2017
ANNUAL REPORT
to Shareholders
Saul Centers, Inc. is a self-managed, self-
administered equity Real Estate Investment
in Bethesda,
Trust (REIT) headquartered
Maryland. Saul Centers operates and manages a
real estate portfolio comprised of 58 properties
including (a) 55 community and neighborhood
shopping centers and mixed-use properties
with approximately 9.2 million square feet of
land and
leasable area and (b)
development properties. Over 85% of the
Company’s property operating
is
generated by properties in the metropolitan
Washington, DC/Baltimore area.
income
three
Severna Park Marketplace, Severna Park, MD
TOTAL REVENUE
(In millions)
.
3
7
2
2
$
.
1
7
1
2
$
.
1
7
0
2
$
.
1
9
0
2
$
.
9
7
9
1
$
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
$240
$200
$160
$120
$80
$40
$0
$40
$30
$20
$10
$0
NET INCOME
Available to Common Stockholders
(In millions)
FUNDS FROM OPERATIONS
Available to Common Shareholders*
(In millions)
$100
.
9
5
3
$
.
9
2
3
$
.
1
2
3
$
.
1
0
3
$
7
.
1
1
$
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
$80
$60
$60
$40
$20
$0
.
9
3
9
7 $
7
8
$
.
.
8
3
8
3 $
8
7
$
.
.
7
4
6
$
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
* Funds From Operations (FFO) is a non-GAAP financial measure. The term Common Shareholders means common stockholders and holders of
noncontrolling interests. See page 26 for a definition of FFO and reconciliation from Net Income.
SAUL CENTERS, INC. 2017 ANNUAL REPORT
Portfolio Composition Based on 2017 Property Operating Income 1
76.4%
Shopping Centers
23.6%
Mixed-Use
85.4%
Metropolitan
Washington, DC/
Baltimore area
14.6%
Rest of U.S.
(1) Property Operating Income equals total property revenue less the sum of property operating expenses, provision for credit losses and real estate taxes.
Year ended December 31,
2017 2016 2015 2014 2013
Summary Financial Data
Total Revenue $227,285,000 $217,070,000 $209,077,000 $207,092,000 $197,897,000
Net Income Available to
Common Stockholders $ 35,882,000 $ 32,904,000 $ 30,093,000 $ 32,102,000 $ 11,661,000
FFO Available to Common
Shareholders $ 93,987,000 $ 87,749,000 $ 83,815,000 $ 78,281,000 $ 64,684,000
Weighted Average Common
Stock Outstanding (Diluted) 22,008,000 21,615,000 21,196,000 20,821,000 20,401,000
Weighted Average Common Stock
and Units Outstanding 29,511,000 28,990,000 28,449,000 27,977,000 27,330,000
Net Income Per Share Available to
Common Stockholders (Diluted) $ 1.63 $ 1.52 $ 1.42 $ 1.54 $ 0.57
FFO Per Share Available to Common
Shareholders (Diluted) $ 3.18 $ 3.03 $ 2.95 $ 2.80 $ 2.37
Common Dividend as a Percentage
of FFO 64% 61% 57% 56% 61%
Interest Expense Coveragea 3.35 x 3.29x 3.24 x 3.15 x 2.98x
Property Data
Number of Operating Propertiesb 55 55 56 56 56
Total Portfolio Square Feet 9,230,000 9,362,000 9,350,000 9,339,000 9,333,000
Shopping Center Square Feet 7,750,000 7,882,000 7,897,000 7,886,000 7,880,000
Mixed-Use Square Feet 1,480,000 1,480,000 1,453,000 1,453,000 1,453,000
Average Percentage Leasedc 95% 95% 95% 94% 93%
(a) Interest expense coverage equals (i) operating income before the sum of interest expense and amortization of deferred debt costs, predevelopment expenses,
acquisition related costs, and depreciation and amortization of deferred leasing costs divided by (ii) interest expense.
(b) Excludes land and development parcels (Ashland Square Phase II, New Market and Park Van Ness in 2013, 2014, and 2015, and Ashland Square Phase II, New Market
and N. Glebe Road in 2016 and 2017) and 2016 does not include Burtonsville Town Square which was acquired in January 2017. Crosstown Business Center was sold
in December 2016, and Great Eastern was sold in September 2017.
(c) Average percentage leased includes commercial space only.
SAUL CENTERS, INC. 2017 ANNUAL REPORT
1
Park Van Ness, Washington, DC
Message
to Shareholders
Our core shopping center portfolio continued its steady performance while
facing a challenging retail landscape throughout 2017, headlined with
many publicized store closures and bankruptcies. We increased Funds From
Operations (FFO) per share for the fifth consecutive year, paced by same shopping
center property operating income increases averaging 3.4% per year and retail
rental rate increases over expiring rents averaging 2.7% per year over the
same period.
Enhancing our core shopping center growth, we recently completed lease up of our
mixed-use luxury residential development, Park Van Ness. As of December 31,
2017, the 271 unit building was 95% occupied. In addition, in January 2017 we
acquired Burtonsville Town Center, a 121,000 square foot Giant Food-anchored
shopping center in Montgomery County, Maryland.
Challenges in the retail space still exist as we enter 2018, but we remain confident
that our diverse tenant base and extensive mixed-use development pipeline will
continue to fuel our growth into the future.
DEVELOPMENT & ACQUISITION ACTIVITY
In July 2017, we achieved stabilization to 95% after initial lease up of the 271
residential units at our Park Van Ness development, located along Rock Creek Park
on Connecticut Avenue at the Van Ness Metro station. Park Van Ness is our second
and most recently completed mixed-use transit-oriented development.
Construction was completed in May 2016, and lease up stabilized after 13 months.
The largest development we have undertaken in our history is located at 750 N.
Glebe Road in Arlington, Virginia, situated amid the dynamic office, retail and
residential area surrounding the Ballston Metro station. We are constructing
approximately 490 residential units and 60,000 square feet of street level retail on
the 2.8 acre site. Excavation has been completed and construction is proceeding
on the below-grade parking structure. The development is scheduled for
substantial completion in early 2020. We have executed a 41,500 square foot
anchor lease with Target and leases for an aggregate of 9,000 square feet of shop
space, resulting in 84% of the retail space being pre-leased. 750 N. Glebe Road will
2
SAUL CENTERS, INC. 2017 ANNUAL REPORT
750 N. Glebe Road,
Arlington, VA
(artist’s rendering)
be our third major transit-oriented mixed-use development to be completed, following
Clarendon Center in 2010 and Park Van Ness in 2016. Upon completion of 750 N. Glebe
Road in early 2020, we will have more than 1,000 residential units in our portfolio.
Our latest addition to the development pipeline came in January 2018 when we entered
into an agreement to purchase a 69,600 square foot office building at 7316 Wisconsin
Avenue in Bethesda, Maryland. The recently approved Bethesda Downtown Plan
provides that this parcel is one of only a few with a 250 foot by-right allowable building
height limitation, affording this site development potential for a high-rise apartment
building with up to 325 residential units and 10,000 square feet of street level retail.
The site is adjacent to the Bethesda Metro Red Line station and the future Purple Line
station. It is within blocks of the recently commenced new headquarters of Marriot
International, announced to ultimately total one million square feet of commercial space
for about 3,500 employees.
With two assemblages of land totaling 17.9 acres at the White Flint and Twinbrook
Metro stations in Montgomery County, Maryland, our total pipeline currently in the
preliminary planning stages includes up to 2,400 apartments and 620,000 square feet
of commercial space. We are well positioned to continue our growth with select
mixed-use developments in vibrant business, entertainment and living communities
served by mass transit.
In January 2017, we added another strong Giant Food-
anchored shopping center to our portfolio by purchasing the
121,000 square foot Burtonsville Town Square located in
Montgomery County, Maryland. This Giant’s 2016 sales
volume ranks it as one of the top five sales volume grocers
out of our 32 grocery anchored centers. We recently
commenced construction on a 16,000 square foot small shop
expansion, with delivery projected in late 2018. Leases are
under negotiation for 55% of this expansion space.
750 N. Glebe Road, Arlington, VA
(construction in progress)
SAUL CENTERS, INC. 2017 ANNUAL REPORT
3
Message
to Shareholders
Hunt Club Corners,
Apopka, FL
2017 FINANCIAL RESULTS
Total revenue increased to $227.3 million in 2017 from $217.1 million in 2016,
and operating income increased to $60.6 million from $55.7 million. Net income
available to common stockholders was $35.9 million in 2017 compared to $32.9
million in 2016. Same property revenue increased by $1.8 million, or 0.9%, and
same property operating income increased by $1.1 million, or 0.7%, in 2017
compared to 2016. Same property results exclude the results of properties not in
operation for the entirety of the comparable reporting periods. The same property
operating income increase was a result of $1.1 million of higher base rent in the
shopping centers and lower provisions for credit losses of $0.3 million, off-set by
lower parking income as a result of a garage refurbishment project at our 601
Pennsylvania Avenue property.
FFO available to common shareholders (after deducting preferred stock dividends)
totaled $94.0 million in 2017, a 7.1% increase from $87.7 million in 2016. FFO
per share increased 5.0% to $3.18 in 2017 from $3.03 in 2016. The acquisition of
Burtonsville Town Square in January 2017 added $0.06 per share to FFO and the
Park Van Ness development contributed $0.03 per share to 2017 results.
SHOPPING CENTER PERFORMANCE
With over 75% of our property operating income produced by shopping centers,
headlines dominated by retail bankruptcies and store closures including national
retailers Radio Shack, Payless, Toys R Us, HHgregg, Sears/Kmart, J.C. Penney, The
Limited and The Gap presented challenges to shopping center owners nationwide.
The tenant diversity within our portfolio minimizes the potential adverse impact
on financial performance as a result of retailer stress. Our 2018 exposure to the
above mentioned tenants totals only 0.5% of our revenue. Only two retail tenants,
Giant Food, a tenant at ten of our shopping centers, and Capital One Bank, a tenant
at 18 of our properties, individually accounted for 2.5% or more of our total
revenue for the year ended December 31, 2017. Thirty-two of our shopping
centers are anchored by a grocery store and offer primarily day-to-day necessities
and services, which have generally been less impacted by difficulties in the
retail landscape.
4
SAUL CENTERS, INC. 2017 ANNUAL REPORT
Thruway,
Winston-Salem, NC
Headwinds created by “the Amazon effect” also presented challenges, as well as changes,
to the traditional retail “brick and mortar” industry. Historically, within neighborhood
shopping centers, retail uses have changed as retail competition and formats have
changed. While not immune to these changes in the evolving retail environment, we
feel that our adaptability to changing times, our diverse tenant base and our focus on
grocery, pharmacy, restaurants and other service-oriented retailers mitigates our
downside pressures.
Our overall leasing percentage averaged 94.9%, down from 95.5% in 2016. The
reduction in leasing percentage was primarily due to recapturing a K-Mart store at
Kentlands Square in October 2017, and the remaining vacancy of a portion of a former
Safeway store in Broadlands Village Center, totaling a combined 142,000 square feet.
These two spaces are the only retail vacancies in excess of 20,000 square feet within our
portfolio. We are in negotiations with several tenants to occupy a substantial portion of
this vacant anchor space.
Small shops, which we define as any space under 10,000 square feet, total 2.4 million
square feet, or 31% of our total shopping center square footage. While this is only a small
percentage of our total square footage, small shops produce 49% of shopping center
annualized base rent. The year-end 2017 leasing percentage for these shops was a
healthy 91.0%, compared to 90.4% at year-end 2016, with a 5 year average of 90.7%.
Same store retail sales (for those tenants reporting sales)
increased by a modest 1.0% over 2016, resulting in
continued rental rate pressures. In 2017 our same store
rental rate increase over expiring rents on 1.2 million square
feet of retail space was 2.0%, down from 3.0% in 2016,
reflective of the current competitive retail environment.
Despite the modest sales growth, we successfully renewed
79% of our shopping center tenants, as measured by expiring
base rents, up from 2016, and in excess of our 5-year average
of 76%. This strong renewal rate mitigates cash flow loss due
to vacancies, while also reducing capital requirements for
tenant improvements.
SAUL CENTERS, INC. 2017 ANNUAL REPORT
5
Southdale, Glen Burnie, MD
Message
to Shareholders
11503 Rockville Pike,
Rockville, MD
MIXED-USE PROPERTY RESULTS
The commercial space within our mixed-use properties totals 1.1 million square
feet and was 94.5% leased at year-end 2017. This represents an increase of
approximately 40,000 square feet, or a 3.6% leasing percentage improvement,
over year-end 2016. Office space accounts for 973,000 square feet (90%) of the
commercial portfolio, of which only 50,000 square feet expires during 2018. With
current softness in office space demand within the Washington, DC metropolitan
area submarkets, this low space roll-over minimizes potential revenue loss at lease
expirations. While our residential leasing percentage was 96% at year-end 2017,
apartment rents were pressured by heavy new supply constructed throughout the
Washington, DC metropolitan area. Apartment rents decreased by 0.8% over
expiring rents at our two residential buildings, after increasing by 3.5% in 2016.
CAPITAL MARKET ACTIVITY
Between September 2017 and January 2018, we completed four significant capital
market transactions which greatly enhanced our balance sheet. In September
2017, coinciding with the commencement of our 750 N. Glebe Road mixed-use
development project, we completed a $157 million, 18-year construction-to-
permanent financing at a fixed interest rate of 4.67%. As a condition to funding,
however, we must first contribute $120 million of equity, including land acquisition
costs. As of February 28, 2018, we have funded $94 million, leaving only an
additional $26 million of cash required to complete this development.
In November 2017, we closed a $60 million, 15-year permanent financing with a
3.75% interest rate to replace the 6.01% loan at our Washington Square
office/retail project in Alexandria, Virginia. The proceeds were used to retire the
$28 million balance at maturity and to partially pay down our revolving credit
facility. Additionally, in January 2018, we paid off of a $14 million loan at our
Metro Pike Center, resulting in no remaining mortgage debt maturities in 2018.
In January 2018, we issued and sold $75 million of Series D preferred stock at a
6-1/8% coupon. We redeemed a similar amount of our 6-7/8% Series C shares,
reducing our preferred dividends by $560,000 annually subsequent to the February
2018 redemption date.
6
SAUL CENTERS, INC. 2017 ANNUAL REPORT
Lansdowne Town Center,
Leesburg, VA
Southdale,
Glen Burnie, MD
Finally, also in January 2018, we modified and extended our $275 million revolving
credit facility with a June 2018 maturity when we closed a new four-year $325 million
revolving credit facility maturing in 2022 and a $75 million term loan maturing in 2023.
These four transactions, totaling over $690 million, along with equity from our dividend
reinvestment plan and internally generated cash flow, serve to provide capital to fund
future developments and redevelopments and to reduce our overall cost of capital.
Our common stock dividend payout over the past five years has grown from $1.44 per
share in 2013 to the current annualized $2.08 per share. The payout ratio of dividends
to FFO totaled only 60% over these five years, which allowed us to retain internally
generated cash flow to reinvest in our development pipeline to fuel future growth. Our
leverage throughout this period, as measured by debt to total capitalization, has
decreased from 38% to 32% at year-end 2017.
The long term effects of the newly-passed tax legislation and the currently rising long-
term interest rates on commercial and residential real estate remain uncertain. Early
2018 unemployment rates are moving to historically low levels and consumer
confidence remains elevated. With a portfolio of properties surrounded by strong
income and population demographics and a strong balance sheet, we are prepared to
address both the challenges and opportunities that the economic climate may present.
We thank our dedicated and loyal staff of professionals and all of our shareholders as we
enter our 25th year as a public real estate investment trust.
For the Board
B. Francis Saul II
March 16, 2018
Broadlands Village, Ashburn, VA
SAUL CENTERS, INC. 2017 ANNUAL REPORT
7
Portfo lio Properties
As of December 31, 2017, 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 over 81% of the
portfolio’s gross leasable area.
GROSS LEASABLE
PROPERTY/LOCATION SqUARE FEET
GROSS LEASABLE
PROPERTY/LOCATION SqUARE FEET
Shopping Centers
Ashburn Village, Ashburn, VA 221,585
Ashland Square Phase I, Dumfries, VA 23,120
Beacon Center, Alexandria, VA 358,071
BJ’s Wholesale Club, Alexandria, VA 115,660
Boca Valley Plaza, Boca Raton, FL 121,269
Boulevard, Fairfax, VA 49,140
Briggs Chaney MarketPlace, Silver Spring, MD 194,258
Broadlands Village, Ashburn, VA 174,734
Burtonsville Town Square, Burtonsville, MD 121,132
Countryside Marketplace, Sterling, VA 138,229
Cranberry Square, Westminster, MD 141,450
Cruse MarketPlace, Cumming, GA 78,686
Flagship Center, Rockville, MD 21,500
French Market, Oklahoma City, OK 246,148
Germantown, Germantown, MD 18,982
The Glen, Woodbridge, VA 136,440
Great Falls Center, Great Falls, VA 91,666
Hampshire Langley, Takoma Park, MD 131,700
Hunt Club Corners, Apopka, FL 105,812
Jamestown Place, Altamonte Springs, FL 96,341
Kentlands Square I, Gaithersburg, MD 114,381
Kentlands Square II, Gaithersburg, MD 246,965
Kentlands Place, Gaithersburg, MD 40,697
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 100,032
Olde Forte Village, Ft. Washington, MD 143,577
8
SAUL CENTERS, INC. 2017 ANNUAL REPORT
Olney, Olney, MD 53,765
Orchard Park, Dunwoody, GA 87,365
Palm Springs Center, Altamonte Springs, FL 126,446
Ravenwood, Baltimore, MD 93,328
11503 Rockville Pk / 5541 Nicholson Ln, Rockville, MD 40,249
1500/1580/1582/1584 Rockville Pike, Rockville, MD 110,128
Seabreeze Plaza, Palm Harbor, FL 146,673
Marketplace at Sea Colony, Bethany Beach, DE 21,677
Seven Corners, Falls Church, VA 573,481
Severna Park Marketplace, Severna Park, MD 254,011
Shops at Fairfax, Fairfax, VA 68,762
Smallwood Village Center, Waldorf, MD 173,341
Southdale, Glen Burnie, MD 486,335
Southside Plaza, Richmond, VA 371,761
South Dekalb Plaza, Atlanta, GA 163,418
Thruway, Winston-Salem, NC 366,693
Village Center, Centreville, VA 146,032
Westview Village, Frederick, MD 97,858
White Oak, Silver Spring, MD 480,676
TOTAL SHOPPING CENTERS 7,750,098
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)
Park Van Ness, Washington, DC 223,447
(includes 271 apartments comprising 214,600 square feet)
601 Pennsylvania Ave., Washington, DC 227,651
Washington Square, Alexandria, VA 236,376
TOTAL MIxED-USE PROPERTIES 1,480,109
TOTAL PORTFOLIO 9,230,207
Financial Section
TABLE OF CONTENTS
Selected Financial Data........................................ Page 10
Management’s Discussion and
Analysis of Financial Condition and
Results of Operations.....................................Pages 11-30
quantitative and qualitative Disclosures
About Market Risk............................................... Page 30
Management’s Report on Internal Control Over
Financial Reporting..............................................Page 30
Report of Independent Registered
Public Accounting Firm........................................ Page 31
Report of Independent Registered Public
Accounting Firm on Internal Control Over
Financial Reporting..............................................Page 32
Consolidated Balance Sheets.................................Page 33
Consolidated Statements of Operations................. Page 34
Consolidated Statements of
Comprehensive Income........................................ Page 36
Consolidated Statements of Equity........................ Page 36
Consolidated Statements of Cash Flows................. Page 37
Notes to Consolidated Financial Statements.... Pages 38-59
SAUL CENTERS, INC. 2017 ANNUAL REPORT
9
Selected Financial Data
(In thousands, except per share data) Years Ended December 31,
2017 2016 2015 2014 2013
Operating Data:
Total revenue $ 227,285 $ 217,070 $ 209,077 $ 207,092 $ 197,897
Total operating expenses 166,687 161,357 156,147 155,163 162,628
Operating income 60,598 55,713 52,930 51,929 35,269
Non-operating income:
Change in fair value of derivatives 70 (6) (10) (10) (7)
Loss on early extinguishment of debt — — — — (497)
Gain on sales of properties — 1,013 11 6,069 —
Gain on casualty settlements — — — — 77
Net income 60,668 56,720 52,931 57,988 34,842
Income attibutable to the noncontrolling interests (12,411) (11,441) (10,463) (11,045) (3,970)
Net income attributable to Saul Centers, Inc. 48,257 45,279 42,468 46,943 30,872
Preferred stock redemption — — — (1,480) (5,228)
Preferred dividends (12,375) (12,375) (12,375) (13,361) (13,983)
Net income available to common stockholders $ 35,882 $ 32,904 $ 30,093 $ 32,102 $ 11,661
Per Share Data (diluted):
Net income available to common stockholders: $ 1.63 $ 1.52 $ 1.42 $ 1.54 $ 0.57
Basic and diluted shares outstanding:
Weighted average common shares - basic 21,901 21,505 21,127 20,772 20,364
Effect of dilutive options 107 110 69 49 37
Weighted average common shares - diluted 22,008 21,615 21,196 20,821 20,401
Weighted average convertible limited partnership units 7,503 7,375 7,253 7,156 6,929
Weighted average common shares and fully
converted limited partnership units - diluted 29,511 28,990 28,449 27,977 27,330
Dividends Paid:
Cash dividends to common stockholders (1) $ 44,576 $ 39,472 $ 35,645 $ 32,346 $ 29,205
Cash dividends per share $ 2.04 $ 1.84 $ 1.69 $ 1.56 $ 1.44
Balance Sheet Data:
Real estate investments (net of accumulated depreciation) $ 1,315,034 $ 1,242,534 $ 1,197,340 $1,163,542 $1,094,776
Total assets 1,422,452 1,343,025 1,295,408 1,257,113 1,189,000
Total debt, including accrued interest 958,622 903,709 869,652 850,727 813,653
Preferred stock 180,000 180,000 180,000 180,000 180,000
Total equity 393,103 373,249 353,727 339,257 315,126
Other Data:
Cash flow provided by (used in):
Operating activities $ 103,450 $ 89,090 $ 88,896 $ 86,568 $ 73,527
Investing activities (113,306) (86,274) (69,587) (83,589) (26,034)
Financing activities 12,442 (4,497) (21,434) (8,148) (42,329)
Funds from operations (2):
Net income 60,668 56,720 52,931 57,988 34,842
Real property depreciation and amortization 45,694 44,417 43,270 41,203 49,130
Gain on property dispositions and casualty settlements — (1,013) (11) (6,069) (77)
Funds from operations 106,362 100,124 96,190 93,122 83,895
Preferred stock redemption — — — (1,480) (5,228)
Preferred dividends (12,375) (12,375) (12,375) (13,361) (13,983)
Funds from operations available to common stockholders
and noncontrolling interests $ 93,987 $ 87,749 $ 83,815 $ 78,281 $ 64,684
(1) During 2017, 2016, 2015, 2014, and 2013, shareholders reinvested $15.8 million, $10.3 million, $10.6 million, $9.3 million and $20.7 million, respectively, in newly is-
sued common stock through the Company’s dividend reinvestment plan.
