2014
ANNUAL REPORT
to Shareholders
Saul Centers, Inc.
is a self-
managed, self-administered equity
Real Estate Investment Trust (REIT)
headquartered
in Bethesda,
Maryland. Saul Centers operates
and manages a
real estate
comprised of 59
portfolio
properties which includes (a) 56
community and neighborhood
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 metropolitan
Washington, DC/Baltimore area.
Shops at Monocacy, Frederick, MD
TOTAL REVENUE
(In millions)
NET INCOME
Available to Common Stockholders
(In millions)
FUNDS FROM OPERATIONS*
Available to Common Shareholders
(In millions)
$225
$200
$175
$173.9
$150
$163.1
$207.1
$197.9
$190.1
$35
$30
$25
$32.1
$125
$100
$75
$50
$25
$0
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
$21.6
$20
$18.2
$15
$10
$5
$0
$11.6
$11.7
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
$80
$70
$60
$50
$40
$30
$20
$10
$0
$78.3
$64.7
$60.1
$50.6
$50.3
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
* Funds From Operations (FFO) is a non-GAAP financial measure. See page 25 for a definition of FFO and reconciliation from Net Income.
SAUL CENTERS, INC.
PORTFOLIO COMPOSITION BASED ON 2014 PROPERTY OPERATING INCOME
76.6%
Shopping Centers
23.4%
Mixed-Use
85.0%
Metropolitan
Washington, DC/
Baltimore area
15.0%
Rest of U.S.
Year ended December 31,
2014 2013 2012 2011 2010
Summary Financial Data
Total Revenue $207,092,000 $197,897,000 $190,092,000 $173,878,000 $163,108,000
Net Income Available to
Common Stockholders $ 32,102,000 $ 11,661,000 $ 18,234,000 $ 11,593,000 $ 21,623,000
FFO Available to Common
Shareholders $ 78,281,000 $ 64,684,000 $ 60,100,000 $ 50,309,000 $ 50,556,000
Weighted Average Common
Stock Outstanding (Diluted) 20,821,000 20,401,000 19,700,000 18,949,000 18,377,000
Weighted Average Shares
and Units Outstanding 27,977,000 27,330,000 26,614,000 24,740,000 23,793,000
Net Income Per Share Available to
Common Stockholders (Diluted) $ 1.54 $ 0.57 $ 0.93 $ 0.61 $ 1.18
FFO Per Share Available to Common
Shareholders (Diluted) $ 2.80 $ 2.37 $ 2.26 $ 2.03 $ 2.12
Common Dividend as a Percentage
of FFO 56% 61% 64% 71% 68%
Interest Expense Coveragea 3.15 2.98 2.68 2.62 3.22
Property Data
Number of Operating Propertiesb 56 56 57 58 55
Total Portfolio Square Feet 9,339,000 9,333,000 9,489,000 9,543,000 8,901,000
Shopping Center Square Feet 7,886,000 7,880,000 7,877,000 7,933,000 7,293,000
Mixed-Use Square Feet 1,453,000 1,453,000 1,612,000 1,610,000 1,608,000
Average Percentage Leasedc 94% 93% 91% 90% 91%
(a) Interest expense coverage equals (i) operating income before the sum of interest expense and amortization of deferred debt expense, predevelopment expenses,
acquisition related costs, and depreciation and amortization of deferred leasing costs divided by (ii) interest expense.
(b) Excludes development parcels (Ashland Square Phase II and New Market from 2009 to 2012 and Ashland Square Phase II, New Market and Park Van Ness in
2013 and 2014).
(c) Average percentage leased for 2014, 2013, 2012 and 2011 excludes Clarendon Center residential, which averaged 98%, 98%, 98% and 97% leased, respectively.
2014 ANNUAL REPORT
1
601 Pennsylvania Avenue, Washington, DC
Overall portfolio occupancy
improved to 94.4%
as of December 31, 2014,
a substantial increase
from the low of 90.0% as
of December 31, 2011.
2
SAUL CENTERS, INC.
MESSAGE
to Shareholders
Throughout 2014, interest rates remained at historically
low levels and the U.S. economy continued its slow
and steady expansion. As a result, real estate
fundamentals continued to improve. Both leasing
rates and occupancy levels within the Saul Centers
portfolio of shopping centers and mixed-use properties
trended positive. Overall portfolio occupancy
improved to 94.4% as of December 31, 2014, a substantial
increase from the low of 90.0% as of December 31, 2011.
Deal volume in 2014 was strong with 290 executed leases
comprising 1.38 million square feet of retail and office space,
a new historic high volume from our 287 leases in 2013.
Small shop leasing percentage (in-line spaces less than
10,000 square feet) improved to 91.1% from 89.7% at the
start of 2014 and our shopping centers ended the year with
only two anchor tenant vacancies (spaces more than 25,000
square feet) out of 68 total anchors. New and renewal
shopping center cash rents increased by 3.9% on a same
space basis, the third consecutive year of rental rate
improvement following the last recession. In addition, our
office properties have recently experienced an increase in
demand in our core submarkets. As of the end of February
2015, 93.4% of our 1.1 million square feet of commercial
space in the Washington, D.C. metropolitan area was leased,
an increase from 90.3% as of December 31, 2014.
Mixed-Use Performance
The Company’s two largest assets as measured by property
operating
income are Clarendon Center and 601
Pennsylvania Avenue, which contribute over 69% of the
mixed-use property operating income. Together, they consist
of 390,000 square feet of office space with only 13,000
square feet vacant and only 9,000 square feet expiring during
2015 (without a new tenant commitment executed). This low
amount of rollover space serves to minimize cash flow
declines in our commercial space as office markets continue
their recovery.
While office demand has increased, office rents remain
under pressure. During 2014, our base rental rates on
183,000 square feet of new and renewal office deals, on
a same space basis, declined by 5.7%. On the residential
side of our mixed-use portfolio, occupancy at Clarendon
Center’s Lyon Place apartments continued at a strong
monthly average of 97.7% during 2014, with rents
improving by 2.7% over expiring levels.
low
interest
today’s
Shopping Center Results
Consumer spending is the primary driver of the U.S.
economy, accounting for over 65% of economic activity.
With
rate environment, an
unemployment rate at 5.5%, and reduced gasoline prices,
consumer confidence has improved, but has not yet
translated into retail spending. Increased savings and, in the
Washington, D.C. region, rising housing costs, appear to be
suppressing growth in consumer spending. As a result, sales
reported by our retail tenants remained unchanged
compared to 2013 amounts. Despite the lack of growth, on
a same space basis, our retail tenants’ sales averaged a
healthy $340 per square foot, and grocery store sales, a
large component of that number, averaged over $490 per
square foot.
Healthy tenant sales generally lead to higher tenant
retention throughout the portfolio. During 2014, 75% of
tenants with expiring base rents renewed their leases,
second only to our 78% renewal rate in 2013. From 2008
through 2012, the average renewal rate was 68%. Higher
tenant retention is desirable because rental income
continues uninterrupted and tenant improvement and re-
leasing costs are minimized.
The recent recession negatively impacted the operating
results of our Loudoun County, Virginia and Florida
shopping centers to a greater extent than others. These
nine grocery anchored shopping centers comprising 1.3
Clarendon Center, Arlington, VA
Hunt Club Corners, Apopka, FL
Lansdowne Town Center, Leesburg, VA
Southdale, Glen Burnie, MD
2014 ANNUAL REPORT
3
million square feet of rentable space, produced over
12.9% of our 2014 property operating income. On a
combined basis, the leasing percentages of these
properties dropped from a 2007 pre-recession high of
96.2% to 90.5% in 2010. While rental rates remain
under pressure, steadily improving market conditions
have increased retail tenant demand, resulting in a
leasing percentage of 93.8% at year-end 2014.
While there continues to be steady job growth and modest
wage inflation, we remain cautiously optimistic for the
strength of real estate fundamentals looking into 2015.
2014 Operating Results
Total revenue increased to $207.1 million in 2014, from
$197.9 million in the prior year. Net income available to
common stockholders was $32.1 million ($1.54 per
diluted share) compared to $11.7 million in 2013. Two
major items explained the majority of the $20.4 million
improvement in 2014 net income available to common
stockholders. The prior year’s higher predevelopment and
depreciation charges related to the Park Van Ness project
and higher redemption charges in 2013, arising from the
initial issuance of our 6.875% Series C preferred stock,
combined to contribute $15.1 million of the improvement
in 2014 compared to 2013.
Funds From Operations (FFO) available to common
shareholders (after deducting preferred stock dividends
and preferred stock redemption charges) increased
21.0% to $78.3 million ($2.80 per diluted share) from
$64.7 million ($2.37 per diluted share) in 2013.
Adjusting for the prior year’s higher Park Van Ness
predevelopment charges and higher preferred stock
redemption charges totaling $7.1 million, 2014 FFO per
share increased by 8.7% over 2013 FFO.
Same property operating income increased 4.4%, with
shopping centers improving 5.4% and mixed-use
properties growing by 1.2%. Same property results
exclude operating income from properties not in
operation for the entirety of the comparable reporting
periods. Two property related events, both at the Seven
Broadlands Village, Ashburn, VA
4
SAUL CENTERS, INC.
BocaValley Plaza, Boca Raton, FL
Park Van Ness, Washington, DC
(artist’s rendering)
Construction progress photo March 12, 2015
Corners shopping center, had a one-time positive impact
on 2014 results: (1) a $1.6 million bankruptcy
settlement and collection related to a former tenant and
(2) a $0.7 million impact of a 50,000 square foot lease
termination in order to accommodate the expansion of
our very successful Home Depot store. Excluding these
two events, overall same center property operating
income increased 2.8% in 2014.
Development & Construction Pipeline
Our external growth strategy continued to focus on
assembling land adjacent to Metro Stations in the
metropolitan Washington, D.C. area. Since quality
grocery-anchored shopping center acquisitions have
been priced to extremes over the past few years, our
acquisition program has focused on identifying and
purchasing underutilized transit-oriented sites which
provide zoning for mixed-use residential and commercial
redevelopment. During 2014, we added 3.6 acres,
currently operating as one- and two-story retail stores, to
our holdings at the Twinbrook Metro Station along
Rockville Pike in Montgomery County, Maryland. When
combined with our adjacent 1500 Rockville Pike, the
total 10.3 acres fronting Rockville Pike will support up to
1.2 million square feet of mixed-use development. We
also acquired two contiguous sites on Glebe Road,
totaling 2.3 acres, currently operating as single-level
retail stores, conveniently located near the Ballston Metro
Station in Arlington, Virginia. These sites have a
combined mixed-use development potential of up to
450,000 square feet.
Along with our prior 2010 through 2012 assemblage of
7.6 acres at the White Flint Metro Station, also along
Rockville Pike in Montgomery County, Maryland, these
three sites at Ballston, Twinbrook and White Flint
provide us with a 10-plus year development pipeline. The
construction schedule for over 3.0 million square feet of
new mixed-use residential and commercial space will be
determined by the site and building plan approval
process and market conditions.
Construction continues on Park Van Ness, our 224,000
square foot apartment/retail building. This new luxury
apartment project has a prestigious and convenient
location between Connecticut Avenue and the scenic and
quiet Rock Creek Park, and is a short walk from the
Metro’s Red Line Station at Van Ness. Construction is up
to the 8th level of the 11-story building, and will include
271 apartments and 9,000 square feet of street-level
retail. Amenities will include a rooftop swimming pool,
community room, fitness center and several outdoor
landscaped courtyards overlooking the park. Total
development costs are estimated to be $93 million, with
approximately $35 million expended as of March 1,
2015. Construction is scheduled to be substantially
completed in the first quarter of 2016.
2014 ANNUAL REPORT
5
Thruway, Winston-Salem, NC
Property Dispositions
While we pride ourselves on acquiring and developing
properties for a long-term hold within our portfolio, we
have periodically disposed of an asset. Such dispositions
occur when we determine the asset has limited cash flow
growth potential or when it is not in our core market, and
when attractive pricing is offered. During 2014, we sold
the 70,000 square foot Giant shopping center, located in
Baltimore, Maryland. This represented only our fourth
property disposition in 22 years, with others located in
Oklahoma, Kentucky and Baltimore.
Balance Sheet Summary
In late 2014, decreased U.S. Treasury yields again
resulted in lowered rates on new issues of preferred
stock. We took the opportunity to issue an additional
$40 million of our 6-7/8% Series C preferred stock and
used the proceeds to redeem all of our remaining
outstanding 8% Series A preferred stock. As a result, our
weighted average cost of preferred equity was reduced to
6.875% from 7.13%, a savings of $450,000 per year.
We had no mortgage notes maturing in 2014. Because
long term interest rates remained low, we decided to
refinance all of our 2015 and a portion of our 2016 debt
maturities. During the fourth quarter, we rate-locked two
15-year loans, totaling $46 million, with a weighted
average interest rate of 3.79%. Subsequent to these loan
closings, the weighted average interest rate of our debt
will be 5.3%, with no fixed rate debt maturities scheduled
prior to early 2018. Our Park Van Ness construction-to-
permanent loan has begun funding, with substantially all
of our cash equity requirement invested in the
development as of March 1, 2015.
Also during 2014, we extended the maturity of our
revolving line of credit to June 2018 and reduced line
interest costs by 0.20% while increasing the total
available borrowings from $175 to $275 million. Our
interest expense coverage grew to 3.14 times, as of
December 31, 2014, and our leverage was a
comfortable 34.2% debt to total capitalization. Our
prudent corporate leverage and a total of $232 million
of undrawn credit line availability as of March 1, 2015
combine to provide financial capacity available to fund
our proposed future development activities.
We continue to focus on long term cash flow
appreciation and value creation through selective
development and redevelopment with a geographic
focus in the Washington, D.C. metropolitan area and the
6
SAUL CENTERS, INC.
We take pride in our 20-year
success, derived from a well
located in-fill portfolio of real
estate assets and, more
importantly, from our
talented and driven team
of professionals, who develop,
lease and manage our properties.
Southeastern U.S. This consistent strategy, continuing
since our August 1993 initial public offering, has produced
a 12.1% compounded annual return to our shareholders
(including dividends) through December 31, 2014. Our
Board recently approved a 7.5% increase in our quarterly
common stock dividend to $0.43 per share. On an
annualized basis, this dividend rate reflects a conservative
61% payout of 2014 FFO. During this 20-year period, we
have also reduced leverage to 34% from 50%, as
measured by debt to total capitalization, providing
adequate funding capacity to continue our growth during
the coming years. We take pride in our 20-year success,
derived from a well located in-fill portfolio of real estate
assets and, more importantly, from our talented and driven
team of professionals, who develop, lease and manage
our properties.
For the Board,
B. Francis Saul II
March 16, 2015
Southdale, Glen Burnie, MD
Kentlands Square, Gaithersburg, MD
Village Center, Centreville, VA
601 Pennsylvania Avenue, Washington, DC
2014 ANNUAL REPORT
7
As of December 31, 2014, 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
GROSS LEASABLE
PROPERTY/LOCATION SQUARE FEET
Shopping Centers
Ashburn Village, Ashburn, VA 221,273
Olde Forte Village, Ft. Washington, MD 143,577
Olney, Olney, MD 53,765
Orchard Park, Dunwoody, GA 87,885
Ashland Square Phase I, Dumfries, VA 23,120
Palm Springs Center, Altamonte Springs, FL 126,446
Beacon Center, Alexandria, VA 358,071
Ravenwood, Baltimore, MD 93,328
BJ’s Wholesale Club, Alexandria, VA 115,660
11503 Rockville Pk / 5541 Nicholson Ln, Rockville, MD 40,249
Boca Valley Plaza, Boca Raton, FL 121,269
1500/1580/1582/1584 Rockville Pike, Rockville, MD 110,128
Boulevard, Fairfax, VA 49,140
Seabreeze Plaza, Palm Harbor, FL 146,673
Briggs Chaney MarketPlace, Silver Spring, MD 194,347
Marketplace at Sea Colony, Bethany Beach, DE 21,677
Broadlands Village, Ashburn, VA 159,734
Seven Corners, Falls Church, VA 574,831
Countryside Marketplace, Sterling, VA 137,662
Severna Park Marketplace, Severna Park, MD 254,174
Cranberry Square, Westminster, MD 141,450
Shops at Fairfax, Fairfax, VA 68,762
Cruse MarketPlace, Cumming, GA 78,686
Smallwood Village Center, Waldorf, MD 174,749
Flagship Center, Rockville, MD 21,500
Southdale, Glen Burnie, MD 484,035
French Market, Oklahoma City, OK 244,718
Southside Plaza, Richmond, VA 371,761
Germantown, Germantown, MD 27,241
South Dekalb Plaza, Atlanta, GA 163,418
730/750 N. Glebe Rd., Arlington, VA 18,874
Thruway, Winston-Salem, NC 362,056
The Glen, Woodbridge, VA 136,440
Village Center, Centreville, VA 146,032
Great Eastern, District Heights, MD 255,398
Westview Village, Frederick, MD 97,145
Great Falls Center, Great Falls, VA 91,666
White Oak, Silver Spring, MD 480,676
Hampshire Langley, Takoma Park, MD 131,700
Hunt Club Corners, Apopka, FL 101,522
Jamestown Place, Altamonte Springs, FL 96,341
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 192,718
Metro Pike Center, Rockville, MD 67,488
Shops at Monocacy, Frederick, MD 109,144
Northrock, Warrenton, VA 99,789
8
SAUL CENTERS, INC.
