2018
ANNUAL REPORT
to shareholders
Saul Centers is a self-managed, self-administered
equity REIT headquartered in Bethesda, Maryland.
Saul Centers currently operates and manages a real
estate portfolio comprised of 60 properties which
includes (a) 56 community and neighborhood
shopping centers and mixed-use properties
with approximately 9.3 million square feet
of leasable area and (b) four land and
development properties. Over 85% of the
Company’s property operating income is
generated from properties in the metropolitan
Washington, DC/Baltimore area.
TOTAL REVENUE
(In millions)
2018 | $228.2
2017 | $227.3
2016 | $217.1
2015 | $209.1
2014 | $207.1
NET INCOME
Available to Common Stockholders
(In millions)
2018 | $36.0
2017 | $35.9
2016 | $32.9
2015 | $30.1
2014 | $32.1
FUNDS FROM OPERATIONS
Available to Common Shareholders*
(In millions)
2018 | $93.8
2017 | $93.9
2016 | $87.7
2015 | $83.8
2014 | $78.3
* Funds From Operations (FFO) is a non-GAAP financial
measure. The term Common Shareholders means common
stockholders and holders of noncontrolling interests. See
page 27 for a definition of FFO and reconciliation from
Net Income.
Portfolio Composition Based on 2018 Property Operating Income 1
75.6%
Shopping Centers
24.4%
Mixed-Use
85.3%
Metropolitan
Washington, DC/
Baltimore area
14.7%
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,
2018
2017
2016
2015
2014
Summary Financial Data
Total Revenue
$ 228,176,000
$ 227,285,000
$ 217,070,000
$ 209,077,000
$ 207,092,000
Net Income Available to
Common Stockholders
FFO Available to Common
Shareholders
Weighted Average Common
Stock Outstanding (Diluted)
Weighted Average Common Stock
and Units Outstanding
Net Income Per Share Available to
Common Stockholders (Diluted)
FFO Per Share Available to Common
Shareholders (Diluted)
Common Dividend as a Percentage
of FFO
Interest Expense Coveragea
$
$
Property Data
Number of Operating Propertiesb
Total Portfolio Square Feet
Shopping Center Square Feet
Mixed-Use Square Feet
Average Percentage Leasedc
$
35,964,000
$
35,882,000
$
32,904,000
$
30,093,000
$
32,102,000
$
93,821,000
$
93,987,000
$
87,749,000
$
83,815,000
$
78,281,000
22,425,000
22,008,000
21,615,000
21,196,000
20,821,000
30,156,000
29,511,000
28,990,000
28,449,000
27,977,000
1.60
$
1.63
$
1.52
$
1.42
$
3.11
$
3.18
$
3.03
$
2.95
$
66%
3.53 x
64%
3.35 x
61%
3.29 x
57%
3.24 x
1.54
2.80
56%
3.15 x
56
9,300,000
7,750,000
1,550,000
55
9,230,000
7,750,000
1,480,000
55
9,362,000
7,882,000
1,480,000
56
9,350,000
7,897,000
1,453,000
56
9,339,000
7,886,000
1,453,000
95%
95%
95%
95%
94%
(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 2014 and 2015, and Ashland
Square Phase II, New Market and N. Glebe Road in 2016, 2017 and 2018). Burtonsville Town Square was acquired in January 2017, and
7316 Wisconsin Avenue was acquired September 2018. Crosstown Business Center was sold in December 2016, and Great Eastern was
sold in September 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.
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SAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
Message
Message
to Shareholders
to Shareholders
BROADLANDS VILLAGE, ASHBURN, VA
In 2018, operating fundamentals remained solid at Saul Centers’ properties. We successfully
re-tenanted our two anchor grocery vacancies, and achieved a five-year high leasing rate of
92.8% in small shop retail spaces. As a result, we ended 2018 with an overall commercial
portfolio leasing rate of 95.5%. In addition, on a same-space basis, minimum rents
were 1.3% higher on all new and renewed leases within our retail and office portfolios.
Likewise, our residential portfolio was strong, at over 98% leased. Nevertheless, during
2018, global economic and political uncertainty contributed to volatility in interest rates
and equity markets, culminating with a decline in many of the major equity indices. The
price of Saul Centers’ common stock followed general market trends and, like other REIT
stocks, fell at year end.
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Capital Markets Accomplishments
During the first quarter of 2018, we increased
our bank financing commitments to $400 million
from $275 million. The new facility includes a
$75 million term loan and a $325 million revolving
credit line. We also expanded our banking group
to six from four national and regional banks.
Also during the first quarter, we replaced 42%
of our 67/8% Series C preferred stock with a
new issuance of 61/8% Series D preferred stock,
reducing our annual preferred dividend obligation
by $560,000 per year.
Later in 2018, we closed $54.9 million of mortgages
in order to pay notes scheduled to mature
either during 2018 or 2019. These mortgage
refinancings, combined with the preferred stock
transaction, reduced our weighted average cost
of mortgage debt and preferred equity capital
to 5.41% at year-end 2018 from 5.52% at
SAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
PARK VAN NESS, WASHINGTON, DC 750 NORTH GLEBE ROAD, ARLINGTON, VA (ARTIST’S RENDERING)
year-end 2017, representing a $1.2 million annual
reduction in combined interest payments and
preferred stock dividends. Availability under our
revolving credit line was more than $190 million
at year-end 2018, after funding over $55 million
of construction costs at our 750 N. Glebe Road
development, and acquiring our 7316 Wisconsin
Avenue development site in Bethesda, Maryland
for $40.7 million.
initiatives allows us
Developments and Acquisitions
The liquidity created through our 2018 capital
to continue
markets
supplementing our core operating performance
with developments, expansions, and acquisitions,
as opportunities are identified. During 2018, we
substantially completed the shell construction
of a 16,000 square foot small shop expansion
of our Giant Food anchored Burtonsville Town
Square shopping center in Montgomery County,
Maryland. Construction of interior improvements
in the expansion building is currently underway.
We have executed leases for 55% of the space
and we have prospects for an additional 3,900
square feet. Initial tenant openings are scheduled
to occur during the first quarter of 2019. In
addition, we have recently executed a lease with
Taco Bell, who will construct a free-standing
building on a pad site.
In November 2018, we commenced site work
construction on the 88,000 square foot Ashbrook
Marketplace, a neighborhood shopping center
in Ashburn, Virginia, which is scheduled to open
in early 2020. We have executed a lease for a
CONSTRUCTION IN PROGRESS
29,000 square foot Lidl grocery store to anchor
the center. We have also executed a gas station
pad lease and various shop space leases bringing
our overall pre-leasing totals to 44% of the
planned space. Lease negotiations are in progress
for an additional 12,000 square feet of space.
In late March 2019, we plan to commence
development of a pad site expansion on vacant
land owned at our Lansdowne Town Center in
Ashburn, Virginia. A ground lease with Chick-fil-A
has been executed for one pad with the building
to be constructed by the tenant. We have also
executed a lease with Starbucks for another pad,
on which we will construct their base building.
Both tenants are projected to be operational by
early 2020.
750 N. Glebe Road, our largest mixed–use
development to date, is under construction within
two blocks of the Ballston Metro Station in
Arlington, Virginia. The concrete structure is
complete and pre-cast concrete panels, masonry
and windows are being installed. Interior framing,
electrical, plumbing, life safety systems, and HVAC
work are also well underway. The development
is scheduled for substantial completion in early
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SAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM750 NORTH GLEBE ROAD, ARLINGTON,, VA Message
to Shareholders
7316 WISCONSIN AVENUE, BETHESDA, MD (ARTIST’S RENDERING)
2020. Upon completion, the buildings will feature
four distinct architectural façade designs, complete
with three residential lobbies, an expansive state
of the art courtyard with outdoor seating and
cooking facilities, a fitness center, community
rooms, and a rooftop swimming pool. Retail
leases have been executed for a 41,500 square
foot Target store and 9,000 square feet of shop
space, resulting in 84% of the retail space being
pre-leased. With its 490 apartment units and
60,000 square feet street-level retail space, 750
N. Glebe Road will be a significant addition to our
mixed-use portfolio.
Late in 2018, we purchased 7316 Wisconsin
Avenue and an interest in an adjacent parcel
located at 4800 Hampden Lane in Bethesda,
Maryland. The site is well located at the future
Maryland Transit Administration Purple Line
Station and the Metro Red Line Station extension,
both currently under construction. The combined
properties have mixed-use development potential
of up to 365 apartment units and 10,000 square
feet of street level retail pursuant to the approved
Bethesda Downtown Plan. We have engaged
architects and engineers, and have commenced
design review hearings and sketch plan filings with
Montgomery County as required in the site plan
and building permit process.
Including two assemblages of land totaling 17.9
acres at the White Flint and Twinbrook Red Line
Metro Stations in Montgomery County, Maryland,
our development pipeline currently includes up
to 2,450 apartments and 630,000 square feet of
commercial office and retail space, all in various
planning stages. We will continue to move
through the pre-development community approval
processes while concurrently evaluating the supply
and demand metrics of each sub-market before
selecting our next mixed-use construction start,
following 750 N. Glebe Road and 7316 Wisconsin
Avenue.
2018 Financial Results
Total revenue increased to $228.2 million, a $0.9
million increase over the prior year. Operating
income was $62.6 million compared to $60.6
million a year earlier and net income available to
common stockholders was $36.0 million, compared
to $35.9 million in 2017. The public real estate
industry’s key performance measure, Funds From
Operations (FFO) available to common stockholders
and non-controlling interests, decreased 0.2% to
$93.8 million ($3.11 per diluted share) in 2018
from $94.0 million ($3.18 per diluted share) in
2017. The 2018 FFO decrease was primarily due
to a) the net impact of 2017 anchor tenant lease
terminations at Broadlands Village and Kentlands
Square II shopping centers ($3.5 million) and b) the
extinguishment of issuance costs upon redemption
of preferred shares ($2.3 million) partially offset
by c) higher base rent ($3.6 million) and d)
lower interest and amortization of debt expense
($2.2 million). Same property operating income
decreased 0.4% in 2018 as compared to 2017.
Shopping center same property operating income
decreased $1.5 million, primarily due to a) the
$3.5 million net impact of the 2017 anchor lease
terminations and b) $0.6 million of higher property
operating expenses and real estate taxes, net of
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SAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COMPARK VAN NESS, WASHINGTON, DC
SOUTHDALE, GLEN BURNIE, MD
tenant recoveries, partially offset by c) higher base
rent of $2.8 million. Mixed-use same property
operating income increased by 1.9% primarily due
to solid residential results.
Shopping Center Performance
With 76% of our shopping center property
operating income derived from grocery-anchored
centers, neighborhood and community shopping
center operations remains our core business.
While the uses and sizes of retail tenants continue
to change in response to the continued expansion
of internet competition, our overall shopping
center leasing rate at year end was a healthy 96%.
The intensity of competition amongst grocery
stores continued throughout 2018. New market
entries such as Lidl, the increased presence of
Target and Walmart in the grocery business, and
pricing pressure from on-line grocery shopping
options continue to drive increased competition.
Despite these forces, our same store anchor
grocery sales decreased by only 0.9% during
2018, evidencing the importance of strong grocery
anchors within neighborhood and community
shopping centers to support continued healthy
traffic to their tenants.
Our centers anchored by market leaders such as
Giant, Publix, Kroger and Harris Teeter provide
47% of our shopping center property operating
income. With twenty-six of our centers anchored
by a national grocer reporting an average sales
volume of over $500 per square foot, our shopping
center portfolio results rely heavily on the traffic
generated from our grocery anchors.