(2) Funds from operations (FFO) is a non-GAAP financial measure and is defined in “Management’s Discussion and Analysis of Financial Condition and Results of
Operations-Funds From Operations.”
10
SAUL CENTERS, INC. 2017 ANNUAL REPORT
Management’s Discussion and Analysis of Financial Condition
and Results of Operations (MD&A) begins with the Company’s
primary business strategy to give the reader an overview of the
goals of the Company’s business. This is followed by a discussion
of the critical accounting policies that the Company believes are
important to understanding the assumptions and judgments
incorporated in the Company’s reported financial results. The
next section, beginning on page 15, discusses the Company’s
results of operations for the past two years. Beginning on page
19, the Company provides an analysis of its liquidity and capital
resources, including discussions of its cash flows, debt arrange-
ments, sources of capital and financial commitments. Finally,
on page 26, the Company discusses funds from operations, or
FFO, which is a non-GAAP financial measure of performance
of an equity REIT used by the REIT industry.
The MD&A should be read in conjunction with the other
sections of this Annual Report, including the consolidated fi-
nancial statements and notes thereto beginning on page 33.
Historical results set forth in Selected Financial Information, the
Consolidated Financial Statements and Supplemental Data
should not be taken as indicative of the Company’s future
operations.
OVERVIEW
The Company’s principal business activity is the ownership,
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 com-
munity and neighborhood Shopping Center business and its
transit-centric, primarily residential mixed-use properties to
achieve both cash flow growth and capital appreciation. Man-
agement believes there is potential for long term growth in cash
flow as existing leases for space in the Shopping Center and
Mixed-Use Properties expire and are renewed, or newly avail-
able 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 con-
ditions, relocate existing tenants, reconfigure tenant spaces and
introduce new tenants with the goals of increasing occupancy,
improving overall retail sales, and ultimately increasing cash
flow as economic conditions improve. In those circumstances
in which leases are not otherwise expiring, management selec-
tively attempts to increase cash flow through a variety of means,
or in connection with renovations or relocations, recapturing
leases with below market rents and re-leasing at market rates,
as well as replacing financially troubled tenants. When possible,
management also will seek to include scheduled increases in
base rent, as well as percentage rental provisions, in its leases.
Management’s Discussion and Analysis
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company’s redevelopment and renovation objective is to se-
lectively 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 ten-
ants. 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 2016, the Company completed development of 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, land-
scaped courtyards, a fitness room, a wi-fi lounge/business
center, and a rooftop pool and deck. The structure comprises 11
levels, five of which on the east side are below street level. Be-
cause of the change in grade from the street eastward to Rock
Creek Park, apartments on all 11 levels have park or city views.
The street level retail space is 100% leased to a grocery/gourmet
food market and an upscale Italian restaurant. As of Decem-
ber 31, 2017, 260 apartments (95.9%) were leased. The total
cost of the project, excluding predevelopment expense and
land, which the Company has owned, was approximately $93.0
million, a portion of which was financed with a $71.6 million
construction-to-permanent loan.
In 2014, in separate transactions, the Company purchased three
properties, with approximately 57,400 square feet of retail
space, for an aggregate $25.2 million. The three properties are
adjacent to an existing property on the east side of Rockville
Pike near the Twinbrook Metro station. 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.
The Company owns properties on the east and west sides of
Rockville Pike near the White Flint Metro station which com-
bined total 7.6 acres which are zoned for a development
potential of up to 1.6 million square feet of mixed-use space.
The Company is actively engaged in a plan for redevelopment
but has not committed to any timetable for commencement of
construction.
In January 2016, the Company terminated a 16,500 square foot
lease at 11503 Rockville Pike and received a $3.0 million lease
termination fee which was recognized as revenue in the first
quarter. The space was previously occupied by an office supply
store that had vacated in mid 2014 and the lease was scheduled
to expire in 2019. The termination fee revenue was partially off-
set by the loss of approximately $1.1 million in rental revenue
over the remainder of 2016. The Company executed leases with
two replacement tenants, whose occupancy and rent
commencement occurred in 2017. While the Company contin-
ues to plan for a mixed-use development at this site and its
SAUL CENTERS, INC. 2017 ANNUAL REPORT
11
Management’s Discussion and Analysis
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
neighboring Metro Pike Center, the initial phases of this devel-
opment are expected to be on the west side of Rockville Pike at
Metro Pike Center. The Company has not committed to any
timetable for commencement of construction.
From 2014 through 2016, in separate transactions, the Com-
pany purchased four adjacent properties on North Glebe Road
in Arlington, Virginia, for an aggregate $54.0 million. The Com-
pany is developing approximately 490 residential units and
60,000 square feet of retail space, on 2.8 acres of land. Excava-
tion, sheeting and shoring are substantially complete and
construction is proceeding on the first three levels of the below
grade parking structure. The development is scheduled for sub-
stantial completion in early 2020. The total cost of the project,
including acquisition of land, is expected to be approximately
$275.0 million. In 2017, the Company closed on a $157.0 mil-
lion construction-to-permanent loan, the proceeds of which will
be used to partially finance the project. Leases have been exe-
cuted for a 41,500 square foot Target and 9,000 square feet of
retail shop space, resulting in approximately 84% of the retail
space being leased.
Albertson's/Safeway, a tenant at eight of the Company's shop-
ping centers, closed two Safeway stores located at the Company's
properties during the June 2016 quarter. The stores that closed
were located in Broadlands Village, Loudoun County, Virginia
and Briggs Chaney Plaza, Montgomery County, Maryland. The
lease at Briggs Chaney remains in full force and effect and Al-
bertson’s/Safeway has executed a sublease with a replacement
grocer, Global Foods, for that space, which commenced opera-
tions in March 2017. The Company terminated the lease with
Albertson's/Safeway at Broadlands and has executed a lease with
Aldi Food Market for 20,000 square feet of this space which
opened in November 2017. We continue to actively market the
balance of the former Safeway space.
In January 2017, the Company purchased for $76.4 million, in-
cluding acquisition costs, Burtonsville Town Square, a 121,000
square foot shopping center located in Burtonsville, Maryland.
Burtonsville Town Square is 100% leased and anchored by Giant
Food and CVS Pharmacy. The purchase was funded with a new
$40.0 million mortgage loan and through the Company's credit
line facility. The Company expects to begin construction on a
16,000 square foot small shop expansion in the Spring of 2018,
with delivery projected in late 2018. The total development cost
is expected to be approximately $5.7 million. Lease negotiations
are in progress for over 50% of the space.
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
12
SAUL CENTERS, INC. 2017 ANNUAL REPORT
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 identified and market conditions im-
prove. 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 redevelopment as integral parts of its overall business plan.
The recent period of economic expansion has now run in excess
of five years. While economic conditions within the local Wash-
ington, DC metropolitan area have remained relatively stable,
issues facing the Federal government relating to taxation,
spending and interest rate policy will likely impact the office, re-
tail and residential real estate markets over the coming years.
Because the majority of the Company’s property operating in-
come is produced by our shopping centers, we continually
monitor the implications of government policy changes, as well
as shifts in consumer demand between on-line and in-store
shopping, on future shopping center construction and retailer
store expansion plans. Based on our observations, we continue
to adapt our marketing and merchandising strategies in a way
to maximize our future performance. The Company's commer-
cial leasing percentage, on a comparable property basis, which
excludes the impact of properties not in operation for the en-
tirety of the comparable periods, declined to 94.2% at
December 31, 2017, from 95.5% at December 31, 2016.
The Company maintains a ratio of total debt to total asset value
of under 50%, which allows the Company to obtain additional
secured borrowings if necessary. As of December 31, 2017,
amortizing fixed-rate mortgage debt with staggered maturities
from 2019 to 2035 represented approximately 92.2% of the
Company’s notes payable, thus minimizing refinancing risk. The
Company’s variable-rate debt consists of a $14.1 million bank
term loan secured by the Metro Pike Center, which was repaid
in full in January 2018, and $61.0 million outstanding under
the unsecured revolving line of credit. As of December 31,
2017, the Company has loan availability of approximately
$213.8 million under its $275.0 million unsecured revolving
line of credit.
The Operating Partnership entered into a Credit Agreement
dated January 26, 2018, by and among the Operating Partner-
ship, as Borrower, Wells Fargo Bank, National Association, as
Administrative Agent, Capital One, National Association, as Syn-
dication Agent, Wells Fargo Securities, LLC and Capital One,
National Association, as Joint Lead Arrangers, Wells Fargo Se-
curities, LLC, as Sole Bookrunner and Wells Fargo Bank, National
Association, Capital One, N.A., U.S. Bank National Association,
TD Bank, N.A., Regions Bank and Associated Bank, National As-
sociation, as Lenders (the “New Credit Agreement”).
The New Credit Agreement replaces the Credit Agreement
dated June 24, 2014, by and among the Operating Partner-
ship, as Borrower, Wells Fargo Bank, National Association, as
Administrative Agent, JP Morgan Chase Bank, N.A., as Syndi-
cation Agent, Wells Fargo Securities, LLC, as Sole Lead Arranger
and Sole Bookrunner and Wells Fargo Bank, National Associa-
tion, JP Morgan Chase Bank, N.A., Capital One, N.A. and
Citizens Bank of Pennsylvania as Lenders (as amended, the
“Original Agreement”). The Original Agreement consisted of a
$275,000,000 unsecured revolving credit facility (the “Original
Facility”) with a maturity date of June 23, 2018 and bore in-
terest at a variable rate equal to one-month LIBOR plus a
spread of 145 basis points to 200 basis points, as determined
by certain leverage tests. As of the date the Original Facility
was replaced, the applicable spread was 1.45%.
The New Credit Agreement consists of a $400,000,000 credit
facility (the “New Facility”), of which $325,000,000 is a revolv-
ing credit facility (the “Revolving Line”) and $75,000,000 is a
term loan (the “Term Loan”). The Revolving Line matures on
January 26, 2022, which term may be extended by the Com-
pany for one additional year, subject to satisfaction of certain
conditions. The Term Loan matures on January 26, 2023, and
may not be extended.
In general, loan availability under the New Facility is primarily
determined by operating income from the Company’s existing
unencumbered properties. Interest accrues at a rate of LIBOR
plus a spread of 135 basis points to 195 basis points under the
Revolving Line, and 130 basis points to 190 basis points under
the Term Loan, each as determined by certain leverage tests.
As of January 26, 2018, the applicable spread for borrowings
is 135 basis points under the Revolving Line and 130 basis
points under the Term Loan.
The Company and certain subsidiaries of the Operating Part-
nership and the Company have guaranteed the payment
obligations of the Partnership under the New Facility.
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. metropolitan area, the Company may, in
the future, also acquire other types of real estate in other areas
of the country as opportunities present themselves. While the
Company may 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.
Management’s Discussion and Analysis
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CRITICAL ACCOUNTING POLICIES
The Company’s consolidated financial statements are prepared
in accordance with accounting principles generally accepted
in the United States (“GAAP”), which requires management to
make certain estimates and assumptions that affect the report-
ing of financial position and results of operations. See Note 2
to the Consolidated Financial Statements in this report. The
Company has identified the following policies that, due to es-
timates and assumptions inherent in those policies, involve a
relatively high degree of judgment and complexity.
REAL ESTATE INVESTMENTS
Real estate investment properties are stated at historic cost less
depreciation. Although the Company intends to own its real
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 con-
form to the Company’s investment profile. Management
believes that the Company’s real estate assets have generally
appreciated in value since their acquisition or development
and, accordingly, the aggregate current value exceeds their ag-
gregate net book value and also exceeds the value of the
Company’s liabilities as reported in the financial statements.
Because the financial statements are prepared in conformity
with GAAP, they do not report the current value of the Com-
pany’s real estate investment properties.
The Company purchases real estate investment properties from
time to time and records assets acquired and liabilities as-
sumed, including land, buildings, and intangibles related to
in-place leases and customer relationships based on their rel-
ative fair values. The fair value of buildings generally is
determined as if the buildings were vacant upon acquisition
and subsequently leased at market rental rates and considers
the present value of all cash flows expected to be generated by
the property including an initial lease up period. The Company
determines the fair value of above and below market intangi-
bles 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 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 de-
ferred 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
SAUL CENTERS, INC. 2017 ANNUAL REPORT
13
Management’s Discussion and Analysis
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 re-
maining contractual lease term. To the extent customer
relationship intangibles are present in an acquisition, the fair
value of the intangibles are amortized over the life of the cus-
tomer relationship. From time to time the Company may
purchase a property for future development purposes. The prop-
erty 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. Acquisition-related transaction costs are either (a) ex-
pensed as incurred when related to business combinations or
(b) capitalized to land and/or building when related to asset
acquisitions.
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 pres-
ent, 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 esti-
mated fair value. The fair value of any property is sensitive to
the actual results of any of the aforementioned estimated fac-
tors, either individually or taken as a whole. Should the actual
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
incurred. 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.
14
SAUL CENTERS, INC. 2017 ANNUAL REPORT
Interest, real estate taxes, development-related salary costs and
other carrying costs are capitalized on projects under construc-
tion. Upon substantial completion of construction, 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 devel-
opment projects are considered substantially complete and
available for occupancy upon receipt of the certificate of occu-
pancy from the appropriate licensing authority. Substantially
completed portions of a project are accounted for as separate
projects. Depreciation is calculated using the straight-line
method and estimated 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.
DEFERRED LEASING COSTS
Certain initial direct costs incurred by the Company in negotiat-
ing 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, preparing lease
documents and closing transactions. In addition, deferred leas-
ing costs include amounts attributed to in-place leases
associated with acquisition properties.
REVENUE RECOGNITION
Rental and interest income are accrued as earned. Recognition
of rental income commences when control of the space has
been given to the tenant. When rental payments due under
leases vary from a straight-line basis because of free rent periods
or scheduled rent increases, income is recognized on a straight-
line basis throughout the term of the lease. Expense recoveries
represent a portion of property operating expenses billed to ten-
ants, including common area maintenance, real estate taxes
and other recoverable costs. Expense recoveries are recognized
in the period when the expenses are incurred. Rental income
based on a tenant’s revenue, known as percentage rent, is ac-
crued when a tenant reports sales that exceed a specified
breakpoint specified in the lease agreement.
ALLOWANCE FOR DOUBTFUL ACCOUNTS -–
CURRENT AND DEFERRED RECEIVABLES
Accounts receivable primarily represent amounts accrued and
unpaid from tenants in accordance with the terms of the respec-
tive leases, subject to the Company’s revenue recognition policy.
Receivables are reviewed monthly and reserves are established
with a charge to current period operations when, in the opinion
of management, collection of the receivable is doubtful. In ad-
dition to rents due currently, accounts receivable include
amounts representing minimum rental income accrued on a
straight-line basis to be paid by tenants over the remaining term
of their respective leases. Reserves are established with a charge
to income for tenants whose rent payment history or financial
condition casts doubt upon the tenant’s ability to perform under
its lease obligations.
LEGAL CONTINGENCIES
The Company is subject to various legal proceedings and claims
that arise in the ordinary course of business, which are generally
covered by insurance. While the resolution of these matters can-
not be predicted with certainty, the Company believes the final
outcome of current matters will not have a material adverse ef-
fect on its financial position or the results of operations. Upon
determination that a loss is probable to occur, the estimated
amount of the loss is recorded in the financial statements. Both
the amount of the loss and the point at which its occurrence is
considered probable can be difficult to determine.
RESULTS OF OPERATIONS
Same property revenue and 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.
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 48 Shopping Centers and five Mixed-Use prop-
erties for each period.
SAME PROPERTY REVENUE
Year ended December 31,
(in thousands) 2017 2016
Total revenue $ 227,285 $ 217,070
Less: Interest income (80) (52)
Less: Acquisitions, dispositions
and development properties (13,746) (5,364)
Total same property revenue $ 213,459 $ 211,654
Shopping centers $ 160,393 $ 158,044
Mixed-Use properties 53,066 53,610
Total same property revenue $ 213,459 $ 211,654
The $1.8 million increase in same property revenue for 2017
compared to 2016 was primarily due to (a) a $0.21 per square
foot increase in base rent ($1.8 million), exclusive of the net im-
pact of a 2017 lease termination at Broadlands and a 2016 lease
termination at 11503 Rockville Pike, (b) increased expense re-
covery income ($0.7 million), (c) the net impact of a 2017 lease
termination at Broadlands and a 2016 lease termination at
11503 Rockville Pike ($0.1 million), partially offset by (d) lower
other income ($0.7 million), exclusive of the termination fees
at 11503 Rockville Pike and Broadlands, and (e) a 3,833 square
foot decrease in leased space ($0.1 million), exclusive of the net
impact of a 2017 lease termination at Broadlands and a 2016
lease termination at 11503 Rockville Pike.
SAUL CENTERS, INC. 2017 ANNUAL REPORT
15
Management’s Discussion and Analysis
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Year Ended December 31,
(in thousands) 2017 2016
SAME PROPERTY OPERATING INCOME
Net income $ 60,668 $ 56,7 2 0
Add: Interest expense and amortization of deferred debt costs 47,225 45,683
Add: General and administrative 18,176 17,496
Add: Depreciation and amortization of deferred leasing costs 45,694 44,417
Add: Acquisition related costs — 60
Add: Change in fair value of derivatives (70) 6
Less: Gains on property dispositions — (1 ,013)
Less: Interest income (80) (52)
Property operating income 171,613 163,317
Less: Acquisitions, dispositions & development property (8,978) (1,760)
Total same property operating income $ 162,635 $ 161,557
Shopping centers $ 127,096 $ 124,470
Mixed-Use properties 35,539 37,087
Total same property operating income $ 162,635 $ 161,557
Same property operating income increased $1.1 million for
2017 compared to 2016 due primarily to (a) a $0.21 per square
foot increase in base rent ($1.8 million), exclusive of the net
impact of a 2017 lease termination at Broadlands and a 2016
lease termination at 11503 Rockville Pike, (b) increased ex-
pense recovery income ($0.7 million), (c) lower property
operating expenses ($0.4 million) and (d) the net impact of a
2017 lease termination at Broadlands and a 2016 lease termi-
nation at 11503 Rockville Pike ($0.1 million), partially offset
by (e) higher real estate taxes ($1.5 million) and (f) lower other
income ($0.7 million), exclusive of the termination fees at
11503 Rockville Pike and Broadlands.
The following is a discussion of the components of revenue and
expense for the entire Company.
Year ended December 31, Percentage Change
(Dollars in thousands) 2017 2016 2015 2017 from 2016 2016 from 2015
REVENUE
Base rent $ 181,141 $ 172,381 $ 168,303 5.1 % 2.4 %
Expense recoveries 35,347 34,269 32,911 3.1 % 4.1 %
Percentage rent 1,458 1,379 1,608 5.7 % (14.2)%
Other 9,339 9,041 6,255 3.3 % 44.5 %
Total revenue $ 227,285 $ 217,070 $ 209,077 4.7 % 3.8 %
Base rent includes $0.5 million, $1.8 million and $2.4 million, for the years 2017, 2016, and 2015, respectively, to recognize base
rent on a straight-line basis. In addition, base rent includes $1.7 million, $1.8 million and $1.8 million, for the years 2017, 2016,
and 2015, respectively, to recognize income from the amortization of in-place leases.
16
SAUL CENTERS, INC. 2017 ANNUAL REPORT
Management’s Discussion and Analysis
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Total revenue increased 4.7% in 2017 compared to 2016 pri-
marily due to (a) an $0.84 per square foot increase in base rent
($7.3 million), exclusive of the net impact of a 2017 lease ter-
mination at Broadlands and a 2016 lease termination at 11503
Rockville Pike, (b) higher residential base rent ($4.8 million),
(c) higher expense recoveries ($1.1 million), and (d) the net
impact of a 2017 lease termination at Broadlands and a 2016
lease termination at 11503 Rockville Pike ($0.1 million) par-
tially offset by (e) a 144,327 square foot decrease in leased
space ($2.7 million), exclusive of the net impact of a 2017 lease
termination at Broadlands and a 2016 lease termination at
11503 Rockville Pike and (f) lower other income ($0.3 million),
exclusive of the termination fees at 11503 Rockville Pike and
Broadlands. Total revenue increased 3.8% in 2016 compared to
2015 primarily due to (a) a $0.32 per square foot increase in
base rent ($2.8 million) exclusive of the impact of a lease ter-
mination at 11503 Rockville Pike, (b) higher residential base
rent ($2.3 million), (c) the impact of a lease termination at
11503 Rockville Pike ($1.9 million), and (d) higher expense re-
coveries ($1.4 million) partially offset by (e) a 4,185 square foot
decrease in leased space ($0.1 million) exclusive of the impact
of a lease termination at 11503 Rockville Pike. A discussion of
the components of revenue follows.
BASE RENT
The $8.8 million increase in base rent in 2017 compared to
2016 was attributable to (a) a $0.78 per square foot increase in
base rent ($6.8 million) and (b) higher residential base rent
($4.8 million) partially offset by (c) a 144,327 square foot de-
crease in leased space ($2.7 million). The $4.1 million increase
in base rent in 2016 compared to 2015 was attributable to (a) a
$0.21 per square foot increase in base rent ($1.8 million) and
(b) higher residential base rent ($2.3 million) partially offset by
(c) a 4,185 square foot decrease in leased space ($0.1 million).
EXPENSE RECOVERIES
Expense recovery income increased $1.1 million in 2017 com-
pared to 2016 primarily due to higher real estate tax expense.
Expense recovery income increased $1.4 million in 2016 com-
pared to 2015 primarily due to higher real estate tax expense.
OTHER REVENUE
Other revenue increased $0.3 million in 2017 compared to
2016. Other revenue increased $2.8 million in 2016 compared
to 2015 due primarily to a $3.0 million lease termination fee
at 11503 Rockville Pike.