TOTAL SHOPPING CENTERS 7,886,304
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 comprising 188,671 square feet)
Crosstown Business Center, Tulsa, OK 197,127
601 Pennsylvania Ave., Washington, DC 227,021
Washington Square, Alexandria, VA 236,376
TOTAL MIXED-USE PROPERTIES 1,453,159
TOTAL PORTFOLIO 9,339,463
FINANCIAL SECTION TABLE OF CONTENTS
Selected Financial Data ......................................Page 10
Management’s Discussion and
Analysis of Financial Condition and
Results of Operations ...................................Pages 11-29
Quantitative and Qualitative Disclosures
About Market Risk ..............................................Page 29
Management’s Report on Internal Control Over
Financial Reporting.............................................Page 29
Report of Independent Registered
Public Accounting Firm........................................Page 30
Report of Independent Registered Public
Accounting Firm on Internal Control Over
Financial Reporting.............................................Page 31
Consolidated Balance Sheets ..............................Page 32
Consolidated Statements of Operations ...............Page 33
Consolidated Statements of
Comprehensive Income ......................................Page 34
Consolidated Statements of
Stockholders’ Equity............................................Page 35
Consolidated Statements of Cash Flows ...............Page 36
Notes to Consolidated Financial Statements ...Pages 37-58
2014 ANNUAL REPORT
9
SELECTED FINANCIAL DATA
(In thousands, except per share data) Years Ended December 31,
2014 2013 2012 2011 2010
Operating Data:
Total revenue $ 207,092 $ 197,897 $ 190,092 $ 173,878 $ 163,108
Total operating expenses 155,163 162,628 154,996 142,442 120,300
Operating income 51,929 35,269 35,096 31,436 42,808
Non-operating income:
Change in fair value of derivatives (10) (7) 36 (1,332) —
Loss on early extinguishment of debt — (497) — — (5,405)
Gain on sale of property 6,069 — — — —
Gain on casualty settlements — 77 219 245 2,475
Income from continuing operations 57,988 34,842 35,351 30,349 39,878
Discontinued operations — — 4,429 (55) 3,307
Net income 57,988 34,842 39,780 30,294 43,185
Income attibutable to the noncontrolling interest (11,045) (3,970) (6,406) (3,561) (6,422)
Net income attributable to Saul Centers, Inc. 46,943 30,872 33,374 26,733 36,763
Preferred stock redemption (1,480) (5,228) — — —
Preferred dividends (13,361) (13,983) (15,140) (15,140) (15,140)
Net income available to common stockholders $ 32,102 $ 11,661 $ 18,234 $ 11,593 $ 21,623
Per Share Data (diluted):
Net income available to common stockholders:
Continuing operations $ 1.54 $ 0.57 $ 0.70 $ 0.61 $ 1.00
Discontinued operations — — 0.23 — 0.18
Total $ 1.54 $ 0.57 $ 0.93 $ 0.61 $ 1.18
Basic and diluted shares outstanding:
Weighted average common shares - basic 20,772 20,364 19,649 18,889 18,267
Effect of dilutive options 49 37 51 60 110
Weighted average common shares - diluted 20,821 20,401 19,700 18,949 18,377
Weighted average convertible limited partnership units 7,156 6,929 6,914 5,791 5,416
Weighted average common shares and fully
converted limited partnership units - diluted 27,977 27,330 26,614 24,740 23,793
Dividends Paid:
Cash dividends to common stockholders (1) $ 32,346 $ 29,205 28,135 $ 27,062 $ 26,186
Cash dividends per share $ 1.56 $ 1.44 $ 1.44 $ 1.44 $ 1.44
Balance Sheet Data:
Real estate investments (net of accumulated depreciation) $ 1,163,542 $ 1,094,776 $ 1,112,763 $1,091,448 $ 927,250
Total assets 1,266,987 1,198,675 1,207,309 1,192,569 1,013,888
Total debt, including accrued interest 860,601 823,328 831,121 835,459 713,997
Preferred stock 180,000 180,000 179,328 179,328 179,328
Total stockholders’ equity 339,257 315,126 307,289 293,206 239,813
Other Data:
Cash flow provided by (used in):
Operating activities $ 86,568 $ 73,527 $ 78,423 $ 55,669 $ 62,887
Investing activities $ (83,589) $ (26,034) $ (46,873) $ (201,500) $ (98,239)
Financing activities $ (8,148) $ (42,329) $ (31,740) $ 145,186 $ 27,713
Funds from operations (2):
Net income $ 57,988 $ 34,842 $ 39,780 $ 30,294 $ 43,185
Real property depreciation and amortization 41,203 49,130 40,112 35,298 28,379
Real property depreciation - discontinued operations — — 77 102 198
Gain on property dispositions and casualty settlements (6,069) (77) (4,729) (245) (6,066)
Funds from operations 93,122 83,895 75,240 65,449 65,696
Preferred stock redemption (1,480) (5,228) — — —
Preferred dividends (13,361) (13,983) (15,140) (15,140) (15,140)
Funds from operations available to common shareholders $ 78,281 $ 64,684 $ 60,100 $ 50,309 $ 50,556
(1) During 2014, 2013, 2012, 2011, and 2010, shareholders reinvested $9.3 million, $20.7 million, $23.1 million,$19.8 million and $16.7 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 Re-
sults 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 discus-
sion 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. Begin-
ning on page 17, the Company provides an analysis of its
liquidity and capital resources, including discussions of its cash
flows, debt arrangements, sources of capital and financial com-
mitments. Finally, on page 25, the Company discusses funds
from operations, or FFO, which is a non-GAAP financial meas-
ure 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 on Form 10-K, including the consolidated
financial statements and notes thereto beginning on page 32.
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 proper-
ties. 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 cap-
ital 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 re-
newed, 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 ten-
ant spaces and introduce new tenants with the goals of
increasing occupancy, improving overall retail sales, and ulti-
mately increasing cash flow as economic conditions improve.
In those circumstances in which leases are not otherwise expir-
ing, management selectively 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 trou-
bled tenants. When possible, management 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
properties, by replacing below-market-rent leases 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
acquisitions, redevelopments and renovations.
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. In 2014, in separate transactions,
the Company purchased three adjacent properties, with approx-
imately 57,400 square feet of retail space, for an aggregate
$25.2 million. Combined, the four properties total 10.3 acres
and are zoned for up to 1.2 million 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.
Also in 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 331,000
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 ac-
tively engaged in a plan for redevelopment but has not
committed to any timetable for commencement of construction.
During 2013, the Company completed negotiation of lease ter-
mination agreements with the tenants of Van Ness Square. Costs
incurred related to those termination arrangements were amortized
to expense using the straight-line method over the remaining terms
of the leases, are included in “Predevelopment Expenses” in the
Consolidated Statements of Operations, totaled $2.7 million in
2012 and $3.3 million in 2013. The Company is in the process of
developing a primarily residential project with street-level retail. In
connection with the demolition of the existing structure, approxi-
mately $580,000 and $503,000 of predevelopment expenses
were recognized in 2013 and 2014, respectively.
In 2014, in separate transactions, the Company purchased two
adjacent properties, with approximately 18,900 square feet of
retail space, on North Glebe Road in Arlington, Virginia, for an
aggregate $42.8 million. Combined, the properties total 2.3
acres and are zoned for up to 450,000 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.
2014 ANNUAL REPORT
11
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In light of the limited amount of quality properties for sale and
the escalated pricing of properties that the Company has been
presented with or has inquired about over the past year, man-
agement believes acquisition opportunities for investment in
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 posi-
tioned to take advantage of additional investment opportunities
as attractive properties are located and market conditions im-
prove. (See “Item 1. Business - Capital Policies”). It is
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 characteristics. The Company will
continue to evaluate acquisition, development and redevelop-
ment as integral parts of its overall business plan.
During the most recent downturn in the national real estate mar-
ket, which began in 2008, the effects on the office and retail
markets in the metropolitan Washington, D.C. area, where the
majority of the Company’s properties are located, were initially
less severe than in many other areas of the country. Even though
economic conditions in the local economies, where the majority
of the Company’s properties are located, have improved over re-
cent years, issues facing the Federal government relating to
spending cuts and budget policies have resulted in continued el-
evated vacancy rates in many sub-markets, thus pressuring rental
rate growth. While overall consumer confidence appears to have
improved, retailers continue to be cautious about new store open-
ings. However, the Company’s overall leasing percentage, on a
comparative same property basis, which excludes the impact of
properties not in operation for the entirety of the comparable pe-
riods, continues to improve and increased to 94.4% at December
31, 2014, from 93.9% at December 31, 2013.
Because of the Company’s conservative capital structure, its liq-
uidity has not been significantly affected by the recent turmoil
in the credit markets. The Company maintains a ratio of total
debt to total asset value of under 50%, which allows the Com-
pany to obtain additional secured borrowings if necessary. As
of December 31, 2014, amortizing fixed-rate mortgage debt
with staggered maturities from 2015 to 2034 represented ap-
proximately 91.5% of the Company’s notes payable, thus
minimizing refinancing risk. The Company has one fixed-rate
debt maturity scheduled for 2015 and which was refinanced on
March 3, 2015. The Company’s variable-rate debt consists of
a $14.5 million bank term loan secured by the Northrock shop-
ping center, a $15.1 million bank term loan secured by the
Metro Pike Center and $43.0 million outstanding under the un-
secured revolving line of credit. As of December 31, 2014, the
Company has loan availability of approximately $231.6 million
under its $275.0 million unsecured revolving line of credit.
12
SAUL CENTERS, INC.
Although it is management’s present intention to concentrate
future acquisition and development activities on community and
neighborhood shopping centers and office properties in the
Washington, D.C./Baltimore metropolitan area and the south-
eastern region of the United States, the Company may, in the
future, also acquire other types of real estate in other areas of
the country as opportunities present themselves. While the Com-
pany may diversify in terms of property locations, size and
market, the Company does not set any limit on the amount or
percentage of Company assets that may be invested in any one
property or any one geographic area.
CRITICAL ACCOUNTING POLICIES
The Company’s consolidated financial statements are prepared
in accordance with accounting principles generally accepted in
the United States (“GAAP”), which requires management to
make certain estimates and assumptions that affect the reporting
of financial position and results of operations. See Note 2 to
the Consolidated Financial Statements in this report. The Com-
pany has identified the following policies that, due to estimates
and assumptions inherent in those policies, involve a relatively
high degree of judgment and complexity.
REAL ESTATE INVESTMENTS
Real estate investment properties are stated at historic cost less de-
preciation. 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 ini-
tial lease up period. 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 consideration 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
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
as additional lease revenue over the remaining contractual
lease period. If the fair value of the below market lease intan-
gible 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 fore-
gone rents associated with the lease-up period and carrying
costs associated with the lease-up period. Intangible assets as-
sociated with at-market in-place leases are amortized as
additional 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 customer relationship. From time to time the
Company may purchase a property for future development
purposes. The property may be improved with an existing struc-
ture 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 prop-
erty exceeds its estimated fair value. The Company considers
both quantitative and qualitative factors in identifying impair-
ment indicators including 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 remaining useful life, on an undiscounted
basis, to the carrying value of that property. The Company as-
sesses its undiscounted projected cash flows based upon
estimated capitalization rates, historic operating results and
market conditions that may affect the property. If the carrying
value is greater than the undiscounted projected cash flows,
the Company would recognize an impairment loss 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 ac-
tual results differ from management’s projections, the valuation
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 in-
curred. Leasehold improvements expenditures are capitalized
when certain criteria are met, including when we supervise con-
struction 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 construc-
tion. Once construction is substantially complete and the assets
are placed in service, rental income, direct operating expenses,
and depreciation associated with such properties are included
in current operations. Commercial development projects are
substantially complete and available for occupancy upon com-
pletion 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. Substan-
tially completed portions of a project are accounted for as
separate projects. Depreciation is calculated using the straight-
line method and estimated useful lives of generally between
35 and 50 years for base buildings, or a shorter period if man-
agement 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 negoti-
ating 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 com-
pensation and payroll-related fringe benefits directly related to
time spent performing successful leasing-related activities. Such
activities include evaluating prospective tenants’ financial con-
dition, evaluating and recording guarantees, collateral and
other security arrangements, negotiating lease terms, prepar-
ing 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 be-
cause of free rent periods or scheduled rent increases, income
is recognized on a straight-line basis throughout the term of
the lease. Expense recoveries represent a portion of property
operating expenses billed to tenants, including common area
maintenance, real estate taxes and other recoverable costs.
Expense recoveries are recognized in the period when the ex-
penses 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 breakpoint specified in
the lease agreement.
2014 ANNUAL REPORT
13
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Same property revenue and same property operating income
are used by management to evaluate and compare the operat-
ing performance of our properties, and to determine trends in
earnings, because these measures are not affected by the cost
of our funding, the impact of depreciation and amortization ex-
penses, gains or losses from the acquisition and sale of
operating real estate assets, general and administrative ex-
penses or other gains and losses that relate to ownership of our
properties. We believe the exclusion of these items from revenue
and operating income is useful because the resulting measures
capture the actual revenue generated and actual expenses in-
curred by operating our properties.
Same property revenue and same property operating income
are measures of the operating performance of our properties
but do not measure our performance as a whole. Such meas-
ures are therefore not substitutes for total revenue, net income
or operating income as computed in accordance with GAAP.
The tables below provide reconciliations of total revenue and
operating income under GAAP to same property revenue and
operating income for the indicated periods. The same property
results include 49 Shopping Centers and six Mixed-Use
properties for each period.
SAME PROPERTY REVENUE
Year ended December 31,
(In thousands) 2014 2013
Total revenue $ 207,092 $ 197,897
Less: Interest income (75) (69)
Less: Acquisitions, dispositions
and development properties (2,103) (1,223)
Total same property revenue $ 204,914 $ 196,605
Shopping centers $ 152,282 $ 144,502
Mixed-Use properties 52,632 52,103
Total same property revenue $ 204,914 $ 196,605
The $8.3 million increase in same property revenue for 2014
compared to 2013 was primarily due to (a) a $0.31 per square
foot increase in base rent ($2.6 million) and (b) a 123,218
square foot increase in leased space ($2.2 million), (c) a bank-
ruptcy settlement and collection related to a former tenant at
Seven Corners ($1.6 million), (d) increased expense recovery
income ($1.1 million) and (e) the impact of a lease termination
at Seven Corners ($0.7 million).
ALLOWANCE FOR DOUBTFUL ACCOUNTS –
CURRENT AND DEFERRED RECEIVABLES
Accounts receivable primarily represent amounts accrued and
unpaid from tenants in accordance with the terms of the respec-
tive leases, subject to the Company’s revenue recognition policy.
Receivables are reviewed monthly and reserves are established
with a charge to current period operations when, in the opinion
of management, collection of the receivable is doubtful. In ad-
dition to rents due currently, accounts receivable include
amounts representing minimum rental income accrued on a
straight-line basis to be paid by tenants over the remaining term
of their respective leases. Reserves are established with a charge
to income for tenants whose rent payment history or financial
condition casts doubt upon the tenant’s ability to perform under
its lease obligations.
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 esti-
mated 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 same property operating income
are non-GAAP financial measures of performance and improve
the comparability of these measures by excluding the results of
properties which were not in operation for the entirety of the
comparable reporting periods.
We define same property revenue as total revenue minus the
sum of interest income and revenue of properties not in opera-
tion for the entirety of the comparable reporting periods, and
we define same property operating income as net income plus
the sum of interest expense and amortization of deferred debt
costs, depreciation and amortization, general and administra-
tive expense, loss on the early extinguishment of debt (if any),
predevelopment expense and acquisition related costs, minus
the sum of interest income, the change in the fair value of de-
rivatives, gains on property dispositions (if any) and the results
of properties which were not in operation for the entirety of the
comparable periods.
Other REITs may use different methodologies for calculating
same property revenue and same property operating income.
Accordingly, our same property revenue and same property op-
erating income may not be comparable to those of other REITs.
14
SAUL CENTERS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SAME PROPERTY OPERATING INCOME
Year Ended December 31,
(In thousands) 2014 2013
Net income $ 57,988 $ 34,842
Add: Interest expense and amortization of deferred debt costs 46,034 46,589
Add: General and administrative 16,961 14,951
Add: Depreciation and amortization of deferred leasing costs 41,203 49,130
Add: Predevelopment expenses 503 3,910
Add: Acquisition related costs 949 106
Add: Change in fair value of derivatives 10 7
Add: Loss on early extinguishment of debt — 497
Less: Gains on property dispositions (6,069) (77)
Less: Interest income (75) (69)
Property operating income 157,504 149,886
Less: Acquisitions, dispositions & development property (1,787) (719)
Total same property operating income $ 155,717 $ 149,167
Shopping centers $ 118,817 $ 112,708
Mixed-Use properties 36,900 36,459
Total same property operating income $ 155,717 $ 149,167
Same property operating income increase d $6.5 million for
2014 compared to 2013 due primarily to (a) a $0.31 per
square foot increase in base rent ($2.6 million) and (b) a
123,218 square foot increase in leased space ($2.2 million),
(c) a bankruptcy settlement and collection related to a former
tenant at Seven Corners ($1.6 million), (d) increased expense
recovery income ($1.1 million) and (e) the impact of a lease
termination at Seven Corners ($0.7 million) partially offset by
(f) higher property operating expenses ($2.2 million).
The following is a discussion of the components of revenue and
expense for the entire Company.
REVENUE
Year ended December 31, Percentage Change
(Dollars in thousands) 2014 2013 2012 2014 from 2013 2013 from 2012
Base rent $ 164,599 $ 159,898 $ 152,777 2.9 % 4.7%
Expense recoveries 32,132 30,949 30,391 3.8 % 1.8%
Percentage rent 1,492 1,575 1,545 (5.3)% 1.9%
Other 8,869 5,475 5,379 62.0 % 1.8%
Total revenue $ 207,092 $ 197,897 $ 190,092 4.6 % 4.1%
Base rent includes $2.0 million, $3.0 million, and $3.8 million,
for the years 2014, 2013, and 2012, respectively, to recognize
base rent on a straight-line basis. In addition, base rent includes
$1.9 million, $1.7 million, and $1.5 million, for the years
2014, 2013, and 2012, respectively, to recognize income from
the amortization of in-place leases.
Total revenue increased 4.6% in 2014 compared to 2013 pri-
marily due to (a) a $0.43 per square foot increase in base rent
($3.7 million), (b) a 107,062 square foot increase in leased
space ($1.9 million), (c) higher expense recoveries ($1.2 mil-
lion), (d) a bankruptcy settlement and collection related to a
former tenant at Seven Corners ($1.6 million) and (e) the impact
of a lease termination at Seven Corners ($0.7 million). Total
revenue increased 4.1% in 2013 compared to 2012 primarily
due to $7.1 million of higher base rent (a) generated by prop-
erties acquired or developed in 2012 (the "New 2012
Properties") ($2.3 million), (b) increases throughout the portfolio
($6.6 million) partially offset by (c) Van Ness Square ($2.0 mil-
lion). A discussion of the components of revenue follows.
2014 ANNUAL REPORT
15
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BASE RENT
The $4.7 million increase in base rent in 2014 compared to
2013 was attributable to (a) a $0.30 per square foot increase
in base rent ($2.6 million) and (b) a 107,062 square foot in-
crease in leased space ($1.9 million). 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) increases
throughout the portfolio ($6.6 million) partially offset by (c) Van
Ness Square ($2.0 million).
EXPENSE RECOVERIES
Expense recovery income increased $1.2 million in 2014 com-
pared to 2013 primarily due to higher snow removal costs
incurred in early 2014. Expense recovery income increased
$0.6 million in 2013 compared to 2012.
OTHER REVENUE
Other revenue increased $3.4 million in 2014 compared to
2013 due primarily to (a) a bankruptcy settlement and collection
related to a former tenant at Seven Corners ($1.6 million) and
(b) a lease termination fee at Seven Corners ($1.9 million). Other
revenue increased $0.1 million in 2013 compared to 2012.
OPERATING EXPENSES
Year ended December 31, Percentage Change
(Dollars in thousands) 2014 2013 2012 2014 from 2013 2013 from 2012
Property operating expenses $ 26,479 $ 24,559 $ 23,794 7.8 % 3.2 %
Provision for credit losses 680 968 1,151 (29.8)% (15.9)%
Real estate taxes 22,354 22,415 22,325 (0.3)% 0.4 %
Interest expense and amortization
of deferred debt costs 46,034 46,589 49,544 (1.2)% (6.0)%
Depreciation and amortization of
deferred leasing costs 41,203 49,130 40,112 (16.1)% 22.5 %
General and administrative 16,961 14,951 14,274 13.4 % 4.7 %
Acquisition related costs 949 106 1,129 795.3 % (90.6)%
Predevelopment expenses 503 3,910 2,667 (87.1)% 46.6 %
Total operating expenses $ 155,163 $ 162,628 $ 154,996 (4.6)% 4.9 %
Total operating expenses decreased 4.6% in 2014 compared
to 2013 primarily due to $8.0 million of additional depreciation
expense recorded in 2013 and $3.4 million of lower predevel-
opment expenses related to Park Van Ness partially offset by
$1.9 million of higher property operating expenses caused by
snow removal costs in early 2014. Total operating expenses
increased 4.9% in 2013 compared to 2012 primarily due to
$8.0 million of additional depreciation expense and $1.2 mil-
lion of higher predevelopment expenses related to the
redevelopment of Park Van Ness.
PROPERTY OPERATING EXPENSES
Property operating expenses increased $1.9 million in 2014
compared to 2013 primarily due to a $1.5 million increase in
snow removal costs. Property operating expenses increased
$765,000 in 2013 compared to 2012.
PROVISION FOR CREDIT LOSSES
The provision for credit losses represents the Company’s esti-
mate of amounts owed by tenants that may not be collectible.
The $288,000 decrease in 2014 compared to 2013 as well as
the $183,000 decrease in 2013 compared to 2012 reflect a
general improvement in the retail economy and lack of signifi-
cant bankruptcy losses among the Company’s various tenants.
REAL ESTATE TAXES
Real estate taxes decreased $61,000 in 2014 compared to
2013. Real estate taxes increased $90,000 in 2013 compared
to 2012.
