359 6.01% Aug-2021
35,981 (p) 36,699 5.62% Jun-2022
10,930 (q) 11,129 6.08% Sep-2022
11,795 (r) 11,989 6.43% Apr-2023
15,598 (s) 16,247 6.28% Feb-2024
17,123 (t) 17,469 7.35% Jun-2024
14,849 (u) 15,140 7.60% Jun-2024
26,153 (v) 26,635 7.02% Jul-2024
31,093 (w) 31,709 7.45% Jul-2024
30,894 (x) 31,490 7.30% Jan-2025
16,087 (y) 16,419 6.18% Jan-2026
118,128 (z) 120,822 5.31% Apr-2026
36,075 (aa) 36,986 4.30% Oct-2026
40,974 (bb) 41,970 4.53% Nov-2026
19,118 (cc) 19,569 4.70% Dec-2026
70,856 (dd) 72,233 5.84% May-2027
17,718 (ee) — 4.04% Apr-2028
34,391 (ff) — 3.51% Jun-2028
17,895 (gg) — 3.99% Sep-2028
— (hh) — 4.88% Sep-2032
Total fixed rate 789,872 774,831 5.67% 10.1 Years
Variable rate loans:
— (ii) 38,000 LIBOR + 1.60% May-2016
14,802 (jj) 14,945 LIBOR + 1.65% Feb-2016
15,394 (kk) — LIBOR + 1.65% Feb-2016
Total variable rate 30,196 52,945 LIBOR + 1.65% 2.2 Years
Total notes payable $ 820,068 $ 827,776 5.53% 9.8 Years
* Interest rate and scheduled maturity data presented as of December 31, 2013. Totals computed using weighted averages.
20
SAUL CENTERS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(a)
The loan, together with a corresponding interest-rate swap, was col-
lateralized by Metro Pike Center. On a combined basis, the loan and
the swap required interest only payments of $86,000 based upon a 25-
year amortization schedule and a final payment of $15.6 million at
loan maturity. The loan was repaid in full and the swap was termi-
nated in 2013.
(c)
(d)
(b) The loan was collateralized by Cruse MarketPlace and required equal
monthly principal and interest payments of $56,000 based upon an
amortization schedule of approximately 24 years and a final payment
of $6.8 million at loan maturity. The loan was repaid in full in 2013.
The loan was collateralized by Seabreeze Plaza and required 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 at loan maturity. The loan was repaid in full in 2013.
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 amortization
schedule and a final payment of $15.2 million at loan maturity. Principal
of $670,000 was amortized during 2013.
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 2013.
The loan is collateralized by three shopping centers, Broadlands Village,
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. Princi-
pal of $1.5 million was amortized during 2013.
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 $469,000 was amortized during 2013.
(g)
(e)
(f)
(i)
(j)
(h) 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 ma-
turity. Principal of $644,000 was amortized during 2013.
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 $621,000 was amortized during 2013.
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 $566,000 was amortized during 2013.
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 $262,000 was amortized during 2013.
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 $367,000 was amortized during 2013.
(k)
(l)
(m) 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. Principal of
$962,000 was amortized during 2013.
(n) 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 $285,000 was amortized during 2013.
(o)
(p)
(q)
(r)
(s)
(t)
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 $126,000 was amortized during 2013.
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 $718,000 was amortized during 2013.
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 ma-
turity. Principal of $199,000 was amortized during 2013.
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 ma-
turity. Principal of $194,000 was amortized during 2013.
The loan is collateralized by Great Falls shopping center. The loan con-
sists of three notes which require equal monthly principal and interest
payments of $138,000 based upon a weighted average 26-year amor-
tization schedule and a final payment of $6.3 million at maturity.
Principal of $649,000 was amortized during 2013.
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 ma-
turity. Principal of $346,000 was amortized during 2013.
(v)
(u) 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 ma-
turity. Principal of $291,000 was amortized during 2013.
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 million
at loan maturity. The loan was previously collateralized by Van Ness
Square. During 2012, the Company substituted White Oak as the col-
lateral and borrowed an additional $10.5 million. Principal of $482,000
was amortized during 2013.
(z)
(x)
(y)
(w) 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 $616,000 was amortized during 2013.
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 $596,000 was amortized during 2013.
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 ma-
turity. Principal of $332,000 was amortized during 2013.
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 $2.7 million was amortized during 2013.
(aa) 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 $911,000 was amortized during 2013.
(bb) 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 $996,000 was amortized during 2013.
(cc) 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 $451,000 was amortized during 2013.
2013 Annual REPORT
21
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(dd) The loan in the original amount of $73.0 million closed in May 2012, is
collateralized by Seven Corners and requires equal monthly principal
and interest payments of $463,200 based upon a 25-year amortization
schedule and a final payment of $42.3 million at loan maturity. Princi-
pal of $1.4 million was amortized during 2013.
(ee) The loan is collateralized by Hampshire Langley and requires equal
monthly principal and interest payments of $95,400 based upon a 25-
year amortization schedule and a final payment of $9.5 million at loan
maturity. Principal of $282,000 was amortized in 2013.
(ff) The loan is collateralized by Beacon Center and requires equal monthly
principal and interest payments of $203,200 based upon a 20-year
amortization schedule and a final payment of $11.4 million at loan ma-
turity. Principal of $609,000 was amortized in 2013.
(gg) The loan is collateralized by Seabreeze Plaza and requires equal
monthly principal and interest payments of $94,900 based upon a 25-
year amortization schedule and a final payment of $9.5 million at loan
maturity. Principal of $105,000 was amortized in 2013.
The carrying value of properties collateralizing the mortgage notes
payable totaled $907.2 million and $916.1 million as of December
31, 2013 and 2012, respectively. The Company’s credit facility
requires the Company and its subsidiaries to maintain certain fi-
nancial covenants, which are summarized below. As of December
31, 2013, the Company was in compliance with all such covenants:
• 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.
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 ma-
tures 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 $14.8 million at maturity. The loan
may be extended for up to two years. Proceeds 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.
(hh) The loan is a $71.6 million construction-to-permanent facility that is
collateralized by and will finance a portion of the construction costs
of Park Van Ness. During the construction period, interest will be
funded by the loan. After conversion to a permanent loan, monthly
principal and interest payments totaling $413,500 will be required
based upon a 25-year amortization schedule. A final payment of $39.6
million will be due at maturity.
The loan is a $175.0 million unsecured revolving credit facility. Interest
accrues at a rate equal to the sum of one-month LIBOR and 160 basis
points. The line may be extended at the Company’s option for one year
with payment of a fee of 0.20%. Monthly payments, if required, are in-
terest only and vary depending upon the amount outstanding and the
applicable interest rate for any given month.
(ii)
(jj) The loan is collateralized by Northrock and requires monthly principal
and interest payments of approximately $47,000 and a final payment
of approximately $14.2 million at maturity. Principal of $143,000 was
amortized during 2013.
(kk) The loan is collateralized by Metro Pike Center and requires monthly
principal and interest payments of approximately $48,000 and a final
payment of $14.8 million at loan maturity. Principal of $206,000 was
amortized during 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
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.
On March 19, 2013, the Company closed on a 15-year, non-recourse
$18.0 million mortgage loan secured by Hampshire Langley. The
loan matures in 2028, bears interest at a fixed rate of 4.04%, re-
quires monthly principal and interest payments totaling $95,400
based on a 25-year amortization schedule and requires a final pay-
ment of $9.5 million at maturity.
On April 10, 2013, the Company paid in full the $6.9 million remain-
ing balance on the mortgage loan secured by Cruse Marketplace.
On May 28, 2013, the Company closed on a 15-year, non-recourse
$35.0 million mortgage loan secured by Beacon Center. The loan
matures in 2028, bears interest at a fixed rate of 3.51%, requires
monthly principal and interest payments totaling $203,200 based
on a 20-year amortization schedule and requires a final payment
of $11.4 million at maturity.
On September 4, 2013, the Company closed on a 15-year, non-re-
course $18.0 million mortgage loan secured by Seabreeze Plaza. The
loan matures in 2028, bears interest at a fixed rate of 3.99%, requires
monthly principal and interest payments totaling $94,900 based on
a 25-year amortization schedule and requires a final payment of
$9.5 million at maturity. Proceeds were used to pay off the $13.5
million remaining balance of existing debt secured by Seabreeze
Plaza which was scheduled to mature in May 2014 and the Com-
pany incurred $497,000 of related debt extinguishment costs.
22
SAUL CENTERS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On October 25, 2013 the Company closed on a $71.6 million con-
struction-to-permanent loan which will partially finance the
construction of Park Van Ness. The loan bears interest at 4.88% and
during the construction period it will be fully recourse to Saul Cen-
ters and accrued interest will be funded by the loan. Following the
completion of construction and lease-up, and upon achieving cer-
tain debt service coverage requirements, the loan will convert to a
non-recourse, permanent mortgage at the same interest rate, with
principal amortization computed based on a 25-year schedule.
2012 FINANCING ACTIVITY
On April 11, 2012, the Company closed on a 15-year non-recourse
mortgage loan in the amount of $73.0 million secured by Seven
Corners shopping center. The loan matures in May 2027, bears in-
terest 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 ma-
turity. Proceeds from the loan were used to pay-off the $63.0
million remaining balance of existing debt secured by Seven Cor-
ners and six other Shopping Center properties, which was
scheduled to mature in October 2012, and to provide cash of ap-
proximately $10 million.
On April 26, 2012, the Company substituted the White Oak shop-
ping center for Van Ness Square as collateral for one of its existing
mortgage loans which will allow the Company to analyze the fea-
sibility of repositioning Van Ness Square. The terms of the original
loan, including its 8.11% interest rate, are unchanged and, in con-
junction with the collateral substitution, the Company borrowed
an additional $10.5 million, also secured by White Oak. The new
borrowing requires equal monthly payments based upon a fixed
4.90% interest rate and 25-year amortization schedule, and will
mature in July 2024, coterminously with the original loan. The con-
solidated 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
expires on May 20, 2016. The facility, which provides working
capital and funds for acquisitions, certain developments, redevel-
opments and letters of credit, may be extended for one year, at
the Company’s option, subject to the satisfaction of certain
conditions. Loans under the facility bear interest at a rate equal
to the sum of one-month 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-recourse
mortgage loan in the amount of $125.0 million, secured by Claren-
don Center. The loan matures April 5, 2026, bears interest at a fixed
rate of 5.31%, requires equal monthly principal and interest pay-
ments of $753,000, based upon a 25-year amortization schedule,
and requires a final principal payment of approximately $70.8 mil-
lion 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-re-
course 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 amorti-
zation schedule, and requires a final principal payment of
approximately $20.4 million at maturity. Proceeds 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, secured
by Kentlands Square II. The loan matures November 5, 2026, bears
an 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 approxi-
mately $23.3 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,
secured by Cranberry Square. The loan matures December 1, 2026,
bears interest at a fixed rate of 4.70%, requires equal monthly prin-
cipal and interest payments of $113,000, based upon a 25-year
principal amortization, and requires a final principal payment of
approximately $11.0 million at maturity. Proceeds from the loan
were used to repay the $20.0 million bridge financing used to
acquire Cranberry Square.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements that are rea-
sonably likely to have a current or future material effect on the
Company’s financial condition, revenue or expenses, results of op-
erations, liquidity, capital expenditures or capital resources.