Year ended December 31, Percentage Change
(Dollars in thousands) 2017 2016 2015 2017 from 2016 2016 from 2015
OPERATING EXPENSES
Property operating expenses $ 27,689 $ 27,527 $ 26,565 0.6 % 3.6 %
Provision for credit losses 906 1,494 915 (39.4)% 63.3 %
Real estate taxes 26,997 24,680 23,663 9.4 % 4.3 %
Interest expense and amortization
of deferred debt costs 47,225 45,683 45,165 3.4 % 1.1 %
Depreciation and amortization of
deferred leasing costs 45,694 44,417 43,270 2.9 % 2.7 %
General and administrative 18,176 17,496 16,353 3.9 % 7.0 %
Acquisition related costs — 60 84 (100.0)% (28.6)%
Predevelopment expenses — — 132 NA (100.0)%
Total operating expenses $ 166,687 $ 161,357 $ 156,147 3.3 % 3.3 %
Total operating expenses increased 3.3% in 2017 compared to
2016. Total operating expenses increased 3.3% in 2016
compared to 2015.
SAUL CENTERS, INC. 2017 ANNUAL REPORT
17
Management’s Discussion and Analysis
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PROPERTY OPERATING EXPENSES
Property operating expenses increased $0.2 million in 2017
compared to 2016. Property operating expenses increased
$1.0 million in 2016 compared to 2015.
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
and was 0.40%, 0.69%, and 0.44% for 2017, 2016, and 2015,
respectively. The increase in 2016 relates primarily to a single
shopping center tenant.
REAL ESTATE TAXES
Real estate taxes increased $2.3 million in 2017 compared to
2016 primarily due to (a) Park Van Ness ($0.7 million), (b) Bur-
tonsville Town Square ($0.4 million) and (c) small increases at
various properties throughout the portfolio. Real estate taxes
increased $1.0 million in 2016 compared to 2015 primarily due
to (a) Park Van Ness ($0.3 million) and (b) small increases
throughout the remainder of the portfolio.
INTEREST EXPENSE AND AMORTIZATION OF
DEFERRED DEBT COSTS
Interest expense and amortization of deferred debt costs in-
creased by $1.5 million in 2017 compared to 2016 primarily
due to (a) Burtonsville Town Square ($2.2 million) and (b) Park
Van Ness ($0.7 million) partially offset by (c) higher capitalized
interest ($1.0 million) and (d) lower average balances of mort-
gage debt throughout the portfolio ($0.4 million).
DEPRECIATION AND AMORTIZATION
Depreciation and amortization of deferred leasing costs in-
creased by $1.3 million in 2017 compared to 2016 primarily
due to (a) Burtonsville Town Square ($1.4 million) and (b) Park
Van Ness ($1.2 million) partially offset by (c) lower expense at
North Glebe Road ($0.9 million) and (d) lower expense at 1500
Rockville Pike ($0.3 million). Depreciation and amortization of
deferred leasing costs increased $1.1 million in 2016 compared
to 2015 primarily due to (a) Park Van Ness ($1.8 million) par-
tially offset by (b) lower expense at Germantown ($0.7 million).
GENERAL AND ADMINISTRATIVE
General and administrative costs increased $0.7 million in 2017
compared to 2016 primarily due to (a) increased salary and
benefit expense ($0.6 million). General and administrative
costs increased $1.1 million in 2016 compared to 2015 prima-
rily due to (a) increased salary and benefit expense ($1.0
million) and (b) increased stock option expense ($0.2 million).
ACQUISITION RELATED COSTS
Acquisition related costs in 2016 totaling approximately $0.1
million relate to the purchase of a retail pad site adjacent to the
18
SAUL CENTERS, INC. 2017 ANNUAL REPORT
Company's existing Thruway Shopping Center. Acquisition re-
lated costs in 2015 totaling approximately $0.1 million relate
to the purchase of 726 N. Glebe Road.
PREDEVELOPMENT EXPENSES
Predevelopment expenses include lease termination costs and
demolition costs which are related to development projects and
do not meet the criteria to be capitalized.
GAIN ON SALES OF PROPERTIES
Gain on sale of property in 2016 resulted from the December
2016 sale of Crosstown Business Center.
IMPACT OF INFLATION
Inflation has remained relatively low during 2017 and 2016. 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 oper-
ations. These provisions include upward periodic adjustments in
base rent due from tenants, usually based on a stipulated increase
and to a lesser extent on a factor of the change in the consumer
price index, commonly referred to as the CPI.
In addition, substantially all of the Company’s properties are
leased to tenants under long-term leases, which provide for re-
imbursement of operating expenses by tenants. These leases
tend to reduce the Company’s exposure to rising property ex-
penses due to inflation. Inflation and increased costs may have
an adverse impact on the Company’s tenants if increases in their
operating expenses exceed increases in their revenue.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $10.9 million and $8.3 million
at December 31, 2017 and 2016, respectively. The changes in
cash and cash equivalents during the years ended December 31,
2017 and 2016 were attributable to operating, investing and fi-
nancing activities, as described below.
Year Ended December 31,
(in thousands) 2017 2016
Net cash provided by
operating activities $ 103,450 $ 89,090
Net cash used in
investing activities (113,306) (86,274)
Net cash used in
financing activities 12,442 (4,497)
Increase (decrease) in cash
and cash equivalents $ 2,586 $ (1,681)
OPERATING ACTIVITIES
Net cash provided by operating activities increased $14.4 mil-
lion to $103.5 million for the year ended December 31, 2017
compared to $89.1 million for the year ended December 31,
2016. 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 $27.0 million to
$113.3 million for the year ended December 31, 2017 from
$86.3 million for the year ended December 31, 2016. Investing
activities in 2017 primarily reflect tenant improvements and
capital expenditures ($17.7 million), the Company's develop-
ment activities ($22.8 million) and the acquisition of various
retail real estate assets ($79.5 million). Net cash used in invest-
ing activities increased $16.7 million to $86.3 million for the
year ended December 31, 2016 from $69.6 million for the year
ended December 31, 2015. Investing activities in 2016 prima-
rily reflect (a) tenant improvements and capital expenditures
($15.6 million), (b) the Company's development activities
($27.2 million) and (c) the acquisition of various retail real es-
tate assets ($48.3 million).
FINANCING ACTIVITIES
Net cash used in financing activities was $12.4 million and
$4.5 million for the years ended December 31, 2017 and 2016,
respectively. Net cash used in financing activities in 2017 prima-
rily reflects:
• the repayment of mortgage notes payable totaling $55.7 mil-
lion;
• the repayment of amounts borrowed under the revolving credit
facility totaling $51.0 million;
• distributions to common stockholders totaling $44.6 million;
• distributions to holders of convertible limited partnership units
in the Operating Partnership totaling $15.3 million;
• distributions made to preferred stockholders totaling
$12.4 million; and;
• payments of $2.6 million for financing costs of mortgage notes
payable;
which was partially offset by:
• proceeds of $63.0 million received from revolving credit facility
draws;
• proceeds of $6.7 million from the issuance of limited partner-
ship units in the Operating Partnership under the dividend
reinvestment program;
• proceeds of $22.8 million from the issuance of common stock
under the dividend reinvestment program, directors deferred
plan and from the exercise of stock options; and
• proceeds of $1.4 million received from construction loan
draws.
Management’s Discussion and Analysis
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net cash used in financing activities for the year ended Decem-
ber 31, 2016 primarily reflects:
• repayments of $57.5 million on the revolving credit facility;
• the repayment of mortgage notes payable totaling $24.7 mil-
lion;
• distributions to common stockholders totaling $39.5 million;
• distributions to holders of convertible limited partnership units
in the Operating Partnership totaling $13.5 million;
• distributions made to preferred stockholders totaling $12.4
million; and
• payments of $0.1 million for financing costs of new mortgage
loans;
which was partially offset by:
• proceeds of $78.5 million received from revolving credit
facility;
• proceeds of $6.9 million from the issuance of limited part-
nership units in the Operating Partnership under the dividend
reinvestment program;
• proceeds of $21.6 million received from the issuance of com-
mon stock under the dividend reinvestment program and
from the exercise of stock options; and
• proceeds of $24.9 million from construction loan draws.
LIQUIDITY REQUIREMENTS
Short-term liquidity requirements consist primarily of normal
recurring 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 additional properties. In order to qualify as a REIT for federal
income tax purposes, the Company must distribute to its stock-
holders 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.
SAUL CENTERS, INC. 2017 ANNUAL REPORT
19
Management’s Discussion and Analysis
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Long-term liquidity requirements consist primarily of obliga-
tions under our long-term debt and dividends paid to our
preferred shareholders. We anticipate that long-term liquidity
requirements will also include amounts required for property
acquisitions and developments. The Company is developing a
primarily residential project with street-level retail at 750 N.
Glebe Road in Arlington, Virginia. The total cost of the project,
including acquisition of land, is expected to be approximately
$275.0 million. The Company had invested $83.5 million as of
December 31, 2017, and expects to invest approximately $34.5
million during 2018, which will be funded by the revolving
credit facility. The remaining cost will be funded by a
$157.0 million construction-to-permanent loan, which closed
in 2017. The Company may also redevelop certain of the Cur-
rent Portfolio Properties and may develop additional
freestanding outparcels or expansions within certain of the
Shopping Centers.
Acquisition and development of properties are undertaken only
after careful analysis and review, and management’s 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 Com-
pany. Any future borrowings may be at the Saul Centers,
Operating Partnership or Subsidiary Partnership level, and se-
curities 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, 2017, the Company had unfunded contrac-
tual payment obligations of approximately $228.8 million,
excluding operating obligations, due within the next 12 months.
The table below shows the total contractual payment obligations
as of December 31, 2017.
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 $ 46,110 $ 79,900 $ 66,050 $ 129,953 $ 322,013
Scheduled Principal 30,160 56,015 53,415 145,038 284,628
Balloon Payments 75,105 121,957 47,514 436,325 680,901
Subtotal 151,375 257,872 166,979 711,316 1,287,542
Corporate Headquarters Lease (1) 799 1,670 1,772 — 4,241
Development Obligations 70,000 81,869 — — 151,869
Tenant Improvements 6,621 778 1,485 — 8,884
Total Contractual Obligations $ 228,795 $ 342,189 $ 170,236 $ 711,316 $ 1,452,536
(1) See Note 7 to Consolidated Financial Statements. Corporate Headquarters Lease amounts represent an allocation to the Company based
upon employees’ time dedicated to the Company’s business as specified in the Shared Services Agreement. Future amounts are subject to change
as the number of employees employed by each of the parties to the lease fluctuates.
Management believes that the Company’s cash flow from opera-
tions and its capital resources, which at December 31, 2017,
included cash balances of $10.9 million and borrowing availability
of approximately $213.8 million on its revolving line of credit, will
be sufficient to meet its contractual obligations for the foreseeable
future.
20
SAUL CENTERS, INC. 2017 ANNUAL REPORT
Management’s Discussion and Analysis
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PREFERRED STOCK ISSUES
The Company has outstanding 7.2 million depositary shares,
each representing 1/100th of a share of 6.875% Series C Cumu-
lative Redeemable Preferred Stock (the "Series C Stock"). The
depositary shares may be redeemed at the Company’s option,
in whole or in part, on or after February 12, 2018, at the $25.00
liquidation preference, plus accrued but unpaid dividends. The
depositary shares pay an annual dividend of $1.71875 per
share, equivalent to 6.875% of the $25.00 liquidation prefer-
ence. 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 January 23, 2018, Saul Centers sold, in an underwritten
public offering, 3.0 million depositary shares, each representing
1/100th of a share of 6.125% Series D Cumulative Redeemable
Preferred Stock, providing net cash proceeds of approximately
$72.6 million. The depositary shares may be redeemed at the
Company’s option, in whole or in part, on or after January 23,
2023, at the $25.00 liquidation preference, plus accumulated
dividends to but not including the redemption date. The deposi-
tary shares pay an annual dividend of $1.53125 per share,
equivalent to 6.125% of the $25.00 liquidation preference. The
Series D preferred stock has no stated maturity, is not subject to
any sinking fund or mandatory redemption and is not convert-
ible into any other securities of the Company except in
connection with certain changes in control or delisting events.
Investors in the depositary shares generally have no voting
rights, but will have limited voting rights if the Company fails to
pay dividends for six or more quarters (whether or not declared
or consecutive) and in certain other events. On February 22,
2018, the proceeds from the offering, together with cash on
hand, were used to redeem 3.0 million depositary shares, each
representing 1/100th of a share of the Company’s 6.875% Series
C Cumulative Redeemable Preferred 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 additional shares of common stock by reinvesting all or a
portion of their dividends or distributions. The Plan provides for
investing in newly issued shares of common stock at a 3% dis-
count from market price without payment of any brokerage
commissions, service charges or other expenses. All expenses
of the Plan are paid by the Company. The Company issued
258,759 and 178,787 shares under the Plan at a weighted av-
erage discounted price of $59.20 and $55.19 per share during
the years ended December 31, 2017 and 2016, respectively.
The Company issued 111,351 and 124,758 limited partnership
units under the Plan at a weighted average price of $60.48 and
$55.39 per unit during the years ended December 31, 2017
and 2015, respectively. The Company also credited 7,252 and
8,010 shares to directors pursuant to the reinvestment of divi-
dends specified by the Directors’ Deferred Compensation Plan
at a weighted average discounted price of $59.70 and $55.42
per share, during the years ended December 31, 2017 and
2016, 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 ongo-
ing basis in order to maintain prudent coverage of fixed charges.
Asset value is the aggregate fair market value of the Current
Portfolio Properties and any subsequently acquired properties
as reasonably determined by management by reference to the
properties’ aggregate cash flow. Given the Company’s current
debt level, it is management’s belief that the ratio of the Com-
pany’s debt to total asset value was below 50% as of
December 31, 2017.
The organizational documents of the Company do not limit the
absolute amount or percentage of indebtedness that it may
incur. The Board of Directors may, from time to time, reevaluate
the Company’s debt capitalization policy in light of current eco-
nomic conditions, relative costs of capital, market values of the
Company property portfolio, opportunities for acquisition, de-
velopment or expansion, and such other factors as the Board of
Directors then deems relevant. The Board of Directors may mod-
ify the Company’s debt capitalization policy based on such a
reevaluation without shareholder approval and consequently,
may increase or decrease the Company’s debt to total asset ratio
above or below 50% or may waive the policy for certain periods
of time. The Company selectively continues to refinance or rene-
gotiate the terms of its outstanding debt in order to achieve
longer maturities, and obtain generally more favorable loan
terms, whenever management determines the financing envi-
ronment is favorable.
SAUL CENTERS, INC. 2017 ANNUAL REPORT
21
Management’s Discussion and Analysis
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a summary of notes payable as of December 31, 2017 and 2016.
NOTES PAYABLE
Year Ended December 31, Interest Scheduled
(Dollars in thousands) 2017 2016 Rate* Maturity*
Fixed rate mortgages: $ — (a) $ 29,428 6.01% Feb-2018
30,201 (b) 32,036 5.88% Jan-2019
9,783 (c) 10,372 5.76% May-2019
13,529 (d) 14,335 5.62% Jul-2019
13,543 (e) 14,325 5.79% Sep-2019
12,029 (f) 12,725 5.22% Jan-2020
9,948 (g) 10,277 5.60% May-2020
8,244 (h) 8,697 5.30% Jun-2020
37,998 (i) 39,213 5.83% Jul-2020
7,325 (j) 7,685 5.81% Feb-2021
5,649 (k) 5,808 6.01% Aug-2021
32,673 (l) 33,571 5.62% Jun-2022
9,999 (m) 10,253 6.08% Sep-2022
10,877 (n) 11,129 6.43% Apr-2023
12,577 (o) 13,401 6.28% Feb-2024
15,452 (p) 15,917 7.35% Jun-2024
13,438 (q) 13,832 7.60% Jun-2024
23,873 (r) 24,504 7.02% Jul-2024
28,115 (s) 28,945 7.45% Jul-2024
28,025 (t) 28,822 7.30% Jan-2025
14,537 (u) 14,961 6.18% Jan-2026
105,817 (v) 109,144 5.31% Apr-2026
32,016 (w) 33,097 4.30% Oct-2026
36,507 (x) 37,701 4.53% Nov-2026
17,086 (y) 17,630 4.70% Dec-2026
64,472 (z) 66,210 5.84% May-2027
15,859 (aa) 16,352 4.04% Apr-2028
39,968 (bb) 41,753 3.51% Jun-2028
16,055 (cc) 16,543 3.99% Sep-2028
27,884 (dd) 28,679 3.69% Mar-2030
14,950 (ee) 15,357 3.99% Apr-2030
39,140 (ff) — 3.39% Feb-2032
71,211 (gg) 70,144 4.88% Sep-2032
60,000 (hh) — 3.75% Dec-2032
11,613 (ii) 11,446 8.00% Apr-2034
Total fixed rate 890,393 844,292 5.25% 8.6 Years
Variable rate loans:
61,000 (jj) 49,000 LIBOR + 1.45% Jun-2018
14,135 (kk) 14,482 LIBOR + 1.65% Feb-2018
Total variable rate $ 75,135 $ 63,482 2.86% 0.4 Years
Total notes payable $ 965,528 $ 907,774 5.07% 7.9 Years
* Interest rate and scheduled maturity data presented as of December 31, 2017. Totals computed using weighted averages.
Amounts shown are principal amounts and have not been reduced by any deferred debt issuance costs.
22
SAUL CENTERS, INC. 2017 ANNUAL REPORT
(a) The loan was collateralized by Washington Square and required equal monthly
principal and interest payments of $264,000 based upon a 27.5-year amorti-
zation schedule and a final payment of $28.0 million at loan maturity. In 2017,
the loan was repaid in full and replaced with a new $60.0 million loan. See (hh)
below.
(b) The loan is collateralized by three shopping centers, Broadlands Village, The Glen
and Kentlands Square I, and requires equal monthly principal and interest pay-
ments of $306,000 based upon a 25-year amortization schedule and a final
payment of $28.4 million at loan maturity. Principal of $1.8 million was amor-
tized during 2017.
(c) The loan is collateralized by Olde Forte Village and requires equal monthly prin-
cipal and interest payments of $98,000 based upon a 25-year amortization
schedule and a final payment of $9.0 million at loan maturity. Principal of
$589,000 was amortized during 2017.
(d) The loan is collateralized by Countryside and requires equal monthly principal
and interest payments of $133,000 based upon a 25-year amortization schedule
and a final payment of $12.3 million at loan maturity. Principal of $806,000
was amortized during 2017.
(e) 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 $782,000 was amortized during 2017.
(f) The loan is collateralized by Shops at Monocacy and requires equal monthly prin-
cipal 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
$696,000 was amortized during 2017.
(g) The loan is collateralized by Boca Valley Plaza and requires equal monthly prin-
cipal and interest payments of $75,000 based upon a 30-year amortization
schedule and a final payment of $9.1 million at loan maturity. Principal of
$329,000 was amortized during 2017.
(h) 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
$453,000 was amortized during 2017.
(i) The loan and a corresponding interest-rate swap closed on June 29, 2010 and
are collateralized by Thruway. On a combined basis, the loan and the interest-
rate swap require equal monthly principal and interest payments of $289,000
based upon a 25-year amortization schedule and a final payment of $34.8 mil-
lion at loan maturity. Principal of $1.2 million was amortized during 2017.
(j) The loan is collateralized by Jamestown Place and requires equal monthly prin-
cipal and interest payments of $66,000 based upon a 25-year amortization
schedule and a final payment of $6.1 million at loan maturity. Principal of
$360,000 was amortized during 2017.
(k) The loan is collateralized by Hunt Club Corners and requires equal monthly prin-
cipal 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
$159,000 was amortized during 2017.
(l) The loan is collateralized by Lansdowne Town Center and requires monthly prin-
cipal and interest payments of $230,000 based on a 30-year amortization
schedule and a final payment of $28.2 million at loan maturity. Principal of
$898,000 was amortized during 2017.
(m) The loan is collateralized by Orchard Park and requires equal monthly principal
and interest payments of $73,000 based upon a 30-year amortization schedule
and a final payment of $8.6 million at loan maturity. Principal of $254,000
was amortized during 2017.
(n) The loan is collateralized by BJ’s Wholesale and requires equal monthly principal
and interest payments of $80,000 based upon a 30-year amortization schedule
and a final payment of $9.3 million at loan maturity. Principal of $252,000
was amortized during 2017.
(o) 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 $824,000 was amor-
tized during 2017.
Management’s Discussion and Analysis
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(p) The loan is collateralized by Leesburg Pike and requires equal monthly principal
and interest payments of $135,000 based upon a 25-year amortization schedule
and a final payment of $11.5 million at loan maturity. Principal of $465,000
was amortized during 2017.
(q) The loan is collateralized by Village Center and requires equal monthly principal
and interest payments of $119,000 based upon a 25-year amortization schedule
and a final payment of $10.1 million at loan maturity. Principal of $394,000
was amortized during 2017.
(r) The loan is collateralized by White Oak and requires equal monthly principal and
interest payments of $193,000 based upon a 24.4 year weighted amortization
schedule and a final payment of $18.5 million at loan maturity. The loan was
previously collateralized by Van Ness Square. During 2012, the Company substi-
tuted White Oak as the collateral and borrowed an additional $10.5 million.
Principal of $631,000 was amortized during 2017.
(s) The loan is collateralized by Avenel Business Park and requires equal monthly
principal and interest payments of $246,000 based upon a 25-year amortiza-
tion schedule and a final payment of $20.9 million at loan maturity. Principal
of $830,000 was amortized during 2017.
(t) The loan is collateralized by Ashburn Village and requires equal monthly princi-
pal and interest payments of $240,000 based upon a 25-year amortization
schedule and a final payment of $20.5 million at loan maturity. Principal of
$797,000 was amortized during 2017.
(u) The loan is collateralized by Ravenwood and requires equal monthly principal
and interest payments of $111,000 based upon a 25-year amortization schedule
and a final payment of $10.1 million at loan maturity. Principal of $424,000
was amortized during 2017.
(v) The loan is collateralized by Clarendon Center and requires equal monthly prin-
cipal and interest payments of $753,000 based upon a 25-year amortization
schedule and a final payment of $70.5 million at loan maturity. Principal of
$3.3 million was amortized during 2017.
(w) 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 $1.1 million was amortized during 2017.
(x) The loan is collateralized by Kentlands Square II and requires equal monthly prin-
cipal 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
$1.2 million was amortized during 2017.
(y) The loan is collateralized by Cranberry Square and requires equal monthly prin-
cipal and interest payments of $113,000 based upon a 25-year amortization
schedule and a final payment of $10.9 million at loan maturity. Principal of
$544,000 was amortized during 2017.
(z) The loan in the original amount of $73.0 million closed in May 2012, is collat-
eralized by Seven Corners and requires equal monthly principal and interest
payments of $463,200 based upon a 25-year amortization schedule and a final
payment of $42.3 million at loan maturity. Principal of $1.7 million was amor-
tized during 2017.