KENTLANDS SQUARE, GAITHERSBURG, MD (ABOVE AND BELOW)
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Primarily fueling our property operating income
growth in 2018 was an improved overall leasing
rate to 96.0% at year-end 2018 from 94.3% at
year-end 2017. The leasing rate in small shop
space, defined as spaces that are less than 10,000
square feet, rose to 92.8% at year-end 2018, from
91.2% the prior year. Small shops comprise only
31.4% of shopping center square footage, but
they produce 49% of annualized shopping center
minimum rent. The 92.8% small shop leasing
rate marked the highest year-end rate since
pre-recession totals in 2007. Also contributing
to this growth was a strong 78% renewal
rate, as measured by expiring annualized
minimum rent. The renewal rate of 78%
exceeded our five year average of 76%. Growth
SAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM750 NORTH GLEBE ROAD, ARLINGTON,, VA Message
to Shareholders
BURTONSVILLE TOWN SQUARE, BURTONSVILLE, MD
Mixed-Use Portfolio Results
After averaging 91.1% for the five-year period
prior to 2017, our commercial leasing rate on a
same property basis in our mixed-use portfolio
ended 2018 at approximately 94% for the
second straight year. Mixed-Use same property
net operating income increased by $800,000 or
1.9%, in 2018 compared to 2017. This increase,
primarily due to a full year of stabilized operations
of Park Van Ness and a strong 2018 leasing rate
for both of our apartment projects as of December
31, 2018, was 98.2%.
Residential rents were unchanged over expiring
rents for new leases signed in 2018, after
decreasing 0.8% during 2017. Office sub-markets
in the Washington, DC metropolitan area continue
to be challenging, with high rent concession
packages and pressure on rental rates. Same
space office rents decreased by 8.0% compared
to expiring rents for the 99,000 square feet of
office leases executed in 2018, the tenth straight
year of rent declines. During 2019, only 12 office
leases comprising 75,000 square feet of space are
scheduled to expire, representing $2.6 million of
annualized base rent, thus minimizing continued
rental rate declines into the near future.
in shopping center net operating income was also
a result of same space rental rate increases of
2.6% over expiring or previous rents on 1.4 million
square feet of space, representing $24.5 million
of annualized minimum rents. Following the
decline in rents during the recession years (2009
through 2011), rents began to increase in 2012.
Rent growth has averaged 2.7% since then.
The majority of our $1.5 million decline in 2018 in
shopping center same property operating income
was caused by the $3.5 million net impact that
resulted from our 2017 anchor tenant lease
terminations at Kentlands Square II (K-Mart) and
Broadlands Village (Safeway). Adjusting for that
impact, shopping center same property operating
income grew by $2.0 million. The full positive
revenue impact of our re-tenanting of K-Mart to
At Home and Safeway to Aldi and LA Fitness will
begin to be recognized when LA Fitness begins
operations, projected to occur during the fourth
quarter 2019.
Another driver of shopping center property
operating income growth is pad site development.
We had one new pad commence rent in 2018
and we have executed a total of five additional
pad leases, with aggregate annualized rents of
$675,000, which are projected to commence
during 2019 and 2020. With capital costs
expected to total $4.5 million, these expansions
are expected to yield an attractive 15% cash-on-
cash return on investment.
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SAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COMPARK VAN NESS, WASHINGTON, DC
PALM SPRINGS CENTER, ALTAMONTE SPRINGS, FL
Capital Structure
We
three 15-year mortgage
completed
refinancings over the past six months totaling $77
million, at a weighted average interest rate of
4.56%. After paying off a total of $12.7 million of
maturing notes in January 2019, $12.2 million of
debt now matures in 2019. In total, over the next
five years, $131 million of our mortgage debt will
mature, which has a weighted average interest
rate of 5.75%. Our year-end 2018 leverage ratio
was 38.8%, based on debt to total capitalization.
As of February 28, 2019, we have $192 million
available to draw under our revolving credit
line, and equity raised through our dividend
reinvestment plan has averaged $16 million
per year over the past three years. We believe
availability under our credit facility, proceeds from
our dividend reinvestment plan and our operating
cash flow will provide adequate liquidity to fund
our proposed development pipeline over the
coming years.
total
return
Our compounded annual
to
shareholders over the more than 25 years since
our 1993 initial public offering totaled 9.8% per
year at December 31, 2018, including the general
decline in REIT share prices in late 2018. This
return is approximately 70 basis points more than
the 9.1% annual return of the S&P 500 over the
same period.
Looking ahead, we anticipate the successful
completion of construction of 750 N. Glebe Road
during the next 12 months. This development will
increase our transit-oriented luxury apartment
inventory to over 1,000 units. Additionally, we will
deploy smaller amounts of capital into selective
grocery anchored shopping center construction
and small shop and pad site expansion of existing
shopping centers, while continuing to develop
urban transit-centric, mixed-use projects as
opportunities arise.
On behalf of our Board, we continue to
acknowledge the dedication, loyalty and hard
work of our professional staff which produced
the results that have allowed our shareholders
an opportunity to participate in a long-term
successful real estate investment. And we thank
our shareholders for your confidence and support.
For the Board
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B. Francis Saul II
March 12, 2019
SAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM750 NORTH GLEBE ROAD, ARLINGTON,, VA Portfolio Properties
As of December 31, 2018, 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
Ashland Square Phase I, Dumfries, VA
Beacon Center, Alexandria, VA
BJ’s Wholesale Club, Alexandria, VA
Boca Valley Plaza, Boca Raton, FL
Boulevard, Fairfax, VA
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Briggs Chaney MarketPlace, Silver Spring, MD
Broadlands Village, Ashburn, VA
Burtonsville Town Square, Burtonsville, MD
Countryside Marketplace, Sterling, VA
Cranberry Square, Westminster, MD
Cruse MarketPlace, Cumming, GA
Flagship Center, Rockville, MD
French Market, Oklahoma City, OK
Germantown, Germantown, MD
The Glen, Woodbridge, VA
Great Falls Center, Great Falls, VA
Hampshire Langley, Takoma Park, MD
Hunt Club Corners, Apopka, FL
Jamestown Place, Altamonte Springs, FL
Kentlands Square I, Gaithersburg, MD
Kentlands Square II, Gaithersburg, MD
Kentlands Place, Gaithersburg, MD
Lansdowne Town Center, Leesburg, VA
Leesburg Pike Plaza, Baileys Crossroads, VA
Lumberton Plaza, Lumberton, NJ
Metro Pike Center, Rockville, MD
Shops at Monocacy, Frederick, MD
Northrock, Warrenton, VA
Olde Forte Village, Ft. Washington, MD
221,596
23,120
356,971
115,660
121,269
49,140
194,258
174,438
122,052
138,804
141,450
78,686
21,500
246,148
18,982
136,440
91,666
131,700
107,103
96,201
114,381
246,965
40,697
189,422
97,752
192,718
67,488
109,144
100,032
143,577
Olney, Olney, MD
Orchard Park, Dunwoody, GA
Palm Springs Center, Altamonte Springs, FL
Ravenwood, Baltimore, MD
11503 Rockville Pk / 5541 Nicholson Ln, Rockville, MD
1500/1580/1582/1584 Rockville Pike, Rockville, MD
Seabreeze Plaza, Palm Harbor, FL
Marketplace at Sea Colony, Bethany Beach, DE
Seven Corners, Falls Church, VA
Severna Park Marketplace, Severna Park, MD
Shops at Fairfax, Fairfax, VA
Smallwood Village Center, Waldorf, MD
Southdale, Glen Burnie, MD
Southside Plaza, Richmond, VA
South Dekalb Plaza, Atlanta, GA
Thruway, Winston-Salem, NC
Village Center, Centreville, VA
Westview Village, Frederick, MD
White Oak, Silver Spring, MD
53,765
87,365
126,446
93,328
40,249
110,128
146,673
21,677
573,481
254,011
68,762
173,341
485,628
371,761
163,418
366,693
145,651
97,858
480,676
total shopping centers
7,750,271
Mixed-Use Properties
Avenel Business Park, Gaithersburg, MD
Clarendon Center – North, Arlington, VA
Clarendon Center – South, Arlington, VA
(includes 244 apartments comprising 188,671 square feet)
Park Van Ness, Washington, DC
(includes 271 apartments comprising 214,600 square feet)
601 Pennsylvania Ave., Washington, DC
Washington Square, Alexandria, VA
7316 Wisconsin Avenue, Bethesda, MD
total mixed-use properties
total portfolio
390,683
108,386
293,565
223,447
227,651
236,376
69,601
1,549,709
9,299,980
SAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
Financial Section
TABLE OF CONTENTS
Selected Financial Data ......................................Page 10
Management’s Discussion and
Analysis of Financial Condition and
Results of Operations .................................. Pages 11-31
Quantitative and Qualitative Disclosures
About Market Risk .............................................Page 31
Management’s Report on Internal Control Over
Financial Reporting ............................................Page 32
Report of Independent Registered
Public Accounting Firm: Opinion on the
Financial Statements ..........................................Page 33
Report of Previous Independent Registered
Public Accounting Firm: Opinion on Internal
Control Over Financial Reporting ........................Page 34
Report of Independent Registered
Public Accounting Firm: Opinion on the
Financial Statements ..........................................Page 35
Consolidated Balance Sheets ..............................Page 36
Consolidated Statements of Operations .............Page 37
Consolidated Statements of
Comprehensive Income ......................................Page 38
Consolidated Statements of Equity .....................Page 39
Consolidated Statements of Cash Flows .............Page 40
Notes to Consolidated
Financial Statements ................................... Pages 41-64
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SAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
Selected Financial Data
(In thousands, except per share data)
Operating Data:
Total property revenue
Total property expenses
Property operating income
Other revenue
Total other expenses
Operating income
Non-operating income:
Change in fair value of derivatives
Gains on sales of properties
Net income
Income attributable to noncontrolling interests
Net income attributable to Saul Centers, Inc.
Preferred stock redemption
Preferred dividends
Net income available to common stockholders
Per Share Data (diluted):
Net income available to common stockholders
Basic and Diluted Shares Outstanding:
Weighted average common shares - basic
Effect of dilutive options
Weighted average common shares - diluted
Weighted average convertible limited partnership units
Weighted average common shares and fully converted
$
$
$
2018
227,904
56,263
171,641
272
(109,360)
62,553
(3)
509
63,059
(12,505)
50,554
(2,328)
(12,262)
Years Ended December 31,
2016
2017
2015
$
$
227,205
55,592
171,613
80
(111,095)
60,598
70
—
60,668
(12,411)
48,257
—
(12,375)
$
217,019
53,701
163,318
51
(107,656)
55,713
(6)
1,013
56,720
(11,441)
45,279
—
(12,375)
$
209,026
51,143
157,883
51
(105,004)
52,930
(10)
11
52,931
(10,463)
42,468
—
(12,375)
2014
207,017
49,513
157,504
75
(105,650)
51,929
(10)
6,069
57,988
(11,045)
46,943
(1,480)
(13,361)
35,964
$
35,882
$
32,904
$
30,093
$
32,102
1.60
$
1.63
$
1.52
$
1.42
$
1.54
22,383
42
22,425
7,731
21,901
107
22,008
7,503
21,505
110
21,615
7,375
21,127
69
21,196
7,253
20,772
49
20,821
7,156
limited partnership units - diluted
30,156
29,511
28,990
28,449
27,977
Dividends Paid:
Cash dividends to common stockholders (1)
Cash dividends per share
Balance Sheet Data:
$
$
46,306
2.08
$
$
44,576
2.04
$
$
39,472
1.84
$
$
35,645
1.69
$
$
32,346
1.56
Real estate investments (net of accumulated depreciation)
Total assets
Total debt, including accrued interest
Preferred stock
Total equity
Cash flow provided by (used in):
Operating activities
Investing activities
Financing activities
Funds from operations (2):
Net income
Real property depreciation and amortization
Gain on property dispositions and casualty settlements
Funds from operations
Extinguishment of issuance costs upon redemption of
preferred shares
Preferred dividends
Funds from operations available to common stockholders
and noncontrolling interests
$ 1,422,647
1,527,489
1,026,932
180,000
425,220
$ 1,315,034
1,422,452
962,162
180,000
393,103
$ 1,242,534
1,343,025
903,709
180,000
373,249
$ 1,197,340
1,295,408
869,652
180,000
353,727
$ 1,163,542
1,257,113
850,727
180,000
339,257
$
$
$
$
110,339
(128,650)
21,981
63,059
45,861
(509)
$
$
$
$
103,450
(113,306)
12,442
60,668
45,694
—
$
$
$
$
$
$
$
$
89,090
(86,274)
(4,497)
56,720
44,417
(1,013)
$
$
$
$
88,896
(69,587)
(21,434)
52,931
43,270
(11)
86,568
(83,589)
(8,148)
57,988
41,203
(6,069)
$
108,411
$
106,362
$
100,124
$
96,190
$
93,122
(2,328)
(12,262)
—
(12,375)
—
(12,375)
—
(12,375)
(1,480)
(13,361)
$
93,821
$
93,987
$
87,749
$
83,815
$
78,281
(1) During 2018, 2017, 2016, 2015, and 2014, shareholders reinvested $28.8 million, $15.8 million, $10.3 million, $10.6 million and $9.3 million,
respectively, in newly issued common stock through the Company’s dividend reinvestment plan.