16
SAUL CENTERS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTEREST AND AMORTIZATION OF DEFERRED
DEBT COSTS
Interest expense decreased $0.6 million in 2014 compared to
2013 primarily due to a $0.5 million increase in the amount of
interest capitalized. Interest expense decreased $3.0 million in
2013 compared to 2012 primarily due to a 30 basis point de-
crease in the average cost of debt to 5.54% from 5.84%.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization of deferred leasing costs de-
creased by $7.9 million in 2014 compared to 2013 and
increased $9.0 million in 2013 compared to 2012 primarily due
to $8.0 million of additional depreciation expense in 2013 on
the building at the former Van Ness Square as a result of the re-
duction of its useful life to four months effective January 1, 2013.
GENERAL AND ADMINISTRATIVE
General and administrative costs increased $2.0 million in
2014 compared to 2013 primarily due to $1.1 million of ac-
crued severance costs. General and administrative costs
increased in 2013 compared to 2012 primarily due to (a) in-
creased consulting expense ($495,000) and (b) increased stock
option expense ($245,000).
ACQUISITION RELATED COSTS
Acquisition related costs in 2014 totaling approximately $0.9
million relate to the purchases of 1580, 1582 and 1584
Rockville Pike and 730 and 750 N. Glebe Road. Acquisition re-
lated costs in 2013 totaling approximately $0.1 million relate
to the purchase of a retail pad with a 7,100 square foot restau-
rant located in Gaithersburg, Maryland which is contiguous with
and an expansion of the Company's other Kentlands assets. Ac-
quisition related costs in 2012 totaling approximately $1.1
million relate to the December 2012 purchases of 1500
Rockville Pike and 5541 Nicholson Lane.
PREDEVELOPMENT EXPENSES
Predevelopment expenses in 2014, 2013 and 2012 represent
costs, primarily lease termination and demolition costs, incurred
with the repositioning and redevelopment of Van Ness Square.
GAIN ON CASUALTY SETTLEMENT
Gain on casualty settlement in 2013 and 2012 reflect insurance
proceeds received in excess of the carrying value of assets dam-
aged during a hail storm at French Market in 2012. The
insurance proceeds 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 payment of $9.5 million at matu-
rity. 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 SALES OF PROPERTIES
Gain on sale of property in 2014 resulted from the April 2014
sale of Giant Center shopping center. Gain on sales of prop-
erties 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 2014 and 2013. The
impact of rising operating expenses due to inflation on the oper-
ating performance of the Company’s portfolio would have been
mitigated by terms in substantially all of the Company’s leases
which contain provisions designed to increase revenues to offset
the adverse impact of inflation on the Company’s results of op-
erations. These provisions include upward periodic adjustments
in base rent due from tenants, usually based on a stipulated in-
crease and to a lesser extent on a factor of the change in the
consumer price index, commonly referred to as the CPI.
In addition, substantially all of the Company’s properties are
leased to tenants under long-term leases, which provide for re-
imbursement of operating expenses by tenants. These leases
tend to reduce the Company’s exposure to rising property ex-
penses due to inflation. Inflation and increased costs may have
an adverse impact on the Company’s tenants if increases in
their operating expenses exceed increases in their revenue.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $12.1 million and $17.3 mil-
lion at December 31, 2014 and 2013, respectively. The
changes in cash and cash equivalents during the years ended
December 31, 2014 and 2013 were attributable to operating,
investing and financing activities, as described below.
Year Ended December 31,
(In thousands) 2014 2013
Net cash provided by
operating activities $ 86,568 $ 73,527
Net cash used in
investing activities (83,589) (26,034)
Net cash used in
financing activities (8,148) (42,329)
Increase (decrease) in cash
and cash equivalents $ (5,169) $ 5,164
2014 ANNUAL REPORT
17
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATING ACTIVITIES
Net cash provided by operating activities increased $13.0 mil-
lion to $86.6 million for the year ended December 31, 2014
compared to $73.5 million for the year ended December 31,
2013. Net cash provided by operating activities represents, in
each year, cash received primarily from rental income, plus
other income, less property operating expenses, normal recur-
ring general and administrative expenses and interest payments
on debt outstanding.
INVESTING ACTIVITIES
Net cash used in investing activities increased $57.6 million to
$83.6 million for the year ended December 31, 2014 from
$26.0 million for the year ended December 31, 2013. Investing
activities in 2014 primarily reflect tenant improvements and cap-
ital expenditures ($15.0 million), the Company's development
activities ($17.8 million) and the acquisition of various retail real
estate assets ($57.5 million). Net cash used in investing activities
decreased $20.8 million to $26.0 million for the year ended De-
cember 31, 2013 from $46.9 million for the year ended
December 31, 2012. Investing activities in 2013 primarily reflect
(a) tenant improvements and capital expenditures ($14.0 million),
(b) the Company's development activities ($7.3 million) and (c)
the acquisition of various retail real estate assets ($5.1 million).
FINANCING ACTIVITIES
Net cash used in financing activities was $8.1 million and $42.3
million for the years ended December 31, 2014 and 2013, respec-
tively. Net cash used in financing activities in 2014 primarily reflects:
• preferred stock redemption payments totaling $40.0 million;
• the repayment of mortgage notes payable totaling $22.1 million;
• the repayment of amounts borrowed under the revolving
credit facility totaling $47.0 million;
• distributions to common stockholders totaling $32.3 million;
• distributions to holders of convertible limited partnership units
in the Operating Partnership totaling $11.1 million;
• distributions made to preferred stockholders totaling $13.5
million; and
• payments of $1.3 million for financing costs of mortgage
notes payable
which was partially offset by:
• proceeds of $39.3 million received from the sale of Series C
preferred stock;
• proceeds of $90.0 million received from revolving credit fa-
cility draws;
• proceeds of $8.9 million from the issuance of limited part-
nership units in the Operating Partnership under the dividend
reinvestment program;
• proceeds of $15.6 million from the issuance of common stock
under the dividend reinvestment program, directors deferred
plan and the exercise of stock options; and
• proceeds of $5.4 million received from construction loan
draws.
Net cash used in financing activities for the year ended Decem-
ber 31, 2013 primarily reflects:
• repayments of $180.0 million on the revolving credit facility;
• preferred stock redemption payments totaling $139.3 million;
• the repayment of mortgage notes payable totaling $71.3 million;
• distributions to common stockholders totaling $29.2 million;
• distributions to holders limited partnership units in the Oper-
ating Partnership totaling $10.0 million
• distributions to preferred stockholders totaling $14.6 million;
and
• payments of $3.2 million for financing costs of new mortgage
loans;
which was partially offset by:
• proceeds of $135.2 million received from the sale of Series
C preferred stock;
• proceeds received from mortgage notes payable totaling
$101.6 million;
• proceeds of $142.0 million from revolving credit facility;
• proceeds of $4.1 million from the issuance of limited part-
nership units in the Operating Partnership under the divided
reinvestment program; and
• proceeds of $22.3 million received from the issuance of com-
mon stock under the dividend reinvestment program and from
the exercise of stock options.
LIQUIDITY REQUIREMENTS
Short-term liquidity requirements consist primarily of normal re-
curring operating expenses and capital expenditures, debt
service requirements (including debt service relating to addi-
tional and replacement debt), distributions to common and
preferred stockholders, distributions to unit holders and amounts
required for expansion and renovation of the Current Portfolio
Properties and selective acquisition and development of addi-
tional 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 operations, available cash and its existing
line of credit.
18
SAUL CENTERS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Long-term liquidity requirements consist primarily of obligations
under our long-term debt and dividends paid to our preferred
shareholders. We anticipate that long-term liquidity require-
ments will also include amounts required for property
acquisitions and developments. The Company is developing
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 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 out-
parcels or expansions within certain of the Shopping Centers.
Acquisition and development of properties are undertaken only
after careful analysis and review, and management’s determi-
nation that such properties are expected to provide long-term
earnings and cash flow growth. During the coming year, devel-
opments, expansions or acquisitions are expected to be funded
with available cash, bank borrowings from the Company’s
credit line, construction and permanent financing, proceeds
from the operation of the Company’s dividend reinvestment
plan or other external debt or equity capital resources available
to the Company. Any future borrowings may be at the Saul Cen-
ters, Operating Partnership 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 market and other conditions.
CONTRACTUAL PAYMENT OBLIGATIONS
As of December 31, 2014, the Company had unfunded con-
tractual payment obligations of approximately $130.3 million,
excluding operating obligations, due within the next 12 months.
The table below shows the total contractual payment obligations
as of December 31, 2014.
Payments Due By Period
(Dollars in thousands) One Year or Less 2 - 3 Years 4 - 5 Years After 5 Years Total
CONTRACTUAL PAYMENT OBLIGATIONS
Notes Payable:
Interest $ 42,950 $ 80,005 $ 69,034 $ 135,069 $ 327,058
Scheduled Principal 23,192 48,175 48,311 135,752 255,430
Balloon Payments 14,885 28,879 131,542 426,652 601,958
Subtotal 81,027 157,059 248,887 697,473 1,184,446
Ground Leases (1) 176 352 353 9,186 10,067
Corporate Headquarters Lease (1) 894 1,839 — — 2,733
Development Obligations 38,949 9,738 — — 48,687
Tenant Improvements 9,270 1,744 277 — 11,291
Total Contractual Obligations $ 130,316 $ 170,732 $ 249,517 $ 706,659 $ 1,257,224
(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 op-
erations and its capital resources, which at December 31, 2014,
included cash balances of $12.1 million and borrowing avail-
ability of approximately $231.6 million on its revolving line of
credit, will be sufficient to meet its contractual obligations for
the foreseeable future.
2014 ANNUAL REPORT
19
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-out-
standing 8% Series A Cumulative Redeemable Preferred Stock
(the “Series A Stock”) and all of its 9% Series B Cumulative Re-
deemable Preferred Stock. In December 2014, the Company
redeemed the remaining outstanding Series A Stock.
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 Re-
deemable Preferred Stock (the "Series C Stock"), providing net
cash proceeds of approximately $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, equiv-
alent 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 vot-
ing rights if the Company fails to pay dividends for six or more
quarters (whether or not declared or consecutive) and in certain
other events.
In November 2014, the Company sold, in an underwritten pub-
lic offering, 1.6 million depositary shares of the Series C Stock
(the "Additional Series C Stock"). The Company received pro-
ceeds of approximately $39.3 million from the offering and
used the proceeds to redeem its outstanding Series A Stock. The
Additional Series C Stock represents a new issuance of addi-
tional depositary shares representing shares of Series C Stock.
DIVIDEND REINVESTMENTS
In December 1995, the Company established a Dividend Rein-
vestment Plan (the “Plan”) to allow its common stockholders and
holders of limited partnership interests an opportunity to buy 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
market price without payment of any brokerage commissions,
service charges or other expenses. All expenses of the Plan are
paid by the Company. The Company issued 190,177 and
468,014 shares under the Plan at a weighted average dis-
counted price of $46.85 and $43.52 per share during the years
ended December 31, 2014 and 2013, respectively. The Com-
pany issued 196,183 and 88,309 limited partnership units
under the Plan at a weighted average price of $45.25 and
$46.93 per unit during the year ended December 31, 2014
and 2013, respectively. The Company also credited 7,461 and
7,148 shares to directors pursuant to the reinvestment of divi-
dends specified by the Directors’ Deferred Compensation Plan
at a weighted average discounted price of $47.08 and $43.92
per share, during the years ended December 31, 2014 and
2013, 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
manage the Company’s leverage and debt expense on an on-
going basis in order to maintain prudent coverage of fixed
charges. Asset value is the aggregate fair market value of the
Current Portfolio Properties and any subsequently acquired
properties as reasonably determined by management by refer-
ence to the properties’ aggregate 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, 2014.
The organizational documents of the Company do not limit the
absolute amount or percentage of indebtedness that it may
incur. The Board of Directors may, from time to time, reevaluate
the Company’s debt capitalization policy in light of current eco-
nomic conditions, relative costs of capital, market values of the
Company property portfolio, opportunities for acquisition, de-
velopment or expansion, and such other factors as the Board
of Directors then deems relevant. The Board of Directors may
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 determines the financing
environment is favorable.
20
SAUL CENTERS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a summary of notes payable as of December 31, 2014 and 2013:
NOTES PAYABLE
Year Ended December 31, Interest Scheduled
(Dollars in thousands) 2014 2013 Rate* Maturity*
Fixed rate mortgages: $ 15,399 (a) $ 16,128 7.45% Jun-2015
32,049 (b) 33,246 6.01% Feb-2018
35,398 (c) 36,937 5.88% Jan-2019
11,454 (d) 11,949 5.76% May-2019
15,819 (e) 16,501 5.62% Jul-2019
15,761 (f) 16,419 5.79% Sep-2019
14,014 (g) 14,610 5.22% Jan-2020
10,881 (h) 11,159 5.60% May-2020
9,535 (i) 9,921 5.30% Jun-2020
41,441 (j) 42,462 5.83% Jul-2020
8,346 (k) 8,649 5.81% Feb-2021
6,100 (l) 6,233 6.01% Aug-2021
35,222 (m) 35,981 5.62% Jun-2022
10,718 (n) 10,930 6.08% Sep-2022
11,587 (o) 11,795 6.43% Apr-2023
14,909 (p) 15,598 6.28% Feb-2024
16,750 (q) 17,123 7.35% Jun-2024
14,535 (r) 14,849 7.60% Jun-2024
25,639 (s) 26,153 7.02% Jul-2024
30,429 (t) 31,093 7.45% Jul-2024
30,253 (u) 30,894 7.30% Jan-2025
15,735 (v) 16,087 6.18% Jan-2026
115,291 (w) 118,128 5.31% Apr-2026
35,125 (x) 36,075 4.30% Oct-2026
39,932 (y) 40,974 4.53% Nov-2026
18,645 (z) 19,118 4.70% Dec-2026
69,397 (aa) 70,856 5.84% May-2027
17,281 (bb) 17,718 4.04% Apr-2028
33,140 (cc) 34,391 3.51% Jun-2028
17,462 (dd) 17,895 3.99% Sep-2028
5,391 (ee) — 4.88% Sep-2032
11,119 (ff) — 8.00% Apr-2034
Total fixed rate 784,757 789,872 5.70% 9.3 Years
Variable rate loans:
43,000 (gg) — LIBOR + 1.45% Jun-2018
14,525 (hh) 14,802 LIBOR + 1.65% Feb-2016
15,106 (ii) 15,394 LIBOR + 1.65% Feb-2016
Total variable rate 72,631 30,196 LIBOR + 1.53% 2.5 Years
Total notes payable $ 857,388 $ 820,068 5.36% 8.7 Years
* Interest rate and scheduled maturity data presented as of December 31, 2014. Totals computed using weighted averages.
2014 ANNUAL REPORT
21
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(a)
The loan is collateralized by Shops at Fairfax and Boulevard shopping cen-
ters 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 is due at loan maturity. Principal of
$729,000 was amortized during 2014.
(c)
(d)
(e)
(f)
(g)
(h)
(b) 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 $1.2 million was amortized during 2014.
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. Principal
of $1.5 million was amortized during 2014.
The loan is collateralized by Olde Forte Village and requires equal monthly
principal and interest payments of $98,000 based upon a 25-year amor-
tization schedule and a final payment of $9.0 million at loan maturity.
Principal of $495,000 was amortized during 2014.
The loan is collateralized by Countryside and requires equal monthly prin-
cipal 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 $682,000 was amortized during 2014.
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 $658,000 was amortized during 2014.
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 $596,000 was amortized during 2014.
The loan is collateralized by Boca Valley Plaza and requires equal monthly
principal and interest payments of $75,000 based upon a 30-year amor-
tization schedule and a final payment of $9.1 million at loan maturity.
Principal of $278,000 was amortized during 2014.
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 $386,000 was amortized during 2014.
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 pay-
ments of $289,000 based upon a 25-year amortization schedule and a
final payment of $34.8 million at loan maturity. Principal of $1,021,000
was amortized during 2014.
The loan is collateralized by Jamestown Place and requires equal monthly
principal and interest payments of $66,000 based upon a 25-year amor-
tization schedule and a final payment of $6.1 million at loan maturity.
Principal of $303,000 was amortized during 2014.
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 $133,000 was amortized during 2014.
(k)
(l)
(i)
(j)
(n)
(m) The loan is collateralized by Lansdowne Town Center and requires monthly
principal and interest payments of $230,000 based on a 30-year amor-
tization schedule and a final payment of $28.2 million at loan maturity.
Principal of $759,000 was amortized during 2014.
The loan is collateralized by Orchard Park and requires equal monthly
principal and interest payments of $73,000 based upon a 30-year amor-
tization schedule and a final payment of $8.6 million at loan maturity.
Principal of $212,000 was amortized during 2014.
The loan is collateralized by BJ’s Wholesale and requires equal monthly
principal and interest payments of $80,000 based upon a 30-year amor-
tization schedule and a final payment of $9.3 million at loan maturity.
Principal of $208,000 was amortized during 2014.
(o)
22
SAUL CENTERS, INC.
(p)
(q)
(r)
(s)
(t)
(u)
(v)
(w)
(x)
(y)
(z)
The loan is collateralized by Great Falls shopping center. The loan consists
of three notes which require equal monthly principal and interest payments
of $138,000 based upon a weighted average 26-year amortization
schedule and a final payment of $6.3 million at maturity. Principal of
$689,000 was amortized during 2014.
The loan is collateralized by Leesburg Pike and requires equal monthly
principal and interest payments of $135,000 based upon a 25-year amor-
tization schedule and a final payment of $11.5 million at loan maturity.
Principal of $373,000 was amortized during 2014.
The loan is collateralized by Village Center and requires equal monthly
principal and interest payments of $119,000 based upon a 25-year amor-
tization schedule and a final payment of $10.1 million at loan maturity.
Principal of $314,000 was amortized during 2014.
The loan is collateralized by White Oak and requires equal monthly prin-
cipal 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 collateral and
borrowed an additional $10.5 million. Principal of $514,000 was amor-
tized during 2014.
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 $664,000 was amortized during 2014.
The loan is collateralized by Ashburn Village and requires equal monthly
principal and interest payments of $240,000 based upon a 25-year amor-
tization schedule and a final payment of $20.5 million at loan maturity.
Principal of $641,000 was amortized during 2014.
The loan is collateralized by Ravenwood and requires equal monthly prin-
cipal 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 $352,000 was amortized during 2014.
The loan is collateralized by Clarendon Center and requires equal monthly
principal and interest payments of $753,000 based upon a 25-year amor-
tization schedule and a final payment of $70.5 million at loan maturity.
Principal of $2.8 million was amortized during 2014.
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 $950,000 was amortized during 2014.
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 $1,042,000 was amortized during 2014.
The loan is collateralized by Cranberry Square and requires equal monthly
principal and interest payments of $113,000 based upon a 25-year amor-
tization schedule and a final payment of $10.9 million at loan maturity.
Principal of $473,000 was amortized during 2014.
(aa) 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 sched-
ule and a final payment of $42.3 million at loan maturity. Principal of $1.5
million was amortized during 2014.
(bb) 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 $437,000 was amortized in 2014.
(cc) The loan is collateralized by Beacon Center and requires equal monthly
principal and interest payments of $203,200 based upon a 20-year amor-
tization schedule and a final payment of $11.4 million at loan maturity.
Principal of $1,251,000 was amortized in 2014.
(dd) The loan is collateralized by Seabreeze Plaza and requires equal monthly
principal and interest payments of $94,900 based upon a 25-year amor-
tization schedule and a final payment of $9.5 million at loan maturity.
Principal of $433,000 was amortized in 2014.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(ee) The loan is a $71.6 million construction-to-permanent facility that is col-
lateralized 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 amor-
tization schedule. A final payment of $39.6 million will be due at maturity.
The Company entered into a sale-leaseback transaction with its Olney prop-
erty and is accounting for that transaction as a secured financing. The
arrangement requires monthly payments of $60,400 which increase by
1.5% on May 1, 2015, and every May 1 thereafter. The arrangement pro-
vides for a final payment of $14.7 million and has an implicit interest rate
of 8.0%. Negative amortization in 2014 totaled $119,000.