2013 Annual REPORT
23
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FUNDS FROM OPERATIONS
In 2013, the Company reported Funds From Operations (FFO)1 avail-
able to common shareholders (common stockholders and limited
partner unitholders) of $64.7 million, a 7.6% increase from 2012 FFO
available to common shareholders of $60.1 million. The following
table presents a reconciliation from net income to FFO available to
common shareholders for the periods indicated:
FUNDS FROM OPERATIONS
For the Year Ended December 31,
(Dollars in thousands) 2013 2012 2011 2010 2009
Net income $ 34,842 $ 39,780 $ 30,294 $ 43,185 $ 43,230
Subtract:
Gain on property sales – (4,510) – (3,591) –
Gain on casualty settlement (77) (219) (245) (2,475) (329)
Add:
Real estate depreciation – discontinued operations – 77 102 198 203
Real estate depreciation and amortization 49,130 40,112 35,298 28,379 28,061
FFO 83,895 75,240 65,449 65,696 71,165
Subtract:
Preferred dividends (13,983) (15,140) (15,140) (15,140) (15,140)
Preferred stock redemption (5,228) – – – –
FFO available to common shareholders $ 64,684 $ 60,100 $ 50,309 $ 50,556 $ 56,025
Average shares and units used to
compute FFO per share 27,330 26,614 24,740 23,793 23,359
FFP per share $ 2.37 $ 2.26 $ 2.03 $ 2.12 $ 2.40
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 extraordinary
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 restrictions on the use of
FFO. FFO should not be considered as an alternative to net income, its most directly comparable GAAP measure, as an 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 analysts 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 continue activities related to the redevelopment of Van
Ness Square and the adjacent 4469 Connecticut Avenue 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 prop-
erties 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, expansions 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.
24
SAUL CENTERS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company has been selectively involved in acquisition, devel-
opment, redevelopment and renovation activities. It continues to
evaluate the acquisition of land parcels for retail and office devel-
opment and acquisitions of operating properties for opportunities
to enhance operating income and cash flow growth. The following
describes the acquisitions, developments, redevelopments and
renovations which affected the Company’s financial position and
results of operations in 2013, 2012, and 2011.
1500 ROCKVILLE PIKE
In December 2012, the Company purchased for $23.0 million, in-
cluding 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 is zoned for up to 745,000
square feet of rentable mixed-use space. The Company is actively
engaged in a plan for redevelopment but has not committed to
any timetable for commencement of construction.
5541 NICHOLSON LANE
In December 2012, the Company purchased for $12.2 million, in-
cluding acquisition costs, approximately 20,100 square feet of
retail space, located on the east side of Rockville Pike near the
White Flint Metro station 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 720,000 square
feet of mixed-use space. When combining these two properties
with our Metro Pike Center on the west side of Rockville Pike, the
Company's holdings at White Flint total 7.6 acres which are zoned
for a development potential of up to 1.5 million square feet of
mixed-use space. The Company is actively engaged in a plan for
redevelopment but has not committed to any timetable for com-
mencement of construction.
PARK VAN NESS (FORMERLY VAN NESS SQUARE)
The Company has entered into an arrangement with a general con-
tractor and intends to develop a 271-unit residential project with
approximately 9,000 square feet of street-level retail, below
street-level structured parking, and amenities including a commu-
nity room, landscaped courtyards, a fitness room and a rooftop
pool and deck. During the fourth quarter of 2013, demolition of
the existing structure commenced. In connection with such dem-
olition, approximately $580,000 of predevelopment expenses
were recognized in 2013 and approximately $510,000 of additional
predevelopment expenses will be recognized as demolition pro-
gresses and is completed in the first quarter of 2014. Construction
is projected to be completed by late 2015. The total cost of the
project, excluding predevelopment expense and land (which the
Company has owned), is expected to be approximately $93.0 mil-
lion, a portion of which will be financed with a recently-closed
construction-to-permanent loan.
ASHLAND SQUARE PHASE I
On December 15, 2004, the Company purchased for $6.3 million, a
19.3 acre parcel of land in Manassas, Prince William County, Virginia.
The Company has an approved site plan to develop a grocery-an-
chored neighborhood shopping center totaling approximately
160,000 square feet. Capital One Bank operates a branch on the
site and the Company previously executed a lease with CVS. Dur-
ing 2012, the Company completed the site work for two pads,
constructed a 6,500 square foot building that is leased to a restau-
rant and CVS constructed a 13,000 square foot pharmacy building.
Both facilities are open for business, and the cost to the Company
was approximately $3.0 million. The balance of the center is being
marketed to grocers and other retail businesses, with a develop-
ment timetable yet to be finalized.
KENTLANDS SQUARE II
In September 2011, the Company purchased for $74.5 million Kent-
lands Square II, and incurred acquisition costs of $1.1 million.
Kentlands Square II is a 241,000 square foot neighborhood shop-
ping center located in Gaithersburg, Maryland, in Montgomery
County, the state’s most populous and affluent county. The center
is anchored by a 61,000 square foot Giant Food supermarket and
a 104,000 square foot Kmart. The property is adjacent to the
Company’s Kentlands Square I, which is anchored by Lowe’s Home
Improvement, and Kentlands Place.
SEVERNA PARK MARKETPLACE
In September 2011, the Company purchased for $61.0 million
Severna Park MarketPlace, and incurred acquisition costs of $0.8
million. Severna Park MarketPlace is a 254,000 square foot neigh-
borhood shopping center located in Severna Park, Maryland, in
Anne Arundel County. The center is anchored by a 63,000 square
foot Giant Food supermarket and a 92,000 square foot Kohl’s.
CRANBERRY SQUARE
In September 2011, the Company purchased for $33.0 million Cran-
berry Square, and incurred acquisition costs of $0.5 million.
Cranberry Square is a 141,000 square foot neighborhood shopping
center located in Westminster, Maryland, in Carroll County which
is anchored by a 56,000 square foot Giant Food supermarket and
a 24,000 square foot Staples.
2013 Annual REPORT
25
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PROPERTY SALES
WEST PARK
In July 2012, the Company sold for $2.0 million the 77,000 square
foot West Park shopping center in Oklahoma City, Oklahoma and
recorded a $1.1 million gain. As of June 30, 2012, 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, Mary-
land and recorded a $3.4 million gain. As of September 30, 2012,
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
2013 50 6 7,880,269 1,452,742 94.5% 90.5%
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%
There were no changes from the prior year in the properties that
comprise the 2013 Shopping Centers percentage leased. The 2013
Mixed-Use percentage leased excludes Park Van Ness, which was
taken out of service in March 2013 and is currently being redevel-
oped. The Clarendon Center residential component was 99.2%
leased at December 31, 2013. On a same property basis, which ex-
cludes the impact of properties not in operation for the entirety
of the comparable periods, Shopping Center leasing percentages
increased to 94.5% from 93.4% and Mixed-Use leasing percentages
increased to 90.5% from 87.7%. The overall portfolio lease per-
centage, on a comparative same property basis, ended the year at
93.9%, an increase from 92.6% at year end 2012. The 2013 Shopping
Centers percentage leased was impacted by a net increase of
88,600 square feet, 70,800 square feet of which resulted from im-
proved leasing of small shop space (spaces totaling 10,000 square
feet or less) throughout the portfolio. The 2013 Mixed-Use per-
centage leased was impacted by a net increase of 34,500 square
feet, the majority of which resulted from improved leasing at
Avenel Business Park.
The 2012 Shopping Centers percentage leased 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 percentage leased includes
Clarendon Center commercial area, which was 97.9% leased at De-
cember 31, 2012. The Clarendon Center residential component was
100% leased at December 31, 2012. On a same property basis, Shop-
ping Centers percentage leased increased to 93.5% from 91.6% and
Mixed-Use percentage leased decreased to 82.5% from 85.8%. The
overall portfolio percentage leased, on a comparative same center
basis, ended the year at 91.9%, an increase from 90.7% at year end
2011. The 2012 Shopping Center percentage leased was impacted
by a net increase of approximately 151,000 square feet of leased
space, the majority of which resulted from the leasing of space
vacated by major tenants during 2011. The 2012 Mixed-Use per-
centage leased was 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 Centers leased percentage include three cen-
ters acquired September 23, 2011, Kentlands Square II (100% leased),
Severna Park MarketPlace (100% leased) and Cranberry Square (91%
leased). The 2011 Mixed-Use leased percentage includes the
Clarendon Center commercial area, which was 92.4% leased at De-
cember 31, 2011. The Clarendon Center residential component was
100% leased at December 31, 2011. On a same property basis, the
Shopping Centers percentage leased decreased to 90.2% from
92.0% and the Mixed-Use percentage leased decreased to 84.9%
from 85.5%. The overall portfolio percentage leased, on a compar-
ative same center basis, ended 2011 at 89.4%, a decrease from 91.1%
at year end 2010. The 2011 Mixed-Use percentage leased was ad-
versely 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 bank-
ruptcies and the balance resulting from the early lease termination
of a local grocer.
26
SAUL CENTERS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table shows selected data 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 expira-
tion 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 pro-
vide information only about trends in market rental rates. The
actual changes in rental income received by the Company may be
different.
Year Ended
December 31,
2013
2012
2011
Square
Feet
1,471,000
1,579,000
1,178,000
Number
of Leases
276
256
245
Base Rent per Square Foot
New/Renewed
Leases
$
19.56
16.39
15.21
$
Expiring
Leases
19.75
16.30
16.41
During 2013, the Company entered into 228 new or renewed apart-
ment leases. The monthly rent per square foot for these leases
increased to $3.37 from $3.24. 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.
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain financial market risks, the most
predominant being fluctuations in interest rates. Interest rate fluc-
tuations are monitored by management as an integral part of the
Company’s overall risk management program, which recognizes
the unpredictability of financial markets and seeks to reduce the
potentially adverse effect on the Company’s results of operations.
The Company may, where appropriate, employ derivative instru-
ments, such as interest rate swaps, to mitigate the risk of interest
rate fluctuations. The Company does not enter into derivatives or
other financial instruments for trading or speculative purposes.
On June 29, 2010, the Company entered into an interest rate swap
agreement with a $45.6 million notional amount to manage the
interest rate risk associated with $45.6 million of variable-rate
mortgage debt. The swap agreement was effective July 1, 2010, ter-
minates on July 1, 2020 and effectively fixes the interest rate on
the mortgage debt at 5.83%. The aggregate fair value of the swap
at December 31, 2013 was approximately $2.7 million and is re-
flected in accounts payable, accrued expenses and other liabilities
in the consolidated balance sheet.
The Company is exposed to interest rate fluctuations which will
affect the amount of interest expense of its variable rate debt and
the fair value of its fixed rate debt. As of December 31, 2013, the
Company had variable rate indebtedness totaling $30.2 million. If
the interest rates on the Company’s variable rate debt instruments
outstanding at December 31, 2013 had been one percent higher,
our annual interest expense relating to these debt instruments
would have increased by $301,960, based on those balances. As of
December 31, 2013, the Company had fixed-rate indebtedness to-
taling $789.9 million with a weighted average interest rate of 5.67%.
If interest rates on the Company’s fixed-rate debt instruments at
December 31, 2013 had been one percent higher, the fair value of
those debt instruments on that date would have decreased by ap-
proximately $48.1 million.
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 Sponsoring
Organizations of the Treadway Commission in Internal Control
- Integrated Framework (1992 Framework) to assess the effec-
tiveness of the Company’s internal control over financial
reporting. Based upon the assessments, the Company’s man-
agement has concluded that, as of December 31, 2013, the Com-
pany’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
29 in this Annual Report.
2013 Annual REPORT
27
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders of Saul Centers, Inc.
We have audited the accompanying consolidated balance sheets
of Saul Centers, Inc. as of December 31, 2013 and 2012, and the
related consolidated statements of operations, comprehensive
income, stockholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2013. These financial
statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
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 statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing 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 reasonable basis
for our opinion.
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, 2013 and 2012, and the
consolidated results of its operations and its cash flows for each
of the three years in the period ended December 31, 2013, in
conformity with U.S. generally accepted accounting principles.
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, 2013, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (1992
framework) and our report dated March 10, 2014 expressed an
unqualified opinion thereon.
Ernst & Young LLP
McLean, Virginia
March 10, 2014
28
SAUL CENTERS, INC.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
on Internal Control Over Financial Reporting
Board of Directors and Stockholders of Saul Centers, Inc.
We have audited Saul Centers, Inc.’s internal control over financial
reporting as of December 31, 2013, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (1992
framework) (the COSO criteria). Saul Centers, Inc.’s management is
responsible for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness 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 reporting 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 respects. 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 reasonable 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
accounting 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, accurately
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 accounting
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 assets 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,
projections of any evaluation of effectiveness to future periods are
subject 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
respects, effective internal control over financial reporting as of
December 31, 2013, 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, 2013 and 2012 and the related consolidated statements of
operations, comprehensive income, stockholders’ equity, and cash
flows for each of the three years in the period ended December
31, 2013 of Saul Centers, Inc. and our report dated March 10, 2014
expressed an unqualified opinion thereon.