(2) Funds from operations (FFO) is a non-GAAP financial measure and is defined in “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations-Funds From Operations.”
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Management’s Discussion and Analysis
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Con-
dition 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 Compa-
ny’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 arrangements,
sources of capital and financial commitments. Finally, on
page 27, the Company discusses funds from operations, or
FFO, which is a non-GAAP financial measure of performance
of an equity REIT used by the REIT industry.
The MD&A should be read in conjunction with the other
sections of this Annual Report, including the consolidated
financial statements and notes thereto beginning on
page 36. 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 prop-
erties. The Company’s long-term objectives are to increase
cash flow from operations and to maximize capital appreci-
ation of its real estate investments.
The Company’s primary operating strategy is to focus on
its community and neighborhood Shopping Center busi-
ness and its transit-centric, primarily residential mixed-use
properties to achieve both cash flow growth and capital
appreciation. Management believes there is potential for
long term growth in cash flow as existing leases for space in
the Shopping Center and Mixed-Use Properties expire and
are renewed, or newly available or vacant space is leased.
The Company intends to renegotiate leases where possible
and seek new tenants for available space in order to op-
timize the mix of uses to improve foot traffic through the
Shopping Centers. As leases expire, management expects to
revise rental rates, lease terms and conditions, relocate ex-
isting 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 se-
lectively 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 percent-
age rental provisions, in its leases.
The Company’s redevelopment and renovation objective is
to selectively and opportunistically redevelop and renovate
its properties, by replacing below-market-rent leases with
strong, traffic-generating anchor stores such as supermar-
kets and drug stores, as well as other desirable local, regional
and national tenants. The Company’s strategy remains fo-
cused 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, landscaped courtyards, a fitness room, a wi-fi lounge/
business center, and a rooftop pool and deck. The struc-
ture comprises 11 levels, five of which on the east side are
below street level. Because 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 December 31, 2018, 263
apartments (97.0%) were leased. The total cost of the proj-
ect, excluding predevelopment expense and land, which
the Company has owned, was approximately $93.0 mil-
lion, 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 prop-
erties 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
combined total 7.6 acres which are zoned for a develop-
ment potential of up to 1.6 million square feet of mixed-use
space. The Company is actively engaged in a plan for re-
development 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 mil-
lion 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
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fee revenue was partially offset by the loss of approximately
$1.1 million in rental revenue over the remainder of 2016.
The Company executed leases with two replacement ten-
ants, whose occupancy and rent commencement occurred
in 2017. While the Company continues to plan for a mixed-
use development at this site and its neighboring Metro Pike
Center, the initial phases of this development are expected
to be on the west side of Rockville Pike at Metro Pike Cen-
ter. The Company has not committed to any timetable for
commencement of construction.
From 2014 through 2016, in separate transactions, the
Company purchased four adjacent properties on North
Glebe Road in Arlington, Virginia, for an aggregate $54.0
million. The Company is developing approximately 490 res-
idential units and 60,000 square feet of retail space, on 2.8
acres of land. Concrete work is substantially complete and
pre-cast facade panels, masonry and windows are being
installed. Interior framing, electrical, plumbing and HVAC
work have commenced. 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, a portion of which is being fi-
nanced by a $157.0 million construction-to-permanent loan.
Leases have been executed for a 41,500 square foot Target
and 9,000 square feet of retail shop space, resulting in ap-
proximately 84% of the retail space being leased.
Albertson’s/Safeway, currently a tenant at seven of the
Company’s shopping centers (two stores of which are op-
erated by subtenants), 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, Mont-
gomery County, Maryland. The lease at Briggs Chaney
remains in full force and effect and Albertson’s/Safeway
has executed a sublease with a replacement grocer, Global
Food, for that space, which commenced operations in March
2017. The Company terminated the lease with Albertson’s/
Safeway at Broadlands and executed a lease with Aldi Food
Market for 20,000 square feet of this space, which opened
in November 2017, and has executed a lease with LA Fit-
ness for substantially all of the remaining space. The fitness
center is projected to open for business during the fourth
quarter of 2019. In August 2018, Safeway closed its store
at Palm Springs Center in Florida. The lease was purchased
by Publix, and the store re-opened in November 2018.
In January 2017, the Company purchased for $76.4 mil-
lion, including 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 has
substantially completed construction of the shell of a 16,000
square foot small shop expansion and construction of inte-
rior improvements is underway. Delivery of the first leased
tenant spaces occurred in late 2018, with initial tenant
openings scheduled for the first quarter of 2019. The total
development cost is expected to be approximately $5.7 mil-
lion. Leases have been executed for approximately 55% of
the space and the Company has prospects for an additional
3,900 square feet. In addition, a lease has been executed
with Taco Bell who will construct a free-standing building on
a pad site within the property.
During the three months ended June 30, 2017, the Company
executed a termination agreement with Kmart at Kentlands
Square II. Kmart closed its 104,000 square foot store at
Kentlands in September 2017, and the Company gained
possession on October 31, 2017. As a result of the ter-
mination, the mortgage loan agreement requires that Saul
Centers guarantee approximately $9.2 million of that loan
effective October 31, 2017 (the termination date), which
will be reduced upon satisfaction of conditions stated in the
loan documents. Annual revenue to the Company under the
Kmart lease totaled approximately $1.3 million. In Septem-
ber 2018, the Company executed a lease with At Home for
all of the space, which opened for business in January 2019.
In May 2018, the Company acquired from the Saul Trust,
in exchange for 176,680 limited partnership units, ap-
proximately 13.7 acres of land located at the intersection
of Ashburn Village Boulevard and Russell Branch Parkway
in Ashburn, Virginia. The Company has received site plan
approval and building permits for an approximately 88,000
square foot neighborhood shopping center. A 29,000
square foot anchor grocery store lease has been executed
with Lidl and, including an executed gas station pad lease and
shop space leases, overall pre-leasing totals approximately
44% of the planned space. In addition, lease negotiations
are in progress for approximately 12,000 square feet of
the planned pad building and small shop space. Site work
commenced in November 2018, the grocer is scheduled to
begin construction in the second quarter of 2019, and the
shopping center is scheduled to open in early 2020. After
construction of the shopping center and upon stabilization,
the Company may be obligated to issue additional limited
partnership units to the Saul Trust.
In September 2018, the Company purchased for $35.5
million, plus $0.7 million of acquisition costs, an office build-
ing and the underlying ground located at 7316 Wisconsin
Avenue in Bethesda, Maryland. This site has mixed-use
development potential of up to 325 apartment units and ap-
proximately 10,000 square feet of street level retail pursuant
to the approved Bethesda Downtown Plan. In December
2018, the Company purchased for $4.5 million, including
acquisition costs, an interest in an adjacent parcel of land
Management’s Discussion and Analysis OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM and retail building. The Company is evaluating concept
plans for the combined property in order to increase the
mixed-use development potential by up to 40 additional
apartment units. The purchase price was funded through
the Company’s credit facility.
In March 2019, the Company plans to commence de-
velopment of a pad site expansion on land owned at its
Lansdowne Town Center property in Ashburn, Virginia.
Total development costs are expected to be approximately
$4.0 million. A ground lease with Chick-fil-A has been ex-
ecuted for one pad with the building to be constructed by
the tenant. A lease with Starbucks has been executed for
another pad and the Company will construct the building
shell. Both buildings are projected to be completed and
occupied by early 2020.
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, management believes acquisition opportunities
for investment in existing and new Shopping Center and
Mixed-Use Properties in the near future is uncertain. Because
of its conservative capital structure, including its cash and
capacity under its revolving credit facility, management be-
lieves that the Company is positioned to take advantage of
additional investment opportunities as attractive properties
are identified and market conditions improve. (See “Item 1.
Business - Capital Policies”). It is management’s view that
several of the sub-markets in which the Company operates
have, or are expected to have in the future, attractive supply/
demand characteristics. The Company will continue to evalu-
ate 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 Washington, DC metropolitan area have remained rela-
tively stable, issues facing the Federal government relating to
taxation, spending and interest rate policy will likely impact
the office, retail and residential real estate markets over the
coming years. Because the majority of the Company’s prop-
erty operating income is produced by our shopping centers,
we continually monitor the implications of government pol-
icy 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 commercial leasing percent-
age, on a comparable property basis, which excludes the
impact of properties not in operation for the entirety of the
comparable periods, increased to 95.7% at December 31,
2018, from 94.3% at December 31, 2017.
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 Decem-
ber 31, 2018, amortizing fixed-rate mortgage debt with
staggered maturities from 2019 to 2035 represented ap-
proximately 88.2% of the Company’s notes payable, thus
minimizing refinancing risk. The Company’s variable-rate
debt consists of $122.0 million outstanding under the credit
facility. As of December 31, 2018, the Company has loan
availability of approximately $190.7 million under its $325.0
million revolving credit facility.
On January 4, 2019, the Company repaid in full the remain-
ing balance of the mortgage loan secured by Countryside
Marketplace, which was scheduled to mature in July 2019.
On January 10, 2019, the Company closed on a 15-year,
non-recourse $22.1 million mortgage loan secured by Olde
Forte Village. The loan matures in 2034, bears interest at
a fixed-rate of 4.65%, requires monthly principal and inter-
est payments of $124,700 based on a 25-year amortization
schedule and requires a final payment of $12.1 million.
Proceeds were partially used to repay in full the existing
mortgage secured by Olde Forte Village, which was sched-
uled to mature in May 2019.
The Operating Partnership entered into a Credit Agree-
ment dated January 26, 2018, by and among the Operating
Partnership, as Borrower, Wells Fargo Bank, National As-
sociation, as Administrative Agent, Capital One, National
Association, as Syndication Agent, Wells Fargo Securities,
LLC and Capital One, National Association, as Joint Lead Ar-
rangers, Wells Fargo Securities, 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 Association, as Lenders (the
“New Credit Agreement”).
The New Credit Agreement consists of a $400.0 million
credit facility, of which $325.0 million is a revolving credit
facility and $75.0 million is a term loan. The revolving credit
facility matures on January 26, 2022, and may be extended
by the Company for one additional year, subject to satisfac-
tion 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 exist-
ing unencumbered properties. Interest accrues at a rate of
LIBOR plus a spread of 135 basis points to 195 basis points
under the revolving credit facility, and 130 basis points to 190
basis points under the term loan, each as determined by cer-
tain leverage tests. As of December 31, 2018, the applicable
spread for borrowings is 135 basis points under the revolving
credit facility and 130 basis points under the term loan.
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The Company and certain subsidiaries of the Operating
Partnership and the Company have guaranteed the payment
obligations of the Partnership under the new facility.
Although it is management’s present intention to con-
centrate 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 pres-
ent themselves. While the Company may diversify in terms
of property locations, size and market, the Company does
not set any limit on the amount or percentage of Company
assets that may be invested in any one property or any one
geographic area.
CRITICAL ACCOUNTING POLICIES
The Company’s consolidated financial statements are pre-
pared in accordance with accounting principles generally
accepted in the United States (“GAAP”), which requires
management to make certain estimates and assumptions
that affect the reporting of financial position and results
of operations. See Note 2 to the Consolidated Financial
Statements in this report. The Company has identified the
following policies that, due to estimates and assumptions
inherent in those policies, involve a relatively high degree of
judgment and complexity.