(aa) The loan is collateralized by Hampshire Langley and requires equal monthly prin-
cipal 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
$493,000 was amortized in 2017.
(bb) The loan is collateralized by Beacon Center and requires equal monthly principal
and interest payments of $268,500 based upon a 20-year amortization schedule
and a final payment of $17.1 million at loan maturity. Principal of $1.8 million
was amortized in 2017.
(cc) The loan is collateralized by Seabreeze Plaza and requires equal monthly principal
and interest payments of $94,900 based upon a 25-year amortization schedule
and a final payment of $9.5 million at loan maturity. Principal of $488,000
was amortized in 2017.
(dd) The loan is collateralized by Shops at Fairfax and Boulevard shopping centers
and requires equal monthly principal and interest payments totaling $153,300
based upon a 25-year amortization schedule and a final payment of $15.5 mil-
lion at maturity. Principal of $795,000 was amortized in 2017.
SAUL CENTERS, INC. 2017 ANNUAL REPORT
23
Management’s Discussion and Analysis
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(ee) The loan is collateralized by Northrock and requires equal monthly principal and
interest payments totaling $84,400 based upon a 25-year amortization sched-
ule and a final payment of $8.4 million at maturity. Principal of $407,000 was
amortized in 2017.
(ff) The loan is collateralized by Burtonsville Town Square and requires equal
monthly principal and interest payments of $198,000 based on a 25-year
amortization schedule and a final payment of $20.3 million at loan maturity.
Principal of $860,000 was amortized in 2017.
(gg) The loan is a $71.6 million construction-to-permanent facility that is collater-
alized by and financed a portion of the construction costs of Park Van Ness.
During the construction period, interest was funded by the loan. Effective
September 1, 2017, the loan converted to permanent financing and requires
monthly principal and interest payments totaling $413,500 based upon a 25-
year amortization schedule. A final payment of $39.6 million will be due at
maturity. Principal of $369,000 was amortized in 2017.
(hh) The loan is collateralized by Washington Square and requires equal monthly prin-
cipal and interest payments of $308,000 based upon a 25-year amortization
schedule and a final payment of $31.1 million at loan maturity.
The carrying value of properties collateralizing the mortgage
notes payable totaled $1.0 billion and $957.2 million as of De-
cember 31, 2017 and 2016, respectively. The Company’s credit
facility requires the Company and its subsidiaries to maintain
certain financial covenants, which are summarized below. As
of December 31, 2017, 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).
(ii) 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 2017 totaled $167,000.
(jj) 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 de-
pending upon the amount outstanding and the applicable interest rate for any
given month.
(kk) The loan is collateralized by Metro Pike Center and requires monthly principal
and interest payments of approximately $48,000 and a final payment of $14.2
million at loan maturity. Principal of $347,000 was amortized during 2017.
(the
2018 FINANCING ACTIVITY
On January 26, 2018, the Company replaced its credit facility.
The new credit facility, which can be used for working capital,
property acquisitions, development projects or letters of credit,
“New Facility”), of which
totals $400,000,000
$325,000,000 is a revolving credit facility (the “Revolving Line”)
and $75,000,000 is a term loan (the “Term Loan”). The Revolving
Line matures on January 26, 2022, which term may be extended
by the Company for one additional year, subject to satisfaction of
certain conditions. The Term Loan matures on January 26, 2023,
and may not be extended. In general, loan availability under the
New Facility is primarily determined by operating income from
the Company’s existing unencumbered properties. Interest ac-
crues at a rate of LIBOR plus a spread of 135 basis points to 195
basis points under the Revolving Line, and 130 basis points to
190 basis points under the Term Loan, each as determined by
certain leverage tests. As of January 26, 2018, the applicable
spread for borrowings is 135 basis points under the Revolving Line
and 130 basis points under the Term Loan. Saul Centers and cer-
tain consolidated subsidiaries of the Operating Partnership have
guaranteed the payment obligations of the Operating Partnership
under the revolving credit facility.
24
SAUL CENTERS, INC. 2017 ANNUAL REPORT
Management’s Discussion and Analysis
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
2015 FINANCING ACTIVITY
On March 3, 2015, the Company closed on a 15-year, $30.0
million 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%, requires
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.
On April 1, 2015, the Company closed on a 15-year, non-re-
course $16.0 million mortgage loan secured by Northrock. The
loan matures in 2030, bears interest at a fixed rate of 3.99%,
requires monthly principal and interest payments totaling
$84,400 based on a 25-year amortization schedule and requires
a final payment of $8.4 million at maturity. Proceeds of the loan
were used to repay in full the $14.5 million remaining balance
of existing debt secured by Northrock.
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.
2017 FINANCING ACTIVITY
On January 18, 2017, the Company closed on a 15-year, non-
recourse $40.0 million mortgage loan secured by Burtonsville
Town Square. The loan matures in 2032, bears interest at a fixed
rate of 3.39%, requires monthly principal and interest payments
of $197,900 based on a 25-year amortization schedule and re-
quires a final payment of $20.3 million million at maturity.
On August 14, 2017, the Company closed on a $157.0 million
construction-to-permanent loan, the proceeds of which will be
used to partially fund the Glebe Road development project. The
loan matures in 2035, bears interest at a fixed rate of 4.67%,
requires interest only payments, which will be funded by the
loan, until conversion to permanent. The conversion is expected
in the fourth quarter of 2021, and thereafter, monthly principal
and interest payments of $887,900 based on a 25-year amor-
tization schedule will be required.
Effective September 1, 2017, the Company's $71.6 million con-
struction-to-permanent loan, which is fully drawn and secured
by Park Van Ness, converted to permanent financing. The loan
matures in 2032, bears interest at a fixed rate of 4.88%, requires
monthly principal and interest payments of $413,500 based on
a 25-year amortization schedule and requires a final payment
of $39.6 million at maturity.
On November 20, 2017, the Company closed on a 15-year, non-
recourse $60.0 million mortgage loan secured by Washington
Square. The loan matures in 2032, bears interest at a fixed rate
of 3.75%, requires monthly principal and interest payments of
$308,500 based on a 25-year amortization schedule and re-
quires a final payment of $31.1 million. Proceeds were used to
repay the remaining balance of approximately $28.1 million on
the existing mortgage and reduce the outstanding balance of
the revolving credit facility.
2016 FINANCING ACTIVITY
In November 2016, the existing loan secured by Beacon Center
was increased by $11.25 million. The interest rate, amortization
period and maturity date did not change; the required monthly
payment was increased to $268,500. Proceeds were used to
partially fund the purchase of the ground which underlies Bea-
con Center.
SAUL CENTERS, INC. 2017 ANNUAL REPORT
25
Management’s Discussion and Analysis
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FUNDS FROM OPERATIONS
In 2017, the Company reported Funds From Operations ("FFO")1 available to common stockholders and noncontrolling interests of
$94.0 million, a 7.1% increase from 2016 FFO available to common stockholders and noncontrolling interests of $87.7 million.
The following table presents a reconciliation from net income to FFO available to common stockholders and noncontrolling interests
for the periods indicated:
Year ended December 31,
(Dollars in thousands except per share amounts) 2017 2016 2015 2014 2013
Net income $ 60,668 $ 56,720 $ 52,931 $ 57,988 $ 34,842
Subtract:
Gains on sales of properties — (1,013) (11) (6,069) —
Gain on casualty settlement — — — — (77)
Add:
Real estate depreciation and amortization 45,694 44,417 43,270 41,203 49,130
FFO 106,362 100,124 96,190 93,122 83,895
Subtract:
Preferred dividends (12,375) (12,375) (12,375) (13,361) (13,983)
Preferred stock redemption — — — (1,480) (5,228)
FFO available to common stockholders
and noncontrolling interests $ 93,987 $ 87,749 $ 83,815 $ 78,281 $ 64,684
Average shares and units used to
compute FFO per share 29,511 28,990 28,449 27,977 27,330
FFO per share $ 3.18 $ 3.03 $ 2.95 $ 2.80 $ 2.37
1 The National Association of Real Estate Investment Trusts (NAREIT) developed FFO as a relative non-GAAP financial measure of per-
formance of an equity REIT in order to recognize that income-producing real estate historically has not depreciated on the basis determined
under GAAP. FFO is defined by NAREIT as net income, computed in accordance with GAAP, plus real estate depreciation and amortization,
and excluding extraordinary items, impairment charges on depreciable real estate assets and gains or losses from property dispositions.
FFO does not represent cash generated from operating activities in accordance with GAAP and is not necessarily indicative of cash available
to fund cash needs, which is disclosed in the Company’s Consolidated Statements of Cash Flows for the applicable periods. There are no
material legal or functional restrictions on the use of FFO. FFO should not be considered as an alternative to net income, its most directly
comparable GAAP measure, as an indicator of the Company’s operating performance, or as an alternative to cash flows as a measure of
liquidity. Management considers FFO a meaningful supplemental measure of operating performance because it primarily excludes the
assumption that the value of the real estate assets diminishes predictably over time (i.e. depreciation), which is contrary to what we
believe occurs with our assets, and because industry analysts have accepted it as a performance measure. FFO may not be comparable to
similarly titled measures employed by other REITs.
26
SAUL CENTERS, INC. 2017 ANNUAL REPORT
ACQUISITIONS, REDEVELOPMENTS
AND RENOVATIONS
Management anticipates that during the coming year the Com-
pany will continue activities related to the redevelopment of 750
N. Glebe Road 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 de-
velopments, 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, de-
velopment, redevelopment and renovation activities.
It
continues to evaluate the acquisition of land parcels for retail
and office development and acquisitions of operating properties
for opportunities to enhance operating income and cash flow
growth. The following describes significant acquisitions, devel-
opments, redevelopments and renovations which affected the
Company’s financial position and results of operations in 2017,
2016, and 2015.
WESTVIEW PAD
In February 2015, the Company purchased for $0.9 million, in-
cluding acquisition costs, a 1.1 acre retail pad site in Frederick,
Maryland, which is contiguous with and an expansion of the
Company's other Westview asset.
700, 726, 730, 750 N. GLEBE ROAD
From 2014 through 2016, the Company purchased four adja-
cent properties for an aggregate $54.0 million located on N.
Glebe Road in Arlington, Virginia. The Company is developing
approximately 490 residential units and 60,000 square feet of
retail space on 2.8 acres of land. Excavation, sheeting and
shoring are substantially complete and construction is proceed-
ing on the first three levels of the below grade parking structure.
The development is scheduled for substantial completion in
early 2020. The total cost of the project, including acquisition
of land, is expected to be approximately $275.0 million. In
2017, the Company closed on a $157.0 million construction-
to-permanent loan, the proceeds of which will be used to
partially finance the project. The Company has executed a
41,500 square foot anchor-lease with Target and leases for an
aggregate of 9,000 square feet of retail shop space, resulting in
approximately 84% of the retail space being leased.
Management’s Discussion and Analysis
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PARK VAN NESS
In 2016, the Company completed development of 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, land-
scaped courtyards, a fitness room, a wi-fi lounge/business
center, and a rooftop pool and deck. The structure comprises 11
levels, five of which on the east side are below street level. Be-
cause of the change in grade from the street eastward to Rock
Creek Park, apartments on all 11 levels have park or city views.
The street level retail space is 100% leased to a grocery/gourmet
food market and an upscale Italian restaurant. As of Decem-
ber 31, 2017, 260 apartments (95.9%) were leased. The total
cost of the project, excluding predevelopment expense and
land, which the Company has owned, was approximately $93.0
million, a portion of which was financed with a $71.6 million
construction-to-permanent loan.
THRUWAY PAD
In August 2016, the Company purchased for $3.1 million, a re-
tail pad site with an occupied 4,200 square foot bank building
in Winston Salem, North Carolina, and incurred acquisition
costs of $60,400. The property is contiguous with and an ex-
pansion of the Company's Thruway Shopping Center.
ASHBROOK MARKETPLACE
In August 2016, the Company entered into an agreement to ac-
quire from B. F. Saul Real Estate Investment Trust (the “Trust”),
for an initial purchase price of $8.8 million, approximately 14.3
acres of land located at the intersection of Ashburn Village
Boulevard and Russell Branch Parkway in Loudoun County, Vir-
ginia. The land is zoned for up to 115,000 square feet of retail
development. In order to allow the Company time to pre-lease
and complete project plans and specifications, the parties have
agreed to a closing date in the second quarter of 2018, at which
time the Company will exchange limited partnership units for
the land. The number of limited partnership units to be ex-
changed will be based on the initial purchase price and the
average share value (as defined in the agreement) of the Com-
pany’s common stock at the time of the exchange. The
Company intends to construct a shopping center and, upon sta-
bilization, may be obligated to issue additional limited
partnership units to the Trust.
BEACON CENTER
In the fourth quarter of 2016, the Company purchased for
$22.7 million, including acquisition costs, the land underlying
Beacon Center. The land was previously leased by the Company
with an annual rent of approximately $60,000. The purchase
price was funded in part by an $11.25 million increase to the
existing mortgage collateralized by Beacon Center and in part
by the Company’s revolving credit facility.
SAUL CENTERS, INC. 2017 ANNUAL REPORT
27
Management’s Discussion and Analysis
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SOUTHDALE
In the fourth quarter of 2016, the Company purchased for
$15.3 million, including acquisition costs, the land underlying
Southdale. The land was previously leased by the Company with
an annual rent of approximately $60,000. The purchase price
was funded by the Company’s revolving credit facility.
BURTONSVILLE TOWN SQUARE
In January 2017, the Company purchased for $76.4 million, in-
cluding acquisition costs, Burtonsville Town Square, a 121,000
square foot shopping center located in Burtonsville, Maryland.
Burtonsville Town Square is 100% leased and anchored by Giant
Food and CVS Pharmacy. The purchase was funded with a new
$40.0 million mortgage loan and through the Company's credit
line facility. The mortgage bears interest at 3.39%, requires
monthly principal and interest payments of $197,900 based
upon a 25-year amortization schedule, and has a 15-year ma-
turity. The Company expects to begin construction on a 16,000
square foot small shop expansion in the Spring of 2018, with
delivery projected in late 2018. The total development cost is
expected to be approximately $5.7 million. Lease negotiations
are in progress for over 50% of the space.
OLNEY SHOPPING CENTER
In March 2017, the Company purchased for $3.1 million, in-
cluding acquisition costs, the land underlying Olney Shopping
Center. The land was previously leased by the Company with an
annual rent of approximately $56,000. The purchase price was
funded by the revolving credit facility.
7316 WISCONSIN AVENUE
On January 12, 2018, the Company entered into an agreement
to purchase for $35.5 million, plus approximately $0.7 million
of acquisition costs, a 69,600 square foot office building and
the underlying ground located at 7316 Wisconsin Avenue in
Bethesda, Montgomery County, Maryland and has an earnest
money deposit of $3.5 million at risk. The property has mixed-
use development potential of up to 325 apartment units and
approximately 10,000 square feet of street level retail pursuant
to the recently approved Bethesda Downtown Plan. The pur-
chase price will be funded through the Company's revolving
credit facility. The Company anticipates closing the acquisition
on or before January 12, 2019.
PROPERTY SALES
CROSSTOWN BUSINESS CENTER
In December 2016, the Company sold for $5.4 million the
197,100 square foot Crosstown Business Center located in Tulsa,
Oklahoma and recognized a $1.0 million gain.
GREAT EASTERN SHOPPING CENTER
In September 2017, the Company sold for $8.5 million the
255,400 square foot Great Eastern Shopping Center located in
District Heights, Maryland. The Company provided $1.28 mil-
lion second trust financing to the buyer, which bears interest at
a fixed rate of 6%, matures in March 2018 and can be extended
for six months at the option of the buyer. A $0.5 million gain
realized on the sale was deferred and will be recognized when
the loan is repaid by the buyer.
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
2017 49 6 7,750,098 1,076,838 94.3% 94.5%
2016 49 6 7,882,054 1,076,208 96.0% 91.0%
2015 50 6 7,896,499 1,264,488 95.4% 91.0%
28
SAUL CENTERS, INC. 2017 ANNUAL REPORT
Management’s Discussion and Analysis
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The residential components of Clarendon Center and Park Van
Ness were 96.7% and 95.9% leased, respectively, at December 31,
2017. On a same property basis, which excludes the impact of
properties not in operation for the entirety of the comparable pe-
riods, the Shopping Center leasing percentage decreased to 94.2%
from 96.1% and the Mixed-Use leasing percentage increased to
94.5% from 91.0%. The overall portfolio leasing percentage, on
a comparative same property basis, decreased to 94.2% at Decem-
ber 31, 2017 from 95.5% at December 31, 2016.
The Clarendon Center residential component was 99.2% leased
at December 31, 2015. 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 in-
creased to 95.3% from 95.0%. and the Mixed-Use leasing
percentage increased to 91.0% from 90.8%. The overall portfolio
leasing percentage, on a comparative same property basis, in-
creased to 94.7% at December 31, 2015 from 94.4% at
December 31, 2014.
The 2016 Mixed-Use leasing percentage includes the recently-
developed Park Van Ness commercial space and excludes
Crosstown Business Center. The residential components of Claren-
don Center and Park Van Ness were 97.1% and 72.7% leased at
December 31, 2016. 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 in-
creased to 96.0% from 95.4% and the Mixed-Use leasing
percentage decreased to 90.9% from 92.2%. The overall portfolio
leasing percentage, on a comparative same property basis, in-
creased to 95.4% at December 31, 2016 from 95.0% at
December 31, 2015.
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 expi-
ration date of the lease. The base rent for a new or renewed lease
is the annualized contractual base rent, on a cash basis, as of the
expected rent commencement date. Because tenants that exe-
cute leases may not ultimately take possession of their space or
pay all of their contractual rent, the changes presented in the
table provide information only about trends in market rental
rates. The actual changes in rental income received by the Com-
pany may be different.
Base Rent per Square Foot
SELECTED LEASING DATA
Number New/Renewed Expiring
Year ended December 31, Square Feet of Leases Leases Leases
2017 1,315,192 280 $ 19.60 $ 19.45
2016 1,292,483 244 17.24 17.05
2015 1,583,310 259 15.15 14.82
Additional information about commercial leasing activity dur-
ing the three months ended December 31, 2017, is set forth
below. The below information includes leases for space which
had not been previously leased during the period of the Com-
pany's ownership, either a result of acquisition or development.
COMMERCIAL LEASING ACTIVITY
New Leases Renewed Leases
Number of leases 20 42
Square feet 61,562 158,007
Per square foot average
annualized:
Base rent $ 21.94 $ 21.99
Tenant improvements (3.95) (0.27)
Leasing costs (0.63) (0.06)
Rent concessions (0.50) (0.02)
Effective rents $ 16.86 $ 21.64
SAUL CENTERS, INC. 2017 ANNUAL REPORT
29
Management’s Discussion and Analysis
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
During 2017, the Company entered into 475 new or renewed
apartment leases, excluding new leases at Park Van Ness. The
monthly rent per square foot for the 395 leases for units that
were previously occupied decreased to $3.51 from $3.54. Dur-
ing 2016, the Company entered into 216 new or renewed
apartment leases. The monthly rent per square foot for these
leases increased to $3.57 from $3.45. During 2015, the
Company entered into 222 new or renewed apartment leases.
The monthly rent per square foot for these leases was
unchanged at $3.45.
As of December 31, 2017, 972,950 square feet of Commercial
space was subject to leases scheduled to expire in 2018. Below
is information about existing and estimated market base rents
per square foot for that space.
Total
EXPIRING LEASES
Square feet 972,950
Average base rent per square foot $ 17.63
Estimated market base rent per square foot $ 17.66
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 results
of operations.
The Company may, where appropriate, employ derivative instru-
ments, such as interest rate swaps, to mitigate the risk of interest
rate fluctuations. The Company does not enter into derivatives
or other financial instruments for trading or speculative pur-
poses. On June 29, 2010, the Company entered into an interest
rate swap agreement with a $45.6 million notional amount to
manage the interest rate risk associated with $45.6 million of
variable-rate mortgage debt. The swap agreement was effective
July 1, 2010, terminates on July 1, 2020 and effectively fixes the
interest rate on the mortgage debt at 5.83%. The aggregate fair
value of the swap at December 31, 2017 was approximately
$1.1 million and is reflected in accounts payable, accrued ex-
penses and other liabilities in the consolidated balance sheet.
The Company is exposed to interest rate fluctuations which will
affect the amount of interest expense of its variable rate debt
and the fair value of its fixed rate debt. As of December 31,
2017, the Company had variable rate indebtedness totaling
$75.1 million. If the interest rates on the Company’s variable
rate debt instruments outstanding at December 31, 2017 had
been one percent higher, our annual interest expense relating
to these debt instruments would have increased by $751,400,
based on those balances. As of December 31, 2017, the Com-
pany had fixed-rate indebtedness totaling $890.4 million with
a weighted average interest rate of 5.25%. If interest rates on
the Company’s fixed-rate debt instruments at December 31,
2017 had been one percent higher, the fair value of those debt
instruments on that date would have decreased by approxi-
mately $47.5 million.
MANAGEMENT’S REPORT on Internal Control Over Financial Reporting
ASSESSMENT OF EFFECTIVENESS OF INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintain-
ing adequate internal control over financial reporting.
Management 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, 2017, the Company’s internal control over fi-
nancial reporting was effective. The Company’s independent
registered public accounting firm has issued a report on the
effectiveness of the Company’s internal control over financial
reporting, which appears on page 32 in this Annual Report.
30
SAUL CENTERS, INC. 2017 ANNUAL REPORT
To the Stockholders and the Board of Directors of Saul Centers, Inc.
Opinion on the Financial Statements
Basis for Opinion
Report of Independent Registered
Public Accounting Firm
We have audited the accompanying consolidated balance sheets
of Saul Centers, Inc. (the Company) as of December 31, 2017
and 2016, the related consolidated statements of operations,
comprehensive income, equity and cash flows for each of the
three years in the period ended December 31, 2017, and the re-
lated notes and financial statement schedule listed in the Index
at Item 15(a)2(b) (collectively referred to as the “consolidated fi-
nancial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial
position of the Company at December 31, 2017 and 2016, and
the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2017, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial report-
ing as of December 31, 2017, 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 February 27, 2018 expressed
an unqualified opinion thereon.
These financial statements are the responsibility of the Com-
pany’s management. Our responsibility is to express an opinion
on the Company’s financial statements based on our audits. We
are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in ac-
cordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commis-
sion and the PCAOB.
We conducted our audits in accordance with the standards of
the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the fi-
nancial statements are free of material misstatement, whether
due to error or fraud. Our audits included performing proce-
dures to assess the risks of material misstatement of the
financial statements, whether due to error or fraud, and per-
forming procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the
amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and sig-
nificant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
Ernst & Young LLP
We have served as the Company’s auditor since 2002.