(ff)
The carrying value of properties collateralizing the mortgage
notes payable totaled $895.5 million and $907.2 million as of
December 31, 2014 and 2013, respectively. The Company’s
credit facility requires the Company and its subsidiaries to main-
tain certain financial covenants, which are summarized below.
As of December 31, 2014, the Company was in compliance
with all such covenants:
• maintain tangible net worth, as defined in the loan agree-
ment, of at least $542.1 million plus 80% of the
Company’s net equity proceeds received after March
2014;
•
•
•
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 ex-
ceed 2.0x on a trailing four-quarter basis (interest expense
coverage); and
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).
2015 FINANCING ACTIVITY
On March 3, 2015, the Company closed a 15-year, $30.0 mil-
lion non-recourse mortgage loan secured by Boulevard and
Shops at Fairfax shopping centers in Fairfax, Virginia. The loan
matures in 2030, bears interest at a fixed rate of 3.69%, re-
quires monthly principal and interest payments totaling
$153,300 based on a 25-year amortization schedule and a
final payment of $15.5 million at maturity. Proceeds of the loan
were used to repay in full the existing 7.45% mortgage in the
amount of $15.2 million, which was scheduled to mature in
June 2015 and to pay down outstanding balances under the
revolving credit facility.
(gg) The loan is a $275.0 million unsecured revolving credit facility. Interest
accrues at a rate equal to the sum of one-month LIBOR plus a spread of
145 basis points. The line may be extended at the Company’s option for
one year with payment of a fee of 0.15%. Monthly payments, if required,
are interest only and vary depending upon the amount outstanding and
the applicable interest rate for any given month.
(ii)
(hh) The loan is collateralized by Northrock and requires monthly principal and
interest payments of approximately $47,000 and a final payment of $14.2
million at maturity. Principal of $277,000 was amortized during 2014.
The loan is collateralized by Metro Pike Center and requires monthly prin-
cipal and interest payments of approximately $48,000 and a final
payment of $14.8 million at loan maturity. Principal of $288,000 was
amortized during 2014.
2014 FINANCING ACTIVITY
On June 24, 2014, the Company amended and restated its re-
volving credit facility. The unsecured revolving credit facility,
which can be used for working capital, property acquisitions,
development projects or letters of credit was increased to
$275.0 million. The revolving credit facility matures on June
23, 2018, 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 ob-
ligations of the Operating Partnership under the revolving credit
facility. Letters of credit may be issued under the revolving credit
facility. 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 145 basis
points to 200 basis points.
2013 FINANCING ACTIVITY
On February 27, 2013, the Company closed on a three-year
$15.6 million mortgage loan secured by Metro Pike Center. The
loan matures in 2016, bears interest at a variable rate equal to
the sum of one-month LIBOR and 165 basis points, requires
monthly principal and interest payments based on a 25-year
amortization schedule and requires a final payment of $14.8
million at maturity. The loan may be extended for up to two
years. Proceeds were used to pay-off the $15.9 million remain-
ing balance of existing debt secured by Metro Pike Center, and
to extinguish the related swap agreement.
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 remain-
ing balance of existing debt secured by Northrock.
2014 ANNUAL REPORT
23
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 to-
taling $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
remaining balance on the mortgage loan secured by Cruse
Marketplace.
On May 28, 2013, the Company closed on a 15-year, non-re-
course $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 total-
ing $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-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 pay-
ments totaling $94,900 based on a 25-year amortization
schedule and requires a final payment of $9.5 million at matu-
rity. 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.
On October 25, 2013 the Company closed on a $71.6 million
construction-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 Centers and accrued interest will be funded by the loan.
Following the completion of construction and lease- up, and
upon achieving certain 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-re-
course mortgage loan in the amount of $73.0 million secured
by Seven Corners shopping center. The loan matures in May
2027, bears interest at a fixed rate of 5.84%, requires equal
monthly principal and interest payments totaling $463,226
based upon a 25-year amortization schedule and a final pay-
ment of $42.5 million at maturity. Proceeds from the loan were
used to pay-off the $63.0 million remaining balance of existing
debt secured by Seven Corners and six other Shopping Center
properties, which was scheduled to mature in October 2012,
and to provide cash of approximately $10 million.
On April 26, 2012, the Company substituted the White Oak
shopping center for Van Ness Square as collateral for one of its
existing mortgage loans which will allow the Company to ana-
lyze the feasibility of repositioning Van Ness Square. The terms
of the original loan, including its 8.11% interest rate, are un-
changed and, in conjunction with the collateral substitution, the
Company borrowed an additional $10.5 million, also secured
by White Oak. The new borrowing requires equal monthly pay-
ments based upon a fixed 4.90% interest rate and 25-year
amortization schedule, and will mature in July 2024, cotermi-
nously with the original loan. The consolidated loan requires
equal monthly payments based upon a blended fixed interest
rate of 7.0% and will require a final payment of $18.5 million
at maturity.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements that are
reasonably likely to have a current or future material effect on
the Company’s financial condition, revenue or expenses, results
of operations, liquidity, capital expenditures or capital resources.
24
SAUL CENTERS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FUNDS FROM OPERATIONS
In 2014, the Company reported Funds From Operations ("FFO")1 available to common shareholders (common stockholders and
limited partner unitholders) of $78.3 million, a 21.0% increase from 2013 FFO available to common shareholders of $64.7 million.
The following table presents a reconciliation from net income to FFO available to common shareholders for the periods indicated:
Year ended December 31,
(Dollars in thousands) 2014 2013 2012 2011 2010
Net income $ 57,988 $ 34,842 $ 39,780 $ 30,294 $ 43,185
Subtract:
Gains on property sales (6,069) — (4,510) — (3,591)
Gain on casualty settlement — (77) (219) (245) (2,475)
Add:
Real estate depreciation –
discontinued operations — — 77 102 198
Real estate depreciation and amortization 41,203 49,130 40,112 35,298 28,379
FFO 93,122 83,895 75,240 65,449 65,696
Subtract:
Preferred dividends (13,361) (13,983) (15,140) (15,140) (15,140)
Preferred stock redemption (1,480) (5,228) — — —
FFO available to common shareholders $ 78,281 $ 64,684 $ 60,100 $ 50,309 $ 50,556
Average shares and units used to
compute FFO per share 27,977 27,330 26,614 24,740 23,793
FFO per share $ 2.80 $ 2.37 $ 2.26 $ 2.03 $ 2.12
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 al-
ternative 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.
2014 ANNUAL REPORT
25
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 may develop additional freestanding out-
parcels 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. Ac-
quisition and development of properties are undertaken only
after careful analysis and review, and management’s determi-
nation 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, con-
struction financing, proceeds from the operation of the
Company’s dividend reinvestment plan or other external capital
resources available to the Company.
The Company has been selectively involved in acquisition, 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 significant acquisitions, developments, redevelopments
and renovations which affected the Company’s financial position
and results of operations in 2014, 2013, and 2012.
1500, 1580, 1582 AND 1584 ROCKVILLE PIKE
In December 2012, the Company purchased for $23.0 million,
including acquisition costs, approximately 52,700 square feet
of retail space located on the east side of Rockville Pike near
the Twinbrook Metro station.
In January 2014, the Company purchased for $8.0 million a
single-tenant retail property with a 12,100 square foot CVS
Pharmacy located at 1580 Rockville Pike in Rockville, Maryland,
and incurred acquisition costs of $0.2 million.
In April 2014, the Company purchased for $11.0 million a sin-
gle-tenant retail property with a 40,700 square foot furniture
store located at 1582 Rockville Pike in Rockville, Maryland, and
incurred acquisition costs totaling approximately $0.2 million.
Concurrently with the purchase, the Company sold to the same
party, for $11.0 million, the 53,765 square foot Olney Center
located in Olney, Maryland.
In December 2014, the Company purchased for $6.2 million
a single-tenant retail property with a 4,600 square foot restau-
rant located at 1584 Rockville Pike in Rockville, Maryland, and
incurred acquisition costs totaling approximately $0.2 million.
The properties at 1580, 1582 and 1584 Rockville Pike are con-
tiguous with and an expansion of the Company’s assets at 1500
Rockville Pike. When combined with 1500 Rockville Pike, the
four properties comprise 10.3 acres which are zoned for devel-
opment potential of up to 1.2 million square feet of mixed-use
space. The Company is actively engaged in a plan for redevel-
opment but has not committed to any timetable for
commencement of construction.
OLNEY
Simultaneously with the sale of Olney Center, the Company en-
tered into a lease of the property with the buyer and the
Company continues to operate and manage the property. The
lease term is 20 years and the Company has the option to pur-
chase the property for $14.6 million at the end of the lease
term. The purchaser has the right to sell the property to the
Company at any time from and after April 2016 at a price equal
to $11.0 million increased by 1.5% annually beginning January
1, 2015 and continuing each January thereafter. The Company
has accounted for this transaction as a secured financing.
5541 NICHOLSON LANE
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 com-
bined with 11503 Rockville Pike, will provide zoning for up to
331,000 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 com-
mitted to any timetable for commencement of construction.
730, 750 N. GLEBE ROAD
In August 2014, the Company purchased for $40.0 million a sin-
gle-tenant retail property with a 16,900 square foot automobile
dealership located at 750 N. Glebe Road in Arlington, Virginia,
and incurred acquisition costs of $0.4 million. In December
2014, the Company purchased for $2.8 million an adjacent sin-
gle-tenant retail property with a 2,000 square foot store, and
incurred acquisition costs of $40,400. The properties comprise
2.3 acres of land which is zoned for development potential of up
to 450,000 square feet of mixed-use space. The Company is ac-
tively engaged in a plan for redevelopment but has not committed
to any timetable for commencement of construction.
26
SAUL CENTERS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PARK VAN NESS
The Company continues to develop Park Van Ness, a 271-unit
residential project with approximately 9,000 square feet of
street-level retail, below street-level structured parking, and
amenities including a community room, landscaped courtyards,
a fitness room and a rooftop pool and deck. Construction is
projected to be completed in the first quarter of 2016. When
complete, the structure will comprise 11 levels, five of which will
be below street level. Concrete is currently being poured on
the seventh level. The total cost of the project, excluding prede-
velopment expense and land (which the Company has owned),
is expected to be approximately $93.0 million, a portion of
which will be financed with a $71.6 million construction-to-per-
manent loan. Costs incurred through December 31, 2014,
total approximately $27.0 million, of which $5.4 million has
been financed by the loan.
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 liabil-
ities were $1.0 million and $207,000, respectively. There was
no debt associated with the property.
BELVEDERE
In December 2012, the Company sold for $4.0 million, the
54,900 square foot Belvedere shopping center in Baltimore,
Maryland and recorded a $3.4 million gain. As of September
30, 2012, the carrying amounts of the associated assets and
liabilities were $488,000 and $22,000, respectively. There was
no debt associated with the property.
GIANT CENTER
In April 2014, the Company sold for $7.5 million the 70,040
square foot Giant Center located in Milford Mill, Maryland and
recognized a $6.1 million gain. As of March 31, 2014, the
carrying amounts of the associated assets and liabilities were
$0.5 million and $0.1 million, respectively. There was no debt
on 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
2014 50 6 7,886,304 1,453,159 95.0% 90.8%
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%
The 2014 Shopping Center leasing percentage includes the five
properties acquired in 2014 and excludes the Giant Center,
which was sold in 2014. There is no change in 2014 in the
properties that comprise the Mixed-Use leasing percentage. The
Clarendon Center residential component was 95.9% leased at
December 31, 2014. On a same property basis, which excludes
the impact of properties not in operation for the entirety of the
comparable periods, the Shopping Center leasing percentage
increased to 95.0% from 94.5% and the Mixed-Use leasing per-
centage increased to 90.8% from 90.5%. The overall portfolio
leasing percentage, on a comparative same property basis, in-
creased to 94.4% at December 31, 2014 from 93.9% at
December 31, 2013. The 2014 Shopping Center same center
leasing percentage increased as a result of a net increase in
space leased of approximately 35,500 square feet. The 2014
Mixed-Use percentage leased increased as a result of a net in-
crease in space leased of approximately 4,300 square feet.
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 redeveloped. The Clarendon Center residential compo-
nent was 99.2% leased at December 31, 2013. On a same
property basis, Shopping Center leasing percentages increased
to 94.5% from 93.4% and Mixed-Use leasing percentages in-
creased to 90.5% from 87.7%. The overall portfolio lease
percentage, 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 improved leasing of small shop space (spaces to-
taling 10,000 square feet or less) throughout the portfolio. The
2013 Mixed-Use percentage leased was impacted by a net in-
crease of 34,500 square feet, the majority of which resulted
from improved leasing at Avenel Business Park.
2014 ANNUAL REPORT
27
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 December 31, 2012. The Clarendon Center residential
component was 100% leased at December 31, 2012. On a
same property basis, Shopping Centers percentage leased in-
creased 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
percentage 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 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 expiration date of the lease. The base rent for a new
or renewed lease is the annualized contractual base rent, on a
cash basis, as of the expected rent commencement date. Be-
cause tenants that execute leases may not ultimately take
possession of their space or pay all of their contractual rent, the
changes presented in the table provide information only about
trends in market rental rates. The actual changes in rental in-
come received by the Company may be different.
SELECTED LEASING DATA
Base Rent per Square Foot
Number New/Renewed Expiring
Year ended December 31, Square Feet of Leases Leases Leases
2014 1,224,700 276 $ 18.60 $ 18.26
2013 1,471,000 276 19.56 19.75
2012 1,579,000 256 16.39 16.30
Additional information about commercial leasing activity during
the three months ended December 31, 2014, is set forth below.
The below information includes leases for space which had not
been previously leased during the period of the Company's own-
ership, either a result of acquisition or development.
COMMERCIAL LEASING ACTIVITY
New Leases Renewed Leases
Number of leases 20 33
Square feet 66,568 132,014
Per square foot average
annualized:
During 2014, the Company entered into 234 new or renewed
apartment leases. The monthly rent per square foot for these
leases increased to $3.46 from $3.37. During 2013, the Com-
pany entered into 228 new or renewed apartment 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.
As of December 31, 2014, 838,240 square feet of Commercial
space was subject to leases scheduled to expire in 2015. Below
is information about existing and estimated market base rents
per square foot for that space.
Base rent $ 21.41 $ 15.73
Tenant improvements (3.08) (0.11)
Leasing costs (0.84) (0.06)
Rent concessions (0.20) (0.03)
Effective rents $ 17.29 $ 15.53
EXPIRING LEASES
Total
Square feet 838,240
Average base rent per square foot $ 17.29
Estimated market base rent per square foot $ 17.34
28
SAUL CENTERS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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,
2014, the Company had variable rate indebtedness totaling
$72.6 million. If the interest rates on the Company’s variable
rate debt instruments outstanding at December 31, 2014 had
been one percent higher, our annual interest expense relating
to these debt instruments would have increased by $726,310,
based on those balances. As of December 31, 2014, the Com-
pany had fixed-rate indebtedness totaling $784.8 million with
a weighted average interest rate of 5.70%. If interest rates on
the Company’s fixed-rate debt instruments at December 31,
2014 had been one percent higher, the fair value of those debt
instruments on that date would have decreased by approxi-
mately $43.4 million.
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 fluctuations 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 re-
sults of operations.
The Company may, where appropriate, employ derivative in-
struments, such as interest rate swaps, to mitigate the risk of
interest rate fluctuations. The Company does not enter into de-
rivatives or other financial instruments for trading or speculative
purposes. On June 29, 2010, the Company entered into an in-
terest 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, terminates on July 1, 2020 and ef-
fectively fixes the interest rate on the mortgage debt at 5.83%.
The aggregate fair value of the swap at December 31, 2014
was approximately $3.2 million and is reflected in accounts
payable, accrued expenses and other liabilities in the consoli-
dated balance sheet.
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. Man-
agement used the criteria issued by the Committee of
Sponsoring Organizations of the Treadway Commission in
Internal Control - Integrated Framework (2013 Framework)
to assess the effectiveness of the Company’s internal control
over financial reporting. Based upon the assessments, the
Company’s management has concluded that, as of
December 31, 2014, the Company’s internal control over
financial reporting was effective. The Company’s independ-
ent registered public accounting firm has issued a report on
the effectiveness of the Company’s internal control over fi-
nancial reporting, which appears on page 31 in this Annual
Report.
2014 ANNUAL REPORT
29
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2014 and 2013, and the
consolidated results of its operations and its cash flows for each
of the three years in the period ended December 31, 2014, in
conformity with U.S. generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 2 to the consolidated financial statements,
the Company changed its method for reporting discontinued
operations effective January 1, 2014.
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, 2014, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013
framework) and our report dated March 6, 2015 expressed an
unqualified opinion thereon.
Ernst & Young LLP
McLean, Virginia
March 6, 2015
The Board of Directors and Stockholders of Saul Centers, Inc.
related
consolidated
We have audited the accompanying consolidated balance sheets
of Saul Centers, Inc. as of December 31, 2014 and 2013, and
statements of operations,
the
comprehensive income, stockholders’ equity, and cash flows for
each of the three years in the period ended December 31, 2014.
Our audits also included the financial statement schedule listed
in the Index at Item 15(a)2(b). These financial statements and
schedule are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial
statements and schedule 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.
30
SAUL CENTERS, INC.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
on Internal Control Over Financial Reporting
The 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, 2014, based on criteria
established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission (2013 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, 2014, 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, 2014 and 2013 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, 2014 of Saul Centers, Inc. and our report
dated March 6, 2015 expressed an unqualified opinion thereon.
Ernst & Young LLP
McLean, Virginia
March 6, 2015
2014 ANNUAL REPORT
31
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
(Dollars in thousands, except per share amounts) 2014 2013
Assets
Real estate investments
Land $ 420,622 $ 354,967
Buildings and equipment 1,109,276 1,094,605
Construction in progress 30,261 9,867
1,560,159 1,459,439
Accumulated depreciation (396,617) (364,663)
1,163,542 1,094,776
Cash and cash equivalents 12,128 17,297
Accounts receivable and accrued income, net 46,784 43,884
Deferred leasing costs, net 26,928 26,052
Prepaid expenses, net 4,093 4,047
Deferred debt costs, net 9,874 9,675
Other assets 3,638 2,944
Total assets $ 1,266,987 $ 1,198,675
Liabilities
Mortgage notes payable $ 808,997 $ 820,068
Revolving credit facility payable 43,000 —
Construction loan payable 5,391 —
Dividends and distributions payable 14,352 13,135
Accounts payable, accrued expenses and other liabilities 23,537 20,141
Deferred income 32,453 30,205
Total liabilities 927,730 883,549
Stockholders' equity
Preferred stock, 1,000,000 shares authorized:
Series A Cumulative Redeemable, 16,000 shares issued and outstanding in 2013 — 40,000
Series C Cumulative Redeemable, 72,000 and 56,000 shares issued and
outstanding, respectively 180,000 140,000
Common stock, $0.01 par value, 30,000,000 shares authorized,
20,947,141 and 20,576,616 shares issued and outstanding, respectively 209 206
Additional paid-in capital 287,995 270,428
Accumulated deficit (173,774) (172,564)
Accumulated other comprehensive loss (1,894) (1,392)
Total Saul Centers, Inc. stockholders' equity 292,536 276,678
Noncontrolling interests 46,721 38,448
Total stockholders' equity 339,257 315,126
Total liabilities and stockholders' equity $ 1,266,987 $ 1,198,675
The Notes to Financial Statements are an integral part of these statements.