Real Estate Investments
Real estate investment properties are stated at historic cost
less depreciation. Although the Company intends to own
its real estate investment properties over a long term, from
time to time it will evaluate its market position, market
conditions, and other factors and may elect to sell properties
that do not conform to the Company’s investment profile.
Management believes that the Company’s real estate assets
have generally appreciated in value since their acquisition or
development and, accordingly, the aggregate current value
exceeds their aggregate net book value and also exceeds the
value of the Company’s liabilities as reported in the financial
statements. Because the financial statements are prepared in
conformity with GAAP, they do not report the current value
of the Company’s real estate investment properties.
The Company purchases real estate investment properties
from time to time and records assets acquired and liabilities
assumed, including land, buildings, and intangibles related
to in-place leases and customer relationships based on their
relative 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 intangibles associated with in-place leases by assess-
ing 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 con-
tractual lease period. If the fair value of the below market
lease intangible includes fair value associated with a renewal
option, such amounts are not accreted until the renewal
option is exercised. If the renewal option is not exercised
the value is recognized at that time. The fair value of above
market lease intangibles is recorded as a deferred asset and
is amortized as a reduction of lease revenue over the remain-
ing contractual lease term. The Company determines the
fair value of at-market in-place leases considering the cost of
acquiring similar leases, the foregone rents associated with
the lease-up period and carrying costs associated with the
lease-up period. Intangible assets associated with at-market
in-place leases are amortized as additional expense over the
remaining contractual lease term. To the extent customer
relationship intangibles are present in an acquisition, the
fair value of the intangibles are amortized over the life of
the customer relationship. From time to time the Company
may purchase a property for future development purposes.
The property may be improved with an existing 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 transac-
tion 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 indi-
cates 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 es-
tate investment property exceeds its estimated fair value.
The Company considers both quantitative and qualitative
factors in identifying impairment indicators including recur-
ring operating losses, significant decreases in occupancy,
and significant adverse changes in market conditions, legal
factors and business climate. If impairment indicators are
present, the Company compares the projected cash flows
of the property over its remaining useful life, on an undis-
counted 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 prop-
erty. If the carrying value is greater than the undiscounted
projected cash flows, the Company would recognize an im-
pairment loss equivalent to an amount required to adjust
Management’s Discussion and Analysis OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM 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 nega-
tively or positively affected.
When incurred, the Company capitalizes the cost of im-
provements that extend the useful life of property and
equipment. All repair and maintenance expenditures are
expensed when incurred. Leasehold improvements expendi-
tures are capitalized when certain criteria are met, including
when we supervise construction and will own the improve-
ment. Tenant improvements we own are depreciated over
the life of the respective lease or the estimated useful life of
the improvements, whichever is shorter.
Interest, real estate taxes, development-related salary
costs and other carrying costs are capitalized on projects
under construction. Upon substantial completion of con-
struction, the assets are placed in service, rental income,
direct operating expenses, and depreciation associated with
such properties are included in current operations. Com-
mercial development projects are substantially complete
and available for occupancy upon completion of tenant
improvements, but no later than one year from the cessation
of major construction activity. Residential development proj-
ects are considered substantially complete and available for
occupancy upon receipt of the certificate of occupancy from
the appropriate licensing authority. Substantially completed
portions of a project are accounted for as separate projects.
Depreciation is calculated using the straight-line method and
estimated useful lives of generally between 35 and 50 years
for base buildings, or a shorter period if management deter-
mines that the building has a shorter useful life, and up to 20
years for certain other improvements.
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 cannot be predicted with certainty, the Company
believes the final outcome of current matters will not have a
material adverse effect on its financial position or the results
of operations. 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
The following is a discussion of the components of revenue and expense for the entire Company.
Revenue
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(Dollars in thousands)
Base rent
Expense recoveries
Percentage rent
Other property revenue
Other revenue
Year ended December 31,
2017
2018
2016
$ 184,684
$ 181,141
$ 172,381
35,537
35,347
34,269
994
6,689
272
1,458
9,259
80
1,379
8,990
51
Total revenue
$ 228,176
$ 227,285
$ 217,070
Percentage Change
2018 from 2017
2017 from 2016
2.0 %
0.5 %
(31.8) %
(27.8) %
240.0 %
0.4 %
5.1 %
3.1 %
5.7 %
3.0 %
56.9 %
4.7 %
Base rent includes $(0.9) million, $0.5 million and $1.8 million, for the years 2018, 2017, and 2016, respectively, to recognize
base rent on a straight-line basis. In addition, base rent includes $1.5 million, $1.7 million and $1.8 million, for the years 2018,
2017, and 2016, respectively, to recognize income from the amortization of in-place leases.
Management’s Discussion and Analysis OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
Management’s Discussion and Analysis
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Total revenue increased 0.4% in 2018 compared to 2017
primarily due to (a) a $0.64 per square foot increase in base
rent ($5.5 million), exclusive of the net impact of 2017 lease
terminations at Broadlands and Kentlands Square II, (b)
higher residential base rent ($1.0 million), (c) higher other
property revenue ($1.0 million), exclusive of the termination
fee at Broadlands and (d) higher expense recoveries ($0.2
million), partially offset by (e) the net impact of 2017 lease
terminations at Broadlands and Kentlands Square II ($3.5
million), (f) a 142,665 square foot decrease in leased space
($2.8 million), exclusive of the net impact of a 2017 lease
termination at Broadlands and Kentlands Square II, and
(g) lower percentage rent ($0.5 million). Total revenue in-
creased 4.7% in 2017 compared to 2016 primarily due to
(a) a $0.76 per square foot increase in base rent ($6.6 mil-
lion), (b) higher residential base rent ($4.8 million), and (c)
higher expense recoveries ($1.1 million) partially offset by
(d) a 135,477 square foot decrease in leased space ($2.5
million). A discussion of the components of revenue follows.
Base rent
The $3.5 million increase in base rent in 2018 compared to
2017 was attributable to (a) a $0.64 per square foot increase
in base rent ($5.5 million) and (b) higher residential base
rent ($1.0 million) partially offset by (c) a 142,665 square
foot decrease in leased space ($2.8 million). The $8.8 mil-
lion increase in base rent in 2017 compared to 2016 was
attributable to (a) a $0.76 per square foot increase in base
rent ($6.6 million) and (b) higher residential base rent ($4.8
million) partially offset by (c) a 135,477 square foot decrease
in leased space ($2.5 million).
Expense recoveries
Expense recovery income increased $0.2 million in 2018
compared to 2017. Expense recovery income increased
$1.1 million in 2017 compared to 2016 primarily due to
higher real estate tax expense.
Other revenue
Other property revenue decreased $2.6 million in 2018 com-
pared to 2017 primarily due to the collection in 2017 of a
termination fee at Broadlands ($3.6 million) partially offset
by termination fees collected in 2018 ($0.7 million). Other
property revenue increased $0.3 million in 2017 compared
to 2016.
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(Dollars in thousands)
Operating Expenses
Year ended December 31,
2017
2018
2016
Percentage Change
2018 from 2017
2017 from 2016
Property operating expenses
$ 28,202
$ 27,689
$ 27,527
1.9 %
Provision for credit losses
685
906
1,494
(24.4) %
Real estate taxes
27,376
26,997
24,680
1.4 %
45,040
47,225
45,683
(4.6) %
Interest expense and amortization
of deferred debt costs
Depreciation and amortization of
deferred leasing costs
45,861
45,694
44,417
General and administrative
18,459
18,176
17,496
Acquisition related costs
—
—
60
Total expenses
$ 165,623
$ 166,687
$ 161,357
0.4 %
1.6 %
—
(0.6) %
0.6 %
(39.4) %
9.4 %
3.4 %
2.9 %
3.9 %
(100.0) %
3.3 %
Total operating expenses decreased 0.6% in 2018 compared to 2017. Total operating expenses increased 3.3% in 2017
compared to 2016.
SAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
Management’s Discussion and Analysis
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Property operating expenses
Property operating expenses increased $0.5 million in 2018
compared to 2017. Property operating expenses increased
$0.2 million in 2017 compared to 2016.
Provision for credit losses
The provision for credit losses represents the Company’s
estimate of amounts owed by tenants that may not be
collectible and was 0.30%, 0.40%, and 0.69% for 2018,
2017, and 2016, respectively.
Real estate tax es
Real estate taxes increased $0.4 million in 2018 compared
to 2017. Real estate taxes increased $2.3 million in 2017
compared to 2016 primarily due to (a) Park Van Ness ($0.7
million), (b) Burtonsville Town Square ($0.4 million) and (c)
small increases throughout the remainder of the portfolio.
Interest expense and amortization
of deferred debt costs
Interest expense and amortization of deferred debt costs de-
creased by $2.2 million in 2018 compared to 2017 primarily
due to higher capitalized interest ($2.7 million). Interest
expense and amortization of deferred debt costs increased
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 capital-
ized interest ($1.0 million) and (d) lower average balances
of mortgage debt throughout the portfolio ($0.4 million).
Depreciation and amortization
Depreciation and amortization of deferred leasing costs
increased by $0.2 million in 2018 compared to 2017. Depre-
ciation and amortization of deferred leasing costs increased
$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).
GAIN ON SALES OF PROPERTIES
Gain on sale of property in 2018 resulted from the recogni-
tion of the gain deferred in connection with the September
2017 sale of Great Eastern. Gain on sale of property in
2016 resulted from the December 2016 sale of Crosstown
Business Center.
SAME PROPERTY REVENUE AND
SAME PROPERTY OPERATING INCOME
Same property revenue and same property operating in-
come 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 property revenue minus
the revenue of properties not in operation for the entirety
of the comparable reporting periods, and we define same
property operating income as property operating income
minus 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
operating income may not be comparable to those of other
REITs.
Same property revenue and same property operating income
are used by management to evaluate and compare the oper-
ating 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 amorti-
zation expenses, 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 incurred by operating our properties.
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General and administrative
General and administrative costs increased $0.3 million in
2018 compared to 2017 primarily due to increased unused
line of credit fees ($0.2 million). General and administrative
costs increased $0.7 million in 2017 compared to 2016 primar-
ily due to increased salary and benefit expense ($0.6 million).
Same property revenue and same property operating income
are measures of the operating performance of our proper-
ties but do not measure our performance as a whole. Such
measures are therefore not substitutes for total revenue, net
income or operating income as computed in accordance
with GAAP.
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 Company’s existing Thruway Shopping Center.
SAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM The tables below provide reconciliations of property revenue and property operating income under GAAP to same property
revenue and same property operating income for the indicated periods. The same property results include 48 Shopping Centers
and six Mixed-Use properties for each period.
Same Property Revenue
(in thousands)
Total property revenue
Less: Acquisitions, dispositions and development properties
Total same property revenue
Shopping centers
Mixed-Use properties
Total same property revenue
Total shopping center revenue
Less: Shopping Center acquisitions, dispositions and development properties
Total same shopping center property revenue
Total mixed-use property revenue
Less: Mixed-Use acquisitions, dispositions and development properties
Total same Mixed-Use revenue
Year ended December 31,
2018
2017
$
227,904
$
227,205
(5,839)
222,065
159,806
62,259
222,065
164,671
(4,865)
159,806
63,233
(974)
62,259
$
$
$
$
$
$
$
$
$
$
$
$
$
(5,460)
221,745
160,393
61,352
221,745
165,853
(5,460)
160,393
61,352
—
$
61,352
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The $0.3 million increase in same property revenue for 2018 compared to 2017 was primarily due to (a) a $0.48 per square
foot increase in base rent ($4.0 million), exclusive of the net impact of 2017 lease terminations at Broadlands and Kentlands
Square II, (b) higher other property revenue ($0.6 million), exclusive of the termination fee at Broadlands and (c) increased
expense recovery income ($0.3 million), partially offset by (d) the net impact of 2017 lease terminations at Broadlands and
Kentlands Square II ($3.5 million) and (e) a 67,786 square foot decrease in leased space ($1.3 million), exclusive of the net
impact of 2017 lease terminations at Broadlands and Kentlands Square II.