Ernst & Young LLP
McLean, Virginia
March 10, 2014
2013 ANNUAL REPORT
29
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
(Dollars in thousands, except per share amounts) 2013 2012
Assets
Real estate investments
Land $ 354,967 $ 353,890
Buildings and equipment 1,094,605 1,109,911
Construction in progress 9,867 2,267
1,459,439 1,466,068
Accumulated depreciation (364,663) (353,305)
1,094,776 1,112,763
Cash and cash equivalents 17,297 12,133
Accounts receivable and accrued income, net 43,884 41,406
Deferred leasing costs, net 26,052 26,102
Prepaid expenses, net 4,047 3,895
Deferred debt costs, net 9,675 7,713
Other assets 2,944 3,297
Total assets $ 1,198,675 $ 1,207,309
Liabilities
Mortgage notes payable $ 820,068 $ 789,776
Revolving credit facility payable – 38,000
Dividends and distributions payable 13,135 13,490
Accounts payable, accrued expenses and other liabilities 20,141 27,434
Deferred income 30,205 31,320
Total liabilities 883,549 900,020
Stockholders' equity
Preferred stock, 1,000,000 shares authorized:
Series A Cumulative Redeemable, 16,000 and 40,000 shares issued and
outstanding, respectively 40,000 100,000
Series B Cumulative Redeemable, 31,731 shares issued and outstanding in 2012 – 79,328
Series C Cumulative Redeemable, 56,000 shares issued and outstanding in 2013 140,000 –
Common stock, $0.01 par value, 30,000,000 shares authorized, 20,576,616 and
20,045,542 shares issued and outstanding, respectively 206 201
Additional paid-in capital 270,428 246,557
Accumulated deficit (172,564) (154,830)
Accumulated other comprehensive loss (1,392) (3,553)
Total Saul Centers, Inc. stockholders' equity 276,678 267,703
Noncontrolling interest 38,448 39,586
Total stockholders' equity 315,126 307,289
Total liabilities and stockholders' equity $ 1,198,675 $ 1,207,309
The Notes to Financial Statements are an integral part of these statements.
30
SAUL CENTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Year Ended December 31,
(Dollars in thousands, except per share amounts) 2013 2012 2011
Revenue
Base rent $ 159,898 $ 152,777 $ 138,486
Expense recoveries 30,949 30,391 28,368
Percentage rent 1,575 1,545 1,503
Other 5,475 5,379 5,521
Total revenue 197,897 190,092 173,878
Operating expenses
Property operating expenses 24,559 23,794 24,715
Provision for credit losses 968 1,151 1,880
Real estate taxes 22,415 22,325 18,435
Interest expense and amortization of deferred debt costs 46,589 49,544 45,324
Depreciation and amortization of deferred leasing costs 49,130 40,112 35,298
General and administrative 14,951 14,274 14,256
Acquisition related costs 106 1,129 2,534
Predevelopment expenses 3,910 2,667 –
Total operating expenses 162,628 154,996 142,442
Operating income 35,269 35,096 31,436
Change in fair value of derivatives (7) 36 (1,332)
Loss on early extinguishment of debt (497) – –
Gain on casualty settlement 77 219 245
Income from continuing operations 34,842 35,351 30,349
Discontinued Operations
Loss from operations of properties sold – (81) (55)
Gain on sales of properties – 4,510 –
Income (loss) from discontinued operations – 4,429 (55)
Net income 34,842 39,780 30,294
Noncontrolling interest
Income from continuing operations attributable to
noncontrolling interests (3,970) (5,693) (3,561)
Income from discontinued operations attributable to
noncontrolling interests – (713) –
Income attibutable to noncontrolling interests (3,970) (6,406) (3,561)
Net income attributable to Saul Centers, Inc. 30,872 33,374 26,733
Preferred stock redemption (5,228) – –
Preferred dividends (13,983) (15,140) (15,140)
Net income available to common stockholders $ 11,661 $ 18,234 $ 11,593
Per share net income available to common stockholders
Basic and diluted:
Continuing operations $ 0.57 $ 0.70 $ 0.61
Discontinued operations – 0.23 –
$ 0.57 $ 0.93 $ 0.61
The Notes to Financial Statements are an integral part of these statements.
2013 ANNUAL REPORT
31
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For The Year Ended December 31,
(Dollars in thousands) 2013 2012 2011
Net income $ 34,842 $ 39,780 $ 30,294
Other comprehensive income
Unrealized gain (loss) on cash flow hedge 2,897 (932) (3,195)
Total comprehensive income 37,739 38,848 27,099
Comprehensive income (loss) attributable to noncontrolling interests (4,706) (6,164) (2,811)
Total comprehensive income attributable to Saul Centers, Inc. 33,033 32,684 24,288
Preferred stock redemption (5,228) – –
Preferred dividends (13,983) (15,140) (15,140)
Total comprehensive income available to common stockholders $ 13,822 $ 17,544 $ 9,148
The Notes to Financial Statements are an integral part of these statements.
32
SAUL CENTERS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
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, 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
Issuance of 56,000 shares of Series C Cumulative preferred stock 140,000 – (4,807) – – 135,193 – 135,193
Partial redemption of 24,000 shares of Series A Cumulative
preferred stock (60,000) – 2,212 (2,216) – (60,004) – (60,004)
Full redemption of 31,731 shares of Series B Cumulative
preferred stock (79,328) – 3,007 (3,012) – (79,333) – (79,333)
Issuance of 531,164 shares of common stock:
475,161 shares pursuant to dividend reinvestment plan – 5 20,667 – – 20,672 – 20,672
56,003 shares due to exercise of employee stock options
and issuance of directors' deferred stock – – 2,792 – – 2,792 – 2,792
Issuance of 88,309 partnership units – – – – – – 4,144 4,144
Net income – – – 30,872 – 30,872 3,970 34,842
Change in unrealized loss on cash flow hedge – – – – 2,161 2,161 736 2,897
Preferred stock distributions:
Series A – – – (3,213) – (3,213) – (3,213)
Series B – – – (1,468) – (1,468) – (1,468)
Series C – – – (6,095) – (6,095) – (6,095)
Common stock dis tributions – – – (21,988) – (21,988) (7,467) (29,455)
Distributions payable preferred stock:
Series A, $50.00 per share – – – (800) – (800) – (800)
Series C, $42.97 per share – – – (2,406) – (2,406) – (2,406)
Distributions payable common stock ($0.36/share) and
distributions payable partnership units ($0.36/unit) – – – (7,408) – (7,408) (2,521) (9,929)
Balance, December 31, 2013 $180,000 $206 $270,428 $(172,564) $(1,392) $276,678 $38,448 $315,126
The Notes to Financial Statements are an integral part of these statements.
2013 ANNUAL REPORT
33
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended December 31,
(Dollars in thousands) 2013 2012 2011
Cash flows from operating activities:
Net income $ 34,842 $ 39,780 $ 30,294
Adjustments to reconcile net income to net cash provided by operating activities:
Change in fair value of derivatives 7 (36) 1,332
Gain on sale of property, discontinued operations – (4,510) —
Gain on casualty settlement, continuing operations (77) (219) (245)
Depreciation and amortization of deferred leasing costs 49,130 40,189 35,400
Amortization of deferred debt costs 1,257 1,576 1,547
Non cash compensation costs of stock grants and options 1,145 952 948
Provision for credit losses 968 1,151 1,883
(Increase) decrease in accounts receivable and accrued income (3,669) (3,240) (5,291)
Additions to deferred leasing costs (5,876) (5,362) (6,257)
(Increase) decrease in prepaid expenses (152) (54) (844)
(Increase) decrease in other assets 353 9,573 (3,668)
Increase (decrease) in accounts payable, accrued expenses and other liabilities (3,286) (930) 1,478
Decrease in deferred income (1,115) (447) (908)
Net cash provided by operating activities 73,527 78,423 55,669
Cash flows from investing activities:
Acquisitions of real estate investments (5,124) (34,050) (170,100)
Additions to real estate investments (13,999) (12,680) (11,624)
Additions to development and redevelopment projects (7,316) (7,913) (20,780)
Proceeds from sale of properties – 5,818 –
Proceeds from casualty settlement 405 1,952 1,004
Net cash used in investing activities (26,034) (46,873) (201,500)
Cash flows from financing activities:
Proceeds from mortgage notes payable 101,600 83,500 286,000
Repayments on mortgage notes payable (71,308) (117,595) (82,685)
Proceeds from construction loans payable – – 13,410
Repayments on construction loans payable – – (104,243)
Proceeds from revolving credit facility 142,000 38,000 16,000
Repayments on revolving credit facility (180,000) (8,000) (8,000)
Additions to deferred debt costs (3,219) (2,199) (1,445)
Proceeds from the issuance of:
Common stock 22,292 27,784 27,101
Partnership units 4,144 – 49,589
Series C preferred stock 135,221 – –
Preferred stock redemption payments:
Series A preferred (60,000) – –
Series B preferred (79,328) – –
Preferred stock redemption costs (9) – –
Distributions to:
Series A preferred stockholders (5,213) (8,000) (8,000)
Series B preferred stockholders (3,253) (7,140) (7,140)
Series C preferred stockholders (6,095) – –
Common stockholders (29,205) (28,135) (27,062)
Noncontrolling interest (9,956) (9,955) (8,339)
Net cash provided by (used in) financing activities (42,329) (31,740) 145,186
Net increase (decrease) in cash and cash equivalents 5,164 (190) (645)
Cash and cash equivalents, beginning of year 12,133 12,323 12,968
Cash and cash equivalents, end of year $ 17,297 $ 12,133 $ 12,323
Supplemental disclosure of cash flow information:
Cash paid for interest $ 45,743 $ 48,302 $ 42,948
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 Organiza-
tion”). 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 partnerships (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 In-
ternal 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 requirements. Saul Cen-
ters has made and intends to continue to make regular quarterly
distributions to its stockholders. Saul Centers, together with its
wholly owned subsidiaries and the limited 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, 2011.
Name of Property
Location
Type
Year of Acquisition/
Development/Disposal
ACQUISITIONS
4469 Connecticut Avenue
Kentlands Square II
Severna Park MarketPlace
Cranberry Square
1500 Rockville Pike
5541 Nicholson Lane
DEVELOPMENTS
Clarendon Center North
Clarendon Center South
DISPOSITIONS
West Park
Belvedere
Washington, DC
Gaithersburg, Maryland
Severna Park, Maryland
Westminster, Maryland
Rockville, Maryland
Rockville, Maryland
Shopping Center
Shopping Center
Shopping Center
Shopping Center
Shopping Center
Shopping Center
Arlington, VA
Arlington, VA
Mixed-Use
Mixed-Use
February 2011
September 2011
September 2011
September 2011
December 2012
December 2012
2010/2011
2010/2011
Oklahoma City, Oklahoma
Baltimore, Maryland
Shopping Center
Shopping Center
July 2012
December 2012
As of December 31, 2013, the Company’s properties (the “Current
Portfolio Properties”) consisted of 50 shopping center properties
(the “Shopping Centers”), six mixed-use properties which are
comprised of office, retail and multi-family residential uses (the
“Mixed-Use Properties”) and three (non-operating) development
properties.
2013 ANNUAL REPORT
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying financial statements are presented on the his-
torical cost basis of the Saul Organization because of affiliated
ownership and common management and because the assets and
liabilities were the subject of a business combination with the Op-
erating 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, acqui-
sition, renovation, expansion, development and financing of
community and neighborhood shopping centers and mixed-used
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, 2013,
32 of the Shopping Centers were anchored by a grocery store and
offer primarily day-to-day necessities and services. Two retail ten-
ants, Giant Food (4.8%), a tenant at ten Shopping Centers, and
Safeway (2.6%), a tenant at eight Shopping Centers, individually ac-
counted for more than 2.5% of the Company’s total revenue for
the year ended December 31, 2013.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of Saul Centers, its subsidiaries, and the Operating Part-
nership and Subsidiary Partnerships which are majority owned by
Saul Centers. All significant intercompany balances and transac-
tions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with ac-
counting principles generally accepted in the United States
requires management to make certain estimates and assumptions
that affect the reported amounts of assets and liabilities and dis-
closure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and ex-
penses during the reporting period. Actual results could differ
from those estimates.