32
SAUL CENTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Year Ended December 31,
(Dollars in thousands, except per share amounts) 2014 2013 2012
Revenue
Base rent $ 164,599 $ 159,898 $ 152,777
Expense recoveries 32,132 30,949 30,391
Percentage rent 1,492 1,575 1,545
Other 8,869 5,475 5,379
Total revenue 207,092 197,897 190,092
Operating expenses
Property operating expenses 26,479 24,559 23,794
Provision for credit losses 680 968 1,151
Real estate taxes 22,354 22,415 22,325
Interest expense and amortization of deferred debt costs 46,034 46,589 49,544
Depreciation and amortization of deferred leasing costs 41,203 49,130 40,112
General and administrative 16,961 14,951 14,274
Acquisition related costs 949 106 1,129
Predevelopment expenses 503 3,910 2,667
Total operating expenses 155,163 162,628 154,996
Operating income 51,929 35,269 35,096
Change in fair value of derivatives (10) (7) 36
Loss on early extinguishment of debt — (497) —
Gain on sales of properties 6,069 — —
Gain on casualty settlement — 77 219
Income from continuing operations 57,988 34,842 35,351
Discontinued operations
Loss from operations of properties sold — — (81)
Gain on sales of properties — — 4,510
Income from discontinued operations — — 4,429
Net Income 57,988 34,842 39,780
Noncontrolling interests
Income from continuing operations attributable to
noncontrolling interests (11,045) (3,970) (5,693)
Income from discontinued operations attributable to
noncontrolling interests — — (713)
Income attributable to noncontrolling interests (11,045) (3,970) (6,406)
Net income attributable to Saul Centers, Inc. 46,943 30,872 33,374
Preferred stock redemption (1,480) (5,228) —
Preferred dividends (13,361) (13,983) (15,140)
Net income available to common stockholders $ 32,102 $ 11,661 $ 18,234
Per share net income available to common stockholders
Basic:
Continuing operations $ 1.55 $ 0.57 $ 0.70
Discontinued operations — — 0.23
$ 1.55 $ 0.57 $ 0.93
Diluted:
Continuing operations $ 1.54 $ 0.57 $ 0.70
Discontinued operations — — 0.23
$ 1.54 $ 0.57 $ 0.93
The Notes to Financial Statements are an integral part of these statements.
2014 ANNUAL REPORT
33
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For The Year Ended December 31,
(Dollars in thousands) 2014 2013 2012
Net income $ 57,988 $ 34,842 $ 39,780
Other comprehensive income
Unrealized gain (loss) on cash flow hedge (675) 2,897 (932)
Total comprehensive income 57,313 37,739 38,848
Comprehensive income attributable to noncontrolling interests (10,874) (4,706) (6,164)
Total comprehensive income attributable to Saul Centers, Inc. 46,439 33,033 32,684
Preferred stock redemption (1,480) (5,228) —
Preferred dividends (13,361) (13,983) (15,140)
Total comprehensive income available to common stockholders $ 31,598 $ 13,822 $ 17,544
The Notes to Financial Statements are an integral part of these statements.
34
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, 2011 $179,328 $ 193 $ 217,829 $(144,659) $ (2,863) $ 249,828 $ 43,378 $ 293,206
Issuance 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 preferred stock 140,000 — (4,807) — — 135,193 — 135,193
Partial redemption of 24,000 shares of Series A preferred stock (60,000) — 2,212 (2,216) — (60,004) — (60,004)
Full redemption of 31,731 shares of Series B preferred stock (79,328) — 3,007 (3,012) — (79,333) — (79,333)
Issuance of common stock:
475,162 shares pursuant to dividend reinvestment plan — 5 20,667 — — 20,672 — 20,672
56,002 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 pursuant to dividend
reinvestment plan — — — — — — 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
Issuance of 16,000 shares of Series C preferred stock 40,000 — (740) — — 39,260 — 39,260
Redemption of 16,000 shares of Series A preferred stock (40,000) — 1,475 (1,475) — (40,000) — (40,000)
Issuance of common stock:
197,638 shares pursuant to dividend reinvestment plan — 2 9,262 — — 9,264 — 9,264
172,887 shares due to exercise of employee stock options and
issuance of directors' deferred stock — 1 7,570 — — 7,571 — 7,571
Issuance of 196,183 partnership units pursuant to dividend
reinvestment plan — — — — — — 8,877 8,877
Net income — — — 46,943 — 46,943 11,045 57,988
Change in unrealized loss on cash flow hedge — — — — (502) (502) (173) (675)
Preferred stock distributions:
Series A — — — (3,049) — (3,049) — (3,049)
Series C — — — (7,219) — (7,219) — (7,219)
Common stock distributions — — — (24,937) — (24,937) (8,597) (33,534)
Distributions payable preferred stock:
Series C, $42.97 per share — — — (3,094) — (3,094) — (3,094)
Distributions payable common stock ($0.40/share) and
distributions payable partnership units ($0.40/unit) — — — (8,379) — (8,379) (2,879) (11,258)
Balance, December 31, 2014 $180,000 $ 209 $ 287,995 $ (173,774) $ (1,894) $ 292,536 $ 46,721 $ 339,257
The Notes to Financial Statements are an integral part of these statements.
2014 ANNUAL REPORT
35
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended December 31,
(Dollars in thousands) 2014 2013 2012
Cash flows from operating activities:
Net income $ 57,998 $ 34,842 $ 39,780
Adjustments to reconcile net income to net cash provided by operating activities:
Change in fair value of derivatives 10 7 (36)
Gain on sale of property (6,069) — (4,510)
Gain on casualty settlement — (77) (219)
Depreciation and amortization of deferred leasing costs 41,203 49,130 40,189
Amortization of deferred debt costs 1,327 1,257 1,576
Non cash compensation costs of stock grants and options 1,240 1,145 952
Provision for credit losses 680 968 1,151
Increase in accounts receivable and accrued income (3,320) (3,669) (3,240)
Additions to deferred leasing costs (4,048) (5,876) (5,362)
Increase in prepaid expenses (60) (152) (54)
(Increase) decrease in other assets (694) 353 9,573
Increase (decrease) in accounts payable, accrued expenses and other liabilities 1,149 (3,286) (930)
Decrease in deferred income (2,838) (1,115) (447)
Net cash provided by operating activities 86,568 73,527 78,423
Cash flows from investing activities:
Acquisitions of real estate investments (1) (57,494) (5,124) (34,050)
Additions to real estate investments (14,986) (13,999) (12,680)
Additions to development and redevelopment projects (17,788) (7,316) (7,913)
Proceeds from sale of properties 6,679 — 5,818
Proceeds from casualty settlement — 405 1,952
Net cash used in investing activities (83,589) (26,034) (46,873)
Cash flows from financing activities:
Proceeds from mortgage notes payable (1) — 101,600 83,500
Repayments on mortgage notes payable (22,071) (71,308) (117,595)
Proceeds from construction loans payable 5,391 — —
Proceeds from revolving credit facility 90,000 142,000 38,000
Repayments on revolving credit facility (47,000) (180,000) (8,000)
Additions to deferred debt costs (1,264) (3,219) (2,199)
Proceeds from the issuance of:
Common stock 15,596 22,292 27,784
Partnership units 8,877 4,144 —
Series C preferred stock 39,260 135,221 —
Preferred stock redemption payments:
Series A preferred (40,000) (60,000) —
Series B preferred — (79,328) —
Preferred stock redemption costs — (9) —
Distributions to:
Series A preferred stockholders (3,849) (5,213) (8,000)
Series B preferred stockholders — (3,253) (7,140)
Series C preferred stockholders (9,625) (6,095) —
Common stockholders (32,346) (29,205) (28,135)
Noncontrolling interests (11,117) (9,956) (9,955)
Net cash used in financing activities (8,148) (42,329) (31,740)
Net increase (decrease) in cash and cash equivalents (5,169) 5,164 (190)
Cash and cash equivalents, beginning of year 17,297 12,133 12,323
Cash and cash equivalents, end of year $ 12,128 $ 17,297 $ 12,133
Supplemental disclosure of cash flow information:
Cash paid for interest $ 45,443 $ 45,743 $ 48,302
(1) The 2014 acquisition of real estate and proceeds from notes payable each exclude $11,000 in connection with the sale and leaseback of
the Company's Olney property.
The Notes to Financial Statements are an integral part of these statements.
36
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION, FORMATION, AND
BASIS OF PRESENTATION
ORGANIZATION
Saul Centers, Inc. (“Saul Centers”) was incorporated under the
Maryland General Corporation Law on June 10, 1993. Saul
Centers operates as a real estate investment trust (a “REIT”)
under the Internal Revenue Code of 1986, as amended (the
“Code”). The Company is required to annually distribute at least
90% of its REIT taxable income (excluding net capital gains) to
its stockholders and meet certain organizational and other re-
quirements. Saul Centers has made and intends to continue to
make regular quarterly distributions to its stockholders. Saul
Centers, together with its wholly owned subsidiaries and the lim-
ited partnerships of which Saul Centers or one of its subsidiaries
is the sole general partner, are referred to collectively as the
“Company.” B. Francis Saul II serves as Chairman of the Board
of Directors and Chief Executive Officer of Saul Centers.
FORMATION AND STRUCTURE OF COMPANY
Saul Centers was formed to continue and expand the shopping
center business previously owned and conducted by the B. F.
Saul Real Estate Investment Trust, the B. F. Saul Company and
certain other affiliated entities, each of which is controlled by B.
Francis Saul II and his family members (collectively, the “Saul
Organization”). On August 26, 1993, members of the Saul Or-
ganization transferred to Saul Holdings Limited Partnership, a
newly formed Maryland limited partnership (the “Operating Part-
nership”), and two newly formed subsidiary limited partnerships
(the “Subsidiary Partnerships,” and collectively with the Operat-
ing 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.
The following table lists the significant properties acquired, developed and/or disposed of by the Company since January 1, 2012.
Year of Acquisition/
Name of Property Location Type Development/ Disposal
ACQUISITIONS
1500 Rockville Pike Rockville, Maryland Shopping Center December 2012
5541 Nicholson Lane Rockville, Maryland Shopping Center December 2012
1580 Rockville Pike Rockville, Maryland Shopping Center January 2014
1582 Rockville Pike Rockville, Maryland Shopping Center April 2014
750 N. Glebe Road Arlington, Virginia Shopping Center August 2014
730 N. Glebe Road Arlington, Virginia Shopping Center December 2014
1584 Rockville Pike Rockville, Maryland Shopping Center December 2014
DEVELOPMENTS
Park Van Ness Washington, DC Mixed-Use 2013/2014
DISPOSITIONS
West Park Oklahoma City, Oklahoma Shopping Center July 2012
Belvedere Baltimore, Maryland Shopping Center December 2012
Giant Center Milford Mill, Maryland Shopping Center April 2014
As of December 31, 2014, the Company’s properties (the “Cur-
rent 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.
2014 ANNUAL REPORT
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying financial statements are presented on the
historical cost basis of the Saul Organization because of affili-
ated ownership and common management and because the
assets and liabilities were the subject of a business combination
with the Operating Partnership, the Subsidiary Partnerships and
Saul Centers, all newly formed entities with no prior operations.
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company, which conducts all of its activities through its sub-
sidiaries, the Operating Partnership and Subsidiary Partnerships,
engages in the ownership, operation, management, leasing, ac-
quisition, renovation, expansion, development and financing of
community and neighborhood shopping centers and mixed-
used properties, primarily in the Washington, DC/ Baltimore
metropolitan area. Because the properties are located primarily
in the Washington, DC/Baltimore metropolitan area, a dispro-
portionate economic downturn in the local economy would
have a greater negative impact on our overall financial per-
formance 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, 2014, 32 of the Shopping
Centers were anchored by a grocery store and offer primarily
day-to-day necessities and services. Two retail tenants, Giant
Food (4.5%), a tenant at nine Shopping Centers, and Safeway
(2.5%), a tenant at eight Shopping Centers, individually ac-
counted for 2.5% or more of the Company’s total revenue for
the year ended December 31, 2014.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include
the accounts of Saul Centers, its subsidiaries, and the Operating
Partnership and Subsidiary Partnerships which are majority
owned by Saul Centers. All significant intercompany balances
and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with ac-
counting principles generally accepted in the United States
requires management to make certain estimates and assump-
tions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could
differ from those estimates.
REAL ESTATE INVESTMENT PROPERTIES
The Company purchases real estate investment properties from
time to time and records assets acquired and liabilities assumed,
including land, buildings, and intangibles related to in-place
leases and customer relationships, based on their fair values. The
fair value of buildings generally is determined as if the buildings
were vacant upon acquisition and then subsequently leased at
market rental rates and considers the present value of all cash
flows expected to be generated by the property including an initial
lease up period. 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. 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
market intangibles associated with in-place leases by assessing
the net effective rent and remaining term of the lease relative to
market terms for similar leases at acquisition taking into 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 ac-
creted 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 de-
termines the fair value of at-market in-place leases considering
the cost of acquiring similar leases, the foregone rents associ-
ated with the lease-up period and carrying costs associated with
the lease-up period. Intangible assets associated with at- market
in-place leases are amortized as additional expense over the
remaining contractual lease term. To the extent customer rela-
tionship intangibles are present in an acquisition, the fair values
of the intangibles are amortized over the lives of the customer
relationships. The Company has never recorded a customer re-
lationship intangible asset. Acquisition-related transaction costs
are either (a) expensed as incurred when related to business
combinations or (b) capitalized to land and/or building when
related to asset acquisitions.
38
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
If there is an event or change in circumstance that indicates a
potential impairment in the value of a real estate investment
property, the Company prepares an analysis to determine
whether the carrying value of the real estate investment property
exceeds its estimated fair value. The Company considers both
quantitative and qualitative factors including recurring operating
losses, significant decreases in occupancy, and significant ad-
verse 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 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 property is sensitive to the actual results of any of the
aforementioned estimated factors, either individually or taken
as a whole. Should the actual results differ from management’s
projections, the valuation could be negatively or positively af-
fected. The Company did not recognize an impairment loss on
any of its real estate in 2014, 2013, or 2012.
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, insur-
ance and other property related expenses) and depreciation are
included in current operations. Property operating expenses are
charged to operations as incurred. Interest expense capitalized
totaled $688,900, $170,000, and $42,300 during 2014,
2013, and 2012, respectively. Commercial development proj-
ects are considered substantially complete and available for
occupancy upon completion of tenant improvements, but no
later than one year from the cessation of major construction ac-
tivity. Multi- family residential development projects are
considered substantially complete and available for occupancy
upon receipt of the certificate of occupancy from the appropri-
ate 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
improvements expenditures are capitalized when certain criteria
are met, including when the Company supervises construction
and will own the improvements. Tenant improvements are amor-
tized, over the shorter of the lives of the related leases or the useful
life of the improvement, using the straight-line method. Depreci-
ation expense and amortization of leasehold improvements,
which is included in Depreciation and amortization of deferred
leasing costs in the Consolidated Statements of Operations, for
the years ended December 31, 2014, 2013, and 2012, was
$35.9 million, $43.2 million, and $34.6 million, respectively. Re-
pairs and maintenance expense totaled $11.9 million, $10.3
million, and $9.9 million for 2014, 2013, and 2012, respec-
tively, and is included in property operating expenses in the
accompanying consolidated financial statements.
DEFERRED LEASING COSTS
Deferred leasing costs consist of commissions paid to third-party
leasing agents, internal direct costs such as employee compen-
sation and payroll-related fringe benefits directly related to time
spent performing leasing-related activities for successful com-
mercial leases and amounts attributed to in place leases
associated with acquired properties and are amortized, using
the straight-line method, over the term of the lease or the re-
maining term of an acquired lease. Leasing related activities
include evaluating the prospective tenant’s financial condition,
evaluating and recording guarantees, collateral and other se-
curity arrangements, negotiating lease terms, preparing lease
documents and closing the transaction. Unamortized deferred
costs are charged to expense if the applicable lease is termi-
nated prior to expiration of the initial lease term. Collectively,
deferred leasing costs totaled $26.9 million and $26.1 million,
net of accumulated amortization of approximately $21.6 million
and $16.6 million, as of December 31, 2014 and 2013, re-
in
spectively. Amortization expense, which
Depreciation and amortization of deferred leasing costs in the
Consolidated Statements of Operations, totaled approximately
$5.3 million, $5.9 million, and $5.5 million, for the years ended
December 31, 2014, 2013, and 2012, respectively.
included
is
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. The fol-
lowing table shows the components of construction in progress.
December 31,
(In thousands) 2014 2013
Park Van Ness $ 26,998 $ 7,901
Other 3,263 1,966
Total $ 30,261 $ 9,867
2014 ANNUAL REPORT
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DEFERRED INCOME
Deferred income consists of payments received from tenants
prior to the time they are earned and recognized by the Com-
pany as revenue, including tenant prepayment of rent for future
periods, real estate taxes when the taxing jurisdiction has a fiscal
year differing from the calendar year reimbursements specified
in the lease agreement and tenant construction work provided
by the Company. In addition, deferred income includes the fair
value of certain below market leases.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company may, when appropriate, employ derivative instru-
ments, such as interest-rate swaps, to mitigate the risk of interest
rate fluctuations. The Company does not enter into derivative
or other financial instruments for trading or speculative pur-
poses. Derivative financial instruments are carried at fair value
as either assets or liabilities on the consolidated balance sheets.
For those derivative instruments that qualify, the Company may
designate the hedging instrument, based upon the exposure
being hedged, as a fair value hedge or a cash flow hedge. De-
rivative instruments that are designated as a hedge are
evaluated to ensure they continue to qualify for hedge account-
ing. The effective portion of any gain or loss on the hedge
instruments is reported as a component of accumulated other
comprehensive income (loss) and recognized in earnings within
the same line item associated with the forecasted transaction in
the same period or periods during which the hedged transaction
affects earnings. Any ineffective portion of the change in fair
value of a derivative instrument is immediately recognized in
earnings. For derivative instruments that do not meet the criteria
for hedge accounting, or that qualify and are not designated,
changes in fair value are immediately recognized in earnings.
DISCONTINUED OPERATIONS
During 2012, the Company sold its West Park and Belvedere
properties for $2.0 million and $4.0 million and recognized
gains of $1.1 million and $3.4 million, respectively. The results
of operations of West Park and Belvedere for the year ended
December 31, 2012 are included in the statements of opera-
tions as “Loss from operations of properties sold.” The 2014
sale of Giant Center is accounted for under the new discontin-
ued operations guidance discussed below in Recently Issued
Accounting Standards and, therefore, is not presented as dis-
continued operations.
ACCOUNTS RECEIVABLE AND
ACCRUED INCOME
Accounts receivable primarily represent amounts currently due
from tenants in accordance with the terms of the respective
leases. Receivables are reviewed monthly and reserves are es-
tablished with a charge to current period operations when, in
the opinion of management, collection of the receivable is
doubtful. Accounts receivable in the accompanying consoli-
dated financial statements are shown net of an allowance for
doubtful accounts of $0.7 million and $0.6 million, at Decem-
ber 31, 2014 and 2013, respectively.
Year ended December 31,
(In thousands) 2014 2013 2012
Beginning Balance $ 572 $1,208 $ 671
Provision for Credit Losses 680 968 1,160
Charge-offs (575) (1,604) (623)
Ending Balance $ 677 $ 572 $1,208
In addition to rents due currently, accounts receivable also in-
cludes $38.7 million and $37.2 million, at December 31, 2014
and 2013, respectively, net of allowance for doubtful accounts
totaling $0.3 million and $0.5 million, 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,
measured from the acquisition date, and/or are readily convert-
ible to cash. Substantially all of the Company’s cash balances
at December 31, 2014 are held in non-interest bearing ac-
counts at various banks. From time to time the Company may
maintain deposits with financial 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 $9.9 million and $9.7 million, net
of accumulated amortization of $5.9 million and $4.5 million
at December 31, 2014 and 2013, respectively.
40
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 be-
cause of free rent periods or stepped increases, income is
recognized on a straight-line basis. Expense recoveries repre-
sent a portion of property operating expenses billed to the
tenants, including common 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
continue operating so as to qualify, as a REIT under the Code,
commencing with its taxable year ended December 31, 1993. A
REIT generally will not be subject to federal income taxation, pro-
vided that distributions to its stockholders equal or exceed its REIT
taxable income and complies with certain other requirements.