Same Property Operating Income
(in thousands)
Property operating income
Less: Acquisitions, dispositions and development properties
Total same property operating income
Shopping centers
Mixed-Use properties
Total same property operating income
Shopping Center operating income
Less: Shopping Center acquisitions, dispositions and development properties
Total same Shopping Center operating income
Mixed-Use property operating income
Less: Mixed-Use acquisitions, dispositions and development properties
Total same Mixed-Use property operating income
Year ended December 31,
2018
2017
$
171,641
$
171,613
(4,787)
166,854
125,641
41,213
166,854
129,701
(4,060)
125,641
41,940
(727)
41,213
$
$
$
$
$
$
$
$
$
$
$
$
$
(4,083)
167,530
127,095
40,435
167,530
131,178
(4,083)
127,095
40,435
—
$
40,435
Management’s Discussion and Analysis OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
Operating Activities
Net cash provided by operating activities increased $6.8
million to $110.3 million for the year ended December 31,
2018 compared to $103.5 million for the year ended De-
cember 31, 2017. Net cash provided by operating activities
represents, in each year, cash received primarily from rental
income, plus other income, less property operating expenses,
normal recurring general and administrative expenses and in-
terest payments on debt outstanding.
Investing Activities
Net cash used in investing activities increased $15.4 million
to $128.7 million for the year ended December 31, 2018
from $113.3 million for the year ended December 31,
2017. Investing activities in 2018 primarily reflect tenant
improvements and capital expenditures ($12.9 million), the
Company’s development activities ($76.3 million) and the
acquisition of various retail real estate assets ($40.8 million).
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 (a) tenant im-
provements and capital expenditures ($17.7 million), (b) the
Company’s development activities ($22.8 million) and (c) the
acquisition of various retail real estate assets ($79.5 million).
Financing Activities
Net cash provided by financing activities was $22.0 million
and $12.4 million for the years ended December 31, 2018
and 2017, respectively. Net cash used in financing activities
in 2018 primarily reflects:
• proceeds of $54.9 million from mortgage notes payable;
• proceeds of $75.0 million from the term loan facility;
• net proceeds of $72.4 million from the issuance of Series
D preferred stock;
• proceeds of $102.0 million received from revolving credit
facility draws;
• proceeds of $5.4 million from the issuance of limited
partnership units in the Operating Partnership under the
dividend reinvestment program;
• proceeds of $30.5 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 $23.3 million received from construction loan
draws.
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Same property operating income decreased $0.7 million for
2018 compared to 2017 due primarily to (a) the net impact of
2017 lease terminations at Broadlands and Kentlands II ($3.5
million), (b) a 67,786 square foot decrease in leased space
($1.3 million), (c) lower percentage rent ($0.5 million) and (d)
higher commercial property operating expenses net of expense
recoveries ($0.5 million), partially offset by (e) a $0.48 per
square foot increase in base rent ($4.0 million), exclusive of
the net impact of 2017 lease terminations at Broadlands and
Kentlands Square II, (f) higher residential operating income
($0.8 million) and (g) higher other property revenue ($0.6 mil-
lion), exclusive of the termination fee at Broadlands.
IMPACT OF INFLATION
Inflation has remained relatively low during 2018 and 2017.
The impact of rising operating expenses due to inflation
on the operating 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 operations. These provisions
include upward periodic adjustments in base rent due from
tenants, usually based on a stipulated increase and to a
lesser extent on a factor of the change in the consumer price
index, commonly referred to as the CPI.
In addition, substantially all of the Company’s properties
are leased to tenants under long-term leases, which provide
for reimbursement of operating expenses by tenants. These
leases tend to reduce the Company’s exposure to rising
property expenses due to inflation. Inflation and increased
costs may have an adverse 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 $14.6 million and $10.9 mil-
lion at December 31, 2018 and 2017, respectively. The
changes in cash and cash equivalents during the years ended
December 31, 2018 and 2017 were attributable to operat-
ing, investing and financing activities, as described below.
(in thousands)
Net cash provided by
operating activities
Net cash used in
investing activities
Net cash provided in
financing activities
Year Ended December 31,
2018
2017
$ 110,339
$ 103,450
(128,650)
(113,306)
21,981
12,442
Increase in cash equivalents
$
3,670
$
2,586
Management’s Discussion and Analysis OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
which was partially offset by:
• the partial redemption of Series C preferred stock totaling
$75.0 million;
• the repayment of mortgage notes payable totaling
$72.6 million;
• the repayment of amounts borrowed under the revolving
credit facility totaling $116.0 million;
• distributions to common stockholders totaling $46.3 million;
• distributions to holders of convertible limited partnership
units in the Operating Partnership totaling $16.0 million;
• distributions made to preferred stockholders totaling
$12.4 million; and
• payments of $3.2 million for financing costs of mortgage
notes payable;
Net cash provided by financing activities for the year ended
December 31, 2017 primarily reflects:
• proceeds of $100.0 million from mortgage notes payable;
• proceeds of $63.0 million received from revolving credit
facility;
• proceeds of $6.7 million from the issuance of limited
partnership units in the Operating Partnership under the
dividend reinvestment program;
• proceeds of $22.8 million received from the issuance of
common stock under the dividend reinvestment program
and from the exercise of stock options; and
• proceeds of $1.4 million from construction loan draws.
which was partially offset by:
• repayments of $51.0 million on the revolving credit facility;
• the repayment of mortgage notes payable totaling $55.7
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 new
mortgage loans;
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LIQUIDITY REQUIREMENTS
Short-term liquidity requirements consist primarily of nor-
mal recurring operating expenses and capital expenditures,
debt service requirements (including debt service relating
to additional and replacement debt), distributions to com-
mon 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 stockholders at least 90% of its “real estate in-
vestment trust taxable income,” as defined in the Code. The
Company expects to meet these short-term liquidity require-
ments (other than amounts required for additional property
acquisitions and developments) through cash provided from
operations, available cash and its existing line of credit.
Long-term liquidity requirements consist primarily of ob-
ligations 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 ex-
pected to be approximately $275.0 million. The Company
had invested $162.2 million as of December 31, 2018, and
expects to invest approximately $73.4 million during 2019.
The 2019 cost and the remaining cost will be funded by a
$157.0 million construction-to-permanent loan. The Com-
pany may also redevelop certain of the Current Portfolio
Properties and may develop additional freestanding outpar-
cels or expansions within certain of the Shopping Centers.
Acquisition and development of properties are undertaken
only after careful analysis and review, and management’s
determination that such properties are expected to pro-
vide long-term earnings and cash flow growth. During the
coming year, developments, expansions or acquisitions are
expected to be funded with available cash, bank borrowings
from the Company’s credit line, construction and permanent
financing, proceeds from the operation of the Company’s
dividend reinvestment plan or other external debt or eq-
uity capital resources available to the Company. Any future
borrowings may be at the Saul Centers, Operating Partner-
ship or Subsidiary Partnership level, and securities offerings
may include (subject to certain limitations) the issuance of
additional limited partnership interests in the Operating Part-
nership which can be converted into shares of Saul Centers
common stock. The availability and terms of any such financ-
ing will depend upon market and other conditions.
Management’s Discussion and Analysis OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM Contractual Payment Obligations
As of December 31, 2018, the Company had unfunded contractual payment obligations of approximately $209.7 million,
excluding operating obligations, due within the next 12 months. The table below shows the total contractual payment obli-
gations as of December 31, 2018.
(Dollars in thousands)
Payments Due By Period
Contractual Payment Obligations
Notes Payable:
Interest
Scheduled Principal
Balloon Payments
Subtotal
Corporate Headquarters Lease (1)
Development Obligations
Tenant Improvements
One Year
or Less
More than 1
and up to
3 Years
More than 3
and up to
5 Years
After 5 Years
Total
$
45,632
$
78,901
$
67,200
$ 131,888
$ 323,621
2,257
60,794
108,683
787
80,908
19,352
55,857
72,175
206,933
1,646
13,449
931
57,125
167,727
292,052
140
—
—
136,122
480,132
251,361
780,828
748,142
1,355,810
—
—
—
2,573
94,357
20,283
Total Contractual Obligations
$ 209,730
$ 222,959
$ 292,192
$ 748,142
$ 1,473,023
(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
operations and its capital resources, which at December 31,
2018, included cash balances of $14.6 million and borrow-
ing availability of approximately $190.7 million under its
revolving credit facility, will be sufficient to meet its contrac-
tual obligations for the foreseeable future.
six or more quarters (whether or not declared or consecu-
tive) 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.
Preferred Stock Issues
On January 23, 2018, Saul Centers sold, in an underwritten
public offering, 3.0 million depositary shares, each repre-
senting 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 prefer-
ence, plus accumulated dividends to but not including the
redemption date. The depositary shares pay an annual div-
idend 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 convertible into any other
securities of the Company except in connection with certain
changes in control or delisting events. Investors in the de-
positary shares generally have no voting rights, but will have
limited voting rights if the Company fails to pay dividends for
At December 31, 2018, the Company had outstanding, 4.2
million depositary shares, each representing 1/100th of a
share of 6.875% Series C Cumulative Redeemable Preferred
Stock (“Series C Stock”). The depositary shares are redeem-
able at the Company’s option, in whole or in part, at the
$25.00 liquidation preference plus accrued but unpaid div-
idends. The depositary shares pay an annual dividend of
$1.71875 per share, equivalent to 6.875% of the $25.00
liquidation 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 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.
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Management’s Discussion and Analysis OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
Dividend Reinvestments
In December 1995, the Company established a Dividend
Reinvestment Plan (the “Plan”) to allow its common stock-
holders 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 distribu-
tions. The Plan provides for investing in newly issued shares
of common stock at a 3% discount from market price
without payment of any brokerage commissions, service
charges or other expenses. All expenses of the Plan are
paid by the Company. The Company issued 566,435 and
258,759 shares under the Plan at a weighted average dis-
counted price of $50.31 and $59.20 per share during the
years ended December 31, 2018 and 2017, respectively.
The Company issued 107,433 and 111,351 limited part-
nership units under the Plan at a weighted average price
of $50.56 and $60.48 per unit during the years ended De-
cember 31, 2018 and 2017, respectively. The Company
also credited 6,493 and 7,252 shares to directors pursuant
to the reinvestment of dividends specified by the Directors’
Deferred Compensation Plan at a weighted average dis-
counted price of $50.28 and $59.70 per share, during the
years ended December 31, 2018 and 2017, respectively.
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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 ongoing basis in order to maintain prudent
coverage of fixed charges. Asset value is the aggregate fair
market value of the Current Portfolio Properties and any
subsequently acquired properties as reasonably determined
by management by reference to the properties’ aggregate
cash flow. Given the Company’s current debt level, it is
management’s belief that the ratio of the Company’s debt
to total asset value was below 50% as of December 31,
2018.
The organizational documents of the Company do not limit
the absolute amount or percentage of indebtedness that it
may incur. The Board of Directors may, from time to time,
reevaluate the Company’s debt capitalization policy in light
of current economic conditions, relative costs of capital,
market values of the Company property portfolio, opportu-
nities for acquisition, development or expansion, and such
other factors as the Board of Directors then deems relevant.
The Board of Directors may modify the Company’s debt
capitalization policy based on such a reevaluation without
shareholder approval and consequently, may increase or
decrease the Company’s debt to total asset ratio above or
below 50% or may waive the policy for certain periods of
time. The Company selectively continues to refinance or
renegotiate the terms of its outstanding debt in order to
achieve longer maturities, and obtain generally more fa-
vorable loan terms, whenever management determines the
financing environment is favorable.
Management’s Discussion and Analysis OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM The following is a summary of notes payable as of December 31, 2018 and 2017.