36
SAUL CENTERS, INC.
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 ex-
pected to be generated by the property including an initial lease
up period. From time to time the Company may purchase a prop-
erty 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 build-
ing may be determined based only on existing leases and not
include estimated cash flows related to future leases. In certain
circumstances, such as if the building is vacant and the Company
intends to demolish the building in the near term, the entire pur-
chase price will be allocated to land.
The Company determines the fair value of above and below mar-
ket 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, renewal periods, and the like-
lihood of the tenant exercising its renewal options. The fair value
of a below market lease component is recorded as deferred in-
come and accreted as additional lease revenue over the remaining
contractual lease period. If the fair value of the below market lease
intangible includes fair value associated with a renewal option,
such amounts are not accreted until the renewal option is exer-
cised. If the renewal option is not exercised the value is
recognized at that time. The fair value of above market lease in-
tangibles 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 asso-
ciated with the lease-up period. Intangible assets associated with
at-market in-place leases are amortized as additional expense over
the remaining contractual lease term. To the extent customer re-
lationship intangibles are present in an acquisition, the fair values
of the intangibles are amortized over the lives of the customer re-
lationships. The Company has never recorded a customer
relationship intangible asset. Acquisition-related transaction costs
are either (a) expensed as incurred when related to business com-
binations or (b) capitalized to land and/or building when related
to asset acquisitions.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
If there is an event or change in circumstance that indicates a po-
tential 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, signif-
icant decreases in occupancy, and significant adverse changes in
legal factors and business climate. If impairment indicators are
present, the Company compares 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 capi-
talization 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 rec-
ognize an impairment loss equivalent 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 factors, either individually or
taken as a whole. Should the actual results differ from manage-
ment’s projections, the valuation could be negatively or positively
affected. The Company did not recognize an impairment loss on
any of its real estate in 2013, 2012, or 2011.
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
completed and the assets are placed in service, their rental in-
come, real estate tax expense, property operating expenses
(consisting of payroll, repairs and maintenance, utilities, insurance
and other property related expenses) and depreciation are in-
cluded in current operations. Property operating expenses are
charged to operations as incurred. Interest expense capitalized to-
taled $170,000, $42,300, and $1.9 million during 2013, 2012, and 2011,
respectively. Commercial development projects are considered
substantially complete and available for occupancy upon comple-
tion 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 certificate of occu-
pancy 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. Leasehold im-
provements expenditures are capitalized when certain criteria are
met, including when the Company supervises construction 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, which is in-
cluded in Depreciation and amortization of deferred leasing costs
in the Consolidated Statements of Operations, for the years ended
December 31, 2013, 2012, and 2011, was $43.2 million, $34.6 million,
and $30.6 million, respectively. Repairs and maintenance expense
totaled $10.3 million, $9.9 million, and $10.9 million for 2013, 2012,
and 2011, respectively, and is included in property operating ex-
penses 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 compensa-
tion and payroll-related fringe benefits directly related to time
spent performing leasing-related activities for successful commer-
cial leases and amounts attributed to in place leases associated
with acquired properties and are amortized, using the straight-line
method, over the term of the lease or the remaining term of an
acquired lease. Leasing related activities include evaluating the
prospective tenant’s financial condition, evaluating and recording
guarantees, collateral and other security arrangements, negotiating
lease terms, preparing lease documents and closing the transac-
tion. Unamortized deferred costs are charged to expense if the
applicable lease is terminated prior to expiration of the initial lease
term. Collectively, deferred leasing costs totaled $26.1 million and
$26.1 million, net of accumulated amortization of approximately
$16.6 million and $16.2 million, as of December 31, 2013 and 2012,
respectively. Amortization expense, which is included in Depreci-
ation and amortization of deferred leasing costs in the
Consolidated Statements of Operations, totaled approximately
$5.9 million, $5.5 million, and $4.7 million, for the years ended De-
cember 31, 2013, 2012, and 2011, 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 in-
curred prior to the commencement of construction. Development
costs include direct construction costs and indirect costs incurred
subsequent to the start of construction such as architectural, en-
gineering, construction management and carrying costs consisting
of interest, real estate taxes and insurance. Construction in
progress totaled $9.9 million, of which $7.9 million relates to Park
Van Ness, and $2.3 million, respectively, as of December 31, 2013
and 2012.
2013 ANNUAL REPORT
37
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 estab-
lished with a charge to current period operations when, in the
opinion of management, collection of the receivable is doubtful.
Accounts receivable in the accompanying consolidated financial
statements are shown net of an allowance for doubtful accounts
of $0.6 million and $1.2 million, at December 31, 2013 and 2012,
respectively.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
For the Year Ended
December 31,
(In thousands) 2013 2012 2011
Beginning Balance $ 1,208 $ 671 $ 898
Provision for Credit Losses 968 1,160 1,883
Charge-offs (1,604) (623) (2,110)
Ending Balance $ 572 $ 1,208 $ 671
In addition to rents due currently, accounts receivable also in-
cludes $37.2 million and $34.4 million, at December 31, 2013 and
2012, respectively, net of allowance for doubtful accounts totaling
$0.5 million and $92,000, respectively, representing minimum
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, meas-
ured from the acquisition date, and/or are readily convertible to
cash. Substantially all of the Company’s cash balances at December
31, 2013 are held in non-interest bearing accounts at various banks.
From time to time the Company may maintain deposits with fi-
nancial institutions in amounts in excess of federally insured limits.
The Company has not experienced any losses on such deposits
and believes it is not exposed to any significant credit risk on those
deposits.
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 agreements,
which approximates the effective interest method. Deferred debt
costs totaled $9.7 million and $7.7 million, net of accumulated
amortization of $4.5 million and $3.8 million at December 31, 2013
and 2012, respectively.
38
SAUL CENTERS, INC.
DEFERRED INCOME
Deferred income consists of payments received from tenants prior
to the time they are earned and recognized by the Company as
revenue, including tenant prepayment of rent for future periods,
real estate taxes when the taxing jurisdiction has a fiscal year dif-
fering from the calendar year reimbursements specified 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 purposes.
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. Derivative instruments
that are designated as a hedge are evaluated to ensure they con-
tinue to qualify for hedge accounting. The effective portion of any
gain or loss on the hedge instruments is reported as a component
of accumulated other comprehensive income (loss) and recog-
nized in earnings within the same line item associated with the
forecasted transaction in the same period or periods during which
the hedged transaction affects earnings. Any ineffective portion
of the change in fair value of a derivative instrument is immedi-
ately 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 prop-
erties for $2.0 million and $4.0 million and recognized gains of $1.1
million and $3.4 million, respectively. The results of operations of
West Park and Belvedere for the years ended December 31, 2012
and 2011 are included in the statements of operations as “Loss from
operations of properties sold.” The Company has no other discon-
tinued 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
control of the space has been given to the tenant. When rental
payments due under leases vary from a straight-line basis because
of free rent periods or stepped increases, income is recognized on
a straight-line basis. Expense recoveries represent a portion of
property operating expenses billed to the tenants, including com-
mon area maintenance, real estate taxes and other recoverable
costs. Expense recoveries are recognized in the period 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 con-
tinue 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, provided
that distributions to its stockholders equal or exceed its REIT tax-
able 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, 2013, the Company had no material unrecog-
nized tax benefits and there exist no potentially significant
unrecognized tax benefits which are reasonably expected to occur
within the next twelve months. The Company recognizes penalties
and interest accrued related to unrecognized tax benefits, if any,
as general and administrative expense. No penalties and interest
have been accrued in years 2013, 2012, and 2011. The tax basis of
the Company’s real estate investments was approximately $1.1 bil-
lion as of each of December 31, 2013 and 2012. With few
exceptions, the Company is no longer subject to U.S. federal, 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 de-
termined at the time of each award using the Black-Scholes model,
a widely used method for valuing stock based employee compen-
sation, and the following assumptions: (1) Expected Volatility
determined using the most recent trading history of the Com-
pany’s common stock (month-end closing prices) corresponding
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 de-
termined by management after considering the Company’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 Com-
pany amortizes the value of options granted ratably over the
vesting period and includes the amounts as compensation in gen-
eral and administrative expenses.
The Company has a stock plan, which was originally approved in
2004, amended in 2008 and 2013 and which expires in 2023, for
the purpose of attracting and retaining executive officers, direc-
tors and other key personnel (the "Stock Plan"). Pursuant to the
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Plan, the Compensation Committee established a Deferred
Compensation Plan for Directors for the benefit of its directors
and their beneficiaries, which replaced a previous Deferred Com-
pensation 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 separation 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, 2013,
the directors’ deferred fee accounts comprise 226,996 shares.
The Compensation Committee has also approved an annual award
of shares of the Company’s common stock as additional compen-
sation 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 Shareholders, and their
issuance may not be deferred. Each director was issued 200 shares
for each of the years ended December 31, 2013, 2012, and 2011. The
shares were valued at the closing stock price on the dates the
shares were awarded and included in general and administrative
expenses in the total amounts of $124,400, $110,000, and $109,000,
for the years ended December 31, 2013, 2012, and 2011, respectively.
NONCONTROLLING INTEREST
Saul Centers is the sole general partner of the Operating Partner-
ship, owning a 74.6% common interest as of December 31, 2013.
Noncontrolling interest in the Operating Partnership is comprised
of limited partnership units owned by the Saul Organization. Non-
controlling interest reflected on the accompanying consolidated
balance sheets is increased for earnings allocated to limited part-
nership interests and distributions reinvested in additional units,
and is decreased for limited partner distributions. Noncontrolling
interest reflected on the consolidated 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 presented, the con-
vertible limited partnership units are anti-dilutive. For the years
ended December 31, 2013, 2012, and 2011, options totaling 112,500,
117,500, and 427,500, respectively, are not dilutive because the av-
erage share price of the Company’s common stock was less than
the exercise prices. The treasury stock method was used to meas-
ure the effect of the dilution.
2013 ANNUAL REPORT
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIC AND DILUTED SHARES OUTSTANDING
December 31
(In thousands) 2013 2012 2011
Weighted average common
shares outstanding – Basic 20,364 19,649 18,889
Effect of dilutive options 37 51 60
Weighted average common
shares outstanding – Diluted 20,401 19,700 18,949
Average Share Price $ 45.44 $ 40.94 $ 39.39
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 probable
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 years to conform
to the presentation used for the three-months and year ended De-
cember 31, 2013. Acquisition related costs for 2012 and 2011 are
now presented as a component of operating expenses in the ac-
companying Consolidated Statements of Operations.
3. REAL ESTATE ACQUIRED
4469 CONNECTICUT AVENUE
In February 2011, the Company purchased for $1.6 million 4469
Connecticut Avenue, a vacant one space retail property, located
adjacent to Van Ness Square in northwest Washington, DC and in-
curred acquisition costs of $74,000.
KENTLANDS SQUARE II
In September 2011, the Company purchased for $74.5 million Kent-
lands Square II, a retail property located adjacent to the Company’s
Kentlands Square I and Kentlands Place shopping centers in Gaithers-
burg, Maryland, and incurred acquisition costs of $1.1 million.
SEVERNA PARK MARKETPLACE
In September 2011, the Company purchased for $61.0 million Sev-
erna 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 Cran-
berry Square, a retail property located in Westminster, Maryland,
and incurred acquisition costs of $0.5 million.
40
SAUL CENTERS, INC.
1500 ROCKVILLE PIKE
In December 2012, the Company purchased for $22.4 million 1500
Rockville Pike, a retail property located in Rockville, Maryland, 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, Maryland,
and incurred acquisition costs of $0.5 million.