Therefore, no provision has been made for federal income taxes
in the accompanying consolidated financial statements.
As of December 31, 2014, the Company had no material un-
recognized 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 ben-
efits, if any, as general and administrative expense. No penalties
and interest have been accrued in years 2014, 2013, and
2012. The tax basis of the Company’s real estate investments
was approximately $1.2 billion and $1.1 billion as of December
31, 2014 and 2013, respectively. With few exceptions, the
Company is no longer subject to U.S. federal, state, and local
tax examinations by tax authorities for years before 2008.
STOCK BASED EMPLOYEE COMPENSATION,
DEFERRED COMPENSATION AND STOCK
PLAN FOR DIRECTORS
The Company uses the fair value method to value and account
for employee stock options. The fair value of options granted is
determined at the time of each award using the Black-Scholes
model, a widely used method for valuing stock based employee
compensation, and the following assumptions:
(1) Expected Volatility determined using the most recent trading
history of the Company’s common stock (month-end clos-
ing prices) corresponding to the average expected term of
the options;
(2) Average Expected Term of the options is based on prior ex-
ercise history, scheduled vesting and the expiration date;
(3) Expected Dividend Yield determined 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
Company amortizes the value of options granted ratably over
the vesting period and includes the amounts as compensa-
tion in general 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 of-
ficers, directors and other key personnel (the "Stock Plan").
Pursuant to the Stock Plan, the Compensation Committee es-
tablished a Deferred Compensation Plan for Directors for the
benefit of its directors and their beneficiaries, which replaced a
previous Deferred Compensation and Stock Plan for Directors.
A director may make an annual election to defer all or part of
his or her director’s fees and has the option to have the fees
paid in cash, in shares of common stock or in a combination of
cash and shares of common stock upon 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, 2014, the
directors’ deferred fee accounts comprise 232,262 shares.
The Compensation Committee has also approved an annual
award of shares of the Company’s common stock as additional
compensation to each director serving on the Board of Directors
as of the record date for the Annual Meeting of Stockholders.
The shares are awarded as of each Annual Meeting of Share-
holders, and their issuance may not be deferred. Each director
was issued 200 shares for each of the years ended December
31, 2014, 2013, and 2012. 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 $112,900, $124,400, and $110,000, for the years
ended December 31, 2014, 2013, and 2012, respectively.
NONCONTROLLING INTEREST
Saul Centers is the sole general partner of the Operating Part-
nership, owning a 74.2% common interest as of December 31,
2014. Noncontrolling interest in the Operating Partnership is
comprised of limited partnership units owned by the Saul Organ-
ization. Noncontrolling interest reflected on the accompanying
consolidated balance sheets is increased for earnings allocated
to limited partnership interests and distributions reinvested in ad-
ditional 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.
2014 ANNUAL REPORT
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PER SHARE DATA
Per share data for net income (basic and diluted) is computed
using weighted average shares of common stock. Convertible
limited partnership units and employee stock options are the
Company’s potentially dilutive securities. For all periods pre-
sented, the convertible limited partnership units are anti-dilutive.
For the years ended December 31, 2014, 2013, and 2012,
options totaling 106,875, 112,500, and 117,500, respectively,
are not dilutive because the average share price of the
Company’s common stock was less than the exercise prices.
The treasury stock method was used to measure the effect of
the dilution.
BASIC AND DILUTED SHARES OUTSTANDING
December 31,
(Shares in thousands) 2014 2013 2012
Weighted average common
shares outstanding - Basic 20,772 20,364 19,649
Effect of dilutive options 49 37 51
Weighted average common
shares outstanding - Diluted 20,821 20,401 19,700
Average share price $ 49.09 $ 45.44 $ 40.94
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 prob-
able to occur and can be reasonably estimated, the estimated
amount of the loss is recorded in the financial statements.
RECENTLY ISSUED ACCOUNTING
STANDARDS
In April 2014, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update (“ASU”) No.
2014-08, “Presentation of Financial Statements (Topic 205) and
Property Plant and Equipment (Topic 360)” (“ASU 2014-08”).
ASU 2014-08 changes the requirements for reporting discon-
tinued operations such that disposals of components of an entity
will be reported in discontinued operations if the disposal rep-
resents a strategic shift that has (or will have) a major effect on
an entity’s operations. ASU 2014-08 also requires additional
disclosures about discontinued operations. ASU 2014-08 is ef-
fective for annual periods beginning after December 15, 2014,
and interim periods within those years and early adoption is per-
mitted. The Company retrospectively adopted ASU 2014-08 on
April 15, 2014. The adoption of ASU 2014-08 did not have a
material impact on the Company’s financial condition or results
of operations.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from
Contracts with Customers” (“ASU 2014-09”). ASU 2014-09 will
replace most existing revenue recognition guidance and will re-
quire an entity to recognize the amount of revenue to which it
expects to be entitled for the transfer of promised goods or serv-
ices to customers. ASU 2014-09 is effective for annual periods
beginning after December 15, 2016, and interim periods within
those years and early adoption is not permitted. ASU 2014-09
must be applied retrospectively by either restating prior periods
or by recognizing the cumulative effect as of the first date of ap-
plication. We have not yet selected a transition method and are
evaluating the impact that ASU 2014-09 will have on our con-
solidated financial statements and related disclosures.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years to conform
to the presentation used for year ended December 31, 2014.
3. REAL ESTATE ACQUIRED
1500, 1580, 1582 AND 1584 ROCKVILLE PIKE
In December 2012, the Company purchased for $22.4 million
1500 Rockville Pike, and incurred acquisition costs of $0.6 mil-
lion. In January 2014, the Company purchased for $8.0 million
1580 Rockville Pike and incurred acquisition costs of $0.2 mil-
lion. In April 2014, the Company purchased for $11.0 million
1582 Rockville Pike and incurred acquisition costs of $0.2 mil-
lion. In December 2014, the company purchased for $6.2
million 1584 Rockville Pike and incurred acquisition costs of
$0.2 million. These retail properties are contiguous with each
other and are located in Rockville, Maryland.
730 AND 750 GLEBE ROAD
In August 2014, the Company purchased for $40.0 million,
750 N. Glebe Road and incurred acquisition costs of $0.4 mil-
lion. In December 2014, the Company purchased for $2.8
million 730 N. Glebe Road, and incurred acquisition costs of
$40,400. These retail properties are contiguous and are lo-
cated in Arlington, Virginia.
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 foot restaurant located in
Gaithersburg, Maryland, which is contiguous with and an ex-
pansion of the Company's other Kentlands assets, and incurred
acquisition costs of $106,000.
42
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
HUNT CLUB PAD
In December 2013, the Company purchased for $0.8 million,
including acquisition costs, a retail pad with a 5,500 square
foot vacant building located in Apopka, Florida, which is con-
tiguous 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 2014, the Company purchased five properties at an ag-
gregate cost of $68.0 million, and incurred acquisition costs of
$0.9 million. The purchase prices were allocated to the assets
acquired and liabilities assumed based on their fair value as
shown in the following table.
PURCHASE PRICE ALLOCATION OF ACQUISITIONS
(In thousands)
Land
Buildings
In-place Leases
Above-Market Rent
Below-Market Rent
1580
Rockville Pike
1582
Rockville Pike
750 N.
Glebe Road
730 N.
Glebe Road
1584
Rockville Pike
Total
$ 9,600
$ 9,742
$ 38,224
$ 2,683
$ 5,798
$ 66,047
2,200
828
1,327
78
440
4,873
513
849
449
39
249
2,099
—
—
—
—
—
—
(4,313)
(419)
—
—
(337)
(5,069)
Total Purchase Price
$ 8,000
$ 11,000
$ 40,000
$ 2,800
$ 6,150
$ 67,950
During 2013, the Company purchased two properties at a cost
of $5.1 million and incurred acquisition costs of $106,000. Of
the total purchase price, $2.0 million was allocated to buildings
and $3.1 million was allocated to land. No amounts were al-
located to in-place, above-market, or below-market leases.
During 2012, the Company purchased two properties at an ag-
gregate cost of $34.1 million and incurred acquisition costs of
$1.1 million. Of the total purchase price, $3.8 million was al-
located 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 de-
ferred income and is being accreted to income over the lives of
the underlying leases, which is approximately 3.1 years.
The gross carrying amount of lease intangible assets included
in deferred leasing costs as of December 31, 2014 and 2013
was $24.0 million and $21.9 million, respectively, and
accumulated amortization was $18.0 million and $16.7 million,
respectively. Amortization expense totaled $1.3 million, $2.0
million and $2.0 million, for the years ended December 31,
2014, 2013, and 2012, respectively. The gross carrying
amount of below market lease intangible liabilities included in
deferred income as of December 31, 2014 and 2013 was
$29.9 million and $24.8 million, respectively, and accumulated
amortization was $11.9 million and $10.0 million, respectively.
Accretion income totaled $1.9 million, $1.7 million, and $1.6
million, for the years ended December 31, 2014, 2013, and
2012, respectively. The gross carrying amount of above market
lease intangible assets included in accounts receivable as of
December 31, 2014 and 2013 was $1.0 million and $1.0 mil-
lion, respectively, and accumulated amortization was $996,700
and $974,100, respectively. Amortization expense totaled
$23,000, $45,000 and $60,000, for the years ended
December 31, 2014, 2013 and 2012, respectively.
2014 ANNUAL REPORT
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2014, scheduled amortization of intangible
assets and deferred income related to in-place leases is as follows:
AMORTIZATION OF INTANGIBLE ASSETS
AND DEFERRED INCOME RELATED
TO IN-PLACE LEASES
Lease Above- Below-
acquisition market market
(In thousands) costs leases leases
2015 $ 1,252 $ 2 $ 1,787
2016 988 1 1,722
2017 796 1 1,701
2018 737 1 1,617
2019 550 — 1,473
Thereafter 1,739 — 9,670
Total $ 6,062 $ 5 $ 17,970
4. NONCONTROLLING INTEREST -
HOLDERS OF CONVERTIBLE LIMITED
PARTNERSHIP UNITS IN THE
OPERATING PARTNERSHIP
The Saul Organization holds a 25.8% limited partnership inter-
est in the Operating Partnership represented by 7,198,721
limited partnership units, as of December 31, 2014. 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 Incor-
poration, the rights may not be exercised at any time that the
Saul Organization beneficially 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, 2014, 814,000 units were
eligible for conversion.
The impact of the Saul Organization’s 25.8% limited partnership
interest in the Operating Partnership is reflected as Noncontrol-
ling Interest in the accompanying consolidated financial
statements. Fully converted partnership units and diluted
weighted average shares outstanding for the years ended De-
cember 31, 2014, 2013, and 2012, were 27,977,500,
27,330,100, and 26,613,900, respectively.
5. MORTGAGE NOTES PAYABLE,
REVOLVING CREDIT FACILITY, INTEREST
EXPENSE AND AMORTIZATION OF
DEFERRED DEBT COSTS
At December 31, 2014, outstanding debt totaled $857.4 mil-
lion, of which $784.8 million was fixed rate debt and $72.6
million was variable rate debt. The Company’s outstanding debt
totaled $820.1 million at December 31, 2013, of which
$789.9 million was fixed rate debt and $30.2 million was vari-
able rate debt. At December 31, 2014, the Company had a
$275.0 million unsecured revolving credit facility, which can be
used for working capital, property acquisitions or development
projects. The revolving credit facility matures on June 23, 2018,
and may be extended by the Company for one additional year
subject to the Company’s satisfaction of certain conditions. Saul
Centers and certain consolidated subsidiaries of the Operating
Partnership have guaranteed the payment obligations of the
Operating Partnership under the revolving credit facility. Letters
of credit may be issued under the revolving credit facility. On
December 31, 2014, based on the value of the Company's un-
encumbered properties, approximately $231.6 million was
available under the line, $43.0 million was outstanding and ap-
proximately $448,000 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 Com-
pany’s leverage ratio and which can range from 145 basis
points to 200 basis points. As of December 31, 2014, the mar-
gin was 145 basis points.
Saul Centers is a guarantor of the revolving credit facility, of
which the Operating Partnership is the borrower. Saul Centers
guarantees a portion of the Northrock bank term loan (approx-
imately $7.5 million of the $14.5 million outstanding at
December 31, 2014) and the Metro Pike Center bank loan (ap-
proximately $7.8 million of the $15.1 million outstanding at
December 31, 2014) and all of the Park Van Ness construction-
to-permanent loan. All other notes payable are non-recourse.
On April 11, 2012, the Company closed on a 15-year non-re-
course mortgage loan in the amount of $73.0 million secured
by Seven Corners shopping center. The loan matures in 2027,
bears interest at a fixed rate of 5.84%, requires equal monthly
principal and interest payments totaling $463,200 based upon
a 25-year amortization schedule and a final payment of $42.3
million at maturity. 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 approximately $10 million.
44
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On April 26, 2012, the Company substituted the White Oak
shopping center for Van Ness Square as collateral for one of its
existing mortgage loans. The terms of the original loan, includ-
ing its 8.11% interest rate, are unchanged and, in conjunction
with the collateral substitution, the Company borrowed an ad-
ditional $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 con-
solidated loan requires equal monthly payments based upon a
blended fixed interest rate of 7.0% and will require a final pay-
ment of $18.5 million at maturity.
On February 27, 2013, the Company closed on a three-year
$15.6 million mortgage loan secured by Metro Pike Center. The
loan matures in 2016, bears interest at a variable rate equal to
the sum of one-month LIBOR and 165 basis points, requires
monthly principal and interest payments based on a 25-year
amortization schedule and requires a final payment of $14.8
million at maturity. The loan may be extended for up to two
years. Proceeds were used to pay-off the $15.9 million remain-
ing balance of existing debt secured by Metro Pike Center, and
to extinguish the related swap agreement.
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 remain-
ing 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%, requires monthly principal and interest payments to-
taling $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
remaining balance on the mortgage loan secured by Cruse
Marketplace.
On May 28, 2013, the Company closed on a 15-year, non-re-
course $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 total-
ing $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-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 pay-
ments totaling $94,900 based on a 25-year amortization
schedule and requires a final payment of $9.5 million at matu-
rity. 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.
On October 25, 2013 the Company closed on a $71.6 million
construction-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 Centers and accrued interest will be funded by the loan.
Following the completion of construction and lease- up, and
upon achieving certain 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 June 24, 2014, the Company amended and restated its re-
volving credit facility. The Company unsecured revolving credit
facility, which can be used for working capital, property acqui-
sitions, development projects or letters of credit was increased
to $275.0 million. The revolving credit facility matures on June
23, 2018, 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 ob-
ligations of the Operating Partnership under the revolving credit
facility. Letters of credit may be issued under the revolving credit
facility. 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 145 basis
points to 200 basis points.
2014 ANNUAL REPORT
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of notes payable as of December 31, 2014 and 2013:
NOTES PAYABLE
Year Ended December 31, Interest Scheduled
(Dollars in thousands) 2014 2013 Rate* Maturity*
Fixed rate mortgages: $ 15,399 (a) $ 16,128 7.45% Jun-2015
32,049 (b) 33,246 6.01% Feb-2018
35,398 (c) 36,937 5.88% Jan-2019
11,454 (d) 11,949 5.76% May-2019
15,819 (e) 16,501 5.62% Jul-2019
15,761 (f) 16,419 5.79% Sep-2019
14,014 (g) 14,610 5.22% Jan-2020
10,881 (h) 11,159 5.60% May-2020
9,535 (i) 9,921 5.30% Jun-2020
41,441 (j) 42,462 5.83% Jul-2020
8,346 (k) 8,649 5.81% Feb-2021
6,100 (l) 6,233 6.01% Aug-2021
35,222 (m) 35,981 5.62% Jun-2022
10,718 (n) 10,930 6.08% Sep-2022
11,587 (o) 11,795 6.43% Apr-2023
14,909 (p) 15,598 6.28% Feb-2024
16,750 (q) 17,123 7.35% Jun-2024
14,535 (r) 14,849 7.60% Jun-2024
25,639 (s) 26,153 7.02% Jul-2024
30,429 (t) 31,093 7.45% Jul-2024
30,253 (u) 30,894 7.30% Jan-2025
15,735 (v) 16,087 6.18% Jan-2026
115,291 (w) 118,128 5.31% Apr-2026
35,125 (x) 36,075 4.30% Oct-2026
39,932 (y) 40,974 4.53% Nov-2026
18,645 (z) 19,118 4.70% Dec-2026
69,397 (aa) 70,856 5.84% May-2027
17,281 (bb) 17,718 4.04% Apr-2028
33,140 (cc) 34,391 3.51% Jun-2028
17,462 (dd) 17,895 3.99% Sep-2028
5,391 (ee) — 4.88% Sep-2032
11,119 (ff) — 8.00% Apr-2034
Total fixed rate 784,757 789,872 5.70% 9.3 Years
Variable rate loans:
43,000 (gg) — LIBOR + 1.45% Jun-2018
14,525 (hh) 14,802 LIBOR + 1.65% Feb-2016
15,106 (ii) 15,394 LIBOR + 1.65% Feb-2016
Total variable rate 72,631 30,196 LIBOR + 1.53% 2.5 Years
Total notes payable $ 857,388 $ 820,068 5.36% 8.7 Years
* Interest rate and scheduled maturity data presented as of December 31, 2014. Totals computed using weighted averages.
46
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(a)
The loan is collateralized by Shops at Fairfax and Boulevard shopping cen-
ters 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 is due at loan maturity. Principal of
$729,000 was amortized during 2014.
(c)
(d)
(e)
(f)
(g)
(h)
(b) 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 $1.2 million was amortized during 2014.
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. Principal
of $1.5 million was amortized during 2014.
The loan is collateralized by Olde Forte Village and requires equal monthly
principal and interest payments of $98,000 based upon a 25-year amor-
tization schedule and a final payment of $9.0 million at loan maturity.
Principal of $495,000 was amortized during 2014.
The loan is collateralized by Countryside and requires equal monthly prin-
cipal 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 $682,000 was amortized during 2014.
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 $658,000 was amortized during 2014.
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 $596,000 was amortized during 2014.
The loan is collateralized by Boca Valley Plaza and requires equal monthly
principal and interest payments of $75,000 based upon a 30-year amor-
tization schedule and a final payment of $9.1 million at loan maturity.
Principal of $278,000 was amortized during 2014.
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 $386,000 was amortized during 2014.
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 pay-
ments of $289,000 based upon a 25-year amortization schedule and a
final payment of $34.8 million at loan maturity. Principal of $1,021,000
was amortized during 2014.
The loan is collateralized by Jamestown Place and requires equal monthly
principal and interest payments of $66,000 based upon a 25-year amor-
tization schedule and a final payment of $6.1 million at loan maturity.
Principal of $303,000 was amortized during 2014.
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 $133,000 was amortized during 2014.
(k)
(l)
(i)
(j)
(n)
(m) The loan is collateralized by Lansdowne Town Center and requires monthly
principal and interest payments of $230,000 based on a 30-year amor-
tization schedule and a final payment of $28.2 million at loan maturity.
Principal of $759,000 was amortized during 2014.
The loan is collateralized by Orchard Park and requires equal monthly
principal and interest payments of $73,000 based upon a 30-year amor-
tization schedule and a final payment of $8.6 million at loan maturity.
Principal of $212,000 was amortized during 2014.
The loan is collateralized by BJ’s Wholesale and requires equal monthly
principal and interest payments of $80,000 based upon a 30-year amor-
tization schedule and a final payment of $9.3 million at loan maturity.
Principal of $208,000 was amortized during 2014.
(o)
(p)
(q)
(r)
(s)
(t)
(u)
(v)
(w)
(x)
(y)
(z)
The loan is collateralized by Great Falls shopping center. The loan consists
of three notes which require equal monthly principal and interest payments
of $138,000 based upon a weighted average 26-year amortization
schedule and a final payment of $6.3 million at maturity. Principal of
$689,000 was amortized during 2014.