Notes Payable
Year Ended December 31,
(Dollars in thousands)
2018
2017
Fixed rate mortgages:
$
Total fixed rate
Variable rate loans:
$
(a)
—
9,159 (b)
12,676 (c)
12,714 (d)
11,295 (e)
9,601 (f)
7,766 (g)
36,711 (h)
6,943 (i)
5,480 (j)
31,723 (k)
9,728 (l)
10,609 (m)
11,702 (n)
14,952 (o)
13,013 (p)
23,198 (q)
27,222 (r)
27,168 (s)
14,086 (t)
102,310 (u)
30,888 (v)
35,258 (w)
16,515 (x)
62,630 (y)
15,345 (z)
38,120 (aa)
15,547 (bb)
27,060 (cc)
14,526 (dd)
38,076 (ee)
69,691 (ff)
58,523 (gg)
31,941 (hh)
22,900 (ii)
11,781 (jj)
23,332 (kk)
910,189
47,000 (ll)
75,000 (mm)
—
(nn)
30,201
9,783
13,529
13,543
12,029
9,948
8,244
37,998
7,325
5,649
32,673
9,999
10,877
12,577
15,452
13,438
23,873
28,115
28,025
14,537
105,817
32,016
36,507
17,086
64,472
15,859
39,968
16,055
27,884
14,950
39,140
71,211
60,000
—
—
11,613
—
890,393
61,000
—
14,135
Total variable rate
Total notes payable
$ 122,000
$ 1,032,189
$
$
75,135
965,528
Interest
Rate*
5.88%
5.76%
5.62%
5.79%
5.22%
5.60%
5.30%
5.83%
5.81%
6.01%
5.62%
6.08%
6.43%
6.28%
7.35%
7.60%
7.02%
7.45%
7.30%
6.18%
5.31%
4.30%
4.53%
4.70%
5.84%
4.04%
3.51%
3.99%
3.69%
3.99%
3.39%
4.88%
3.75%
4.41%
4.69%
8.00%
4.67%
5.18%
LIBOR + 1.35%
LIBOR + 1.30%
LIBOR + 1.65%
3.84%
5.02%
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Scheduled
Maturity*
Jan-2019
May-2019
Jul-2019
Sep-2019
Jan-2020
May-2020
Jun-2020
Jul-2020
Feb-2021
Aug-2021
Jun-2022
Sep-2022
Apr-2023
Feb-2024
Jun-2024
Jun-2024
Jul-2024
Jul-2024
Jan-2025
Jan-2026
Apr-2026
Oct-2026
Nov-2026
Dec-2026
May-2027
Apr-2028
Jun-2028
Sep-2028
Mar-2030
Apr-2030
Feb-2032
Sep-2032
Dec-2032
Nov-2033
Jan-2034
Apr-2034
Sept-2035
8.5 Years
Jan-2022
Jan-2023
Feb-2018
3.7 Years
8.0 Years
* Interest rate and scheduled maturity data presented as of December 31, 2018. Totals computed using weighted averages.
Management’s Discussion and Analysis OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
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(a) The loan was collateralized by three shopping centers, Broad-
lands Village, The Glen and Kentlands Square I, and required equal
monthly principal and interest payments of $306,000 based upon a
25-year amortization schedule and a final payment of $28.4 million
at loan maturity. The loan was repaid in full in 2018 and replaced
with two new loans. See (hh) and (ii) below.
(b) The loan is collateralized by Olde Forte Village and requires equal
monthly principal and interest payments of $98,000 based upon a
25-year amortization schedule and a final payment of $9.0 million
at loan maturity. Principal of $624,100 was amortized during 2018.
(c) 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 $853,100 was amortized during 2018.
(d) 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 $829,100 was amortized
during 2018.
(i)
(f)
(e) The loan is collateralized by Shops at Monocacy and requires equal
monthly principal and interest payments of $112,000 based upon a
25-year amortization schedule and a final payment of $10.6 million
at loan maturity. Principal of $733,800 was amortized during 2018.
The loan is collateralized by Boca Valley Plaza and requires equal
monthly principal and interest payments of $75,000 based upon a
30-year amortization schedule and a final payment of $9.1 million
at loan maturity. Principal of $347,300 was amortized during 2018.
(g) 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 $477,900 was amortized during 2018.
(h) The loan and a corresponding interest-rate swap closed on June 29,
2010 and are collateralized by Thruway. On a combined basis, the
loan and the interest-rate swap require equal monthly principal and
interest payments of $289,000 based upon a 25-year amortization
schedule and a final payment of $34.8 million at loan maturity.
Principal of $1.3 million was amortized during 2018.
The loan is collateralized by Jamestown Place and requires equal
monthly principal and interest payments of $66,000 based upon a
25-year amortization schedule and a final payment of $6.1 million
at loan maturity. Principal of $381,700 was amortized during 2018.
The loan is collateralized by Hunt Club Corners and requires equal
monthly principal and interest payments of $42,000 based upon a
30-year amortization schedule and a final payment of $5.0 million,
at loan maturity. Principal of $169,300 was amortized during 2018.
(k) The loan is collateralized by Lansdowne Town Center and requires
monthly principal and interest payments of $230,000 based on a
30-year amortization schedule and a final payment of $28.2 million
at loan maturity. Principal of $949,600 was amortized during 2018.
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 $270,300 was amortized during 2018.
(m) 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 $268,400 was amortized during 2018.
(n) 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 $874,800 was amortized during 2018.
(l)
(j)
(o) 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 $499,800 was amortized during 2018.
(p) 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 $424,700 was amortized during 2018.
(q) The loan is collateralized by White Oak and requires equal monthly
principal and interest payments of $193,000 based upon a 24.4 year
weighted amortization schedule and a final payment of $18.5 mil-
lion at loan maturity. The loan was previously collateralized by Van
Ness Square. During 2012, the Company substituted White Oak as
the collateral and borrowed an additional $10.5 million. Principal
of $675,200 was amortized during 2018.
(r) The loan is collateralized by Avenel Business Park and requires equal
monthly principal and interest payments of $246,000 based upon a
25-year amortization schedule and a final payment of $20.9 million
at loan maturity. Principal of $893,200 was amortized during 2018.
(s) The loan is collateralized by Ashburn Village and requires equal
monthly principal and interest payments of $240,000 based upon a
25-year amortization schedule and a final payment of $20.5 million
at loan maturity. Principal of $857,000 was amortized during 2018.
(t) 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 $451,200 was amortized during 2018.
(u) The loan is collateralized by Clarendon Center and requires equal
monthly principal and interest payments of $753,000 based upon a
25-year amortization schedule and a final payment of $70.5 million
at loan maturity. Principal of $3.5 million was amortized during
2018.
(v) 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 amor-
tized during 2018.
(w) The loan is collateralized by Kentlands Square II and requires equal
monthly principal and interest payments of $240,000 based upon a
25-year amortization schedule and a final payment of $23.1 million
at loan maturity. Principal of $1.2 million was amortized during
2018.
(x) The loan is collateralized by Cranberry Square and requires equal
monthly principal and interest payments of $113,000 based upon a
25-year amortization schedule and a final payment of $10.9 million
at loan maturity. Principal of $570,500 was amortized during 2018.
(y) The loan in the original amount of $73.0 million closed in May
2012, is collateralized by Seven Corners and requires equal monthly
principal and interest payments of $463,200 based upon a 25-year
amortization schedule and a final payment of $42.3 million at loan
maturity. Principal of $1.8 million was amortized during 2018.
(z) The loan is collateralized by Hampshire Langley and requires equal
monthly principal and interest payments of $95,400 based upon a
25-year amortization schedule and a final payment of $9.5 million
at loan maturity. Principal of $513,700 was amortized in 2018.
(aa) 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 2018.
Management’s Discussion and Analysis OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM (bb) 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 $507,600 was amortized in 2018.
(cc) The loan is collateralized by Shops at Fairfax and Boulevard shop-
ping 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 million at maturity. Principal
of $824,000 was amortized in 2018.
(dd) The loan is collateralized by Northrock and requires equal monthly
principal and interest payments totaling $84,400 based upon a 25-
year amortization schedule and a final payment of $8.4 million at
maturity. Principal of $423,600 was amortized in 2018.
(ee) The loan is collateralized by Burtonsville Town Square and requires
equal monthly principal and interest payments of $197,900 based
on a 25-year amortization schedule and a final payment of $20.3
million at loan maturity. Principal of $1.1 million was amortized in
2018.
(ff) The loan is a $71.6 million construction-to-permanent facility that is
collateralized 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 $1.5 million was amortized in 2018.
(gg) The loan is collateralized by Washington Square and requires equal
monthly principal and interest payments of $308,500 based upon a
25-year amortization schedule and a final payment of $31.1 million
at loan maturity. Principal of $1.5 million was amortized in 2018.
(hh) The loan is collateralized by Broadlands Village and requires equal
monthly principal and interest payments of $176,200 based on a
25-year amortization schedule and a final payment of $17.3 million
at loan maturity. Principal of $58,600 was amortized in 2018.
The carrying value of properties collateralizing the mortgage
notes payable totaled $1.1 billion and $1.0 billion as of De-
cember 31, 2018 and 2017, 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, 2018, the Company was in com-
pliance with all such covenants:
• 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 princi-
pal amortization and preferred dividend coverage exceeds
1.4x on a trailing four-quarter basis (fixed charge coverage).
(ii) The loan is collateralized by The Glen and requires equal monthly
principal and interest payments of $129,800 based on a 25-year
amortization schedule and a final payment of $12.5 million at loan
maturity.
(jj) 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 thereaf-
ter. The arrangement provides for a final payment of $14.7 million
and has an implicit interest rate of 8.0%. Negative amortization in
2018 totaled $168,600.
(kk) The loan is a $157.0 million construction-to-permanent facility that
is collateralized by and will finance a portion of the construction
costs of Glebe Road. During the construction period, interest will be
funded by the loan. After conversion to a permanent loan, monthly
principal and interest payments totaling $887,900 will be required
based upon a 25-year amortization schedule.
(ll) The loan is a $325.0 million unsecured revolving credit facility. In-
terest accrues at a rate equal to the sum of one-month LIBOR plus
a spread of 135 basis points. The line may be extended at the Com-
pany’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.
(mm) The loan is a $75.0 million unsecured term facility. Interest accrues
at a rate equal to the sum of one-month LIBOR plus a spread of 130
basis points. Monthly payments are interest only.
(nn) The loan was collateralized by Metro Pike Center and required
monthly principal and interest payments of approximately $48,000
and a final payment of $14.2 million at loan maturity. The loan was
repaid in full during 2018.
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2019 Financing Activity
On January 4, 2019, the Company repaid in full the remain-
ing balance of the mortgage loan secured by Countryside
Marketplace, which was scheduled to mature in July 2019.
On January 10, 2019, the Company closed on a 15-year,
non-recourse $22.1 million mortgage loan secured by Olde
Forte Village. The loan matures in 2034, bears interest at
a fixed-rate of 4.65%, requires monthly principal and inter-
est payments of $124,700 based on a 25-year amortization
schedule and requires a final payment of $12.1 million.
Proceeds were partially used to repay in full the existing
mortgage secured by Olde Forte Village, which was sched-
uled to mature in May 2019.
Management’s Discussion and Analysis OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM 2018 Financing Activity
On January 26, 2018, the Company replaced its credit facil-
ity. The new credit facility, which can be used for working
capital, property acquisitions, development projects or letters
of credit, totals $400.0 million, of which $325.0 million is a
revolving credit facility and $75.0 million is a term loan. The
revolving credit facility matures on January 26, 2022, and
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 facility is primarily de-
termined 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 credit facility, and 130 basis points to 190 basis
points under the term loan, each as determined by certain
leverage tests. As of December 31, 2018, the applicable
spread for borrowings is 135 basis points under the revolving
credit facility and 130 basis points under the term loan. Saul
Centers and certain consolidated subsidiaries of the Operat-
ing Partnership have guaranteed the payment obligations of
the Operating Partnership under the revolving credit facility.
On October 3, 2018, the Company closed on a 15-year ,
non-recourse $32.0 million mortgage loan secured by Broad-
lands Village. The loan matures in 2033, bears interest at
a fixed-rate of 4.41%, requires monthly principal and inter-
est payments of $176,200 based on a 25-year amortization
schedule and requires a final payment of $17.3 million at
maturity.
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On December 18, 2018, the Company closed on a 15-year,
non-recourse $22.9 million mortgage loan secured by The
Glen. The loan matures in 2034, bears interest at a fixed-rate
of 4.69%, requires monthly principal and interest payments
of $129,800 based on a 25-year amortization schedule and
requires a final payment of $12.5 million at maturity.
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 princi-
pal and interest payments of $197,900 based on a 25-year
amortization schedule and requires a final payment of $20.3
million million at maturity.