KENTLANDS PAD
In August 2013, the Company purchased for $4.3 million, a retail
pad with a 7,100 square feet restaurant located in Gaithersburg,
Maryland, which is contiguous with and an expansion of the Com-
pany's other Kentlands assets, and incurred acquisition costs of
$106,000.
HUNT CLUB PAD
In December 2013, the Company purchased for $0.8 million, in-
cluding acquisition costs, a retail pad with a 5,500 square foot
vacant building located in Apopka, Florida, which is contiguous
with and an expansion of the Company's other Hunt Club asset.
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
Significant Accounting Policies-Real Estate Investment Properties.
During 2013, the Company purchased one property at a cost of
$4.3 million and incurred acquisition costs of $106,000. Of the
total purchase price, $2.0 million was allocated to buildings and
$2.3 million was allocated to land. No amounts were allocated to
in-place, above-market, or below-market leases.
During 2012, the Company purchased two properties at an aggre-
gate cost of $34.1 million and incurred acquisition costs of $1.1
million. Of the total purchase price, $3.8 million was allocated 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 aggre-
gate cost of $170.1 million, and incurred acquisition costs of $2.5
million. Of the total purchase price, $5.5 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,
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The allocation of the purchase prices for Severna Park MarketPlace,
Kentlands Square II, and Cranberry Square to the acquired assets
and liabilities based on their fair values was as follows:
As of December 31, 2013, scheduled amortization of intangible assets
and deferred income related to in place leases is 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, 2013 and 2012 was $21.9
million and $21.9 million, respectively, and accumulated amortiza-
tion was $16.7 million and $14.7 million, respectively. Amortization
expense totaled $2.0 million, $2.0 million and $1.3 million, for the
years ended December 31, 2013, 2012, and 2011, respectively. The
gross carrying amount of below market lease intangible liabilities
included in deferred income as of December 31, 2013 and 2012 was
$24.8 million and $24.8 million, respectively, and accumulated
amortization was $10.0 million and $8.3 million, respectively. Ac-
cretion income totaled $1.7 million, $1.6 million, and $1.2 million,
for the years ended December 31, 2013, 2012, and 2011, respectively.
The gross carrying amount of above market lease intangible assets
included in accounts receivable as of December 31, 2013 and 2012
was $1.0 million and $1.0 million, respectively, and accumulated
amortization was $974,100 and $929,100, respectively. Amortization
expense totaled $45,000, $60,000 and $62,000, for the years
ended December 31, 2013, 2012 and 2011, respectively.
AMORTIZATION OF INTANGIBLE ASSETS AND
DEFERRED INCOME RELATED TO IN-PLACE LEASES
Lease Above Below
acquisition market market
(In thousands) costs leases leases
2014 $ 1,066 $ 21 $ 1,458
2015 721 3 1,203
2016 566 1 1,095
2017 517 1 1,072
2018 480 1 1,044
Thereafter 1,926 – 8,893
Total $ 5,276 $ 28 $ 14,765
4. NONCONTROLLING INTEREST - HOLDERS
OF CONVERTIBLE LIMITED PARTNERSHIP
UNITS IN THE OPERATING PARTNERSHIP
The Saul Organization holds a 25.4% limited partnership interest
in the Operating Partnership represented by 7,002,538 limited part-
nership units, as of December 31, 2013. The units are convertible
into shares of Saul Centers’ common stock, at the option of the
unit holder, on a one-for-one basis provided that, in accordance
with the Saul Centers, Inc. Articles of Incorporation, the rights may
not be exercised at any time that the Saul Organization benefi-
cially owns, directly or indirectly, in the aggregate more than 39.9%
of the value of the outstanding common stock and preferred stock
of Saul Centers (the “Equity Securities”). As of December 31, 2013,
720,000 units were eligible for conversion.
The impact of the Saul Organization’s 25.4% limited partnership
interest in the Operating Partnership is reflected as Noncontrolling
Interest in the accompanying consolidated financial statements.
Fully converted partnership units and diluted weighted average
shares outstanding for the years ended December 31, 2013, 2012,
and 2011, were 27,330,100, 26,613,900, and 24,739,700, respectively.
2013 ANNUAL REPORT
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. MORTGAGE NOTES PAYABLE, REVOLVING
CREDIT FACILITY, INTEREST EXPENSE
AND AMORTIZATION OF DEFERRED
DEBT COSTS
At December 31, 2013, outstanding debt totaled $820.1 million, of
which $789.9 million was fixed rate debt and $30.2 million was vari-
able rate debt. The Company’s outstanding debt totaled $827.8
million at December 31, 2012, of which $774.8 million was fixed rate
debt and $53.0 million was variable rate debt. At December 31, 2013,
the Company had a $175.0 million unsecured revolving credit fa-
cility, which can be used for working capital, property acquisitions
or development projects. The revolving credit facility matures on
May 20, 2016, and may be extended by the Company for one ad-
ditional year subject to the Company’s satisfaction of certain
conditions. Saul Centers and certain consolidated subsidiaries of
the Operating Partnership have guaranteed the payment obliga-
tions of the Operating Partnership under the revolving credit
facility. Letters of credit may be issued under the revolving credit
facility. On December 31, 2013, based on the value of the Com-
pany's unencumbered properties, approximately $164.2 million was
available under the line, no borrowings were outstanding and ap-
proximately $628,229 was committed for letters of credit. The
interest rate under the facility is variable and equals the sum of
one-month LIBOR and a margin that is based on the Company’s
leverage ratio and which can range from 160 basis points to 250
basis points. As of December 31, 2013, the margin was 160 basis
points.
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 (approximately
$7.4 million of the $14.8 million outstanding at December 31, 2013)
and the Metro Pike Center bank loan (approximately $7.7 million
of the $15.4 million outstanding at December 31, 2013). The fixed-
rate notes payable are all non-recourse.
On March 23, 2011, the Company closed on a 15-year non-recourse
mortgage loan in the amount of $125.0 million, secured by Claren-
don Center. The loan matures in 2026, bears interest at a fixed rate
of 5.31%, requires equal monthly principal and interest payments
of $753,000, based upon a 25-year principal amortization, and
requires a final principal payment of approximately $70.5 million
at maturity. Proceeds from the loan were used to repay $104.2 mil-
lion outstanding on the Clarendon Center construction loan.
On September 23, 2011, the Company closed on a 15-year non-re-
course mortgage loan in the amount of $38.0 million, secured by
Severna Park MarketPlace. The loan matures in 2026, bears interest
at a fixed rate of 4.30%, requires equal monthly principal and in-
terest payments of $207,000, based upon a 25-year principal
amortization, and requires a final principal payment of approxi-
mately $20.3 million at maturity. Proceeds 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 million,
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, secured
by Kentlands Square II. The loan matures in 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 amortiza-
tion, 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, secured
by Cranberry Square. The loan matures in 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 principal payment of approximately $10.9 mil-
lion at maturity. Proceeds 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-recourse
mortgage loan in the amount of $73.0 million secured by Seven
Corners shopping center. The loan matures in 2027, bears interest
at a fixed rate of 5.84%, requires equal monthly principal and in-
terest payments totaling $463,200 based upon a 25-year
amortization schedule and a final payment of $42.3 million at ma-
turity. Proceeds from the loan were used to pay-off the $63 million
remaining balance of existing debt secured by Seven Corners and
six other shopping center properties, and to provide cash of ap-
proximately $10 million.
42
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On March 19, 2013, the Company closed on a 15-year, non-recourse
$18.0 million mortgage loan secured by Hampshire Langley. The
loan matures in 2028, bears interest at a fixed rate of 4.04%,
requires monthly principal and interest payments totaling $95,400
based on a 25-year amortization schedule and requires a final
payment of $9.5 million at maturity.
On April 10, 2013, the Company paid in full the $6.9 million remain-
ing balance on the mortgage loan secured by Cruse Marketplace.
On May 28, 2013, the Company closed on a 15-year, non-recourse
$35.0 million mortgage loan secured by Beacon Center. The loan
matures in 2028, bears interest at a fixed rate of 3.51%, requires
monthly principal and interest payments totaling $203,200 based
on a 20-year amortization schedule and requires a final payment
of $11.4 million at maturity.
On September 4, 2013, the Company closed on a 15-year, non-re-
course $18.0 million mortgage loan secured by Seabreeze Plaza. The
loan matures in 2028, bears interest at a fixed rate of 3.99%, requires
monthly principal and interest payments totaling $94,900 based on
a 25-year amortization schedule and requires a final payment of
$9.5 million at maturity. Proceeds were used to pay off the $13.5
million remaining balance of existing debt secured by Seabreeze
Plaza which was scheduled to mature in May 2014 and the Com-
pany incurred $497,000 of related debt extinguishment costs.
On October 25, 2013 the Company closed on a $71.6 million con-
struction-to-permanent loan which will partially finance the
construction of Park Van Ness. The loan bears interest at 4.88% and
during the construction period it will be fully recourse to Saul Cen-
ters and accrued interest will be funded by the loan. Following the
completion of construction and lease-up, and upon achieving cer-
tain debt service coverage requirements, the loan will convert to a
non-recourse, permanent mortgage at the same interest rate, with
principal amortization computed based on a 25-year schedule.
On April 26, 2012, the Company substituted the White Oak shop-
ping center for Van Ness Square as collateral for one of its existing
mortgage loans. The terms of the original loan, including its 8.11%
interest rate, are unchanged 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 payments based upon a fixed 4.90% interest rate and 25-
year amortization schedule, and will mature
in 2024,
coterminously with the original loan. The consolidated loan re-
quires equal monthly payments based upon a blended fixed
interest rate of 7.0% and will require a final payment of $18.5 mil-
lion 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 capital
and funds for acquisitions, certain developments, redevelopments
and letters of credit, may be extended for one year, at the Com-
pany’s option, subject to the satisfaction of certain conditions.
Loans under the facility bear interest at a rate equal to the sum of
one-month LIBOR and a margin, based on the Company’s leverage
ratio, ranging from 160 basis points to 250 basis points. Based
on the leverage ratio of December 31, 2013, the margin was 160
basis points.
On February 27, 2013, the Company closed on a three-year $15.6
million mortgage loan secured by Metro Pike Center. The loan ma-
tures 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 $14.8 million at maturity. The loan
may be extended for up to two years. Proceeds 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.
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.
2013 ANNUAL REPORT
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of notes payable as of December 31, 2013 and 2012:
NOTES PAYABLE
December 31, Interest Scheduled
(Dollars in thousands) 2013 2012 Rate * Maturity *
Fixed rate mortgages: $ — (a) $ 15,750
— (b) 6,936
— (c) 13,875
16,128 (d) 16,798 7.45% Jun-2015
33,246 (e) 34,373 6.01% Feb-2018
36,937 (f) 38,388 5.88% Jan-2019
11,949 (g) 12,418 5.76% May-2019
16,501 (h) 17,145 5.62% Jul-2019
16,419 (i) 17,040 5.79% Sep-2019
14,610 (j) 15,176 5.22% Jan-2020
11,159 (k) 11,421 5.60% May-2020
9,921 (l) 10,288 5.30% Jun-2020
42,462 (m) 43,424 5.83% Jul-2020
8,649 (n) 8,934 5.81% Feb-2021
6,233 (o) 6,359 6.01% Aug-2021
35,981 (p) 36,699 5.62% Jun-2022
10,930 (q) 11,129 6.08% Sep-2022
11,795 (r) 11,989 6.43% Apr-2023
15,598 (s) 16,247 6.28% Feb-2024
17,123 (t) 17,469 7.35% Jun-2024
14,849 (u) 15,140 7.60% Jun-2024
26,153 (v) 26,635 7.02% Jul-2024
31,093 (w) 31,709 7.45% Jul-2024
30,894 (x) 31,490 7.30% Jan-2025
16,087 (y) 16,419 6.18% Jan-2026
118,128 (z) 120,822 5.31% Apr-2026
36,075 (aa) 36,986 4.30% Oct-2026
40,974 (bb) 41,970 4.53% Nov-2026
19,118 (cc) 19,569 4.70% Dec-2026
70,856 (dd) 72,233 5.84% May-2027
17,718 (ee) — 4.04% Apr-2028
34,391 (ff) — 3.51% Jun-2028
17,895 (gg) — 3.99% Sep-2028
— (hh) — 4.88% Sep-2032
Total fixed rate 789,872 774,831 5.67% 10.1 Years
Variable rate loans:
— (ii) 38,000 LIBOR + 1.60% May-2016
14,802 (jj) 14,945 LIBOR + 1.65% Feb-2016
15,394 (kk) — LIBOR + 1.65% Feb-2016
Total variable rate 30,196 52,945 LIBOR + 1.65% 2.2 Years
Total notes payable $ 820,068 $ 827,776 5.53% 9.8 Years
* Interest rate and scheduled maturity data presented as of December 31, 2013. Totals computed using weighted averages.