Tysons, Virginia
February 27, 2018
SAUL CENTERS, INC. 2017 ANNUAL REPORT
31
Definition and Limitations of Internal
Control Over Financial Reporting
A company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the relia-
bility 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 reason-
able detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reason-
able 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 accor-
dance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding pre-
vention 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 finan-
cial 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 be-
cause of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Ernst & Young LLP
Tysons, Virginia
February 27, 2018
Report of Independent Registered
Public Accounting Firm
To the Stockholders and the Board of Directors of Saul Centers, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Saul Centers, Inc.’s internal control over finan-
cial reporting as of December 31, 2017, 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). In our
opinion, Saul Centers, Inc. (the Company) maintained, in all
material respects, effective internal control over financial re-
porting as of December 31, 2017, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States)
(PCAOB), the 2017 consolidated financial statements of the
Company and our report dated February 27, 2018 expressed
an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining ef-
fective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial
reporting included in the accompanying Assessment of Effec-
tiveness 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 are a
public accounting firm registered with the PCAOB and are re-
quired to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the appli-
cable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the
PCAOB. 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 con-
trol over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operat-
ing effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered neces-
sary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
32
SAUL CENTERS, INC. 2017 ANNUAL REPORT
Consolidated Balance Sheets
December 31, December 31,
(Dollars in thousands, except per share amounts) 2017 2016
Assets
Real estate investments
Land $ 450,256 $ 422,546
Buildings and equipment 1,261,830 1,214,697
Construction in progress 91,114 63,570
1,803,200 1,700,813
Accumulated depreciation (488,166) (458,279)
1,315,034 1,242,534
Cash and cash equivalents 10,908 8,322
Accounts receivable and accrued income, net 54,057 52,774
Deferred leasing costs, net 27,255 25,983
Prepaid expenses, net 5,248 5,057
Other assets 9,950 8,355
Total assets $ 1,422,452 $ 1,343,025
Liabilities
Mortgage notes payable $ 897,888 $ 783,400
Revolving credit facility payable 60,734 48,217
Construction loan payable — 68,672
Dividends and distributions payable 18,520 17,953
Accounts payable, accrued expenses and other liabilities 23,123 20,838
Deferred income 29,084 30,696
Total liabilities 1,029,349 969,776
Equity
Preferred stock, 1,000,000 shares authorized:
Series C Cumulative Redeemable, 72,000 shares issued and outstanding 180,000 180,000
Common stock, $0.01 par value, 40,000,000 shares authorized,
22,123,128 and 21,704,359 shares issued and outstanding, respectively 221 217
Additional paid-in capital 352,590 328,171
Accumulated deficit (197,710) (188,584)
Accumulated other comprehensive loss (696) (1,299)
Total Saul Centers, Inc. equity 334,405 318,505
Noncontrolling interests 58,698 54,744
Total equity 393,103 373,249
Total liabilities and equity $ 1,422,452 $ 1,343,025
The Notes to Financial Statements are an integral part of these statements.
SAUL CENTERS, INC. 2017 ANNUAL REPORT
33
Consolidated Statements of Operations
For The Year Ended December 31,
(Dollars in thousands, except per share amounts) 2017 2016 2015
Revenue
Base rent $ 181,141 $ 172,381 $ 168,303
Expense recoveries 35,347 34,269 32,911
Percentage rent 1,458 1,379 1,608
Other 9,339 9,041 6,255
Total revenue 227,285 217,070 209,077
Operating expenses
Property operating expenses 27,689 27,527 26,565
Provision for credit losses 906 1,494 915
Real estate taxes 26,997 24,680 23,663
Interest expense and amortization of deferred debt costs 47,225 45,683 45,165
Depreciation and amortization of deferred leasing costs 45,694 44,417 43,270
General and administrative 18,176 17,496 16,353
Acquisition related costs — 60 84
Predevelopment expenses — — 132
Total operating expenses 166,687 161,357 156,147
Operating income 60,598 55,713 52,930
Change in fair value of derivatives 70 (6) (10)
Gains on sales of properties — 1,013 11
Net Income 60,668 56,720 52,931
Income attributable to noncontrolling interests (12,411) (11,441) (10,463)
Net income attributable to Saul Centers, Inc. 48,257 45,279 42,468
Preferred dividends (12,375) (12,375) (12,375)
Net income available to common stockholders $ 35,882 $ 32,904 $ 30,093
Per share net income available to common stockholders
Basic $ 1.64 $ 1.53 $ 1.42
Diluted $ 1.63 $ 1.52 $ 1.42
The Notes to Financial Statements are an integral part of these statements.
34
SAUL CENTERS, INC. 2016 ANNUAL REPORT
Consolidated Statements of Comprehensive Income
For The Year Ended December 31,
(Dollars in thousands) 2017 2016 2015
Net income $ 60,668 $ 56,720 $ 52,931
Other comprehensive income
Unrealized gain on cash flow hedge 812 678 124
Total comprehensive income 61,480 57,398 53,055
Comprehensive income attributable to noncontrolling interests (12,620) (11,616) (10,495)
Total comprehensive income attributable to Saul Centers, Inc. 48,860 45,782 42,560
Preferred dividends (12,375) (12,375) (12,375)
Total comprehensive income available to common stockholders $ 36,485 $ 33,407 $ 30,185
The Notes to Financial Statements are an integral part of these statements.
SAUL CENTERS, INC. 2017 ANNUAL REPORT
35
Consolidated Statements of 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. Interests Total
Balance, December 31, 2014 $ 180,000 $ 209 $ 287,995 $ (173,774) $ (1,894) $ 292,536 $ 46,721 $ 339,257
Issuance of common stock:
201,212 shares pursuant to dividend reinvestment plan — 3 10,647 — — 10,650 — 10,650
117,886 shares due to exercise of employee stock options
and issuance of directors' deferred stock — 1 6,366 — — 6,367 — 6,367
Issuance of 107,037 partnership units pursuant to dividend
reinvestment plan — — — — — — 5,673 5,673
Net income — — — 42,468 — 42,468 10,463 52,931
Change in unrealized loss on cash flow hedge — — — — 92 92 32 124
Series C preferred stock distributions — — — (9,282) — (9,282) — (9,282)
Common stock distributions — — — (27,265) — (27,265) (9,349) (36,614)
Distributions payable on Series C preferred stock, $42.97 per share — — — (3,093) — (3,093) — (3,093)
Distributions payable common stock ($0.43/share) and
partnership units ($0.43/unit) — — — (9,145) — (9,145) (3,141) (12,286)
Balance, December 31, 2015 $ 180,000 $ 213 $ 305,008 $ (180,091) $ (1,802) $ 303,328 $ 50,399 $ 353,727
Issuance of common stock:
186,797 shares pursuant to dividend reinvestment plan — 2 10,309 — — 10,311 — 10,311
251,323 shares due to exercise of employee stock options
and issuance of directors' deferred stock — 2 12,854 — — 12,856 — 12,856
Issuance of 124,758 partnership units pursuant to dividend
reinvestment plan — — — — — — 6,910 6,910
Net income — — — 45,279 — 45,279 11,441 56,720
Change in unrealized loss on cash flow hedge — — — — 503 503 175 678
Series C preferred stock distributions — — — (9,282) — (9,282) — (9,282)
Common stock dis tributions — — — (30,328) — (30,328) (10,392) (40,720)
Distributions payable on Series C preferred stock, $42.97 per share — — — (3,093) — (3,093) — (3,093)
Distributions payable common stock ($0.51/share) and
partnership units ($0.51/unit) — — — (11,069) — (11,069) (3,789) (14,858)
Balance, December 31, 2016 $ 180,000 $ 217 $ 328,171 $ (188,584) $ (1,299) $ 318,505 $ 54,744 $ 373,249
Issuance of common stock:
266,011 shares pursuant to dividend reinvestment plan — 2 15,748 — — 15,750 — 15,750
152,758 shares due to exercise of employee stock options and
issuance of directors' deferred stock — 2 8,671 — — 8,673 — 8,673
Issuance of 111,351 partnership units pursuant to dividend
reinvestment plan — — — — — — 6,735 6,735
Net income — — — 48,257 — 48,257 12,411 60,668
Change in unrealized loss on cash flow hedge — — — — 603 603 209 812
Series C preferred stock distributions: — — — (9,282) — (9,282) — (9,282)
Common stock distributions — — — (33,490) — (33,490) (11,479) (44,969)
Distributions payable preferred stock:
Series C, $42.97 per share — — — (3,093) — (3,093) — (3,093)
Distributions payable common stock ($0.52/share) and
partnership units ($0.52/unit) — — — (11,518) — (11,518) (3,922) (15,440)
Balance, December 31, 2017 $ 180,000 $ 221 $ 352,590 $ (197,710) $ (696) $ 334,405 $ 58,698 $ 393,103
The Notes to Financial Statements are an integral part of these statements.
36
SAUL CENTERS, INC. 2016 ANNUAL REPORT
Consolidated Statements of Cash Flows
For the Year Ended December 31,
(Dollars in thousands) 2017 2016 2015
Cash flows from operating activities:
Net income $ 60,668 $ 56,720 $ 52,931
Adjustments to reconcile net income to net cash provided by operating activities:
Change in fair value of derivatives (70) 6 10
Gains on sales of properties — (1,013) (11)
Depreciation and amortization of deferred leasing costs 45,694 44,417 43,270
Amortization of deferred debt costs 1,392 1,343 1,433
Non cash compensation costs of stock grants and options 1,672 1,603 1,434
Provision for credit losses 906 1,494 915
Increase in accounts receivable and accrued income (1,643) (3,525) (5,216)
Additions to deferred leasing costs (4,615) (4,633) (5,563)
Increase in prepaid expenses (294) (399) (570)
(Increase) decrease in other assets 1,374 (6,368) 1,544
Increase (decrease) in accounts payable, accrued expenses and other liabilities 1,125 921 (937)
Decrease in deferred income (2,759) (1,476) (344)
Net cash provided by operating activities 103,450 89,090 88,896
Cash flows from investing activities:
Acquisitions of real estate investments (79,499) (48,250) (4,894)
Additions to real estate investments (17,653) (15,564) (18,855)
Additions to development a nd redevelopment projects (22,842) (27,231) (45,870)
Proceeds from sale of properties (1) 6,688 4,771 32
Net cash used in investing activities (113,306) (86,274) (69,587)
Cash flows from financing activities:
Proceeds from mortgage notes payable 100,000 11,250 46,000
Repayments on mortgage notes payable (55,679) (24,653) (52,963)
Proceeds from construction loans payable 1,437 24,937 39,817
Proceeds from revolving credit facility 63,000 78,500 20,000
Repayments on revolving credit facility (51,000) (57,500) (35,000)
Additions to deferred debt costs (2,583) (125) (296)
Proceeds from the issuance of:
Common stock 22,751 21,564 15,583
Partnership units 6,735 6,910 5,673
Distributions to:
Series C preferred stockholders (12,375) (12,375) (12,375)
Common stockholders (44,576) (39,472) (35,645)
Noncontrolling interests (15,268) (13,533) (12,228)
Net cash provided by (used in) financing activities 12,442 (4,497) (21,434)
Net increase (decrease) in cash and cash equivalents 2,586 (1,681) (2,125)
Cash and cash equivalents, beginning of year 8,322 10,003 12,128
Cash and cash equivalents, end of year $ 10,908 $ 8,322 $ 10,003
Supplemental disclosure of cash flow information:
Cash paid for interest $ 45,713 $ 44,066 $ 43,799
Increase (decrease) in accrued real estate investments and development costs $ 2,097 $ (7,098) $ 5,201
(1) Proceeds from sales of property excludes $1,275 of seller financing in connection with the sale of the Company's Great Eastern property.
The Notes to Financial Statements are an integral part of these statements.
SAUL CENTERS, INC. 2017 ANNUAL REPORT
37
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 Cen-
ters 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 stock-
holders and meet certain organizational and other
requirements. 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
limited partnerships of which Saul Centers or one of its sub-
sidiaries 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 "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 (collec-
tively, the “Saul Organization”). On August 26, 1993, members
of the Saul Organization transferred to Saul Holdings Limited
Partnership, a newly formed Maryland limited partnership
(the “Operating Partnership”), and two newly formed subsidiary
limited partnerships (the “Subsidiary Partnerships,” and collec-
tively with the Operating Partnership, the “Partnerships”),
shopping center and mixed-used properties, and the manage-
ment 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, 2015.
Year of Acquisition/
Name of Property Location Type Development/ Disposal
ACQUISITIONS
726 N. Glebe Road* Arlington, Virginia Shopping Center September 2015
700 N. Glebe Road Arlington, Virginia Development August 2016
Burtonsville Town Square Burtonsville, Maryland Shopping Center January 2017
DEVELOPMENTS
Park Van Ness Washington, DC Mixed-Use 2013-2016
750 Glebe Road Arlington, Virginia Mixed-Use 2017
DISPOSITIONS
Crosstown Business Center Tulsa, Oklahoma Mixed-Use December 2016
Great Eastern District Heights, Maryland Shopping Center September 2017
* As of August 2016, this property was removed from operations and reclassified to development.
As of December 31, 2017, the Company’s properties (the
“Current Portfolio Properties”) consisted of 49 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.
BASIS OF PRESENTATION
The accompanying financial statements are presented on the
historical cost basis of the Saul Organization because of affiliated
ownership and common management and because the assets
and liabilities were the subject of a business combination with
the Operating Partnership, the Subsidiary Partnerships and Saul
Centers, all newly formed entities with no prior operations.
38
SAUL CENTERS, INC. 2017 ANNUAL REPORT
NOTES to Consolidated Financial Statements
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, manage-
ment, leasing, acquisition, renovation, expansion, development
and financing of community and neighborhood shopping cen-
ters and mixed-use properties, primarily in the Washington,
DC/Baltimore metropolitan area. Because the properties are lo-
cated primarily in the Washington, DC/Baltimore metropolitan
area, a disproportionate economic downturn in the local econ-
omy would have a greater negative impact on our overall
financial performance than on the overall financial perform-
ance of a company with a portfolio that is more geographically
diverse. A majority of the Shopping Centers are anchored by sev-
eral major tenants. As of December 31, 2017, 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 (4.7%), a tenant at ten Shopping Centers and Cap-
ital One Bank (2.8%), a tenant at 18 properties, individually
accounted for 2.5% or more of the Company’s total revenue for
the year ended December 31, 2017.
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.
The Operating Partnership is a variable interest entity ("VIE") of
the Company because the limited partners do not have substan-
tive kick-out or participating rights. The Company is the primary
beneficiary of the Operating Partnership because it has the
power to direct the activities of the Operating Partnership and
the rights to absorb 74.4% of the net income of the Operating
Partnership. Because the Operating Partnership was already
consolidated into the financial statements of the Company, the
identification of it as a VIE has no impact on the consolidated
financial statements of the Company.
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 relative fair
values. The fair value of buildings generally is determined as if
the buildings were vacant upon acquisition and then subse-
quently 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 Com-
pany 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 purchase 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 de-
ferred asset and is amortized as a reduction of lease revenue
over the remaining contractual lease term. The Company deter-
mines the fair value of at-market in-place leases considering the
cost of acquiring similar leases, the foregone rents associated
with the lease-up period and carrying costs associated with the
lease-up period. Intangible assets associated with at-market in-
place leases are amortized as additional expense over the
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.
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
SAUL CENTERS, INC. 2017 ANNUAL REPORT
39
NOTES to Consolidated Financial Statements
losses, significant decreases
both quantitative and qualitative factors including recurring op-
in occupancy, and
erating
significant adverse changes in legal factors and business cli-
mate. If impairment indicators are present, the Company
compares the projected cash flows of the property over its re-
maining useful life, on an undiscounted basis, to the carrying
value of that property. The Company assesses its undiscounted
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 undis-
counted 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 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 2017, 2016, or 2015.
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 $3.5 million, $2.5 million, and $2.2 million during
2017, 2016, and 2015, respectively. Commercial development
projects 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
estimated useful lives of generally between 35 and 50 years for
base buildings, or a shorter period if management determines
that the building has a shorter useful life, and up to 20 years for
certain other improvements that extend the useful lives. Lease-
hold improvements expenditures are capitalized when certain
criteria are met, including when the Company supervises con-
struction and will own the improvements. Tenant improvements
are amortized, over the shorter of the lives of the related leases
or the useful life of the improvement, using the straight-line
method. Depreciation expense, which is included in Deprecia-
tion and amortization of deferred leasing costs in the
Consolidated Statements of Operations, for the years ended
December 31, 2017, 2016, and 2015, was $40.2 million,
$38.8 million, and $37.7 million, respectively. Repairs and
maintenance expense totaled $11.6 million, $11.8 million, and
$11.6 million for 2017, 2016, and 2015, respectively, and is in-
cluded 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 secu-
rity arrangements, negotiating lease terms, preparing lease
documents and closing the transaction. Unamortized deferred
costs are charged to expense if the applicable lease is terminated
prior to expiration of the initial lease term. Collectively, deferred
leasing costs totaled $27.3 million and $26.0 million, net of ac-
cumulated amortization of approximately $35.3 million and
$30.4 million, as of December 31, 2017 and 2016, respectively.
Amortization expense, which is included in Depreciation and
amortization of deferred leasing costs in the Consolidated State-
ments of Operations, totaled approximately $5.5 million,
$5.6 million, and $5.6 million, for the years ended Decem-
ber 31, 2017, 2016, and 2015, respectively.
CONSTRUCTION IN PROGRESS
Construction in progress includes preconstruction and develop-
ment costs of active projects. Preconstruction costs include
legal, zoning and permitting costs and other project carrying
costs incurred prior to the commencement of construction. De-
velopment costs include direct construction costs and indirect
costs incurred subsequent to the start of construction such as
architectural, engineering, construction management and car-
rying costs consisting of interest, real estate taxes and insurance.
The following table shows the components of construction in
progress.
December 31,
(in thousands) 2017 2016
N. Glebe Road $ 83,462 $ 58,147
Other 7,652 5,423
Total $ 91,114 $ 63,570
40
SAUL CENTERS, INC. 2017 ANNUAL REPORT
NOTES to Consolidated Financial Statements
ACCOUNTS RECEIVABLE AND
ACCRUED INCOME
Accounts receivable primarily represent amounts currently due
from tenants in accordance with the terms of the respective
leases. Receivables are reviewed monthly and reserves are es-
tablished with a charge to current period operations when, in
the opinion of management, collection of the receivable is
doubtful. Accounts receivable in the accompanying consoli-
dated financial statements are shown net of an allowance for
doubtful accounts of $0.4 million and $2.0 million, at Decem-
ber 31, 2017 and 2016, respectively.
Year ended December 31,
(in thousands) 2017 2016 2015
Beginning Balance $1,958 $1,263 $ 677
Provision for Credit Losses 906 1,494 915
Charge-offs (2,459) (799) (329)
Ending Balance $ 405 $1,958 $1,263
In addition to rents due currently, accounts receivable also in-
cludes $44.1 million and $43.1 million, at December 31, 2017
and 2016, respectively, net of allowance for doubtful accounts
totaling $0.2 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.
ASSETS HELD FOR SALE
The Company considers properties to be assets held for sale when
all of the following criteria are met:
• management commits to a plan to sell a property;
• it is unlikely that the disposal plan will be significantly modified
or discontinued;
• the property is available for immediate sale in its present con-
dition;
• actions required to complete the sale of the property have been
initiated;
• sale of the property is probable and the Company expects the
completed sale will occur within one year; and
• the property is actively being marketed for sale at a price that
is reasonable given its current market value.
The Company must make a determination as to the point in
time that it is probable that a sale will be consummated, which
generally occurs when an executed sales contract has no con-
tingencies and the prospective buyer has significant funds at risk
to ensure performance. Upon designation as an asset held for
sale, the Company records the carrying value of each property
at the lower of its carrying value or its estimated fair value, less
estimated costs to sell, and ceases depreciation. As of Decem-
ber 31, 2015, the Company has classified as held-for-sale one
operating property, comprising 197,100 square feet of gross
leasable area. The book value of this property, which is included
in Other Assets, was $3.4 million, net of accumulated depreci-
ation of $7.0 million, which does not exceed its estimated fair
value, less costs to sell, and liabilities were $0.2 million. The
asset was sold in 2016.
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, 2017 are held in non-interest bearing accounts
at various banks. From time to time the Company may maintain
deposits with financial institutions in amounts in excess of fed-
erally insured limits. The Company has not experienced any
losses on such deposits and believes it is not exposed to any sig-
nificant 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 $6.9 million and $7.5 million, net
of accumulated amortization of $8.2 million and $7.3 million
at December 31, 2017 and 2016, respectively, and are reflected
as a reduction of the related debt in the Consolidated Balance
Sheets. At December 31, 2017, deferred debt costs totaling
$1.8 million, related to the Glebe Road construction loan, which
has no outstanding balance, are included in Other Assets in the
Consolidated Balance Sheets.
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 de-
rivative or other financial instruments for trading or speculative
purposes. Derivative financial instruments are carried at fair
value as either assets or liabilities on the consolidated balance
sheets. For those derivative instruments that qualify, the Com-
pany may designate the hedging instrument, based upon the
exposure being hedged, as a fair value hedge or a cash flow
hedge. Derivative instruments that are designated as a hedge
SAUL CENTERS, INC. 2017 ANNUAL REPORT
41
NOTES to Consolidated Financial Statements
are evaluated to ensure they continue to qualify for hedge ac-
counting. 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 trans-
action affects earnings. Any ineffective portion of the change
in fair value of a derivative instrument is immediately recog-
nized 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.
REVENUE RECOGNITION
Rental and interest income are accrued as earned. Recognition
of rental income commences when control of the space has
been given to the tenant. When rental payments due under
leases vary from a straight-line basis because of free rent periods
or stepped increases, income is recognized on a straight-line
basis. Expense recoveries represent a portion of property oper-
ating expenses billed to the tenants, including common area
maintenance, real estate taxes and other recoverable costs. Ex-
pense recoveries are recognized in the period in which the
expenses are incurred. Rental income based on a tenant’s rev-
enue (“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,
provided 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 fed-
eral income taxes in the accompanying consolidated financial
statements.
As of December 31, 2017, 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 2017, 2016, and 2015.
The tax basis of the Company’s real estate investments was ap-
proximately $1.32 billion and $1.26 billion as of December 31,
2017 and 2016, respectively. With few exceptions, the Company
is no longer subject to U.S. federal, state, and local tax exami-
nations by tax authorities for years before 2013.