The loan is collateralized by Leesburg Pike and requires equal monthly
principal and interest payments of $135,000 based upon a 25-year amor-
tization schedule and a final payment of $11.5 million at loan maturity.
Principal of $373,000 was amortized during 2014.
The loan is collateralized by Village Center and requires equal monthly
principal and interest payments of $119,000 based upon a 25-year amor-
tization schedule and a final payment of $10.1 million at loan maturity.
Principal of $314,000 was amortized during 2014.
The loan is collateralized by White Oak and requires equal monthly prin-
cipal 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 collateral and
borrowed an additional $10.5 million. Principal of $514,000 was amor-
tized during 2014.
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 $664,000 was amortized during 2014.
The loan is collateralized by Ashburn Village and requires equal monthly
principal and interest payments of $240,000 based upon a 25-year amor-
tization schedule and a final payment of $20.5 million at loan maturity.
Principal of $641,000 was amortized during 2014.
The loan is collateralized by Ravenwood and requires equal monthly prin-
cipal 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 $352,000 was amortized during 2014.
The loan is collateralized by Clarendon Center and requires equal monthly
principal and interest payments of $753,000 based upon a 25-year amor-
tization schedule and a final payment of $70.5 million at loan maturity.
Principal of $2.8 million was amortized during 2014.
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 $950,000 was amortized during 2014.
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 $1,042,000 was amortized during 2014.
The loan is collateralized by Cranberry Square and requires equal monthly
principal and interest payments of $113,000 based upon a 25-year amor-
tization schedule and a final payment of $10.9 million at loan maturity.
Principal of $473,000 was amortized during 2014.
(aa) 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 sched-
ule and a final payment of $42.3 million at loan maturity. Principal of $1.5
million was amortized during 2014.
(bb) 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 $437,000 was amortized in 2014.
(cc) The loan is collateralized by Beacon Center and requires equal monthly
principal and interest payments of $203,200 based upon a 20-year amor-
tization schedule and a final payment of $11.4 million at loan maturity.
Principal of $1,251,000 was amortized in 2014.
(dd) The loan is collateralized by Seabreeze Plaza and requires equal monthly
principal and interest payments of $94,900 based upon a 25-year amor-
tization schedule and a final payment of $9.5 million at loan maturity.
Principal of $433,000 was amortized in 2014.
2014 ANNUAL REPORT
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ee) The loan is a $71.6 million construction-to-permanent facility that is col-
lateralized 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 amor-
tization schedule. A final payment of $39.6 million will be due at maturity.
The Company entered into a sale-leaseback transaction with its Olney
property and is accounting for that transaction as a secured financing.
The arrangement requires monthly payments of $60,400 which increase
by 1.5% on May 1, 2015, and every May 1 thereafter. The arrangement
provides for a final payment of $14.7 million and has an implicit interest
rate of 8.0%. Negative amortization in 2014 totaled $119,000.
(ff)
(gg) The loan is a $275.0 million unsecured revolving credit facility. Interest
accrues at a rate equal to the sum of one-month LIBOR plus a spread of
145 basis points. The line may be extended at the Company’s option for
one year with payment of a fee of 0.15%. Monthly payments, if required,
are interest only and vary depending upon the amount outstanding and
the applicable interest rate for any given month.
(ii)
(hh) The loan is collateralized by Northrock and requires monthly principal and
interest payments of approximately $47,000 and a final payment of $14.2
million at maturity. Principal of $277,000 was amortized during 2014.
The loan is collateralized by Metro Pike Center and requires monthly prin-
cipal and interest payments of approximately $48,000 and a final
payment of $14.8 million at loan maturity. Principal of $288,000 was
amortized during 2014.
The carrying value of the properties collateralizing the mortgage
notes payable totaled $895.5 million and $907.2 million, as
of December 31, 2014 and 2013, respectively. The Company’s
credit facility requires the Company and its subsidiaries to main-
tain certain financial covenants, which are summarized below.
The Company was in compliance as of December 31, 2014.
• maintain tangible net worth, as defined in the loan agree-
ment, of at least $542.1 million plus 80% of the Company’s
net equity proceeds received after March 2014;
•
•
•
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 ex-
ceed 2.0 x on a trailing four-quarter basis (interest expense
coverage); and
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).
Mortgage notes payable at each of December 31, 2014 and
2013, totaling $51.0 million, are guaranteed by members of
the Saul Organization. As of December 31, 2014, the sched-
uled maturities of all debt including scheduled principal
amortization for years ended December 31 are as follows:
DEBT MATURITY SCHEDULE
Scheduled
Balloon Principal
(In thousands) Payments Amortization Total
2015 $ 14,885 $ 23,192 $ 38,077
2016 28,879 23,496 52,375
2017 — 24,679 24,679
2018 70,748 (a) 24,822 95,570
2019 60,794 23,489 84,283
Thereafter 426,652 135,752 562,404
Total $ 601,958 $ 255,430 $ 857,388
(a) Includes $43.0 million outstanding under the line of credit.
48
SAUL CENTERS, INC.
The components of interest expense are set forth below.
INTEREST EXPENSE
Year ended December 31,
(In thousands) 2014 2013 2012
Interest incurred $ 45,396 $ 45,502 $ 48,010
Amortization of
deferred debt costs 1,327 1,257 1,576
Capitalized interest (689) (170) (42)
Total $ 46,034 $ 46,589 $ 49,544
Deferred debt costs capitalized during the years ending Decem-
ber 31, 2014, 2013 and 2012 totaled $1.3 million, $3.2
million and $2.2 million, respectively.
6. LEASE AGREEMENTS
Lease income includes primarily base rent arising from non-
cancelable leases. Base rent (including straight-line rent) for the
years ended December 31, 2014, 2013, and 2012, amounted
to $164.6 million, $159.9 million, and $152.8 million, respec-
tively. Future contractual payments under noncancelable leases
for years ended December 31 (which exclude the effect of
straight-line rents), are as follows:
FUTURE CONTRACTUAL RENT PAYMENTS
(In thousands)
2015 $ 152,661
2016 135,703
2017 116,025
2018 96,439
2019 73,626
Thereafter 275,551
Total $ 850,005
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The majority of the leases provide for rental increases and ex-
pense recoveries based on fixed annual increases or increases
in the Consumer Price Index and increases in operating ex-
penses. The expense recoveries generally are payable in equal
installments throughout the year based on estimates, with ad-
justments made in the succeeding year. Expense recoveries for
the years ended December 31, 2014, 2013, and 2012,
amounted to $32.1 million, $30.9 million, and $30.4 million,
respectively. In addition, certain retail leases provide for per-
centage rent based on sales in excess of the minimum specified
in the tenant’s lease. Percentage rent amounted to $1.5 million,
$1.6 million, and $1.5 million, for the years ended December
31, 2014, 2013, and 2012, respectively.
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 finan-
cial statements is minimum ground rent expense of $176,000,
$176,000, and $176,000, for the years ended December 31,
2014, 2013, and 2012, respectively. The future minimum rental
commitments under these ground leases are as follows:
LONG-TERM LEASE OBLIGATIONS
Year ending December 31,
(In thousands) 2015 2016 2017 2018 2019 Thereafter Total
Beacon Center $ 60 $ 60 $ 60 $ 60 $ 60 $ 2,541 $ 2,841
Olney 56 56 56 56 57 3,760 4,041
Southdale 60 60 60 60 60 2,885 3,185
Total $ 176 $ 176 $ 176 $ 176 $ 177 $ 9,186 $ 10,067
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 cer-
tain 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
member of the Saul Organization. The lease commenced in
March 2002 was extended in 2012 for five years, and provides
for base rent increases of 3% per year, with payment of a pro-
rata share of operating expenses over a base year amount. The
Company and the Saul Organization entered into a Shared Serv-
ices Agreement whereby each party pays an allocation of total
rental payments based on a percentage proportionate to the
number of employees employed by each party. The Company’s
rent expense for the years ended December 31, 2014, 2013,
and 2012 was $840,800, $850,600, and $850,000, respec-
tively. Expenses arising from the lease are included in general and
administrative expense (see Note 9 – Related Party Transactions).
8. STOCKHOLDERS’ EQUITY AND
NONCONTROLLING INTEREST
The Consolidated Statements of Operations for the years ended
December 31, 2014, 2013, and 2012 reflect noncontrolling
interest of $11.0 million, $4.0 million, and $6.4 million, re-
spectively, representing the Saul Organization’s share of the net
income for the year.
In November 2003, the Company sold 4,000,000 depositary
shares, each representing 1/100th of a share of 8% Series A Cu-
mulative Redeemable Preferred Stock (the "Series A Stock"). The
depositary shares are redeemable, in whole or in part at the
Company’s option, from time to time, at $25.00 per share. The
depositary shares pay an annual dividend of $2.00 per share,
equivalent to 8% of the $25.00 per share liquidation preference.
The Series A preferred stock has no stated maturity, is not subject
to any sinking fund or mandatory redemption and is not con-
vertible 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
60% of its then-outstanding Series A Stock. In December 2014,
the Company redeemed the remaining outstanding Series A
Stock. Costs associated with the redemptions were charged
against accumulated deficit in the respective periods.
2014 ANNUAL REPORT
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In March 2008, the Company sold 3,173,115 depositary
shares, each representing 1/100th of a share of 9% Series B
Cumulative Redeemable Preferred Stock (the "Series B Stock").
The depositary shares may be redeemed at the Company’s op-
tion, on or after March 15, 2013, in whole or in part, at $25.00
per share. The depositary shares pay an annual dividend of
$2.25 per share, equivalent to 9% of the $25.00 per share liq-
uidation preference. The Series B preferred stock has no stated
maturity, is not subject to any sinking fund or mandatory re-
demption and is not convertible into any other securities of the
Company. Investors in the depositary shares generally have no
voting rights, but will have limited voting rights if the Company
fails to pay dividends for six or more quarters (whether or not
declared or consecutive) and in certain other events. In March
2013, the Company redeemed all of its Series B Stock. Costs
associated with the redemption were charged against accumu-
lated 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 Re-
deemable Preferred Stock ("Series C 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 liquida-
tion 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 prefer-
ence. 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 con-
vertible into any other securities of the Company except in
connection with certain changes of control or delisting events.
Investors in the depositary shares generally have no voting
rights, but will have limited voting rights if the Company fails to
pay dividends for six or more quarters (whether or not declared
or consecutive) and in certain other events. On November 12,
2014, the Company sold, in an underwritten public offering,
1.6 million depositary shares of Series C Stock and received net
cash proceeds of approximately $39.3 million (the "Additional
Series C Stock"). The terms of Additional Series C Stock are
identical to the Series C Stock.
9. RELATED PARTY TRANSACTIONS
The Chairman and Chief Executive Officer, the President and
Chief Operating Officer, the Executive Vice President-Chief
Legal and Administrative Officer and the Senior Vice President-
Chief Accounting Officer of the Company are also officers of
various members of the Saul Organization and their manage-
ment time is shared with the Saul Organization. Their annual
compensation is fixed by the Compensation Committee of the
Board of Directors, with the exception of the Senior Vice Presi-
dent-Chief Accounting Officer whose share of annual
50
SAUL CENTERS, INC.
compensation allocated to the Company is determined by the
shared services agreement (described below).
The Company participates in a multiemployer 401K plan with
entities in the Saul Organization which covers those full-time
employees who meet the requirements as specified in the plan.
Company contributions, which are included in general and ad-
ministrative expense or property operating expenses in the
consolidated statements of operations, at the discretionary
amount of up to six percent of the employee’s cash compensa-
tion, subject to certain limits, were $379,000, $369,000, and
$379,000, for 2014, 2013, and 2012, respectively. All
amounts deferred by employees and contributed by the Com-
pany are fully vested.
The Company also participates in a multiemployer nonqualified
deferred compensation plan with entities in the Saul Organiza-
tion which covers those full-time employees who meet the
requirements as specified in the plan. According to the plan,
which can be modified or discontinued at any time, participating
employees defer 2% of their compensation in excess of a spec-
ified amount. For the years ended December 31, 2014, 2013,
and 2012, the Company contributed three times the amount
deferred by employees. The Company’s expense, included in
general and administrative expense, totaled $192,800,
$191,300, and $238,000, for the years ended December 31,
2014, 2013, and 2012, respectively. All amounts deferred by
employees and the Company are fully vested. The cumulative
unfunded liability under this plan was $1.8 million and $1.6
million, at December 31, 2014 and 2013, respectively, and is
included in accounts payable, accrued expenses and other lia-
bilities in the consolidated balance sheets.
The Company has entered into a shared services agreement
(the “Agreement”) with the Saul Organization that provides for
the sharing of certain personnel and ancillary functions such as
computer hardware, software, and support services and certain
direct and indirect administrative personnel. The method for de-
termining the cost of the shared services is provided for in the
Agreement and is based upon head count, estimates of usage
or estimates of time incurred, as applicable. Senior manage-
ment has determined that the final allocations of shared costs
are reasonable. The terms of the Agreement and the payments
made thereunder are reviewed annually by the Audit Committee
of the Board of Directors, which consists entirely of independent
directors. Billings by the Saul Organization for the Company’s
share of these ancillary costs and expenses for the years ended
December 31, 2014, 2013, and 2012, which included rental
expense for the Company’s headquarters lease (see Note 7.
Long Term Lease Obligations), totaled $7.4 million, $6.3 mil-
lion, and $6.0 million, respectively. The amounts are expensed
when incurred and are primarily reported as general and ad-
ministrative expenses or capitalized to specific development
projects in these consolidated financial statements. As of De-
cember 31, 2014 and 2013, accounts payable, accrued
expenses and other liabilities included $543,000 and
$499,000, respectively, representing billings due to the Saul
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Organization for the Company’s share of these ancillary costs
and expenses.
The Company has entered into a shared third-party predevel-
opment cost agreement with the B. F. Saul Real Estate Investment
Trust, a member of the Saul Organization (the “Predevelopment
Agreement”). The Predevelopment Agreement, which expires on
December 31, 2015, and which may be extended to December
31, 2016, relates to the sharing of third-party predevelopment
costs incurred in connection with the planning of the future re-
development of certain adjacent real estate assets in the
Twinbrook area of Rockville, Maryland. The costs will be billed
by the third-parties on a pro rata basis based on the acreage
owned by each entity and neither party is obligated to advance
funds to the other.
The B. F. Saul Insurance Agency of Maryland, Inc., a subsidiary
of the B. F. Saul Company and a member of the Saul Organiza-
tion, is a general insurance agency that receives commissions
and counter-signature fees in connection with the Company’s in-
surance program. Such commissions and fees amounted to
approximately $427,300, $447,300, and $372,000, for the
years ended December 31, 2014, 2013, and 2012, respectively.
Effective as of September 4, 2012, the Company entered into
a consulting agreement with B. F. Saul III, one of the Company’s
former presidents, whereby Mr. Saul III provided certain consult-
ing services to the Company as an independent contractor and
was paid at a rate of $60,000 per month. The consulting
agreement included certain noncompete, nonsolicitation and
nondisclosure covenants, and expired in September 2014. Dur-
ing 2014, 2013 and 2012 such consulting fees totaled
$495,000, $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 exec-
utive officers and other key personnel. The 1993 Plan provides
for grants of options to purchase up to 400,000 shares of com-
mon stock. The 1993 Plan authorizes the Compensation
Committee of the Board of Directors to grant options at an ex-
ercise price which may not be less than the market value of the
common stock on the date the option is granted.
At the annual meeting of the Company’s stockholders in 2004,
the stockholders approved the adoption of the 2004 stock plan
for the purpose of attracting and retaining executive officers, di-
rectors and other key personnel. The 2004 stock plan was
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 Com-
mittee of the Board of Directors to grant options at an exercise
price which may not be less than the market value of the com-
mon stock on the date the option is granted.
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 immediately exercisable. The exercise price of
$33.22 per share was the closing market price of the Com-
pany’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’ options was recog-
nized as compensation expense monthly during the four years
the options vested.
Effective May 1, 2006, the Compensation Committee granted
options to purchase 30,000 shares (all nonqualified stock op-
tions) 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 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
options to purchase 165,000 shares (27,560 incentive stock
options and 137,440 nonqualified stock options) to thirteen
Company officers and twelve Company Directors (the “2007
options”), which expire on April 26, 2017. The officers’ 2007
Options vest 25% per year over four years and are subject to
early expiration upon termination of employment. The directors’
options were immediately exercisable. The exercise price of
$54.17 per share was the closing market price of the Com-
pany’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.
2014 ANNUAL REPORT
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Effective April 25, 2008, the Compensation Committee granted
options to purchase 30,000 shares (all nonqualified stock op-
tions) to twelve Company directors (the “2008 Options”), which
were immediately exercisable and expire on April 24, 2018. The
exercise price of $50.15 per share was the closing market price
of the Company’s common stock on the date of the award.
Using the Black-Scholes model, the Company determined the
total fair value of the 2008 Options to be $254,700. Because
the directors’ options vest immediately, the entire $254,700 was
expensed as of the date of grant. No options were granted to
the Company’s officers in 2008.
Effective April 24, 2009, the Compensation Committee granted
options to purchase 32,500 shares (all nonqualified stock op-
tions) to thirteen Company directors (the “2009 Options”),
which were immediately exercisable and expire on April 23,
2019. The exercise price of $32.68 per share was the closing
market price of the Company’s common stock on the date of
the award. Using the Black-Scholes model, the Company de-
termined the total fair value of the 2009 Options to be
$222,950. Because the directors’ options vested immediately,
the entire $222,950 was expensed as of the date of grant. No
options were granted to the Company’s officers in 2009.
Effective May 7, 2010, the Compensation Committee granted
options to purchase 32,500 shares (all nonqualified stock op-
tions) to thirteen Company directors (the “2010 Options”),
which were immediately exercisable and expire on May 6,
2020. The exercise price of $38.76 per share was the closing
market price of the Company’s common stock on the date of
the award. Using the Black-Scholes model, the Company de-
termined the total fair value of the 2010 Options to be
$287,950. Because the directors’ options vested immediately,
the entire $287,950 was expensed as of the date of grant. No
options were granted to the Company’s officers in 2010.
Effective May 13, 2011, the Compensation Committee granted
options to purchase 195,000 shares (65,300 incentive stock
options and 129,700 nonqualified stock options) to fifteen
Company officers 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 termination of employment. The directors’
2011 options were immediately exercisable. The exercise price
of $41.82 per share was the closing market price of the Com-
pany’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
recognized as compensation expense monthly during the four
years the options vest.
52
SAUL CENTERS, INC.
Effective May 4, 2012, the Compensation Committee granted
options to purchase 277,500 shares (26,157 incentive stock
options and 251,343 nonqualified stock options) to fifteen
Company officers 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 termination of employment. The directors’
2012 Options were immediately exercisable. The exercise price
of $39.29 per share was the closing market price of the Com-
pany’s common stock on the date of award. Using the
Black-Scholes model, the Company determined the total fair
value of the 2012 Options to be $1.7 million, of which $1.4
million and $257,250 were assigned to the officer options and
director options, respectively. Because the directors’ options
vested immediately, the entire $257,250 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
options to purchase 237,500 shares (35,592 incentive stock
options and 201,908 nonqualified stock options) to fifteen
Company officers and fourteen Company Directors (the "2013
options"), which expire on May 9, 2023. The officers' 2013 Op-
tions vest 25% per year over four years and are subject to early
expiration upon termination of employment. The directors' 2013
options were immediately exercisable. The exercise price of
$44.42 per share was the closing market price of the Com-
pany'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 million, of which $1.3
million and $0.3 million were assigned to the officer options
and director options, respectively. Because the directors' 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.
Effective May 9, 2014, the Compensation Committee granted
options to purchase 200,000 shares (29,300 incentive stock
options and 170,700 nonqualified stock options) to eighteen
Company officers and twelve Company Directors (the “2014
options”), which expire on May 8, 2024. The officers’ 2014
Options vest 25% per year over four years and are subject to
early expiration upon termination of employment. The directors’
2014 Options were immediately exercisable. The exercise price
of $47.03 per share was the closing market price of the Com-
pany’s common stock on the date of award. Using the
Black-Scholes model, the Company determined the total fair
value of the 2014 Options to be $1.3 million, of which $1.2
million and $109,500 were assigned to the officer options and
director options, respectively. Because the directors’ options
vested immediately, the entire $109,500 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.