44
SAUL CENTERS, INC.
(a)
The loan, together with a corresponding interest-rate swap, was col-
lateralized by Metro Pike Center. On a combined basis, the loan and
the swap required interest only payments of $86,000 based upon a 25-
year amortization schedule and a final payment of $15.6 million at
loan maturity. The loan was repaid in full and the swap was termi-
nated in 2013.
(c)
(d)
(b) The loan was collateralized by Cruse MarketPlace and required equal
monthly principal and interest payments of $56,000 based upon an
amortization schedule of approximately 24 years and a final payment
of $6.8 million at loan maturity. The loan was repaid in full in 2013.
The loan was collateralized by Seabreeze Plaza and required 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 at loan maturity. The loan was repaid in full in 2013.
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 amortization
schedule and a final payment of $15.2 million at loan maturity. Principal
of $670,000 was amortized during 2013.
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 2013.
The loan is collateralized by three shopping centers, Broadlands Village,
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. Princi-
pal of $1.5 million was amortized during 2013.
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 $469,000 was amortized during 2013.
(g)
(e)
(f)
(i)
(j)
(h) 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 ma-
turity. Principal of $644,000 was amortized during 2013.
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 $621,000 was amortized during 2013.
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 $566,000 was amortized during 2013.
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 $262,000 was amortized during 2013.
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 $367,000 was amortized during 2013.
(k)
(l)
(m) 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. Principal of
$962,000 was amortized during 2013.
(n) 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 $285,000 was amortized during 2013.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(o)
(p)
(q)
(r)
(s)
(t)
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 $126,000 was amortized during 2013.
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 $718,000 was amortized during 2013.
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 ma-
turity. Principal of $199,000 was amortized during 2013.
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 ma-
turity. Principal of $194,000 was amortized during 2013.
The loan is collateralized by Great Falls shopping center. The loan con-
sists of three notes which require equal monthly principal and interest
payments of $138,000 based upon a weighted average 26-year amor-
tization schedule and a final payment of $6.3 million at maturity.
Principal of $649,000 was amortized during 2013.
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 ma-
turity. Principal of $346,000 was amortized during 2013.
(v)
(u) 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 ma-
turity. Principal of $291,000 was amortized during 2013.
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 million
at loan maturity. The loan was previously collateralized by Van Ness
Square. During 2012, the Company substituted White Oak as the col-
lateral and borrowed an additional $10.5 million. Principal of $482,000
was amortized during 2013.
(z)
(x)
(y)
(w) 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 $616,000 was amortized during 2013.
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 $596,000 was amortized during 2013.
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 ma-
turity. Principal of $332,000 was amortized during 2013.
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 $2.7 million was amortized during 2013.
(aa) 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 $911,000 was amortized during 2013.
(bb) 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 $996,000 was amortized during 2013.
(cc) 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 $451,000 was amortized during 2013.
2013 ANNUAL REPORT
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dd) The loan in the original amount of $73.0 million closed in May 2012, is
collateralized by Seven Corners and requires equal monthly principal
and interest payments of $463,200 based upon a 25-year amortization
schedule and a final payment of $42.3 million at loan maturity. Princi-
pal of $1.4 million was amortized during 2013.
(ee) The loan is collateralized by Hampshire Langley and requires equal
monthly principal and interest payments of $95,400 based upon a 25-
year amortization schedule and a final payment of $9.5 million at loan
maturity. Principal of $282,000 was amortized in 2013.
(ff) The loan is collateralized by Beacon Center and requires equal monthly
principal and interest payments of $203,200 based upon a 20-year
amortization schedule and a final payment of $11.4 million at loan ma-
turity. Principal of $609,000 was amortized in 2013.
(gg) The loan is collateralized by Seabreeze Plaza and requires equal
monthly principal and interest payments of $94,900 based upon a 25-
year amortization schedule and a final payment of $9.5 million at loan
maturity. Principal of $105,000 was amortized in 2013.
The carrying value of the properties collateralizing the mortgage
notes payable totaled $907.2 million and $916.1 million, as of De-
cember 31, 2013 and 2012, respectively. The Company’s credit
facility requires the Company and its subsidiaries to maintain cer-
tain financial covenants, which are summarized below. The
Company was in compliance as of December 31, 2013.
• maintain tangible net worth, as defined in the loan agreement, of
at least $503.3 million plus 80% of the Company’s net equity pro-
ceeds 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 2.0
x 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 5 years to no more than 40% of total debt.
Mortgage notes payable at each of December 31, 2013 and 2012, to-
taling $51.0 million, are guaranteed by members of the Saul
Organization. As of December 31, 2013, the scheduled maturities of
all debt including scheduled principal amortization for years ended
December 31 are as follows:
46
SAUL CENTERS, INC.
(hh) The loan is a $71.6 million construction-to-permanent facility that is
collateralized by and will finance a portion of the construction costs
of Park Van Ness. During the construction period, interest will be
funded by the loan. After conversion to a permanent loan, monthly
principal and interest payments totaling $413,500 will be required
based upon a 25-year amortization schedule. A final payment of $39.6
million will be due at maturity.
The loan is a $175.0 million unsecured revolving credit facility. Interest
accrues at a rate equal to the sum of one-month LIBOR and 160 basis
points. The line may be extended at the Company’s option for one year
with payment of a fee of 0.20%. Monthly payments, if required, are in-
terest only and vary depending upon the amount outstanding and the
applicable interest rate for any given month.
(ii)
(jj) The loan is collateralized by Northrock and requires monthly principal
and interest payments of approximately $47,000 and a final payment
of approximately $14.2 million at maturity. Principal of $143,000 was
amortized during 2013.
(kk) The loan is collateralized by Metro Pike Center and requires monthly
principal and interest payments of approximately $48,000 and a final
payment of $14.8 million at loan maturity. Principal of $206,000 was
amortized during 2013.
DEBT MATURITY SCHEDULE
(In thousands) Scheduled
Balloon Principal
Payments Amortization Total
2014 $ – $ 22,191 $ 22,191
2015 15,077 23,008 38,085
2016 28,931 23,444 52,375
2017 – 24,681 24,681
2018 27,872 24,696 52,568
Thereafter 475,267 154,901 630,168
$ 547,147 $ 272,921 $ 820,068
The components of interest expense are set forth below.
INTEREST EXPENSE AND AMORTIZATION
OF DEFERRED DEBT COSTS
Year ended December 31,
(In thousands) 2013 2012 2011
Interest incurred $ 45,502 $ 48,010 $ 45,673
Amortization of deferred
debt costs 1,257 1,576 1,547
Capitalized interest (170) (42) (1,896)
Total $ 46,589 $ 49,544 $ 45,324
Deferred debt costs capitalized during the years ending December
31, 2013, 2012 and 2011 totaled $3.2 million, $2.2 million and $1.4
million, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The majority of the leases provide for rental increases and expense
recoveries based on fixed annual increases or increases in the Con-
sumer Price Index and increases in operating expenses. The
expense recoveries generally are payable in equal installments
throughout the year based on estimates, with adjustments made
in the succeeding year. Expense recoveries for the years ended De-
cember 31, 2013, 2012, and 2011, amounted to $30.9 million, $30.4
million, and $28.4 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 $1.6 million, $1.5 million, and $1.5 million, for the years ended
December 31, 2013, 2012, and 2011, 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, 2013, 2012, and 2011, amounted to $159.9 mil-
lion, $152.8 million, and $138.5 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)
2014 $ 149,101
2015 131,724
2016 114,123
2017 95,157
2018 77,542
Thereafter 306,980
$ 874,627
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 underlying
land. The leases will expire between 2058 and 2068. Reflected
in the accompanying consolidated financial statements is mini-
mum ground rent expense of $176,000, $176,000, and $173,000, for
the years ended December 31, 2013, 2012, and 2011, respectively.
The future minimum rental commitments under these ground
leases are as follows:
Year ending December 31,
GROUND LEASE RENTAL COMMITMENTS
(In thousands) 2014 2015 2016 2017 2018 Thereafter Total
Beacon Center $ 60 $ 60 $ 60 $ 60 $ 60 $ 2,601 $ 2,901
Olney 56 56 56 56 56 3,817 4,097
Southdale 60 60 60 60 60 2,945 3,245
Total $ 176 $ 176 $ 176 $ 176 $ 176 $ 9,363 $ 10,243
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 underlying 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.
The Company’s corporate headquarters space is leased by a mem-
ber 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 op-
erating expenses over a base year amount. The Company and the
Saul Organization entered into a Shared Services 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, 2013, 2012, and 2011 was $850,600, $850,000,
and $945,000, respectively. Expenses arising from the lease are
included in general and administrative expense (see Note 9 –
Related Party Transactions).
2013 ANNUAL REPORT
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. STOCKHOLDERS’ EQUITY AND
NONCONTROLLING INTEREST
The Consolidated Statements of Operations for the years ended
December 31, 2013, 2012, and 2011 reflect noncontrolling interest of
$4.0 million, $6.4 million, and $3.6 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 Cumu-
lative Redeemable Preferred Stock (the "Series A Stock"). The
depositary shares are redeemable, in whole or in part at the Com-
pany’s option, from time to time, at $25.00 per share. The
depositary shares pay an annual dividend of $2.00 per share, equiv-
alent 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 securities of the Company. Investors in the deposi-
tary 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. In March 2013, the Company redeemed 60% of its
then-outstanding Series A Stock. Costs associated with the re-
demption were charged against accumulated deficit.
In March 2008, the Company sold 3,173,115 depositary shares, each
representing 1/100th of a share of 9% Series B Cumulative Re-
deemable Preferred Stock (the "Series B Stock"). The depositary
shares may be redeemed at the Company’s option, on or after
March 15, 2013, in whole or in part, at $25.00 per share. The de-
positary shares pay an annual dividend of $2.25 per share,
equivalent to 9% of the $25.00 per share liquidation preference.
The Series B preferred stock has no stated maturity, is not subject
to any sinking fund or mandatory redemption and is not convert-
ible 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. In March 2013, the Company redeemed all
of its Series B Stock. Costs associated with the redemption were
charged against accumulated deficit.
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,
and received net cash proceeds of approximately $135.2 million. The
depositary shares may be redeemed on or after February 12, 2018 at
the Company’s option, in whole or in part, at the $25.00 liquidation
preference plus accrued but unpaid dividends. The depositary shares
pay an annual dividend of $1.71875 per share, equivalent to 6.875%
of the $25.00 liquidation preference. The first dividend was paid on
April 15, 2013 and covered 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 divi-
dends 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 shop-
ping centers, the Company and the Operating Partnership issued to
members of the Saul Organization 186,968 shares of 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 com-
mon 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 offi-
cers of various members of the Saul Organization and their
management time is shared with the Saul Organization. Their an-
nual compensation is fixed by the Compensation Committee of
the Board of Directors, with the exception of the Senior Vice Pres-
ident-Chief Accounting Officer whose share of annual
compensation allocated to the Company is determined by the
shared services agreement (described below).
The Company participates in a multiemployer 401K plan with en-
tities 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 admin-
istrative expense or property operating expenses
in the
consolidated statements of operations, at the discretionary
amount of up to six percent of the employee’s cash compensation,
subject to certain limits, were $369,000, $379,000, and $378,000,
for 2013, 2012, and 2011, respectively. All amounts deferred by em-
ployees and contributed by the Company are fully vested.