On August 14, 2017, the Company closed on a $157.0 mil-
lion 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 amortization schedule will be
required.
Effective September 1, 2017, the Company’s $71.6 million
construction-to-permanent loan, which is fully drawn and
secured by Park Van Ness, converted to permanent financ-
ing. 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 in-
terest at a fixed rate of 3.75%, requires monthly principal
and interest payments of $308,500 based on a 25-year
amortization schedule and requires 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 Beacon Center.
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 ex-
penses, results of operations, liquidity, capital expenditures
or capital resources.
Management’s Discussion and Analysis OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM Funds From Operations
In 2018, the Company reported Funds From Operations (“FFO”)1 available to common stockholders and noncontrolling interests
of $93.8 million, a 0.2% decrease from 2017 FFO available to common stockholders and noncontrolling interests of $94.0
million. The following table presents a reconciliation from net income to FFO available to common stockholders and noncon-
trolling interests for the periods indicated:
(Dollars in thousands except per share amounts)
2018
2017
2016
2015
2014
Year ended December 31,
Net income
Subtract:
$
63,059
$
60,688
$
56,720
$
52,931
$
57,988
Gains on sales of properties
(509)
—
(1,013)
(11)
(6,069)
Add:
Real estate depreciation and amortization
FFO
Subtract:
Preferred dividends
Preferred stock redemption
FFO available to common stockholders
and noncontrolling interests
Average shares and units used to
compute FFO per share
45,861
108,411
45,694
106,362
44,417
100,124
43,270
96,190
41,203
93,122
(12,262)
(2,328)
(12,375)
(12,375)
(12,375)
—
—
—
(13,361)
(1,480)
$
93,821
$
93,987
$
87,749
$
83,815
$
78,281
30,156
29,511
28,990
28,449
27,977
FFO per share
$
3.11
$
3.18
$
3.03
$
2.94
$
2.80
1 The National Association of Real Estate Investment Trusts (NAREIT) developed FFO as a relative non-GAAP financial measure of perfor-
mance 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 impairment charges on depreciable real estate assets and gains or losses from property dispositions. FFO does not rep-
resent 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.
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Management’s Discussion and Analysis OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
ACQUISITIONS, REDEVELOPMENTS
AND RENOVATION
Management anticipates that during the coming year the
Company will continue activities related to the redevelop-
ment of 750 N. Glebe Road and may develop additional
freestanding outparcels or expansions within certain of the
Shopping Centers. Although not currently planned, it is pos-
sible that the Company may redevelop additional Current
Portfolio Properties and may develop expansions within cer-
tain of the Shopping Centers. Acquisition and development
of properties are undertaken only after careful analysis and
review, and management’s determination that such prop-
erties are expected to provide long-term earnings and cash
flow growth. During the coming year, any developments,
expansions or acquisitions are expected to be funded with
borrowings from the Company’s credit line, construction
financing, proceeds from the operation of the Company’s
dividend reinvestment plan or other external capital re-
sources available to the Company.
The Company has been selectively involved in acquisition,
development, redevelopment and renovation activities. It
continues to evaluate the acquisition of land parcels for re-
tail and office development and acquisitions of operating
properties for opportunities to enhance operating income
and cash flow growth. The following describes significant
acquisitions, developments, redevelopments and renova-
tions which affected the Company’s financial position and
results of operations in 2018, 2017, and 2016.
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700, 726, 730, 750 N. Glebe Road
From 2014 through 2016, the Company purchased four ad-
jacent properties on North Glebe Road in Arlington, Virginia,
for an aggregate $54.0 million. The Company is develop-
ing approximately 490 residential units and 60,000 square
feet of retail space on 2.8 acres of land. Concrete work
is substantially complete and pre-cast facade panels, ma-
sonry and windows are being installed. Interior framing,
electrical, plumbing and HVAC work have commenced. 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, a
portion of which is being financed by a $157.0 million con-
struction-to-permanent loan. 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, re-
sulting in approximately 84% of the retail space being leased.
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, landscaped courtyards, a fitness room, a wi-fi lounge/
business center, and a rooftop pool and deck. The struc-
ture comprises 11 levels, five of which on the east side are
below street level. Because 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 December 31, 2018, 263
apartments (97.0%) were leased. The total cost of the proj-
ect, 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 con-
struction-to-permanent loan.
Thruway Pad
In August 2016, the Company purchased for $3.1 million,
a retail 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 expansion of the Company’s Thruway Shopping
Center.
Ashbrook Marketplace
In May 2018, the Company acquired from the Saul Trust,
in exchange for 176,680 limited partnership units, ap-
proximately 13.7 acres of land located at the intersection
of Ashburn Village Boulevard and Russell Branch Parkway
in Ashburn, Virginia. The Company has received site plan
approval and building permits for an approximately 88,000
square foot neighborhood shopping center. A 29,000
square foot anchor grocery store lease has been executed
with Lidl and, including an executed gas station pad lease and
shop space leases, overall pre-leasing totals approximately
44% of the planned space. In addition, lease negotiations
are in progress for approximately 12,000 square feet of
the planned pad building and small shop space. Site work
commenced in November 2018, the grocer is scheduled to
begin construction in the second quarter of 2019, and the
shopping center is scheduled to open in early 2020. After
construction of the shopping center and upon stabilization,
the Company may be obligated to issue additional limited
partnership units to the Saul Trust.
Management’s Discussion and Analysis OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM Beacon Center
In the fourth quarter of 2016, the Company purchased for
$22.7 million, including acquisition costs, the land underly-
ing 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 un-
derlying 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 mil-
lion, including 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 amor-
tization schedule, and has a 15-year maturity. The Company
has substantially completed construction of the shell of a
16,000 square foot small shop expansion and construc-
tion of interior improvements is underway. Delivery of the
first leased tenant spaces occurred in late 2018, with ini-
tial tenant openings scheduled for the first quarter of 2019.
The total development cost is expected to be approximately
$5.7 million. Leases have been executed for approximately
55% of the space and the Company has prospects for an
additional 3,900 square feet. In addition, a lease has been
executed with Taco Bell who will construct a free-standing
building on a pad site within the property.
Olney Shopping Center
In March 2017, the Company purchased for $3.1 million,
including acquisition costs, the land underlying Olney Shop-
ping Center. The land was previously leased by the Company
with an annual rent of approximately $56,000. The pur-
chase price was funded by the revolving credit facility.
7316 Wisconsin Avenue
In September 2018, the Company purchased for $35.5
million, plus $0.7 million of acquisition costs, an office build-
ing and the underlying ground located at 7316 Wisconsin
Avenue in Bethesda, Maryland. This site has mixed-use
development potential of up to 325 apartment units and ap-
proximately 10,000 square feet of street level retail pursuant
to the approved Bethesda Downtown Plan. In December
2018, the Company purchased for $4.5 million, including
acquisition costs, an interest in an adjacent parcel of land
and retail building. The Company is evaluating concept
plans for the combined property in order to increase the
mixed-use development potential by up to 40 additional
apartment units. The purchase price was funded through
the Company’s credit facility.
Lansdowne Town Center
In March 2019, the Company plans to commence de-
velopment of a pad site expansion on land owned at its
Lansdowne Town Center property in Ashburn, Virginia.
Total development costs are expected to be approximately
$4.0 million. A ground lease with Chick-fil-A has been ex-
ecuted for one pad with the building to be constructed by
the tenant. A lease with Starbucks has been executed for
another pad and the Company will construct the building
shell. Both buildings are projected to be completed and
occupied by early 2020.
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
million second trust financing to the buyer, which bore in-
terest at a fixed rate of 6%. In May 2018, the buyer repaid
the loan in full and the Company recognized a $0.5 million
gain that was previously deferred.
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Management’s Discussion and Analysis OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM 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
2018
2017
2016
49
49
49
7
6
6
7,750,271
1,146,438
7,750,098
1,076,838
7,882,054
1,076,208
96.0%
94.3%
96.0%
92.3%
94.5%
91.0%
The residential components of Clarendon Center and Park
Van Ness were 99.6% and 97.0% leased, respectively, at De-
cember 31, 2018. 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 per-
centage increased to 96.0% from 94.3% and the Mixed-Use
leasing percentage decreased to 93.6% from 94.5%. The
overall portfolio leasing percentage, on a comparative same
property basis, increased to 95.7% at December 31, 2018
from 94.3% at December 31, 2017.
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 periods, 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
December 31, 2017 from 95.5% at December 31, 2016.
The 2016 Mixed-Use leasing percentage includes the recent-
ly-developed Park Van Ness commercial space and excludes
Crosstown Business Center. The residential components
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of Clarendon 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 opera-
tion for the entirety of the comparable periods, the Shopping
Center leasing percentage increased 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, increased to 95.4% at
December 31, 2016 from 95.0% at December 31, 2015.
The following table shows selected data for leases exe-
cuted in the indicated periods. The information is based on
executed leases without adjustment for the timing of occu-
pancy, tenant defaults, or landlord concessions. The base
rent for an expiring lease is the annualized contractual base
rent, on a cash basis, as of the expiration date of the lease.
The base rent for a new or renewed lease is the annualized
contractual base rent, on a cash basis, as of the expected
rent commencement date. Because tenants that execute
leases may not ultimately take possession of their space or
pay all of their contractual rent, the changes presented in
the table provide information only about trends in market
rental rates. The actual changes in rental income received by
the Company may be different.
Selected Leasing Data
Year ended December 31,
Square Feet
Base Rent per Square Foot
Number
of Leases
New/Renewed
Leases
Expiring
Leases
2018
2017
2016
1,555,620
1,315,192
1,292,483
281
280
244
$
19.52
$
19.26
19.60
17.24
19.45
17.05
Management’s Discussion and Analysis OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
Additional information about commercial leasing activ-
ity during the three months ended December 31, 2018,
is set forth below. The below information includes leases
for space which had not been previously leased during the
period of the Company’s ownership, either as a result of
acquisition or development.
Commercial Leasing Activity
Number of leases
Square feet
Per square foot average
annualized:
Base rent
Tenant improvements
Leasing costs
Rent concessions
New Leases
Renewed Leases
26
113,458
40
142,837
$
24.28
(6.76)
(0.70)
(0.48)
$
18.31
(0.47)
(0.07)
(0.05)
Effective rents
$
16.34
$
17.72
During 2018, the Company entered into 465 new or re-
newed apartment leases. The monthly rent per square foot
for these leases was unchanged at $3.44. 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. During
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.
As of December 31, 2018, 994,236 square feet of Commer-
cial space was subject to leases scheduled to expire in 2019.
Below is information about existing and estimated market
base rents per square foot for that space.
Expiring Leases
Total
Square feet
Average base rent per square foot
Estimated market base rent per square foot
994,236
19.98
$
20.18
$
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
instruments, such as interest rate swaps, to mitigate the risk
of interest rate fluctuations. The Company does not enter
into derivatives or other financial instruments for trading or
speculative purposes. On June 29, 2010, the Company en-
tered into an interest rate swap agreement with a $45.6
million notional amount to manage the interest rate risk as-
sociated 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, 2018 was approximately $0.4 million
and is reflected in accounts payable, accrued expenses and
other liabilities in the consolidated balance sheet.
The Company is exposed to interest rate fluctuations which
will affect the amount of interest expense of its variable
rate debt and the fair value of its fixed rate debt. As of
December 31, 2018, the Company had variable rate indebt-
edness totaling $122.0 million. If the interest rates on the
Company’s variable rate debt instruments outstanding at De-
cember 31, 2018 had been one percent higher, our annual
interest expense relating to these debt instruments would
have increased by $1.2 million, based on those balances.
As of December 31, 2018, the Company had fixed-rate in-
debtedness totaling $910.2 million with a weighted average
interest rate of 5.18%. If interest rates on the Company’s
fixed-rate debt instruments at December 31, 2018 had
been one percent higher, the fair value of those debt instru-
ments on that date would have decreased by approximately
$47.7 million.