42
SAUL CENTERS, INC. 2017 ANNUAL REPORT
STOCK BASED EMPLOYEE COMPENSATION,
DEFERRED COMPENSATION AND STOCK
PLAN FOR DIRECTORS
The Company uses the fair value method to value and account
for employee stock options. The fair value of options granted is
determined at the time of each award using the Black-Scholes
model, a widely used method for valuing stock based employee
compensation, and the following assumptions: (1) Expected
Volatility determined using the most recent trading history of
the Company’s common stock (month-end closing prices) cor-
responding 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 ex-
pected term of the options at the grant date. The Company
amortizes the value of options granted ratably over the vesting
period and includes the amounts as compensation in general
and administrative expenses.
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 dur-
ing 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, 2017, the direc-
tors’ deferred fee accounts comprise 183,818 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,
2017, 2016, and 2015. 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
$130,700, $150,100, and $143,000, for the years ended De-
cember 31, 2017, 2016, and 2015, respectively.
NOTES to Consolidated Financial Statements
NONCONTROLLING INTERESTS
Saul Centers is the sole general partner of the Operating Part-
nership, owning a 74.4% common interest as of December 31,
2017. Noncontrolling interest in the Operating Partnership is
comprised of limited partnership units owned by the Saul Or-
ganization. Noncontrolling
the
accompanying consolidated balance sheets is increased for
earnings allocated to limited partnership interests and distribu-
tions reinvested in additional units, and is decreased for limited
partner distributions. Noncontrolling interest reflected on the
consolidated statements of operations represents earnings allo-
cated to limited partnership interests held by the Saul
Organization.
reflected on
interest
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. The treasury stock method was used to measure
the effect of the dilution.
BASIC AND DILUTED SHARES OUTSTANDING
December 31,
(Shares in thousands) 2017 2016 2015
Weighted average common
shares outstanding - Basic 21,901 21,505 21,127
Effect of dilutive options 107 110 69
Weighted average common
shares outstanding - Diluted 22,008 21,615 21,196
Average share price $ 61.63 $ 58.96 $ 53.38
Non-dilutive options — 129 111
Years non-dilutive options
were issued 2007 , 2015 2007
and 2016 and 2015
LEGAL CONTINGENCIES
The Company is subject to various legal proceedings and claims
that arise in the ordinary course of business, which are generally
covered by insurance. Upon determination that a loss is probable
to occur and can be reasonably estimated, the estimated
amount of the loss is recorded in the financial statements.
RECENTLY ISSUED ACCOUNTING STANDARDS
In May 2014, the FASB issued ASU No. 2014-09 titled “Revenue
from Contracts with Customers” and subsequently issued several
related ASUs (collectively “ASU 2014-09”). ASU 2014-09 will re-
place most existing revenue recognition guidance and will
require an entity to recognize the amount of revenue which it
expects to be entitled for the transfer of promised goods or
services to customers. ASU 2014-09 is effective for annual pe-
riods beginning after December 15, 2017, 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 application. Management believes the majority of the
Company's revenue falls outside of the scope of this guidance
and does not anticipate any significant changes to the timing
of the Company's revenue recognition. The Company intends to
implement the standard retrospectively with the cumulative ef-
fect recognized in retained earnings at the date of adoption.
In February 2015, the FASB issued ASU No. 2015-02, “Consol-
idation” ("ASU 2015-02"). ASU 2015-02 modifies existing
consolidation guidance for reporting organizations that are re-
quired to evaluate whether they should consolidate certain legal
entities. All legal entities are subject to reevaluation under the
revised consolidation model. ASU 2015-02 is effective for an-
nual periods beginning after December 15, 2015, and interim
periods within those years. The adoption of ASU 2015-02 ef-
fective January 1, 2016, resulted in the Operating Partnership
being classified as a variable interest entity. Because the
Operating Partnership was already consolidated into the finan-
cial statements, adoption had no impact on the Company’s
consolidated financial statements or disclosures.
In April 2015, the FASB issued ASU No. 2015-03, “Interest - Im-
putation of Interest” (“ASU 2015-03”). ASU 2015-03 simplifies
the presentation of debt issuance costs and will require an entity
to deduct transaction costs from the carrying value of the re-
lated financial liability and not record those transaction costs as
a separate asset. Recognition and measurement guidance for
debt issuance costs are not affected by ASU 2015-03. ASU
2015-03 is effective for annual periods beginning after Decem-
ber 15, 2015, and interim periods within those years, and
must be applied retrospectively by adjusting the balance sheet
of each individual period presented. The Company retrospec-
tively adopted ASU 2015-03 effective January 1, 2016. As a
result of the adoption of ASU 2015-03, the Company no longer
reports its net deferred debt costs as an asset and instead reports
those amounts as reduction of the carrying value of the
associated debt.
In February 2016, the FASB issued ASU 2016-02, ‘‘Leases’’ (“ASU
2016-02”). ASU 2016-02 amends the existing accounting stan-
dards for lease accounting, including requiring lessees to
recognize most leases on their balance sheets and making tar-
geted changes to lessor accounting. ASU 2016-02 is effective
for annual periods beginning after December 15, 2018, interim
periods within those years, and requires a modified retrospective
transition approach for all leases existing at the date of initial
application, with an option to use certain practical expedients
for those existing leases. We are evaluating the impact that ASU
2016-02 will have on our consolidated financial statements and
related disclosures.
SAUL CENTERS, INC. 2017 ANNUAL REPORT
43
NOTES to Consolidated Financial Statements
In March 2016, the FASB issued ASU 2016-09, "Compensation-
Stock Compensation" ("ASU 2016-09"). ASU 2016-09 simplifies
the accounting for several aspects of share-based payments in-
cluding the income tax consequences, classification of awards
as either equity or liabilities and classification on the statement
of cash flows. ASU 2016-09 is effective for annual periods be-
ginning after December 15, 2016 and interim periods within
those years. The transition method varies based on the specific
amendment. The adoption of ASU 2016-09 effective January
1, 2017, did not have a material impact on our consolidated fi-
nancial statements or related disclosures.
In June 2016, the FASB issued ASU 2016-13, "Financial Instru-
ments-Credit Losses" ("ASU 2016-13"). ASU 2016-13 replaces
the incurred loss impairment methodology with a methodology
that reflects expected credit losses and requires consideration
of a broader range of information to support credit loss esti-
mates. ASU 2016-13 is effective for annual periods beginning
after December 15, 2019, including interim periods within
those years. We are evaluating the impact that ASU 2016-13
will have on our consolidated financial statements and related
disclosures.
In January 2017, the FASB issued ASU 2017-01, "Clarifying the
Definition of a Business" ("ASU 2017-01"). ASU 2017-01 pro-
vides that when substantially all of the fair value of the gross
assets acquired is concentrated in a single identifiable asset or
group of similar identifiable assets, the set is not a business. ASU
2017-01 is effective prospectively for annual periods beginning
after December 15, 2017, and interim periods within those
years. Early application is permitted for transactions for which
the acquisition date occurs before the effective date provided
the transaction has not been reported in the financial state-
ments. The Company adopted ASU 2017-01 during the first
quarter of 2017, the effect of which, for asset acquisitions, was
(a) the capitalization of acquisition costs, instead of expense,
and (b) recordation of acquired assets and assessment liabilities
at relative fair value, instead of fair value.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years to conform
to the presentation used for year ended December 31, 2017.
44
SAUL CENTERS, INC. 2017 ANNUAL REPORT
3. REAL ESTATE ACQUIRED
700, 726, 730 AND 750 N. GLEBE ROAD
In August 2014, the Company purchased for $40.0 million, 750
N. Glebe Road and incurred acquisition costs of $0.4 million. In
December 2014, the Company purchased for $2.8 million 730
N. Glebe Road and incurred acquisition costs of $40,400. In
September 2015, the Company purchased for $4.0 million 726
N. Glebe Road and incurred acquisition costs of $0.1 million. In
August 2016, the Company purchased for $7.2 million, includ-
ing acquisition costs, 700 N. Glebe Road. These properties are
contiguous and are located in Arlington, Virginia.
WESTVIEW PAD
In February 2015, the Company purchased for $0.9 million in-
cluding acquisition costs, a 1.1 acre retail pad site in Frederick,
Maryland, which is contiguous with and an expansion of the
Company's other Westview asset.
THRUWAY PAD
In August 2016, the Company purchased for $3.1 million, a re-
tail pad site with an occupied bank building in Winston Salem,
North Carolina, and incurred acquisition costs of $60,400. The
property is contiguous with and an expansion of the Company's
Thruway asset.
BEACON CENTER
In the fourth quarter of 2016, the Company purchased for
$22.7 million, including acquisition costs, the land underlying
Beacon Center. The land was previously leased by the Company
with an annual rent of approximately $60,000. The purchase
price was funded in part by an $11.25 million increase to the
existing mortgage collateralized by Beacon Center and in part
by the Company’s revolving credit facility.
SOUTHDALE
In the fourth quarter of 2016, the Company purchased for
$15.3 million, including acquisition costs, the land underlying
Southdale. The land was previously leased by the Company with
an annual rent of approximately $60,000. The purchase price
was funded by the Company’s revolving credit facility.
BURTONSVILLE TOWN SQUARE
In January 2017, the Company purchased for $76.4 million, in-
cluding acquisition costs, Burtonsville Town Square located in
Burtonsville, Maryland.
OLNEY SHOPPING CENTER
In March 2017, the Company purchased for $3.1 million, in-
cluding acquisition costs, the land underlying Olney Shopping
Center. The land was previously leased by the Company with an
annual rent of approximately $56,000. The purchase price was
funded by the revolving credit facility.
NOTES to Consolidated Financial Statements
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 relative fair values. See Note 2. Summary of
Significant Accounting Policies-Real Estate Investment Properties.
During 2017, the Company purchased one property, Bur-
tonsville Town Square, at a cost of $76.4 million, including
acquisition costs. Of the total acquisition cost, $28.4 million was
allocated to land, $45.8 million was allocated to buildings,
$2.2 million was allocated to in-place leases, $0.6 million was
allocated to above-market rent, and $(0.6) million was allo-
cated to below-market rent, based on their relative fair values.
During 2016, the Company purchased two properties at an ag-
gregate cost of $10.3 million, and incurred acquisition costs
totaling $60,400. The purchase price was allocated to the assets
acquired and liabilities assumed based on their fair value as
shown in the following table.
PURCHASE PRICE ALLOCATION
OF ACQUISITIONS
700 N. Glebe Thruway
(in thousands) Road Pad Total
Land $ 7,236 $ 2,196 $ 9,432
Buildings — 874 874
In-place Leases — 93 93
Above Market Rent — — —
Below Market Rent — (63) (63)
Total Purchase Price $ 7,236 $ 3,100 $10,336
During 2015, the Company purchased one property, 726 N.
Glebe Road, at a cost of $4.0 million and incurred acquisition
costs of $0.1 million. Of the total purchase price, $3.9 million
was allocated to land and $0.1 million was allocated to building.
No amounts were allocated to in-place, above-market or below-
market leases.
The gross carrying amount of lease intangible assets included in
deferred leasing costs as of December 31, 2017 and 2016 was
$12.3 million and $10.1 million, respectively, and accumulated
amortization was $7.5 million and $6.4 million, respectively.
Amortization expense totaled $1.1 million, $1.0 million and
$1.3 million, for the years ended December 31, 2017, 2016,
and 2015, respectively. The gross carrying amount of below mar-
ket lease intangible liabilities included in deferred income as of
December 31, 2017 and 2016 was $25.1 million and $25.1 mil-
lion,
respectively, and accumulated amortization was
$11.8 million and $10.6 million, respectively. Accretion income
totaled $1.7 million, $1.8 million, and $1.8 million, for the years
ended December 31, 2017, 2016, and 2015, respectively. The
gross carrying amount of above market lease intangible assets
included in accounts receivable as of December 31, 2017 and
2016 was $0.6 million and $10,200, respectively, and accumu-
lated amortization was $39,500 and $7,800, respectively.
Amortization expense totaled $31,600, $1,500 and $1,500, for
the years ended December 31, 2017, 2016 and 2015, respec-
tively. The remaining weighted-average amortization period as
of December 31, 2017 is 4.6 years, 5.8 years, and 8.8 years for
lease acquisition costs, above market leases and below market
leases, respectively.
As of December 31, 2017, 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
2018 $ 982 $ 33 $ 1,652
2019 780 33 1,515
2020 653 33 1,433
2021 530 33 1,409
2022 390 33 1,306
Thereafter 1,547 409 6,029
Total $ 4,882 $ 574 $ 13,344
4. NONCONTROLLING INTEREST -
HOLDERS OF CONVERTIBLE
LIMITED PARTNERSHIP UNITS IN
THE OPERATING PARTNERSHIP
The Saul Organization holds a 25.6% limited partnership inter-
est in the Operating Partnership represented by 7,541,867
limited partnership units, as of December 31, 2017. 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, 2017, approximately 740,000
units were eligible for conversion.
The impact of the Saul Organization’s 25.6% limited partnership
interest in the Operating Partnership is reflected as Noncontrol-
ling Interests in the accompanying consolidated financial
SAUL CENTERS, INC. 2017 ANNUAL REPORT
45
NOTES to Consolidated Financial Statements
statements. Fully converted partnership units and diluted
weighted average shares outstanding for the years ended De-
cember 31, 2017, 2016, and 2015, were 29,510,900,
28,989,900, and 28,449,400, respectively.
5. MORTGAGE NOTES PAYABLE,
REVOLVING CREDIT FACILITY,
INTEREST EXPENSE AND
AMORTIZATION OF DEFERRED
DEBT COSTS
At December 31, 2017, the principal amount of outstanding
debt totaled $965.5 million, of which $890.4 million was fixed
rate debt and $75.1 million was variable rate debt. The principal
amount of the Company’s outstanding debt totaled $907.8 mil-
lion at December 31, 2016, of which $844.3 million was fixed
rate debt and $63.5 million was variable rate debt. At Decem-
ber 31, 2017, 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 Com-
pany’s satisfaction of certain conditions. Saul Centers and
certain consolidated subsidiaries of the Operating Partnership
have guaranteed the payment obligations of the Operating Part-
nership under the revolving credit facility. Letters of credit may
be issued under the revolving credit facility. On December 31,
2017, based on the value of the Company's unencumbered
properties, approximately $213.8 million was available under
the line, $61.0 million was outstanding and approximately
$185,000 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 Company’s leverage
ratio and which can range from 145 basis points to 200 basis
points. As of December 31, 2017, the margin was 145 basis
points.
Saul Centers is a guarantor of the revolving credit facility, of
which the Operating Partnership is the borrower, a portion of
the Metro Pike Center bank loan (approximately $7.8 million of
the $14.1 million outstanding at December 31, 2017), a por-
tion of the Park Van Ness construction-to-permanent loan
(approximately $53.7 million of the $71.2 million outstanding
balance at December 31, 2017), and a portion of the Kentlands
Square II mortgage loan (approximately $9.2 million of the
$36.5 million outstanding at December 31, 2017). All other
notes payable are non-recourse.
On March 3, 2015, the Company closed on a 15-year, non-re-
course $30.0 million mortgage loan secured by Shops at Fairfax
and Boulevard. The loan matures in 2030, bears interest at a
fixed rate of 3.69%, requires monthly principal and interest pay-
ments totaling $153,300 based on a 25-year amortization
46
SAUL CENTERS, INC. 2017 ANNUAL REPORT
schedule and requires a final payment of $15.5 million at ma-
turity. Proceeds were used to repay in full the $15.2 million
remaining balance of existing debt secured by Shops at Fairfax
and Boulevard and to reduce outstanding borrowings under the
revolving credit facility.
On April 1, 2015, the Company closed on a 15-year, non-re-
course $16.0 million mortgage loan secured by Northrock. The
loan matures in 2030, bears interest at a fixed rate of 3.99%,
requires monthly principal and interest payments totaling
$84,400 based on a 25-year amortization schedule and requires
a final payment of $8.4 million at maturity. Proceeds were used
to repay in full the $14.5 million remaining balance of existing
debt secured by Northrock.
In November 2016, the existing loan secured by Beacon Center
was increased by $11.25 million. The interest rate, amortization
period and maturity date did not change; the required monthly
payment was increased to $268,500. Proceeds were used to
partially fund the purchase of the ground which underlies
Beacon Center.
On January 18, 2017, the Company closed on a 15-year, non-
recourse $40.0 million mortgage loan secured by Burtonsville
Town Square. The loan matures in 2032, bears interest at a fixed
rate of 3.39%, requires monthly principal and interest payments
of $197,900 based on a 25-year amortization schedule and re-
quires a final payment of $20.3 million at maturity.
On August 14, 2017, the Company closed on a $157.0 million
construction-to-permanent loan, the proceeds of which will be
used to partially fund the Glebe Road development project. The
loan matures in 2035, bears interest at a fixed rate of 4.67%,
requires interest only payments, which will be funded by the
loan, until conversion to permanent. The conversion is expected
in the fourth quarter of 2021, and thereafter, monthly principal
and interest payments of $887,900 based on a 25-year amor-
tization schedule will be required.
Effective September 1, 2017, the Company's $71.6 million con-
struction-to-permanent loan, which is fully drawn and secured
by Park Van Ness, converted to permanent financing. The loan
matures in 2032, bears interest at a fixed rate of 4.88%, requires
monthly principal and interest payments of $413,460 based on
a 25-year amortization schedule and requires a final payment
of $39.6 million at maturity.
On November 20, 2017, the Company closed on a 15-year, non-
recourse $60.0 million mortgage loan secured by Washington
Square. The loan matures in 2032, bears interest at a fixed rate
of 3.75%, requires monthly principal and interest payments of
$308,500 based on a 25-year amortization schedule and re-
quires a final payment of $31.1 million. Proceeds were used to
repay the remaining balance of approximately $28.1 million on
the existing mortgage and reduce the outstanding balance of
the revolving credit facility.
NOTES to Consolidated Financial Statements
The following is a summary of notes payable as of December 31, 2017 and 2016.
Year Ended December 31, Interest Scheduled
(Dollars in thousands) 2017 2016 Rate* Maturity*
NOTES PAYABLE
Fixed rate mortgages: $ — (a) $ 29,428 6.01% Feb-2018
30,201 (b) 32,036 5.88% Jan-2019
9,783 (c) 10,372 5.76% May-2019
13,529 (d) 14,335 5.62% Jul-2019
13,543 (e) 14,325 5.79% Sep-2019
12,029 (f) 12,725 5.22% Jan-2020
9,948 (g) 10,277 5.60% May-2020
8,244 (h) 8,697 5.30% Jun-2020
37,998 (i) 39,213 5.83% Jul-2020
7,325 (j) 7,685 5.81% Feb-2021
5,649 (k) 5,808 6.01% Aug-2021
32,673 (l) 33,571 5.62% Jun-2022
9,999 (m) 10,253 6.08% Sep-2022
10,877 (n) 11,129 6.43% Apr-2023
12,577 (o) 13,401 6.28% Feb-2024
15,452 (p) 15,917 7.35% Jun-2024
13,438 (q) 13,832 7.60% Jun-2024
23,873 (r) 24,504 7.02% Jul-2024
28,115 (s) 28,945 7.45% Jul-2024
28,025 (t) 28,822 7.30% Jan-2025
14,537 (u) 14,961 6.18% Jan-2026
105,817 (v) 109,144 5.31% Apr-2026
32,016 (w) 33,097 4.30% Oct-2026
36,507 (x) 37,701 4.53% Nov-2026
17,086 (y) 17,630 4.70% Dec-2026
64,472 (z) 66,210 5.84% May-2027
15,859 (aa) 16,352 4.04% Apr-2028
39,968 (bb) 41,753 3.51% Jun-2028
16,055 (cc) 16,543 3.99% Sep-2028
27,884 (dd) 28,679 3.69% Mar-2030
14,950 (ee) 15,357 3.99% Apr-2030
39,140 (ff) — 3.39% Feb-2032
71,211 (gg) 70,144 4.88% Sep-2032
60,000 (hh) — 3.75% Dec-2032
11,613 (ii) 11,446 8.00% Apr-2034
Total fixed rate 890,393 844,292 5.25% 8.6 Years
Variable rate loans:
61,000 (jj) 49,000 LIBOR + 1.45% Jun-2018
14,135 (kk) 14,482 LIBOR + 1.65% Feb-2018
Total variable rate $ 75,135 $ 63,482 2.86% 0.4 Years
Total notes payable $ 965,528 $ 907,774 5.07% 7.9 Years
* Interest rate and scheduled maturity data presented as of December 31, 2017. Totals computed using weighted averages.
Amounts shown are principal amounts and have not been reduced by any deferred debt issuance costs.
SAUL CENTERS, INC. 2017 ANNUAL REPORT
47
NOTES to Consolidated Financial Statements
(a) The loan was collateralized by Washington Square and required equal monthly
principal and interest payments of $264,000 based upon a 27.5-year amorti-
zation schedule and a final payment of $28.0 million at loan maturity. In 2017,
the loan was repaid in full and replaced with a new $60.0 million loan. See (hh)
below.
(b) The loan is collateralized by three shopping centers, Broadlands Village, The Glen
and Kentlands Square I, and requires equal monthly principal and interest pay-
ments of $306,000 based upon a 25-year amortization schedule and a final
payment of $28.4 million at loan maturity. Principal of $1.8 million was amor-
tized during 2017.
(c) The loan is collateralized by Olde Forte Village and requires equal monthly prin-
cipal and interest payments of $98,000 based upon a 25-year amortization
schedule and a final payment of $9.0 million at loan maturity. Principal of
$589,000 was amortized during 2017.
(d) The loan is collateralized by Countryside and requires equal monthly principal
and interest payments of $133,000 based upon a 25-year amortization schedule
and a final payment of $12.3 million at loan maturity. Principal of $806,000
was amortized during 2017.
(e) 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 $782,000 was amortized during 2017.
(f) The loan is collateralized by Shops at Monocacy and requires equal monthly prin-
cipal 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
$696,000 was amortized during 2017.
(g) The loan is collateralized by Boca Valley Plaza and requires equal monthly prin-
cipal and interest payments of $75,000 based upon a 30-year amortization
schedule and a final payment of $9.1 million at loan maturity. Principal of
$329,000 was amortized during 2017.
(h) 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
$453,000 was amortized during 2017.
(i) The loan and a corresponding interest-rate swap closed on June 29, 2010 and
are collateralized by Thruway. On a combined basis, the loan and the interest-
rate swap require equal monthly principal and interest payments of $289,000
based upon a 25-year amortization schedule and a final payment of $34.8 mil-
lion at loan maturity. Principal of $1.2 million was amortized during 2017.