The Company also participates in a multiemployer nonqualified
deferred compensation plan with entities in the Saul Organization
which covers those full-time employees who meet the require-
ments 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 specified amount.
For the years ended December 31, 2013, 2012, and 2011, the Com-
pany contributed three times the amount deferred by employees.
The Company’s expense, included in general and administrative
expense, totaled $191,300, $238,000, and $231,000, for the years
ended December 31, 2013, 2012, and 2011, respectively. All amounts
deferred by employees and the Company are fully vested. The cu-
mulative unfunded liability under this plan was $1.6 million and
$2.2 million, at December 31, 2013 and 2012, respectively, and is in-
cluded in accounts payable, accrued expenses and other liabilities
in the consolidated balance sheets.
48
SAUL CENTERS, INC.
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 com-
puter hardware, software, and support services and certain direct
and indirect administrative personnel. The method for determining
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 reasonable. The terms
of the Agreement and the payments made thereunder are re-
viewed 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, 2013, 2012,
and 2011, which included rental expense for the Company’s head-
quarters lease (see Note 7. Long Term Lease Obligations), totaled
$6.3 million, $6.0 million, and $6.1 million, respectively. The
amounts are expensed when incurred and are primarily reported
as general and administrative expenses or capitalized to specific
development projects in these consolidated financial statements.
As of each of December 31, 2013 and 2012, accounts payable, ac-
included $499,000,
crued expenses and other
representing billings due to the Saul Organization for the Com-
pany’s share of these ancillary costs and expenses.
liabilities
The B. F. Saul Insurance Agency of Maryland, Inc., a subsidiary of
the B. F. Saul Company and a member of the Saul Organization, 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
$447,300, $372,000, and $341,000, for the years ended December
31, 2013, 2012, and 2011, respectively.
Effective as of September 4, 2012, the Company entered into a
consulting agreement with B. F. Saul III, the Company’s former pres-
ident, whereby Mr. Saul III will provide certain consulting services
to the Company as an independent contractor. Under the consult-
ing 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 agreement is terminable
by the Company at any time. During 2013 and 2012, such consulting
fees totaled $720,000 and $225,000, respectively.
10. STOCK OPTION PLAN
The Company established a stock option plan in 1993 (the “1993
Plan”) for the purpose of attracting and retaining executive officers
and other key personnel. The 1993 Plan provides for grants of op-
tions to purchase up to 400,000 shares of common stock. The
1993 Plan authorizes the Compensation 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, direc-
tors and other key personnel. The 2004 stock plan was
subsequently amended by the Company’s stockholders at the
2008 Annual Meeting and further amended at the 2013 Annual
Meeting (the “Amended 2004 Plan”). The Amended 2004 Plan,
which terminates in 2023, provides for grants of options to pur-
chase up to 2,000,000 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 Compensation 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 152,500 shares (27,500 incentive stock options
and 125,000 shares of nonqualified stock options) to eleven Com-
pany officers and to the twelve Company directors (the “2004
Options”), which expire on April 25, 2014. The officers’ 2004 Op-
tions vested 25% per year over four years and are subject to early
expiration upon termination of employment. The directors’ op-
tions were immediately exercisable. 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 determined the total fair value of the 2004 Options
to be $359,375, of which $292,775 and $66,600 were the values as-
signed to the officer options and director options, respectively.
Because the directors’ options vested immediately, the entire
$66,600 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 162,500 shares (35,500 incentive stock options
and 127,000 nonqualified 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 im-
mediately exercisable. 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
determined the total fair value of the 2005 Options to be
$484,500, of which $413,400 and $71,100 were the values assigned
to the officer options and director options, respectively. Because
the directors’ options vested immediately, the entire $71,100 was
expensed as of the date of grant. The expense of the officers’ op-
tions was recognized as compensation expense monthly during
the four years the options vested.
Effective May 1, 2006, the Compensation Committee granted op-
tions to purchase 30,000 shares (all nonqualified stock options)
to twelve Company directors (the “2006 Options”), 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
2013 ANNUAL REPORT
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company’s common stock on the date of the award. Using the
Black-Scholes model, the Company determined 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 op-
tions to purchase 165,000 shares (27,560 incentive stock options
and 137,440 nonqualified stock options) to thirteen Company of-
ficers 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 ter-
mination of employment. The directors’ options were immediately
exercisable. 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 determined
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 officers’ options was rec-
ognized as compensation expense monthly during the four years
the options vested.
Effective April 25, 2008, the Compensation Committee granted op-
tions to purchase 30,000 shares (all nonqualified stock options) to
twelve Company directors (the “2008 Options”), which were imme-
diately 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 determined the total fair value of the 2008
Options to be $254,700. Because the directors’ options vest imme-
diately, the entire $254,700 was expensed as of the date of grant.
No options were granted to the Company’s officers in 2008.
Effective April 24, 2009, the Compensation Committee granted op-
tions to purchase 32,500 shares (all nonqualified stock options) to
thirteen Company directors (the “2009 Options”), which were im-
mediately 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 determined the total fair value of the 2009
Options to be $222,950. Because the directors’ options vested im-
mediately, the entire $222,950 was expensed as of the date of grant.
No options were granted to the Company’s officers in 2009.
Effective May 7, 2010, the Compensation Committee granted op-
tions to purchase 32,500 shares (all nonqualified stock options) to
thirteen Company directors (the “2010 Options”), which were im-
mediately 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 determined the total fair value of the 2010
Options to be $287,950. Because the directors’ options vested im-
mediately, 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 op-
tions to purchase 195,000 shares (65,300 incentive stock options
and 129,700 nonqualified stock options) to fifteen Company offi-
cers and thirteen 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 termina-
tion of employment. 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 $297,375 were assigned to the officer options and
director options, respectively. Because the directors’ options
vested immediately, the entire $297,375 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 op-
tions to purchase 277,500 shares (26,157 incentive stock options
and 251,343 nonqualified stock options) to fifteen Company offi-
cers and fourteen 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 termina-
tion of employment. 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 de-
termined the total fair value of the 2012 Options to be $1.7 million,
of which $1.4 million and $244,388 were assigned to the officer op-
tions and director options, respectively. Because the directors’
options vested immediately, the entire $244,388 was expensed as
of the date of grant. The expense for the officers’ options is being
recognized as compensation expense monthly during the four
years the options vest.
Effective May 10, 2013, the Compensation Committee granted op-
tions to purchase 237,500 shares (35,592 incentive stock options
and 201,908 nonqualified stock options) to fifteen Company offi-
cers and fourteen Company Directors (the "2013 options"), which
expire on May 10, 2023. The officers' 2013 Options vest 25% per
year over four years and are subject to early expiration upon ter-
mination of employment. The directors' 2013 options were
immediately exercisable. The exercise price of $44.42 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 2013 Options to be $1.5 mil-
lion, of which $1.3 million and $0.3 million were assigned to the
officer options and director options, respectively. Because the di-
rectors' options vested immediately, the entire $0.3 million was
expensed as of the date of grant. The expense for the officers'
options is being recognized as compensation expense monthly
during the four years the option was vested.
50
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2013, 2012 and 2011:
STOCK OPTIONS ISSUED TO DIRECTORS
Grant date
Total grant
Vested
Exercised
Forfeited
Exercisable at
December 31, 2013
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 2011
Expensed in 2012
Expensed in 2013
Future expense
4/26/2004
5/6/2005
5/1/2006
4/27/2007
4/25/2008
4/24/2009
5/7/2010
5/13/2011
5/4/2012
5/10/2013
Subtotals
30,000
30,000
25,000
–
5,000
5,000
$ 25.78
$
0.183
5.0
5.75%
3.57%
30,000
30,000
22,500
–
7,500
7,500
33.22
0.198
10.0
30,000
30,000
5,000
2,500
22,500
22,500
40.35
0.206
9.0
$
30,000
30,000
–
7,500
22,500
22,500
54.17
0.225
8.0
$
30,000
30,000
–
7,500
22,500
22,500
50.15
0.237
7.0
$
32,500
32,500
17,500
–
15,000
15,000
32.68
0.344
6.0
$
32,500
32,500
5,000
2,500
25,000
25,000
38.76
0.369
5.0
$
32,500
32,500
5,000
2,500
25,000
25,000
41.82
0.358
5.0
$
35,000
35,000
5,000
–
30,000
30,000
39.29
0.348
5.0
$
35,000
35,000
2,500
–
32,500
32,500
44.42
0.333
5.0
$
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%
4.53%
0.82%
317,500
317,500
87,500
22,500
207,500
207,500
$ 66,600
$ 71,100
$ 143,400
$ 285,300
$ 254,700
$ 222,950
$ 287,950
$ 297,375
$ 244,388
$ 262,946
$ 2,136,709
–
–
–
–
–
–
–
66,600
71,100
143,400
285,300
254,700
222,950
287,950
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
297,375
–
–
–
–
–
–
244,388
–
–
–
–
–
–
262,946
–
–
1,332,000
297,375
244,388
262,946
–
STOCK OPTIONS ISSUED TO OFFICERS AND GRAND TOTALS
Grant date
Total grant
Vested
Exercised
Forfeited
Exercisable at
December 31, 2013
Remaining unexercised
Exercise price
Volatility
Expected life (years)
Assumed yield
$
Risk-free rate
04/26/2004
05/06/2005
04/27/2007
05/13/2011
5/4/2012
5/10/2013
Subtotals
Grand Totals
122,500
115,000
103,750
7,500
11,250
11,250
25.78
0.183
7.0
5.75%
4.05%
132,500
118,750
69,500
13,750
$
$
49,250
49,250
33.22
0.207
8.0
6.37%
4.15%
135,000
67,500
–
67,500
67,500
67,500
54.17
0.233
6.5
162,500
67,500
16,250
41,250
51,250
105,000
41.82
0.330
8.0
$
242,500
28,125
1,875
130,000
26,250
110,625
39.29
0.315
8.0
202,500
–
–
–
–
$
202,500
44.42
0.304
8.0
$
4.13%
4.61%
4.81%
2.75%
5.28%
1.49%
5.12%
1.49%
997,500
396,875
191,375
260,000
205,500
546,125
1,315,000
714,375
278,875
282,500
413,000
753,625
Total value at
grant date
Forfeited options
Expensed in
previous years
Expensed in 2011
Expensed in 2012
Expensed in 2013
Future expense
Remaining weighted
average term of
future expense
$
292,775
$
413,400
$ 1,258,848
$ 1,277,794
$ 1,442,148
$ 1,254,164
$
5,939,129
$
8,075,838
17,925
35,100
–
252,300
813,800
274,850
378,300
–
–
–
–
–
–
–
–
–
186,347
270,391
235,350
333,406
–
–
104,724
157,083
366,541
1,153,957
104,891
–
–
–
2.8 years
–
–
–
–
209,027
1,045,137
1,119,125
1,119,125
1,807,107
3,139,107
291,238
375,115
601,460
588,613
619,503
864,406
1,745,084
1,745,084
2013 ANNUAL REPORT
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below summarizes the option activity for the years 2013, 2012, and 2011:
2013 2012 2011
Wtd Avg Wtd Avg Wtd Avg
Shares Exercise Price Shares Exercise Price Shares Exercise Price
Outstanding at January 1 570,840 $ 41.04 674,585 $ 40.40 532,881 $ 39.12
Granted 237,500 44.42 277,500 39.29 195,000 41.82
Exercised (49,715) 33.15 (149,995) 31.03 (40,796) 29.03
Expired/Forfeited (50,00) 52.16 (231,250) 43.56 (12,500) 45.05
Outstanding December 31 753,625 42.55 570,840 41.04 674,585 40.40
Exercisable at December 31 413,000 42.42 377,715 41.41 512,085 39.96
The intrinsic value of options exercised in 2013, 2012, and 2011, was
$0.6 million, $1.6 million, and $0.7 million, respectively. The intrinsic
value of options outstanding and exercisable at year end 2013 was
$4.5 million and $2.8 million, respectively. The intrinsic value meas-
ures 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 measure-
ment date for shares exercised during the period. At December 31,
2013, the final trading day of calendar 2013, the closing price of
$47.73 per share was used for the calculation of aggregate intrinsic
value of options outstanding and exercisable at that date. Options
having an exercise price in excess of the December 31, 2013 closing
price have no intrinsic value. The weighted average remaining con-
tractual life of the Company’s exercisable and outstanding options
at December 31, 2013 are 5.1 and 6.8 years, respectively.