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, 2014, 2013 and 2012:
STOCK OPTIONS ISSUED TO DIRECTORS
Grant date
Total grant
Vested
Exercised
Forfeited
Exercisable at
December 31, 2014
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
5/9/2014
Subtotals
30,000
30,000
30,000
30,000
32,500
32,500
32,500
35,000
35,000
30,000
317,500
30,000
30,000
30,000
30,000
32,500
32,500
32,500
35,000
35,000
30,000
317,500
22,500
10,000
—
—
20,000
10,000
10,000
10,000
7,500
—
90,000
—
2,500
7,500
7,500
—
2,500
2,500
—
—
—
22,500
7,500
17,500
22,500
22,500
12,500
20,000
20,000
25,000
27,500
30,000
205,000
Remaining unexercised
7,500
17,500
22,500
22,500
12,500
20,000
20,000
25,000
27,500
30,000
205,000
Exercise price
$ 33.22
$ 40.35
$ 54.17
$ 50.15
$ 32.68
$ 38.76
$ 41.82
$ 39.29
$ 44.42
$ 47.03
Volatility
0.198
0.206
0.225
0.237
0.344
0.369
0.358
0.348
0.333
0.173
Expected life (years)
10.0
9.0
8.0
7.0
6.0
5.0
5.0
5.0
5.0
5.0
Assumed yield
Risk-free rate
Gross value at
grant date
Expensed in
6.91%
5.93%
4.39%
4.09%
4.54%
4.23%
4.16%
4.61%
4.53%
4.48%
4.28%
5.11%
4.65%
3.49%
2.19%
2.17%
1.86%
0.78%
0.82%
1.63%
$ 71,100
$143,400
$285,300
$254,700
$222,950
$287,950
$297,375
$257,250
$278,250
$109,500
$ 2,207,775
previous years
71,100
143,400
285,300
254,700
222,950
287,950
297,375
—
—
—
1,562,775
Expensed in 2012
—
—
—
—
—
—
—
257,250
—
—
257,250
Expensed in 2013
—
—
—
—
—
—
—
—
278,250
—
278,250
Expensed in 2014
—
—
—
—
—
—
—
—
—
109,500
109,500
Future expense
—
—
—
—
—
—
—
—
—
—
—
Grant date
Total grant
Vested
Exercised
Forfeited
Exercisable at
December 31, 2014
STOCK OPTIONS ISSUED TO OFFICERS AND GRAND TOTALS
5/6/2005
4/27/2007
5/13/2011
5/4/2012
5/10/2013
5/9/2014
Subtotals
132,500
135,000
162,500
242,500
202,500
170,000
1,045,000
118,750
67,500
105,625
56,250
50,625
—
398,750
115,750
3,528
46,889
30,000
15,625
—
211,792
13,750
67,500
43,750
135,000
30,000
—
290,000
3,000
63,972
47,486
26,250
35,000
—
175,708
Remaining unexercised
3,000
63,972
71,861
77,500
156,875
170,000
543,208
Exercise price
$ 33.22
$ 54.17
$ 41.82
$ 39.29
$ 44.42
$ 47.03
Volatility
0.207
0.233
0.330
0.315
0.304
0.306
Expected life (years)
8.0
6.5
8.0
8.0
8.0
7.0
Assumed yield
Risk-free rate
Gross value at
grant date
6.37%
4.13%
4.81%
5.28%
5.12%
4.89%
4.15%
4.61%
2.75%
1.49%
1.49%
2.17%
$ 413,400
$1,339,200
$1,366,625
$1,518,050
$1,401,300
$1,349,800
$7,388,375
Estimated forfeitures
35,100
62,000
387,550
889,690
280,468
168,749
1,823,557
Expensed in
previous years
378,300
1,277,200
186,347
—
—
—
1,841,847
Expensed in 2012
—
—
270,391
104,724
—
—
375,115
Expensed in 2013
—
—
235,350
157,083
209,027
—
601,460
Expensed in 2014
—
—
217,475
157,092
283,910
196,848
855,325
Future expense
—
—
69,512
209,461
627,895
984,203
1,891,071
Weighted average term of remaining future expense 2.7 years
Grand
Totals
1,362,500
716,250
301,792
312,500
380,708
748,208
$9,596,150
1,823,557
3,404,622
632,365
879,710
964,825
1,891,071
2014 ANNUAL REPORT
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2014 2013 2012
Weighted Average Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
OPTION ACTIVITY
Outstanding at January 1 753,625 $ 42.55 570,840 $ 41.04 674,585 $ 40.40
Granted 200,000 47.03 237,500 44.42 277,500 39.29
Exercised (167,917) 37.71 (49,715) 33.15 (149,995) 31.03
Expired/Forfeited (37,500) 43.56 (5,000) 52.16 (231,250) 43.56
Outstanding December 31 748,208 44.79 753,625 42.55 570,840 41.04
Exercisable at December 31 380,708 44.85 413,000 42.42 377,715 41.41
The intrinsic value of options exercised in 2014, 2013, and
2012, was $2.0 million, $0.6 million and $1.6 million, respec-
tively. The intrinsic value of options outstanding and exercisable
at year end 2014 was $9.3 million and $4.7 million, respectively.
The intrinsic value measures the difference between the options’
exercise price and the closing share price quoted by the New York
Stock Exchange as of the date of measurement. The date of ex-
ercise was the measurement date for shares exercised during the
period. At December 31, 2014, the final trading day of calendar
2014, the closing price of $57.19 per share was used for the
calculation of aggregate intrinsic value of options outstanding
and exercisable at that date. At December 31, 2014, there were
no options with an exercise price in excess of the market closing
price. The weighted average remaining contractual life of the
Company’s exercisable and outstanding options at December
31, 2014 are 5.4 and 7.0 years, respectively.
11. NON-OPERATING ITEMS
Gain on casualty settlement in 2013 and 2012 reflect insurance
proceeds received in excess of the carrying value of assets dam-
aged during a hail storm at French Market in 2012. The
insurance proceeds funded substantially all of the restoration of
the damaged property.
to the carrying value of $784.8 million and $789.9 million at
December 31, 2014 and 2013, respectively. A change in any of
the significant inputs may lead to a change in the Company’s fair
value measurement of its debt.
Effective June 30, 2011, the Company determined that one of
its interest-rate swap arrangements was a highly effective hedge
of the cash flows under one of its variable-rate mortgage loans
and designated the swap as a cash flow hedge of that mort-
gage. The swap is carried at fair value with changes in fair value
recognized either in income or comprehensive income depend-
ing on the effectiveness of the swap. The following chart
summarizes the changes in fair value of the Company’s swaps
for the indicated periods.
SWAPS FAIR VALUE
Year ended December 31,
(In thousands) 2014 2013 2012
Increase (decrease)
in fair value:
Recognized in earnings $ (10) $ (7) $ 36
Recognized in other
comprehensive income (675) 2,897 (932)
Total $(685) $ 2,890 $ (896)
12. FAIR VALUE OF FINANCIAL
INSTRUMENTS
The carrying values of cash and cash equivalents, accounts re-
ceivable, accounts payable and accrued expenses are reasonable
estimates of their fair value. The aggregate fair value of the notes
payable with fixed-rate payment terms was determined using Level
3 data in a discounted cash flow approach, which is based upon
management’s estimate of borrowing rates and loan terms cur-
rently available to the Company for fixed rate financing, and
assuming long term interest rates of approximately 3.65% and
4.85%, would be approximately $886.4 million and $828.7 mil-
lion as of December 31, 2014 and 2013, respectively, compared
The Company carries its interest rate swaps at fair value. The
Company has determined the majority of the inputs used to
value its derivative fall within Level 2 of the fair value hierarchy
with the exception of the impact of counter-party risk, which was
determined using Level 3 inputs and are not significant. Deriv-
ative instruments are classified within Level 2 of the fair value
hierarchy because their values are determined using third-party
pricing models which contain inputs that are derived from ob-
servable market data. Where possible, the values produced by
the pricing models are verified by the market prices. Valuation
models require a variety of inputs, including contractual terms,
market prices, yield curves, credit spreads, measure of volatility,
and correlations of such inputs. The swap agreement terminates
54
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
on July 1, 2020. As of December 31, 2014, the fair value of
the interest-rate swap was approximately $3.2 million and is in-
cluded 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
Consolidated Statements of Comprehensive Income.
13. COMMITMENTS AND
CONTINGENCIES
Neither the Company nor the Current Portfolio Properties are
subject to any material litigation, nor, to management’s knowl-
edge, is any material litigation currently threatened against the
Company, other than routine litigation and administrative
proceedings arising in the ordinary course of business.
Management believes that these items, individually or in the
aggregate, will not have a material adverse impact on the
Company or the Current Portfolio Properties.
14. DISTRIBUTIONS
In December 1995, the Company established a Dividend Rein-
vestment and Stock Purchase Plan (the “Plan”), to allow its
stockholders and holders of limited partnership interests an
opportunity to buy additional shares of common stock by rein-
vesting all or a portion of their dividends or distributions. The
Plan provides for investing in newly issued shares of common
stock at a 3% discount from market price without payment of any
brokerage commissions, service charges or other expenses. All
expenses of the Plan are paid by the Company. The Operating
Partnership also maintains a similar dividend reinvestment plan
that mirrors the Plan, which allows holders of limited partnership
interests the opportunity to buy either additional limited partner-
ship units or common stock shares of the Company.
The Company paid common stock distributions of $1.56 per
share in 2014 and $1.44 per share during each of 2013 and
2012, Series A preferred stock dividends of $2.41 per share in
2014 and $2.00 per depositary share during each of 2013 and
2012, Series B preferred stock dividends of $0.99 and $2.25
per share during 2013 and 2012, respectively, and Series C
preferred stock dividends of $1.72 and $1.09 per depository
share during 2014 and 2013, respectively. Of the common
stock dividends paid, $1.56 per share, $0.96 per share, and
$0.95 per share, represented ordinary dividend income in
2014, 2013, and 2012, respectively and $0.48 per share and
$0.49 per share, represented return of capital to the sharehold-
ers in 2013 and 2012, respectively. All of the preferred stock
dividends paid were considered ordinary dividend income.
The following summarizes distributions paid during the years
ended December 31, 2014, 2013, and 2012, and includes ac-
tivity in the Plan as well as limited partnership units issued from
the reinvestment of unit distributions:
Total Distributions to Dividend Reinvestments
Limited Common Limiited 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 2014
October 31 $ 3,856 $ 8,348 $ 2,879 40,142 $ 52.71
July 31 3,206 8,314 2,879 57,696 46.79
April 30 3,206 8,269 2,838 60,212 44.14 104,831 $ 44.77
January 31 3,206 7,415 2,521 39,588 45.15 91,352 45.80
Total 2014 $ 13,474 $ 32,346 $ 11,117 197,638 196,183
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
2014 ANNUAL REPORT
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In December 2014, the Board of Directors of the Company
authorized a distribution of $0.40 per common share payable
in January 2015, to holders of record on January 16, 2015. As
a result, $8.4 million was paid to common shareholders on
January 30, 2015. Also, $2.9 million was paid to limited part-
nership unitholders on January 30, 2015 ($0.40 per Operating
Partnership unit). The Board of Directors authorized preferred
stock dividends of $0.4297 per Series C depositary share to
holders of record on January 7, 2015. As a result, $3.1 million
was paid to preferred shareholders on January 15, 2015. These
amounts are reflected as a reduction of stockholders’ equity in
the case of common stock and preferred stock dividends and
noncontrolling interests deductions in the case of limited partner
distributions and are included in dividends and distributions
payable in the accompanying consolidated financial statements.
15. INTERIM RESULTS (UNAUDITED)
The following summary presents the results of operations of the Company for the quarterly periods of calendar years 2014 and 2013.
(In thousands, except per share amounts) 2014
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Revenue $ 52,947 $ 52,286 $ 50,595 $ 51,264
Operating income before loss on early extinguishment
of debt, gain on casualty settlement, and
noncontrolling interests 12,713 14,423 12,479 12,314
Gain on sales of properties — 6,069 — —
Net income attributable to Saul Centers, Inc. 10,287 16,054 10,106 10,496
Net income available to common shareholders 7,081 12,847 6,900 5,274
Net income available to common shareholders
per diluted share 0.34 0.62 0.33 0.25
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, and
noncontrolling interests 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
56
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 sim-
ilar 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 distrib-
ute such services are consistent throughout the portfolio. Certain
reclassifications have been made to prior year information to
conform to the 2014 presentation.
Shopping Mixed-Use Corporate and Consolidated
(In thousands) Centers Properties Other Totals
As of or for the year ended December 31, 2014
Real estate rental operations:
Revenue $ 154,385 $ 52,632 $ 75 $ 207,092
Expenses (33,781) (15,732) — (49,513)
Income from real estate 120,604 36,900 75 157,579
Interest expense and amortization of deferred debt costs — — (46,034) (46,034)
General and administrative — — (16,961) (16,961)
Subtotal 120,604 36,900 (62,920) 94,584
Depreciation and amortization of deferred leasing costs (28,082) (13,121) — (41,203)
Acquisition related costs (949) — — (949)
Predevelopment expenses — (503) — (503)
Change in fair value of derivatives — — (10) (10)
Gain on sale of property 6,069 — — 6,069
Net income (loss) $ 97,642 $ 23,276 $ (62,930) $ 57,988
Capital investment $ 66,508 $ 23,760 $ — $ 90,268
Total assets $ 946,819 $ 307,901 $ 12,267 $ 1,266,987
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
2014 ANNUAL REPORT
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Shopping Mixed-Use Corporate and Consolidated
(In thousands) Centers Properties Other Totals
As of or for the year ended December 31, 2012
Real estate rental operations:
Revenue $ 137,647 $ 52,309 $ 136 $ 190,092
Expenses (30,139) (17,131) — (47,270)
Income from real estate 107,508 35,178 136 142,822
Interest expense and amortization of deferred debt costs — — (49,544) (49,544)
General and administrative — — (14,274) (14,274)
Subtotal 107,508 35,178 (63,682) 79,004
Depreciation and amortization of deferred leasing costs (25,667) (14,445) — (40,112)
Acquisition related costs (1,129) — — (1,129)
Predevelopment expenses — (2,667) — (2,667)
Change in fair value of derivatives — — 36 36
Gain on casualty settlement 219 — — 219
Gains on sales of properties 4,510 — — 4,510
Loss from operations of property sold (81) — — (81)
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
17. SUBSEQUENT EVENTS
The Company has reviewed operating activities for the period
subsequent to December 31, 2014 and prior to the date that
financial statements are issued, March 6, 2015, and
determined there are no subsequent events that are required to
be disclosed.
58
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 invest-
ment in Saul Centers. Shares purchased under the dividend
reinvestment plan are issued at a 3% discount from the aver-
age 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 repre-
sentative 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 dis-
tribute at least 90% of REIT taxable income. The Company
distributed more than the required amount in 2014 and 2013.
Distributions by the Company to common stockholders and
holders of limited partnership units in the Operating Partner-
ship were $43.5 million and $39.2 million in 2014 and 2013,
respectively. Distributions to preferred stockholders were $13.5
million and $14.6 million in 2014 and 2013, respectively. See
Notes to Consolidated Financial Statements, No. 14, “Distri-
butions.” 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 distribu-
tions is believed to be based on reasonable assumptions and
represents a reasonable basis for setting distributions. How-
ever, the actual results of operations of the Company will be
affected by a variety of factors, including but not limited to ac-
tual 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 Com-
pany 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 distribution 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 ob-
ligated to pay regular quarterly distributions to holders of
depositary shares, prior to distributions on the common stock.
The Company paid four quarterly distributions totaling $1.56,
$1.44 and $1.44 per common share during 2014, 2013 and
2012, respectively. The annual distribution amounts paid by
the Company exceeded 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 accu-
mulated earnings 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 stock-
holder’s basis in its shares will have the effect of deferring
taxation until the sale of the stockholder’s shares. All of the
2014 common dividends were treated as taxable dividends.
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. No assurance can
be given regarding what portion, if any, of distributions in
2015 or subsequent years will constitute a return of capital for
federal income tax purposes. All of the preferred stock divi-
dends paid are treated as ordinary dividend income.
2014 ANNUAL REPORT
59
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 Company’s shares of common stock were reported by the New York Stock Exchange for
each quarter of 2014 and 2013 as follows:
COMMON STOCK PRICES
Period Share Price
High Low
October 1, 2014 – December 31, 2014 $ 58.56 $ 46.83
July 1, 2014 – September 30, 2014 $ 50.35 $ 45.98
April 1, 2014 – June 30, 2014 $ 50.53 $ 45.51
January 1, 2014 – March 31, 2014 $ 48.20 $ 45.06
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
On March 3, 2015, the closing price was $54.64 per share
The approximate number of holders of record of the common stock was 205 as of March 3, 2015.
60
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 reinvestment of dividends, with the National Association of Real Estate In-
vestment 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, 2010.
Comparison of Cumulative Total Return
d
e
t
s
e
v
n
I
0
0
1
$
n
r
u
e
R
t
l
t
a
o
T
$250
$200
$150
$100
Jan. 1, 2010
Dec. 31, 2010
Dec. 31, 2011
Dec. 31, 2012
Dec. 31, 2013
Dec. 31, 2014
Jan. 1, 2010 Dec. 31, 2010 Dec. 31, 2011 Dec. 31, 2012 Dec. 31, 2013 Dec. 31, 2014
Saul Centers
S&P 500
Russell 2000
$100
$100
$100
NAREIT Equity
$100
$150
$115
$127
$128
$116
$117
$122
$139
$145
$136
$141
$164
$167
$180
$196
$168
$207
$205
$206
$218
2014 ANNUAL REPORT
61
SAUL CENTERS CORPORATE INFORMATION
DIRECTORS
EXECUTIVE OFFICERS
B. Francis Saul II
Chairman and Chief
Executive Officer
J. Page Lansdale
President and Chief
Operating Officer
Christine N. Kearns
Executive Vice President – Chief
Legal and Administrative Officer
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, Retail Leasing
Steven N. Corey
Senior Vice President, Office Leasing
John F. Collich
Senior Vice President,
Acquisitions and Development
Donald A. Hachey
Senior Vice President, Construction
Charles W. Sherren, Jr.
Senior Vice President, Management
B. Francis Saul II
Chairman and Chief Executive Officer
J. Page Lansdale
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
Andrew M. Saul II
Chief Executive Officer
Genovation Cars
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
62
SAUL CENTERS, INC.
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.PrC
TRANSFER AGENT
Continental Stock Transfer and
Trust Company
17 Battery Place
New York, NY 10004
(800) 509-5586
INVESTOR RELATIONS
A copy of the Saul Centers, Inc. annual
report to the Securities and Exchange
Commission on Form 10-K, which
includes as exhibits the Chief Executive
Officer and Chief Financial Officer
Certifications required by Section 302
of the Sarbanes-Oxley Act, may be
printed from the Company’s web site
or obtained at no cost to stockholders
by writing to the address below or
calling (301) 986-6016. In 2014, 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
Seven Corners, Falls Church, VA
Annual Meeting of Stockholders
The Annual Meeting of Stockholders will be
held at 11:00 a.m., local time, on May 8,
2015, at the Hyatt Regency Bethesda, One
Bethesda Metro Center, Bethesda, MD (at the
southwest corner of the Wisconsin Avenue and
Old Georgetown Road intersection, adjacent to
the Bethesda Metro Stop on the Metro Red Line.)
7501 Wisconsin Avenue, Suite 1500E
Bethesda, MD 20814-6522
Phone: (301) 986-6200
Website: www.saulcenters.com