(j) The loan is collateralized by Jamestown Place and requires equal monthly prin-
cipal and interest payments of $66,000 based upon a 25-year amortization
schedule and a final payment of $6.1 million at loan maturity. Principal of
$360,000 was amortized during 2017.
(k) The loan is collateralized by Hunt Club Corners and requires equal monthly prin-
cipal 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
$159,000 was amortized during 2017.
(l) The loan is collateralized by Lansdowne Town Center and requires monthly prin-
cipal and interest payments of $230,000 based on a 30-year amortization
schedule and a final payment of $28.2 million at loan maturity. Principal of
$898,000 was amortized during 2017.
(m) The loan is collateralized by Orchard Park and requires equal monthly principal
and interest payments of $73,000 based upon a 30-year amortization schedule
and a final payment of $8.6 million at loan maturity. Principal of $254,000
was amortized during 2017.
(n) The loan is collateralized by BJ’s Wholesale and requires equal monthly principal
and interest payments of $80,000 based upon a 30-year amortization schedule
and a final payment of $9.3 million at loan maturity. Principal of $252,000
was amortized during 2017.
(o) 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 $824,000 was amor-
tized during 2017.
48
SAUL CENTERS, INC. 2017 ANNUAL REPORT
(p) The loan is collateralized by Leesburg Pike and requires equal monthly principal
and interest payments of $135,000 based upon a 25-year amortization schedule
and a final payment of $11.5 million at loan maturity. Principal of $465,000
was amortized during 2017.
(q) The loan is collateralized by Village Center and requires equal monthly principal
and interest payments of $119,000 based upon a 25-year amortization schedule
and a final payment of $10.1 million at loan maturity. Principal of $394,000
was amortized during 2017.
(r) The loan is collateralized by White Oak and requires equal monthly principal and
interest payments of $193,000 based upon a 24.4 year weighted amortization
schedule and a final payment of $18.5 million at loan maturity. The loan was
previously collateralized by Van Ness Square. During 2012, the Company substi-
tuted White Oak as the collateral and borrowed an additional $10.5 million.
Principal of $631,000 was amortized during 2017.
(s) The loan is collateralized by Avenel Business Park and requires equal monthly
principal and interest payments of $246,000 based upon a 25-year amortiza-
tion schedule and a final payment of $20.9 million at loan maturity. Principal
of $830,000 was amortized during 2017.
(t) The loan is collateralized by Ashburn Village and requires equal monthly princi-
pal and interest payments of $240,000 based upon a 25-year amortization
schedule and a final payment of $20.5 million at loan maturity. Principal of
$797,000 was amortized during 2017.
(u) The loan is collateralized by Ravenwood and requires equal monthly principal
and interest payments of $111,000 based upon a 25-year amortization schedule
and a final payment of $10.1 million at loan maturity. Principal of $424,000
was amortized during 2017.
(v) The loan is collateralized by Clarendon Center and requires equal monthly prin-
cipal and interest payments of $753,000 based upon a 25-year amortization
schedule and a final payment of $70.5 million at loan maturity. Principal of
$3.3 million was amortized during 2017.
(w) 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 $1.1 million was amortized during 2017.
(x) The loan is collateralized by Kentlands Square II and requires equal monthly prin-
cipal 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
$1.2 million was amortized during 2017.
(y) The loan is collateralized by Cranberry Square and requires equal monthly prin-
cipal and interest payments of $113,000 based upon a 25-year amortization
schedule and a final payment of $10.9 million at loan maturity. Principal of
$544,000 was amortized during 2017.
(z) The loan in the original amount of $73.0 million closed in May 2012, is collat-
eralized by Seven Corners and requires equal monthly principal and interest
payments of $463,200 based upon a 25-year amortization schedule and a final
payment of $42.3 million at loan maturity. Principal of $1.7 million was amor-
tized during 2017.
(aa) The loan is collateralized by Hampshire Langley and requires equal monthly prin-
cipal 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
$493,000 was amortized in 2017.
(bb) The loan is collateralized by Beacon Center and requires equal monthly principal
and interest payments of $268,500 based upon a 20-year amortization schedule
and a final payment of $17.1 million at loan maturity. Principal of $1.8 million
was amortized in 2017.
(cc) The loan is collateralized by Seabreeze Plaza and requires equal monthly principal
and interest payments of $94,900 based upon a 25-year amortization schedule
and a final payment of $9.5 million at loan maturity. Principal of $488,000
was amortized in 2017.
(dd) The loan is collateralized by Shops at Fairfax and Boulevard shopping centers
and requires equal monthly principal and interest payments totaling $153,300
based upon a 25-year amortization schedule and a final payment of $15.5 mil-
lion at maturity. Principal of $795,000 was amortized in 2017.
NOTES to Consolidated Financial Statements
(ee) The loan is collateralized by Northrock and requires equal monthly principal and
interest payments totaling $84,400 based upon a 25-year amortization sched-
ule and a final payment of $8.4 million at maturity. Principal of $407,000 was
amortized in 2017.
(ff) The loan is collateralized by Burtonsville Town Square and requires equal
monthly principal and interest payments of $198,000 based on a 25-year
amortization schedule and a final payment of $20.3 million at loan maturity.
Principal of $860,000 was amortized in 2017.
(gg) The loan is a $71.6 million construction-to-permanent facility that is collater-
alized by and financed a portion of the construction costs of Park Van Ness.
During the construction period, interest was funded by the loan. Effective Sep-
tember 1, 2017, the loan converted to permanent financing and requires
monthly principal and interest payments totaling $413,500 based upon a 25-
year amortization schedule. A final payment of $39.6 million will be due at
maturity. Principal of $369,000 was amortized in 2017.
(hh) The loan is collateralized by Washington Square and requires equal monthly prin-
cipal and interest payments of $308,000 based upon a 25-year amortization
schedule and a final payment of $31.1 million at loan maturity.
The carrying value of the properties collateralizing the mortgage
notes payable totaled $1.0 billion and $957.2 million, as of
December 31, 2017 and 2016, 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, 2017.
• 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
exceed 2.0x on a trailing four-quarter basis (interest
expense coverage); and
limit the amount of debt so that interest, scheduled princi-
pal 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, 2017 and
2016, totaling $51.0 million, are guaranteed by members of
the Saul Organization. As of December 31, 2017, the scheduled
maturities of all debt including scheduled principal amortization
for years ended December 31 are as follows:
(ii) 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 pay-
ment of $14.7 million and has an implicit interest rate of 8.0%. Negative
amortization in 2017 totaled $167,000.
(jj) 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.
(kk) The loan is collateralized by Metro Pike Center and requires monthly principal
and interest payments of approximately $48,000 and a final payment of $14.2
million at loan maturity. Principal of $347,000 was amortized during 2017.
DEBT MATURITY SCHEDULE
Scheduled
Balloon Principal
(in thousands) Payments Amortization Total
2018 $ 75,105 (a) $ 30,160 $ 105,265
2019 60,793 29,272 90,065
2020 61,163 26,743 87,906
2021 11,012 26,456 37,468
2022 36,503 26,958 63,461
Thereafter 436,325 145,038 581,363
Principal Amount $680,901 $ 284,627 $ 965,528
Unamortized
deferred debt costs 6,906
Net $ 958,622
(a) Includes $61.0 million outstanding under the line of credit.
SAUL CENTERS, INC. 2017 ANNUAL REPORT
49
NOTES to Consolidated Financial Statements
The components of interest expense are set forth below.
INTEREST EXPENSE
Year ended December 31,
(in thousands) 2017 2016 2015
Interest incurred $ 49,322 $ 46,867 $ 45,898
Amortization of
deferred debt costs 1,392 1,343 1,433
Capitalized interest (3,489) (2,527) (2,166)
Total $ 47,225 $ 45,683 $ 45,165
Deferred debt costs capitalized during the years ending Decem-
ber 31, 2017, 2016 and 2015 totaled $2.6 million, $0.1 million
and $0.3 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, 2017, 2016, and 2015, amounted
to $181.1 million, $172.4 million, and $168.3 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)
2018 $ 160,025
2019 141,097
2020 120,369
2021 100,766
2022 77,312
Thereafter 245,103
Total $ 844,672
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, 2017, 2016, and 2015,
amounted to $35.3 million, $34.3 million, and $32.9 million,
respectively. In addition, certain retail leases provide for percent-
age rent based on sales in excess of the minimum specified in
the tenant’s lease. Percentage rent amounted to $1.5 million,
$1.4 million, and $1.6 million, for the years ended Decem-
ber 31, 2017, 2016, and 2015, respectively.
7. LONG-TERM LEASE OBLIGATIONS
During 2016 and 2017, the Company purchased the land un-
derlying Olney, Beacon Center and Southdale - See Note 3. As
a result, at December 31, 2017, no properties are subject to
noncancelable long-term leases which apply to underlying land.
Reflected in the accompanying consolidated financial state-
ments is minimum ground rent expense of $10,500,
$159,000, $176,000, for the years ended December 31, 2017,
2016, and 2015, respectively.
Flagship Center consists of two developed 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 ten-
ant in 1991. The Company has a 90-year ground leasehold
interest which commenced in September 1991 with a mini-
mum rent of one dollar per year. Countryside shopping center
was acquired in February 2004. Because of certain land use
considerations, approximately 3.4% of the underlying land is
held under a 99-year ground lease. The lease requires the Com-
pany 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, and expires in February 2022. The Company and
the Saul Organization entered into a Shared Services Agreement
whereby each party pays an allocation of total rental payments
based on a percentage proportionate to the number of employ-
ees employed by each party. The Company’s rent expense for
the years ended December 31, 2017, 2016, and 2015 was
$774,700, $843,300, and $904,900, respectively. Expenses
arising from the lease are included in general and administrative
expense (see Note 9 – Related Party Transactions).
50
SAUL CENTERS, INC. 2017 ANNUAL REPORT
NOTES to Consolidated Financial Statements
8. EQUITY AND NONCONTROLLING
INTERESTS
The Consolidated Statements of Operations for the years ended
December 31, 2017, 2016, and 2015 reflect noncontrolling in-
terest of $12.4 million, $11.4 million, and $10.5 million,
respectively, representing the Saul Organization’s share of the
net income for the year.
The Company has outstanding, 7.2 million depositary shares,
each representing 1/100th of a share of 6.875% Series C Cumu-
lative Redeemable Preferred Stock ("Series C Stock"). The
depositary shares may be redeemed on or after February 12,
2018 at the Company’s option, in whole or in part, at the
$25.00 liquidation preference plus accrued but unpaid divi-
dends. The depositary shares pay an annual dividend of
$1.71875 per share, equivalent to 6.875% of the $25.00 liqui-
dation preference. 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 ex-
cept in connection with certain changes of control or delisting
events. Investors in the depositary shares generally have no vot-
ing rights, but will have limited voting rights if the Company fails
to pay dividends for six or more quarters (whether or not de-
clared or consecutive) and in certain other events.
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 management time
is shared with the Saul Organization. Their annual compensa-
tion is fixed by the Compensation Committee of the Board of
Directors, with the exception of the Senior Vice President-Chief
Accounting Officer whose share of annual compensation allo-
cated 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 $349,500, $329,000, and
$400,000, for 2017, 2016, and 2015, respectively. All amounts
deferred by employees and contributed by the Company are
fully vested.
The Company also participates in a multiemployer nonqualified
deferred compensation plan with entities in the Saul Organiza-
tion which covers those full-time employees who meet the
requirements as specified in the plan. According to the plan,
which can be modified or discontinued at any time, participat-
ing employees defer 2% of their compensation in excess of a
specified amount. For the years ended December 31, 2017,
2016, and 2015, the Company contributed three times the
amount deferred by employees. The Company’s expense, in-
in general and administrative expense, totaled
cluded
$228,500, $250,800, and $224,900, for the years ended De-
cember 31, 2017, 2016, and 2015, respectively. All amounts
deferred by employees and the Company are fully vested. The
cumulative unfunded liability under this plan was $2.4 million
and $2.1 million, at December 31, 2017 and 2016, respectively,
and is included in accounts payable, accrued expenses and
other liabilities in the consolidated balance sheets.
The Company has entered into a shared services agreement (the
“Agreement”) with the Saul Organization that provides for the
sharing of certain personnel and ancillary functions such as
computer hardware, software, and support services and certain
direct and indirect administrative personnel. The method for
determining the cost of the shared services is provided for in the
Agreement and is based upon head count, estimates of usage
or estimates of time incurred, as applicable. Senior 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 Commit-
tee of the Board of Directors, which consists entirely of
independent directors. Net billings by the Saul Organization for
the Company’s share of these ancillary costs and expenses for
the years ended December 31, 2017, 2016, and 2015, which
included rental expense for the Company’s headquarters lease
(see Note 7. Long Term Lease Obligations), totaled $8.1 million,
$7.2 million, and $8.2 million, respectively. The amounts are
expensed when incurred and are primarily reported as general
and administrative expenses or capitalized to specific develop-
ment projects in these consolidated financial statements. As of
December 31, 2017 and 2016, accounts payable, accrued ex-
penses and other liabilities included $993,200 and $829,000,
respectively, representing billings due to the Saul Organization
for the Company’s share of these ancillary costs and expenses.
The Company has entered into a shared third-party predevelop-
ment cost agreement with the Trust (the “Predevelopment
Agreement”). The Predevelopment Agreement, which expired
on December 31, 2015 and was extended to December 31,
2016, relates to the sharing of third-party predevelopment costs
incurred in connection with the planning of the future redevel-
opment of certain adjacent real estate assets in the Twinbrook
area of Rockville, Maryland. On December 8, 2016, the
SAUL CENTERS, INC. 2017 ANNUAL REPORT
51
NOTES to Consolidated Financial Statements
Company entered into a replacement agreement with the Saul
Trust which extended the expiration date to December 31, 2017
and provides for automatic twelve month renewals unless either
party provides notice of termination. The costs will be shared
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
insurance program. Such commissions and fees amounted to
approximately $288,400, $360,500, and $443,500, for the
years ended December 31, 2017, 2016, and 2015, respectively.
In August 2016, the Company entered into an agreement to ac-
quire from the Trust, for an initial purchase price of $8.8 million,
approximately 14.3 acres of land located at the intersection of
Ashburn Village Boulevard and Russell Branch Parkway in
Loudoun County, Virginia. In order to allow the Company time
to pre-lease and complete project plans and specifications, the
parties have agreed to a closing date in the second quarter of
2018, at which time the Company will exchange limited part-
nership units for the land. The number of limited partnership
units to be exchanged will be based on the initial purchase price
and the average share value (as defined in the agreement) of
the Company’s common stock at the time of the exchange. The
Company intends to construct a shopping center and, upon sta-
bilization, may be obligated to issue additional limited
partnership units to the Trust.
10. STOCK OPTION PLAN
The Company established a stock option plan in 1993 (the
“1993 Plan”) for the purpose of attracting and retaining execu-
tive officers and other key personnel. The 1993 Plan provides
for grants of options to purchase up to 400,000 shares of com-
mon stock. The 1993 Plan authorizes the Compensation
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,
directors and other key personnel. The 2004 stock plan was sub-
sequently amended by the Company’s stockholders at the 2008
Annual Meeting and further amended at the 2013 Annual
Meeting (the “Amended 2004 Plan”). The Amended 2004 Plan,
which terminates in 2023, provides for grants of options to pur-
chase up to 2,000,000 shares of common stock as well as grants
of up to 200,000 shares of common stock to directors. The
Amended 2004 Plan authorizes the Compensation Committee
of the Board of Directors to grant options at an exercise price
which may not be less than the market value of the common
stock on the date the option is granted.
52
SAUL CENTERS, INC. 2017 ANNUAL REPORT
Effective April 25, 2008, the Compensation Committee granted
options to purchase 30,000 shares (all nonqualified stock op-
tions) to 12 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 direc-
tors’ options vested 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 13 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 determined the total fair
value of the 2009 Options to be $222,950. Because the direc-
tors’ 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 13 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 determined the total fair
value of the 2010 Options to be $287,950. Because the direc-
tors’ 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 op-
tions and 129,700 nonqualified stock options) to 15 Company
officers and 13 Company Directors (the “2011 options”), which
expire on May 12, 2021. The officers’ 2011 Options vest
25% per year over four years and are subject to early expiration
upon termination of employment. The directors’ 2011 options
were immediately exercisable. The exercise price of $41.82 per
share was the closing market price of the Company’s common
stock on the date of award. Using the Black-Scholes model, the
Company determined the total fair value of the 2011 Options
to be $1.6 million, of which $1.3 million and $297,375 were
assigned to the officer options and director options, respectively.
Because the directors’ options vested immediately, the entire
$297,375 was expensed as of the date of grant. The expense
for the officers’ options is being recognized as compensation ex-
pense monthly during the four years the options vest.
NOTES to Consolidated Financial Statements
Effective May 4, 2012, the Compensation Committee granted
options to purchase 277,500 shares (26,157 incentive stock op-
tions and 251,343 nonqualified stock options) to 15 Company
officers and 14 Company Directors (the “2012 options”), which
expire on May 3, 2022. The officers’ 2012 Options vest 25% per
year over four years and are subject to early expiration upon ter-
mination of employment. The directors’ 2012 Options were
immediately exercisable. The exercise price of $39.29 per share
was the closing market price of the Company’s common stock
on the date of award. Using the Black-Scholes model, the Com-
pany determined the total fair value of the 2012 Options to be
$1.7 million, of which $1.4 million and $257,250 were as-
signed 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 ex-
pense 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 op-
tions and 201,908 nonqualified stock options) to 15 Company
officers and 14 Company Directors (the "2013 options"), which
expire on May 9, 2023. The officers' 2013 Options vest 25% per
year over four years and are subject to early expiration upon ter-
mination of employment. The directors' 2013 options were
immediately exercisable. The exercise price of $44.42 per share
was the closing market price of the Company's common stock
on the date of award. Using the Black-Scholes model, the Com-
pany determined the total fair value of the 2013 Options to be
$1.5 million, of which $1.2 million and $278,250 were as-
signed to the officer options and director options, respectively.
Because the directors' options vested immediately, the entire
$278,250 was expensed as of the date of grant. The expense
for the officers' options is being recognized as compensation ex-
pense 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 op-
tions and 170,700 nonqualified stock options) to 18 Company
officers and 12 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 ter-
mination of employment. The directors’ 2014 Options were
immediately exercisable. The exercise price of $47.03 per share
was the closing market price of the Company’s common stock
on the date of award. Using the Black-Scholes model, the Com-
pany determined the total fair value of the 2014 Options to be
$1.3 million, of which $1.2 million and $109,500 were as-
signed 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 ex-
pense monthly during the four years the options vest.
Effective May 8, 2015, the Compensation Committee granted
options to purchase 225,000 shares (33,690 incentive stock op-
tions and 191,310 nonqualified stock options) to 19 Company
officers and 14 Company Directors (the “2015 options”), which
expire on May 7, 2025. The officers’ 2015 Options vest 25% per
year over four years and are subject to early expiration upon ter-
mination of employment. The directors’ 2015 Options were
immediately exercisable. The exercise price of $51.07 per share
was the closing market price of the Company’s common stock
on the date of award. Using the Black-Scholes model, the Com-
pany determined the total fair value of the 2015 Options to be
$1.57 million, of which $1.44 million and $125,300 were as-
signed to the officer options and director options, respectively.
Because the directors’ options vested immediately, the entire
$125,300 was expensed as of the date of grant. The expense
for the officers’ options is being recognized as compensation ex-
pense monthly during the four years the options vest.
Effective May 6, 2016, the Compensation Committee granted
options to purchase 226,500 shares (24,248 incentive stock op-
tions and 202,252 nonqualified stock options) to 19 Company
officers and 13 Company Directors (the “2016 options”), which
expire on May 5, 2026. The officers’ 2016 Options vest 25% per
year over four years and are subject to early expiration upon ter-
mination of employment. The directors’ 2016 Options were
immediately exercisable. The exercise price of $57.74 per share
was the closing market price of the Company’s common stock
on the date of award. Using the Black-Scholes model, the Com-
pany determined the total fair value of the 2016 Options to be
$1.2 million, of which $1.0 million and $151,125 were as-
signed to the officer options and director options, respectively.
Because the directors’ options vested immediately, the entire
$151,125 was expensed as of the date of grant. The expense
for the officers’ options is being recognized as compensation ex-
pense monthly during the four years the options vest.
Effective May 5, 2017, the Compensation Committee granted
options to purchase 232,500 shares (21,492 incentive stock op-
tions and 211,008 nonqualified stock options) to 20 Company
officers and 11 Company Directors (the “2017 options”), which
expire on May 4, 2027. The officers’ 2017 Options vest 25% per
year over four years and are subject to early expiration upon ter-
mination of employment. The directors’ 2017 Options were
immediately exercisable. The exercise price of $59.41 per share
was the closing market price of the Company’s common stock
on the date of award. Using the Black-Scholes model, the Com-
pany determined the total fair value of the 2017 Options to be
$1.4 million, of which $1.2 million and $165,550 were as-
signed to the officer options and director options, respectively.
Because the directors’ options vested immediately, the entire
$165,550 was expensed as of the date of grant. The expense
for the officers’ options is being recognized as compensation ex-
pense monthly during the four years the options vest.
SAUL CENTERS, INC. 2017 ANNUAL REPORT
53
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, 2017, 2016 and 2015.