11. NON-OPERATING ITEMS
Gain on casualty settlement in 2013 and 2012 reflect insurance pro-
ceeds received in excess of the carrying value of assets damaged
during a hail storm at French Market in 2012. Gain on casualty set-
tlement in 2011 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 substantially all of
the restoration of the damaged property.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, accounts receiv-
able, 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 4.85% and 4.00%, would
be approximately $828.7 million and $848.1 million, as of December
31, 2013 and 2012, respectively, compared to the carrying value of
$789.9 million and $774.8 million at December 31, 2013 and 2012, re-
spectively. 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 in-
terest-rate swap arrangements was a highly effective hedge of the
cash flows under one of its variable-rate mortgage loans and des-
ignated the swap as a cash flow hedge of that mortgage. The swap
is carried at fair value with changes in fair value recognized either
in income or comprehensive income depending on the effective-
ness of the swap. The following chart summarizes the changes in
fair value of the Company’s swaps for the indicated periods.
Year Ended December 31,
(In thousands)
Increase (decrease)
2013 2012 2011
in fair value:
Recognized in earnings $ (7) $ 36 $(1,332)
Recognized in other
comprehensive
income 2,897 (932) (3,195)
Total $ 2,890 $ (896) $(4,527)
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 deter-
mined using Level 3 inputs and are not significant. Derivative
instruments are classified within Level 2 of the fair value hierarchy
because their values are determined using third-party pricing mod-
els which contain inputs that are derived from observable 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, and correlations of such inputs.
The swap agreement terminates on July 1, 2020. As of December 31,
52
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2013, the fair value of the interest-rate swap was approximately $2.7
million and is included in “Accounts payable, accrued expenses and
other liabilities” in the consolidated balance sheets. The decrease
in value from inception of the swap designated as a cash flow
hedge is reflected in “Other Comprehensive Income” in the Con-
solidated Statements of Comprehensive Income.
13. COMMITMENTS AND CONTINGENCIES
Neither the Company nor the Current Portfolio Properties are sub-
ject to any material litigation, nor, to management’s knowledge, is
any material litigation currently threatened against the Company,
other than routine litigation and administrative proceedings arising
in the ordinary course of business. Management believes that these
items, individually or in the aggregate, will not have a material ad-
verse impact on the Company or the Current Portfolio Properties.
14. DISTRIBUTIONS
In December 1995, the Company established a Dividend Reinvest-
ment and Stock Purchase Plan (the “Plan”), to allow its 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% 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 al-
lows holders of limited partnership interests the opportunity to
buy either additional limited partnership units or common stock
shares of the Company.
The Company paid common stock distributions of $1.44 per share,
during each of 2013, 2012, and 2011, and Series A preferred stock div-
idends of $2.00 per depositary share during each of 2013, 2012 and
2011, Series B preferred stock dividends of $0.99, $2.25 and $2.25 per
share during 2013, 2012 and 2011, respectively, and Series C preferred
stock dividends of $1.09 per depositary share during 2013. Of the
common stock dividends paid, $0.96 per share, $0.95 per share, and
$0.72 per share, represented ordinary dividend income and $0.48
per share, $0.49 per share, and $0.72 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, 2013, 2012, and 2011, 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 Limited Average
(Dollars in thousands, Preferred Common Partnership Stock Shares Discounted Partnership Unit
except per share amounts) Stockholders Stockholders Unitholders Issued Share Price Units Issued Price
Distributions during 2013
October 31 $ 3,206 $ 7,388 $ 2,489 48,836 $ 46.27 88,309 $ 46.93
July 31 3,206 7,327 2,489 138,019 45.21
April 30 4,364 7,272 2,489 142,839 42.85
January 31 3,785 7,218 2,489 145,468 41.67
Total 2013 $ 14,561 $ 29,205 $ 9,956 475,162 88,309
Distributions during 2012
October 31 $ 3,785 $ 7,120 $ 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 6,947 2,489 163,429 34.44
Total 2012 $ 15,140 $ 28,135 $ 9,956 595,388
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
2013 ANNUAL REPORT
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In December 2013, the Board of Directors of the Company author-
ized a distribution of $0.36 per common share payable in January
2014, to holders of record on January 17, 2014. As a result, $7.4 million
was paid to common shareholders on January 31, 2014. Also, $2.5
million was paid to limited partnership unitholders on January 31,
2014 ($0.36 per Operating Partnership unit). The Board of Directors
authorized preferred stock dividends of $0.50 per Series A deposi-
tary share, to holders of record on January 7, 2014 and $0.4297 per
Series C depositary share to holders of record on January 7, 2014.
15.
INTERIM RESULTS (UNAUDITED)
As a result, $3.2 million was paid to preferred shareholders on Jan-
uary 15, 2014. These amounts are reflected as a reduction of
stockholders’ equity in the case of common stock and preferred
stock dividends and noncontrolling interest deductions in the case
of limited partner distributions and are included in dividends and
distributions payable in the accompanying consolidated financial
statements.
The following summary presents the results of operations of the Company for the quarterly periods of calendar years 2013 and 2012.
(In thousands, except per share amounts) 2013
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Revenue $ 49,186 $ 48,809 $ 49,756 $ 50,146
Operating income before loss on early extinguishment
of debt, gain on casualty settlement, discontinued
operations and noncontrolling interest 3,388 7,711 11,959 12,211
Net income attributable to Saul Centers, Inc. 4,984 6,594 9,398 9,896
Net income (loss) available to common shareholders (4,608) 3,387 6,192 6,690
Net income (loss) available to common shareholders per diluted share (0.23) 0.17 0.30 0.33
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, discontinued
operations and noncontrolling interest 9,318 9,598 8,160 8,020
Gain on sales of properties – – 1,057 3,453
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 diluted share 0.21 0.22 0.21 0.29
54
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 performance 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 2013 presentation.
Shopping Mixed-Use Corporate Consolidated
(In thousands) Centers Properties and Other Totals
As of or for the year ended December 31, 2013
Real estate rental operations:
Revenue $ 145,219 $ 52,609 $ 69 $ 197,897
Expenses (30,729) (17,213) — (47,942)
Income from real estate 114,490 35,396 69 149,955
Interest expense and amortization of deferred debt costs — — (46,589) (46,589)
General and administrative — — (14,951) (14,951)
Subtotal 114,490 35,396 (61,471) 88,415
Depreciation and amortization of deferred leasing costs (27,340) (21,790) — (49,130)
Acquisition related costs (106) — — (106)
Predevelopment expenses — (3,910) — (3,910)
Change in fair value of derivatives — — (7) (7)
Loss on early extinguishment of debt — — (497) (497)
Gain on casualty settlement 77 — — 77
Net income (loss) $ 87,121 $ 9,696 $ (61,975) $ 34,842
Capital investment $ 18,232 $ 8,207 $ — $ 26,439
Total assets $ 888,109 $ 293,512 $ 17,054 $ 1,198,675
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)
Acquisition related costs (1,129) — — (1,129)
Predevelopment expenses — (2,667) — (2,667)
Change in fair value of derivatives — — 36 36
Gain on sales of properties 4,510 — — 4,510
Loss from operations of property sold (81) — — (81)
Gain on casualty settlement 219 — — 219
Net income (loss) $ 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
2013 ANNUAL REPORT
55
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, 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)
Acquisition related costs (2,534) — — (2,534)
Change in fair value of derivatives — — (1,332) (1,332)
Gain on casualty settlement 245 — — 245
Loss from operations of property sold (55) — — (55)
Net income (loss) $ 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
17. SUBSEQUENT EVENTS
In February 2014, the Company terminated a 50,000 square foot
lease at the Seven Corners shopping center and received a lease
termination fee of $1.85 million which will be recognized as revenue
in the first quarter. The space was previously occupied by a furni-
ture store that had vacated during 2013 and the lease was scheduled
to expire in early 2016. A short term lease for the entire space has
been executed with another furniture store while the Company is
working on re-tenanting the space under a long term lease.
56
SAUL CENTERS, INC.
DIVIDEND REINVESTMENT PLAN AND DISTRIBUTIONS
DIVIDEND REINVESTMENT PLAN
Saul Centers, Inc. offers a dividend reinvestment plan which
enables its shareholders to automatically invest some of or all
dividends 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 reinvest-
ment 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 represen-
tative or write:
Continental Stock Transfer and Trust Company
Saul Centers, Inc.
Attention:
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 distrib-
ute at least 90% of REIT taxable income. The Company
distributed amounts greater than the required amount in 2013 and
2012. Distributions by the Company to common stockholders and
holders of limited partnership units in the Operating Partnership
were $39.2 million and $38.1 million in 2013 and 2012, respectively.
Distributions to preferred stockholders were $14.6 million and
$15.1 million in 2013 and 2012, respectively. See Notes to Consoli-
dated Financial 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,
operating expenses of the Company, interest expense, general
economic conditions, federal, state and local taxes (if any),
unanticipated capital expenditures, the adequacy of reserves and
preferred dividends. While the Company intends to continue
paying 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
financial 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, and to holders of depositary shares
of Series C preferred stock at the rate of $1.71875 per annum per
depositary share beginning February 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, 2013. 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
income. 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
2013, 67% was treated as a taxable dividend and 33% was treated
as a return of capital. Of the $1.44 per common share dividend
paid in 2012, 66% was treated as a taxable dividend income and
34% was treated as a return of capital. Of the $1.44 per common
share dividend paid in 2011, 50% was taxable dividend income and
50% was considered return of capital. No assurance can be given
regarding what portion, if any, of distributions in 2014 or subse-
quent 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.
2013 ANNUAL REPORT
57
MARKET INFORMATION
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 2013 and 2012 as follows:
COMMON STOCK PRICES
Period Share Price
High Low
October 1, 2013 – December 31, 2013 $49.19 $45.86
July 1, 2013 – September 30, 2013 $48.49 $43.10
April 1, 2013 – June 30, 2013 $47.83 $42.66
January 1, 2013– March 31, 2013 $44.94 $41.43
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
On March 3, 2014, the closing price was $46.33 per share.
The approximate number of holders of record of the common stock was 210 as of March 3, 2014.
58
SAUL CENTERS, INC.
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 rein-
vestment 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, 2009.
COMPARISON OF CUMULATIVE TOTAL RETURN
d
e
t
s
e
v
n
I
0
0
1
$
n
r
u
t
e
R
l
a
t
o
T
$250
$200
$150
$100
Jan. 1, 2009
Dec. 31, 2009
Dec. 31, 2010
Dec. 31, 2011
Dec. 31, 2012
Dec. 31, 2013
Jan. 1, 2009
Dec. 31, 2009 Dec. 31, 2010
Dec. 31, 2011
Dec. 31, 2012
Dec. 31, 2013
Saul Centers
S&P 500
Russell 2000
NAREIT Equity
$100
$100
$100
$100
$87
$126
$127
$128
$131
$146
$161
$164
$101
$149
$155
$177
$127
$172
$180
$209
$146
$228
$250
$215
2013 ANNUAL REPORT
59
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
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
Charles R. Longsworth
Chairman Emeritus, Colonial
Williamsburg Foundation
Patrick F. Noonan
Founder/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
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
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
10-K, which
Commission on Form
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 2013, 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
60
60
SAUL CENTERS, INC.
SAUL CENTERS, INC.
Great Falls Center (recently renovated), Great Falls, VA
Annual Meeting of Stockholders
The Annual Meeting of Stockholders will be held
at 11:00 a.m., local time, on May 9, 2014, 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.)
2013 ANNUAL REPORT
61
7501 Wisconsin Avenue, Suite 1500E
Bethesda, MD 20814-6522
Phone: (301) 986-6200
Website: www.saulcenters.com