(Dollars in thousands, except per share data)
STOCK OPTIONS ISSUED TO DIRECTORS
Grant date
Total grant
Vested
Exercised
Forfeited
Exercisable at
December 31, 2017
4/25/2008
4/24/2009
5/7/2010
5/13/2011
5/4/2012
5/10/2013
5/9/2014
5/8/2015
5/6/2016
5/5/2017
Subtotals
30,000
32,500
32,500
32,500
35,000
35,000
30,000
35,000
32,500
27,500
322,500
30,000
32,500
32,500
32,500
35,000
35,000
30,000
35,000
32,500
27,500
322,500
20,000
27,500
25,000
22,500
22,500
22,500
17,500
12,500
7,500
—
177,500
7,500
—
2,500
2,500
—
—
—
—
—
—
12,500
2,500
5,000
5,000
7,500
12,500
12,500
12,500
22,500
25,000
27,500
132,500
Remaining unexercised
2,500
5,000
5,000
7,500
12,500
12,500
12,500
22,500
25,000
27,500
132,500
Exercise price
$ 50.15
$ 32.68
$ 38.76
$ 41.82
$ 39.29
$ 44.42
$ 47.03
$ 51.07
$ 57.74
$ 59.41
Volatility
0.237
0.344
0.369
0.358
0.348
0.333
0.173
0.166
0.166
0.173
Expected life (years)
7.0
6.0
5.0
5.0
5.0
5.0
5.0
5.0
5.0
5.0
Assumed yield
4.09%
4.54%
4.23%
4.16%
4.61%
4.53%
4.48%
4.54%
3.75%
3.45%
Risk-free rate
Total value at
grant date
Expensed in
3.49%
2.19%
2.17%
1.86%
0.78%
0.82%
1.63%
1.50%
1.23%
1.89%
$ 255
$ 223
$ 288
$ 297
$ 257
$ 278
$ 110
$125
$151
$166
$ 2,150
previous years
255
223
288
297
257
278
110
—
—
—
1,708
Expensed in 2015
—
—
—
—
—
—
—
125
—
—
125
Expensed in 2016
—
—
—
—
—
—
—
—
151
—
151
Expensed in 2017
—
—
—
—
—
—
—
—
—
166
166
Future expense
—
—
—
—
—
—
—
—
—
—
—
Grant date
Total grant
Vested
Exercised
Forfeited
Exercisable at
December 31, 2017
STOCK OPTIONS ISSUED TO OFFICERS AND GRAND TOTALS
5/13/2011
5/4/2012
5/10/2013
5/9/2014
5/8/2015
5/6/2016
5/5/2017
Subtotals
162,500
242,500
202,500
170,000
190,000
194,000
205,000
1,366,500
118,750
107,500
171,875
126,875
94,375
48,500
—
667,875
96,100
91,830
116,500
41,250
20,000
3,750
—
369,430
43,750
135,000
30,625
1,875
3,125
1,875
—
216,250
22,650
15,670
55,375
85,625
74,375
44,750
—
298,445
Remaining unexercised
22,650
15,670
55,375
126,875
166,875
188,375
205,000
780,820
Exercise price
$ 41.82
$ 39.29
$ 44.42
$ 47.03
$ 51.07
$ 57.74
$ 59.41
Volatility
0.330
0.315
0.304
0.306
0.298
0.185
0.170
Expected life (years)
8.0
8.0
8.0
7.0
7.0
7.0
7.0
Assumed yield
Risk-free rate
Gross value at
grant date
4.81%
2.75%
5.28%
1.49%
5.12%
1.49%
4.89%
2.17%
4.94%
1.89%
3.80%
1.55%
3.50%
2.17%
$ 1,366
$ 1,518
$ 1,401
$ 1,350
$ 1,585
$ 1,137
$ 1,324
$ 9,681
Estimated forfeitures
368
845
212
169
142
86
92
1,914
Expensed in
previous years
909
419
493
197
—
—
—
2,018
Expensed in 2015
89
157
269
296
240
—
—
1,051
Expensed in 2016
—
97
269
295
361
175
—
1,197
Expensed in 2017
—
—
158
295
361
263
205
1,282
Future expense
—
—
—
98
481
613
1,027
2,219
Grand
Totals
1,689,000
990,375
546,930
228,750
430,945
913,320
$ 11,831
1,914
3,726
1,176
1,348
1,448
2,219
Weighted average term of remaining future expense 2.5 years
54
SAUL CENTERS, INC. 2017 ANNUAL REPORT
NOTES to Consolidated Financial Statements
The table below summarizes the option activity for the years 2017, 2016, and 2015:
2017 2016 2015
OPTION ACTIVITY
Weighted Average Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
Outstanding at January 1 833,630 $ 49.92 860,274 $ 46.58 748,208 $ 44.79
Granted 232,500 59.41 226,500 57.74 225,000 51.07
Exercised (149,060) 46.97 (246,894) 45.59 (112,934) 43.67
Expired/Forfeited (3,750) 53.73 (6,250) 45.31 – –
Outstanding December 31 913,320 52.80 833,630 49.92 860,274 46.58
Exercisable at December 31 430,945 48.94 375,255 46.68 435,899 45.33
The intrinsic value of options exercised in 2017, 2016, and 2015,
was $2.2 million, $3.4 million and $1.5 million, respectively. The
intrinsic value of options outstanding and exercisable at year end
2017 was $8.2 million and $5.5 million, respectively. The intrin-
sic value measures the difference between the options’ exercise
price and the closing share price quoted by the New York Stock
Exchange as of the date of measurement. The date of exercise
was the measurement date for shares exercised during the period.
At December 29, 2017, the final trading day of calendar 2017,
the closing price of $61.75 per share was used for the calculation
of aggregate intrinsic value of options outstanding and exercis-
able at that date. The weighted average remaining contractual
life of the Company’s exercisable and outstanding options at De-
cember 31, 2017 are 6.5 and 7.5 years, respectively.
11. FAIR VALUE OF FINANCIAL
INSTRUMENTS
The carrying values of cash and cash equivalents, accounts re-
ceivable, accounts payable and accrued expenses are reasonable
estimates of their fair value. The aggregate fair value of the notes
payable with fixed-rate payment terms was determined using
Level 3 data in a discounted cash flow approach, which is based
upon management’s estimate of borrowing rates and loan terms
currently available to the Company for fixed rate financing, and
assuming long term interest rates of approximately 3.90% and
4.25%, would be approximately $951.7 million and $851.3 mil-
lion as of December 31, 2017 and 2016, respectively, compared
to the principal balance of $890.4 million and $844.3 million
at December 31, 2017 and 2016, 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 mortgage.
The swap is carried at fair value with changes in fair value rec-
ognized either in income or comprehensive income depending
on the effectiveness of the swap. The following chart summa-
rizes the changes in fair value of the Company’s swap for the
indicated periods.
SWAPS FAIR VALUE
Year ended December 31,
(Dollars in thousands) 2017 2016 2015
Increase (decrease)
in fair value:
Recognized in earnings $ 70 $ (6) $ (10)
Recognized in other
comprehensive income 812 678 124
Total $ 882 $ 672 $ 114
The Company carries its interest rate swaps at fair value. The
Company has determined the majority of the inputs used to
value its derivative fall within Level 2 of the fair value hierarchy
with the exception of the impact of counter-party risk, which
was determined using Level 3 inputs and are not significant. De-
rivative instruments are classified within Level 2 of the fair value
hierarchy because their values are determined using third-party
pricing models which contain inputs that are derived from ob-
servable market data. Where possible, the values produced by
the pricing models are verified by the market prices. Valuation
models require a variety of inputs, including contractual terms,
market prices, yield curves, credit spreads, measure of volatility,
and correlations of such inputs. The swap agreement terminates
on July 1, 2020. As of December 31, 2017, the fair value of the
interest-rate swap was approximately $1.1 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
SAUL CENTERS, INC. 2017 ANNUAL REPORT
55
NOTES to Consolidated Financial Statements
hedge is reflected in “Other Comprehensive Income” in the
Consolidated Statements of Comprehensive Income.
12. COMMITMENTS AND
CONTINGENCIES
Neither the Company nor the Current Portfolio Properties are
subject to any material litigation, nor, to management’s knowl-
edge, is any material litigation currently threatened against the
Company, other than routine litigation and administrative pro-
ceedings arising in the ordinary course of business. Management
believes that these items, individually or in the aggregate, will
not have a material adverse impact on the Company or the Cur-
rent Portfolio Properties.
13. DISTRIBUTIONS
In December 1995, the Company established a Dividend Rein-
vestment and Stock Purchase Plan (the “Plan”), to allow its
stockholders and holders of limited partnership interests an op-
portunity to buy additional shares of common stock by
reinvesting all or a portion of their dividends or distributions.
The Plan provides for investing in newly issued shares of com-
mon stock at a 3% discount from market price without payment
of any brokerage commissions, service charges or other ex-
penses. All expenses of the Plan are paid by the Company. The
Operating Partnership also maintains a similar dividend rein-
vestment plan that mirrors the Plan, which allows holders of
limited partnership interests the opportunity to buy either ad-
ditional limited partnership units or common stock shares of
the Company.
The Company paid common stock distributions of $2.04 per
share in 2017, $1.84 per share in 2016, and $1.69 per share
during 2015 and Series C preferred stock dividends of $1.72 per
depositary share during each of 2017, 2016, and 2015. Of the
common stock dividends paid, $1.70 per share, $1.75 per
share, and $1.69 per share, represented ordinary dividend in-
come in 2017, 2016, and 2015, respectively, and $0.34 per
share and $0.09 per share represented return of capital to the
shareholders in 2017 and 2016, respectively. All of the preferred
stock dividends paid were considered ordinary dividend income.
The following summarizes distributions paid during the years
ended December 31, 2017, 2016, and 2015, 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 2017
October 31 $ 3,094 $ 11,221 $ 3,838 82,991 $ 59.33 15,596 $ 60.08
July 31 3,094 11,160 3,830 85,731 57.40 16,021 58.13
April 30 3,094 11,119 3,810 51,003 59.64 40,623 59.96
January 31 3,093 11,076 3,790 46,286 61.85 39,111 62.15
Total 2017 $ 12,375 $ 44,576 $ 15,268 266,011 111,351
Distributions during 2016
October 31 $ 3,094 $ 10,168 $ 3,478 44,176 $ 57.18 30,891 $ 57.18
July 31 3,094 10,133 3,465 39,487 65.64 26,897 65.64
April 30 3,094 10,029 3,449 48,854 51.59 34,201 51.59
January 31 3,093 9,142 3,141 54,280 49.24 32,769 49.24
Total 2016 $ 12,375 $ 39,472 $ 13,533 186,797 124,758
Distributions during 2015
October 31 $ 3,094 $ 9,106 $ 3,129 47,313 $ 55.73 28,936 $ 55.73
July 31 3,094 9,081 3,115 56,003 50.30 32,041 50.30
April 30 3,094 9,055 3,104 54,921 50.21 25,264 50.21
January 31 3,093 8,403 2,880 42,975 56.74 20,796 56.74
Total 2015 $ 12,375 $ 35,645 $ 12,228 201,212 107,037
56
SAUL CENTERS, INC. 2017 ANNUAL REPORT
NOTES to Consolidated Financial Statements
In December 2017, the Board of Directors of the Company au-
thorized a distribution of $0.52 per common share payable in
January 2018, to holders of record on January 17, 2018. As a
result, $11.5 million was paid to common shareholders on Jan-
uary 31, 2018. Also, $3.9 million was paid to limited
partnership unitholders on January 31, 2018 ($0.52 per Oper-
ating Partnership unit). The Board of Directors authorized
preferred stock dividends of $0.4297 per Series C depositary
share to holders of record on January 2, 2018. As a result,
$3.1 million was paid to preferred shareholders on January 15,
2018. These amounts are reflected as a reduction of stockhold-
ers’ 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 fi-
nancial statements.
14. INTERIM RESULTS (UNAUDITED)
The following summary presents the results of operations of the Company for the quarterly periods of calendar years 2017 and 2016.
(In thousands, except per share amounts) 2017
1st quarter 2nd quarter 3rd quarter 4th quarter
Revenue $ 58,466 $ 55,907 $ 56,237 $ 56,675
Operating income before loss on early extinguishment
of debt, gain on casualty settlement, and
noncontrolling interests 17,374 14,422 14,386 14,416
Gain on sales of properties — — — —
Net income attributable to Saul Centers, Inc. 13,704 11,510 11,483 11,560
Net income available to common stockholders 10,610 8,416 8,390 8,466
Net income available to common stockholders
per diluted share 0.49 0.38 0.38 0.38
(In thousands, except per share amounts) 2016
1st quarter 2nd quarter 3rd quarter 4th quarter
Revenue $ 56,926 $ 52,710 $ 53,233 $ 54,201
Operating income before loss on early extinguishment
of debt, gain on casualty settlement, and
noncontrolling interests 16,381 13,250 12,722 13,360
Gain on sales of properties — — — 1,013
Net income attributable to Saul Centers, Inc. 12,948 10,627 10,239 11,465
Net income available to common stockholders 9,854 7,533 7,146 8,371
Net income available to common stockholders
per diluted share 0.46 0.35 0.33 0.38
SAUL CENTERS, INC. 2017 ANNUAL REPORT
57
NOTES to Consolidated Financial Statements
15. 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 informa-
tion to conform to the 2017 presentation.
Shopping Mixed-Use Corporate and Consolidated
iIn thousands) Centers Properties Other Totals
As of or for the year ended December 31, 2017
Real estate rental operations:
Revenue $ 165,853 $ 61,352 $ 80 $ 227,285
Expenses (34,675) (20,917) — (55,592)
Income from real estate 131,178 40,435 80 171,693
Interest expense and amortization of deferred debt costs — — (47,225) (47,225)
General and administrative — — (18,176) (18,176)
Subtotal 131,178 40,435 (65,321) 106,292
Depreciation and amortization of deferred leasing costs (29,977) (15,717) — (45,694)
Change in fair value of derivatives — — 70 70
Net income (loss) $ 101,201 $ 24,718 $ (65,251) $ 60,668
Capital investment $ 90,896 $ 29,098 $ — $ 119,994
Total assets $ 974,061 $ 438,283 $ 10,108 $ 1,422,452
As of or for the year ended December 31, 2016
Real estate rental operations:
Revenue $ 160,179 $ 56,840 $ 51 $ 217,070
Expenses (34,931) (18,770) — (53,701)
Income from real estate 125,248 38,070 51 163,369
Interest expense and amortization of deferred debt costs — — (45,683) (45,683)
General and administrative — — (17,496) (17,496)
Subtotal 125,248 38,070 (63,128) 100,190
Depreciation and amortization of deferred leasing costs (29,964) (14,453) — (44,417)
Acquisition related costs (60) — — (60)
Change in fair value of derivatives — — (6) (6)
Gain on sale of property — 1,013 — 1,013
Net income (loss) $ 95,224 $ 24,630 $ (63,134) $ 56,720
Capital investment $ 64,044 $ 27,001 $ — $ 91,045
Total assets $ 976,545 $ 358,419 $ 8,061 $ 1,343,025
58
SAUL CENTERS, INC. 2017 ANNUAL REPORT
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, 2015
Real estate rental operations:
Revenue $ 156,110 $ 52,916 $ 51 $ 209,077
Expenses (33,877) (17,266) — (51,143)
Income from real estate 122,233 35,650 51 157,934
Interest expense and amortization of deferred debt costs — — (45,165) (45,165)
General and administrative — — (16,353) (16,353)
Subtotal 122,233 35,650 (61,467) 96,416
Depreciation and amortization of deferred leasing costs (30,171) (13,099) — (43,270)
Acquisition related costs (84) — — (84)
Predevelopment expenses (57) (75) — (132)
Change in fair value of derivatives — — (10) (10)
Gain on sale of property 11 — — 11
Net income (loss) $ 91,932 $ 22,476 $ (61,477) $ 52,931
Capital investment $ 17,159 $ 52,460 $ — $ 69,619
Total assets $ 931,256 $ 354,254 $ 9,898 $ 1,295,408
16. SUBSEQUENT EVENTS
On January 12, 2018, the Company entered into an agreement
to purchase for $35.5 million, plus approximately $0.7 million
of acquisition costs, an office building and the underlying
ground located at 7316 Wisconsin Avenue in Bethesda, Mont-
gomery County, Maryland and has an earnest money deposit of
$3.5 million at risk. The purchase price will be funded through
the Company's revolving credit facility. The Company anticipates
closing the acquisition on or before January 12, 2019.
On January 23, 2018, the Company sold, in an underwritten
public offering, 3.0 million depositary shares, each representing
1/100th of a share of 6.125% Series D Cumulative Redeemable
Preferred Stock (the “Series D Stock”) and received net cash pro-
ceeds totaling approximately $72.6 million. The depositary
shares may be redeemed at the Company’s option, in whole or
in part, on or after January 23, 2023, at the $25.00 liquidation
preference, plus accrued but unpaid dividends. The depositary
shares pay an annual dividend of $1.53125 per share, equiva-
lent to 6.125% of the $25.00 liquidation preference. The first
dividend is scheduled to be paid on April 15, 2018, and cover
the period from January 23, 2018, through March 31, 2018.
The Series D Stock has no stated maturity, is not subject to any
sinking fund or mandatory redemption and is not convertible
into any other securities of the Company except in connection
with certain changes of control or delisting events. Investors in
the depositary shares generally have no voting rights, but will
have limited voting rights if the Company fails to pay dividends
for six or more quarters (whether or not declared or consecu-
tive) and in certain other events.
On January 26, 2018, the Company replaced its revolving credit
facility, which was scheduled to expire on June 23, 2018, with
a new credit facility. The new credit facility is comprised of a
$75.0 million term facility that matures on January 26, 2023,
and a $325.0 million revolving facility that matures on January
26, 2022, and can be extended for one year at the Company’s
option, subject to satisfaction of certain conditions. The terms,
conditions and covenants of the new credit facility are substan-
tially the same as the existing credit facility.
On February 22, 2018, the Company used the net proceeds
from the sale of the Series D Stock, together with cash on hand,
to redeem 3.0 million depositary shares, each representing
1/100th of a share of Series C Stock at a price of $25.00 per
depositary share, plus accrued dividends.
SAUL CENTERS, INC. 2017 ANNUAL REPORT
59
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 Informa-
tion 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 2017 and
2016. Distributions by the Company to common stockholders
and holders of limited partnership units in the Operating Part-
nership were $59.8 million and $53.0 million in 2017 and
2016, respectively. Distributions to preferred stockholders were
$12.4 million in each of 2017 and 2016. See Notes to Con-
solidated Financial Statements, No. 13, “Distributions.” The
Company may or may not elect to distribute in excess of 90%
of REIT taxable income in future years.
The Company’s estimate of cash flow available for distributions
is believed to be based on reasonable assumptions and repre-
sents a reasonable basis for setting distributions. However, the
actual results of operations of the Company will be affected by
a variety of factors, including but not limited to actual rental
revenue, operating expenses of the Company, interest ex-
pense, general economic conditions, federal, state and local
taxes (if any), unanticipated capital expenditures, the ade-
quacy of reserves and preferred dividends. While the Company
intends to continue paying regular quarterly distributions, any
future payments will be determined solely by the Board of Di-
rectors and will depend on a number of factors, including cash
flow of the Company, its financial condition and capital re-
quirements, 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 obli-
gated to pay regular quarterly distributions to holders of
depositary shares, prior to distributions on the common stock.
The Company paid four quarterly distributions totaling $2.04,
$1.84, and $1.69 per common share during 2017, 2016 and
2015, 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
accumulated earnings and profits for federal income tax pur-
poses 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. Of the
$2.04 per common share dividend paid in 2017, 83.3% was
treated as a taxable dividend and 16.7% represented a return
of capital. Of the $1.84 per common share dividend paid in
2016, 95% was treated as a taxable dividend and 5% repre-
sented a return of capital. The 2015 common dividends were
treated as taxable dividends. No assurance can be given re-
garding what portion, if any, of distributions in 2018 or
subsequent years will constitute a return of capital for federal
income tax purposes. All of the preferred stock dividends paid
are treated as ordinary dividend income.
60
SAUL CENTERS, INC. 2017 ANNUAL REPORT
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 2017 and 2016 as follows:
Market Information
COMMON STOCK PRICES
Period Share Price
High Low
October 1, 2017 – December 31, 2017 $ 65.30 $ 60.09
July 1, 2017 – September 30, 2017 $ 62.76 $ 57.58
April 1, 2017 – June 30, 2017 $ 64.59 $ 56.33
January 1, 2017– March 31, 2017 $ 66.80 $ 60.57
October 1, 2016 – December 31, 2016 $ 68.23 $ 58.79
July 1, 2016 – September 30, 2016 $ 68.58 $ 61.28
April 1, 2016 – June 30, 2016 $ 61.71 $ 51.59
January 1, 2016– March 31, 2016 $ 53.50 $ 47.77
On February 20, 2018, the closing price was $49.46 per share.
The approximate number of holders of record of the common stock was 171 as of February 20, 2018.
SAUL CENTERS, INC. 2017 ANNUAL REPORT
61
Performance Graph
Rules promulgated under the Exchange Act require the Company to present a graph comparing the cumulative total stockholder
return on its Common Stock with the cumulative total stockholder return of (i) a broad equity market index, and (ii) a published
industry index or peer group. The following graph compares the cumulative total stockholder return of the Company’s common
stock, based on the market price of the common stock and assuming reinvestment of dividends, with the National Association of
Real Estate Investment Trust Equity Index (“NAREIT Equity”), the S&P 500 Index (“S&P 500”) and the Russell 2000 Index (“Russell
2000”). The graph assumes the investment of $100 on December 31, 2012.
Comparison of Cumulative Total Return
d
e
t
s
e
v
n
I
0
0
1
$
r
e
p
n
r
u
t
e
R
l
a
t
o
T
$250
$225
$200
$175
$150
$125
$100
Dec. 31, 2012
Dec. 31, 2013
Dec. 31, 2014
Dec. 31, 2015
Dec. 31, 2016
Dec. 31, 2017
Period Ended
INDEx
Saul Centers1
S&P 5002
Russell 20003
Dec. 31, 2012 Dec. 31, 2013 Dec. 31, 2014 Dec. 31, 2015 Dec. 31, 2016 Dec. 31, 2017
$100
$100
$100
$115.11
$142.46
$131.79
$176.88
$163.80
$132.39
$150.51
$152.59
$170.84
$208.14
$138.82
$145.62
$139.19
$168.85
$225.23
NAREIT Equity4
$100
$102.47
$133.35
$137.61
$149.33
$157.14
1 Source: S&P Capital I.Q.
2 Source: Bloomberg
3 Source: FTSE Russell
4 Source: National Association of Real Estate Investment Trusts
62
SAUL CENTERS, INC. 2017 ANNUAL REPORT
Saul Centers Corporate Information
DIRECTORS
ExECUTIVE OFFICERS
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
Philip C. Jackson, Jr.
Adjunct Professor Emeritus,
Birmingham-Southern College
Patrick F. Noonan
Founder/Chairman Emeritus,
The Conservation Fund
H. Gregory Platts
Senior Vice President and
Treasurer, Emeritus,
National Geographic Society
Earl A. Powell III
Director, National Gallery of Art
Andrew M. Saul II
Chief Executive Officer
Genovation Cars
Mark Sullivan III
Financial and Legal Consultant
John R. Whitmore
Financial Consultant
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
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
Amitha Prabhu
Senior Vice President, Internal Audit
Benjamin Underwood
Vice President, Residential
COUNSEL
Pillsbury Winthrop
Shaw Pittman LLP
Washington, DC 20036
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP
McLean, Virginia 22102
WEB SITE
www.saulcenters.com
ExCHANGE LISTING
New York Stock
Exchange (NYSE) Symbol:
Common Stock: BFS
Preferred Stock: BFS.PrC
Preferred Stock: BFS.PrD
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 2017, 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
SAUL CENTERS, INC. 2017 ANNUAL REPORT
63
Severna Park Marketplace, Severna Park, MD
ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders will be
held at 11:00 a.m., local time, on May 11, 2018,
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