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Management’s Discussion and Analysis OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
Management’s Report
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Assessment of Effectiveness of Internal
Control Over Financial Reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting. Manage-
ment used the criteria issued by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control -
Integrated Framework (2013 Framework) to assess the
effectiveness of the Company’s internal control over fi-
nancial reporting. Based upon the assessments, the
Company’s management has concluded that, as of
December 31, 2018,
internal
control over financial reporting was effective. The Com-
pany’s independent registered public accounting firm has
issued a report on the effectiveness of the Company’s inter-
nal control over financial reporting, which appears on page
34 in this Annual Report.
the Company’s
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SAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM Report of Independent Registered
Public Accounting Firm
To the Stockholders and the Board of Directors of Saul Centers, Inc.
Opinion on the Financial Statements
Basis for Opinion
We have audited the accompanying consolidated balance
sheet of Saul Centers, Inc. and subsidiaries (the “Company”) as
of December 31, 2018, the related consolidated statements of
operations, comprehensive income, equity and cash flows for
the year ended December 31, 2018, and the related notes and
the schedule listed in the Index at Item 15(a)2(b) (collectively
referred to as the “financial statements”). In our opinion, the
financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2018,
and the results of its operations and its cash flows for the year
ended December 31, 2018, in conformity with accounting
principles generally accepted in the United States of America.
We have also 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, 2018, based on criteria established
in Internal Control - Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Tread-
way Commission and our report dated February 26, 2019,
expressed an unqualified opinion on the Company’s internal
control over financial reporting.
These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our
audit. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to
the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securi-
ties 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 the financial statements are free of material mis-
statement, whether due to error or fraud. Our audit included
performing procedures to assess the risks of material mis-
statement of the financial statements, whether due to error
or fraud, and performing 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 audit also included evaluating the
accounting principles used and significant estimates made
by management, as well as evaluating the overall presenta-
tion of the financial statements. We believe that our audit
provides a reasonable basis for our opinion.
Deloitte & Touche LLP
McLean, Virginia
February 26, 2019
We have served as the Company’s auditor since 2018.
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SAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM Report of Independent Registered
Public Accounting Firm
To the Stockholders and the Board of Directors of Saul Centers, Inc.
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 regard-
ing the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance
with generally accepted accounting principles. A compa-
ny’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that trans-
actions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of
the company are being made only in accordance with au-
thorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or dis-
position of the company’s assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over fi-
nancial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
Deloitte & Touche LLP
McLean, Virginia
February 26, 2019
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial report-
ing of Saul Centers, Inc. and subsidiaries (the “Company”)
as of December 31, 2018, based on criteria established in
Internal Control-Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway
Commission (COSO). In our opinion, the Company main-
tained, in all material respects, effective internal control over
financial reporting as of December 31, 2018, based on cri-
teria established in Internal Control-Integrated Framework
(2013) issued by COSO.
We also have audited, in accordance with the standards of
the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated financial statements of
the Company as of and for the year ended December 31,
2018, and our report dated February 26, 2019 expressed an
unqualified opinion thereon.
Basis for Opinion
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The Company’s management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over fi-
nancial reporting included in the accompanying Assessment
of Effectiveness of Internal Control Over Financial Reporting.
Our responsibility is to express an opinion on the Compa-
ny’s internal control over financial reporting based on our
audit. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to
the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securi-
ties 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 control over finan-
cial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effec-
tiveness 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.
SAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM Report of Independent Registered
Public Accounting Firm
To the Stockholders and the Board of Directors of Saul Centers, Inc.
Opinion on the Financial Statements
Basis for Opinion
We have audited the accompanying consolidated balance
sheet of Saul Centers, Inc. (the “Company”) as of December
31, 2017, the related consolidated statements of operations,
comprehensive income, equity and cash flows for each of
the two years in the period ended December 31, 2017, and
the related notes and financial statement schedule listed in
the Index at Item 15(a)2(b) (collectively referred to as the
“consolidated financial statements”). In our opinion, the
consolidated financial statements present fairly, in all ma-
terial respects, the financial position of the Company at
December 31, 2017, and the results of its operations and its
cash flows for each of the two years in the period ended De-
cember 31, 2017, in conformity with U.S. generally accepted
accounting principles.
These financial statements are the responsibility of the
Company’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 accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securi-
ties and Exchange Commission 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 financial statements are free of material
misstatement, whether due to error or fraud. Our audits in-
cluded performing procedures to assess the risks of material
misstatement of the financial statements, whether due to
error or fraud, and performing 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 significant estimates made
by management, as well as evaluating the overall presenta-
tion of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
Ernst & Young LLP
We served as the Company’s auditor from 2002 to 2018.
Tysons, Virginia
February 27, 2018
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SAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)
Assets
Real estate investments
Land
Buildings and equipment
Construction in progress
Accumulated depreciation
Cash and cash equivalents
Accounts receivable and accrued income, net
Deferred leasing costs, net
Prepaid expenses, net
Other assets
Total assets
Liabilities
Mortgage notes payable
Term loan facility payable
Revolving credit facility payable
Construction loan payable
Dividends and distributions payable
Accounts payable, accrued expenses and other liabilities
Deferred income
Total liabilities
Equity
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Preferred stock, 1,000,000 shares authorized:
Series C Cumulative Redeemable, 42,000 and 72,000
shares issued and outstanding, respectively
Series D Cumulative Redeemable, 30,000 and 0 shares issued
and outstanding, respectively
Common stock, $0.01 par value, 40,000,000 shares authorized,
22,739,207 and 22,123,128 shares issued and outstanding, respectively
Additional paid-in capital
Distributions in excess of accumulated earnings
Accumulated other comprehensive loss
Total Saul Centers, Inc. equity
Noncontrolling interests
Total equity
Total liabilities and equity
The Notes to Financial Statements are an integral part of these statements.
December 31,
2018
December 31,
2017
$
488,918
$
450,256
1,273,275
185,972
1,948,165
(525,518)
1,422,647
14,578
53,876
28,083
5,175
3,130
1,261,830
91,114
1,803,200
(488,166)
1,315,034
10,908
54,057
27,255
5,248
9,950
$
1,527,489
$ 1,422,452
$
880,271
$
897,888
74,591
45,329
21,655
19,153
32,419
28,851
—
60,734
—
18,520
23,123
29,084
1,102,269
1,029,349
105,000
180,000
75,000
227
384,533
(208,593)
(255)
355,912
69,308
425,220
—
221
352,590
(197,710)
(696)
334,405
58,698
393,103
$
1,527,489
$ 1,422,452
SAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
Consolidated Statements
OF OPERATIONS
(Dollars in thousands, except per share amounts)
For The Year Ended December 31,
2017
2018
2016
Property revenue
Base rent
Expense recoveries
Percentage rent
Other
$ 184,684
$ 181,141
$ 172,381
35,537
994
6,689
35,347
1,458
9,259
34,269
1,379
8,990
Total property revenue
227,904
227,205
217,019
Property operating expenses
Property operating expenses
Provision for credit losses
Real estate taxes
Total property expenses
28,202
685
27,376
56,263
27,689
906
26,997
55,592
27,527
1,494
24,680
53,701
Property operating income
171,641
171,613
163,318
Other revenue
Other expenses
Interest expense and amortization of deferred debt costs
Depreciation and amortization of deferred leasing costs
General and administrative
Acquisition related costs
Total other expenses
Operating income
Change in fair value of derivatives
Gains on sale of property
Net Income
Noncontrolling interests
272
80
51
45,040
45,861
18,459
—
47,225
45,694
18,176
—
45,683
44,417
17,496
60
109,360
111,095
107,656
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62,553
(3)
509
63,059
60,598
70
—
60,668
Income attributable to noncontrolling interests
(12,505)
(12,411)
Net income attributable to Saul Centers, Inc.
50,554
48,257
Extinguishment of issuance costs upon redemption
of preferred shares
Preferred stock dividends
(2,328)
(12,262)
—
(12,375)
Net income available to common stockholders
$ 35,964
$ 35,882
$ 32,904
Per share net income available to common stockholders
Basic
Diluted
$
$
1.61
1.60
$
$
1.64
1.63
$
$
1.53
1.52
The Notes to Financial Statements are an integral part of these statements.
55,713
(6)
1,013
56,720
(11,441)
5,279
—
(12,375)
SAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
Consolidated Statements
OF COMPREHENSIVE INCOME
(Dollars in thousands)
Net income
Other comprehensive income
Unrealized gain on cash flow hedge
Total comprehensive income
Comprehensive income attributable to noncontrolling interests
Total comprehensive income attributable to Saul Centers, Inc.
Extinguishment of issuance costs upon redemption
of preferred shares
Preferred dividends
For The Year Ended December 31,
2017
2018
2016
$ 63,059
$ 60,668
$ 56,720
594
63,653
(12,658)
50,995
(2,328)
(12,262)
812
61,480
(12,620)
48,860
—
(12,375)
678
57,398
(11,616)
45,782
—
(12,375)
Total comprehensive income available to common stockholders
$ 36,405
$ 36,485
$ 33,407
The Notes to Financial Statements are an integral part of these statements.
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SAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
Consolidated Statements
OF EQUITY
Preferred
Stock
Common
Stock
Additional
Paid-in
Capital
Distributions
in Excess of
Accumulated
Earnings
Accumulated
Other
Comprehensive
(Loss)
Total Saul
Centers,
Inc.
Noncontrolling
Interests
Total
$ 180,000
$
213
$ 305,008
$ (180,091)
$
(1,802 )
$ 303,328
$ 50,399
$ 353,727
2
10,309
2
12,854
—
—
—
45,279
—
(9,282)
(30,328)
(3,093)
—
10,311
—
10,311
—
12,856
—
12,856
—
—
503
—
—
—
—
45,279
503
(9,282)
(30,328)
(3,093)
6,910
11,441
175
—
(10,392)
—
6,910
56,720
678
(9,282)
(40,720)
(3,093)
180,000
217
328,171
(188,584)
(1,299)
318,505
54,744
373,249
—
(11,069)
—
(11,069)
(3,789)
(14,858)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
221
—
—
2
15,748
2
8,671
—
—
—
48,257
—
(9,282)
(33,490)
(3,093)
—
15,750
—
15,750
—
8,673
—
8,673
—
—
603
—
—
—
—
(696)
—
—
—
48,257
603
(9,282)
(33,490)
(3,093)
6,735
12,411
209
—
(11,479)
—
6,735
60,668
812
(9,282)
(44,969)
(3,093)
(11,518)
(3,922)
(15,440)
334,405
72,367
(75,017)
58,698
—
—
393,103
72,367
(75,017)
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—
(11,518)
352,590
(2,633)
2,311
(197,710)
—
(2,328)
6
28,817
—
—
28,823
—
28,823
—
—
—
—
—
—
—
—
—
—
3,448
—
—
—
—
—
—
—
—
—
—
50,554
—
(6,145)
(3,164)
(34,841)
(1,805)
(1,148)
—
—
—
441
—
—
—
—
—
3,448
—
50,554
441
(6,145)
(3,164)
(34,841)
(1,805)
(1,148)
—
14,159
12,505
153
—
—
(12,059)
—
—
3,448
14,159
63,059
594
(6,145)
(3,164)
(46,900)
(1,805)
(1,148)
—
(12,006)
—
(12,006)
(4,148)
(16,154)
(Dollars in thousands, except per share amounts)
Balance, December 31, 2015
Issuance of common stock:
186,797 shares pursuant to dividend reinvestment plan
251,323 shares due to exercise of employee stock options and
issuance of directors’ deferred stock
Issuance of 124,758 partnership units pursuant to dividend
reinvestment plan
Net income
Change in unrealized loss on cash flow hedge
Series C preferred stock distributions
Common stock distributions
Distributions payable on Series C preferred stock, $42.97 per share
Distributions payable common stock ($0.51/share) and partnership
units ($0.51/unit)
Balance, December 31, 2016
Issuance of common stock:
266,011 shares pursuant to dividend reinvestment plan
152,758 shares due to exercise of employee stock options and
issuance of directors’ deferred stock
Issuance of 111,351 partnership units pursuant to dividend
reinvestment plan
Net income
Change in unrealized loss on cash flow hedge
Series C preferred stock distributions
Common stock distributions
Distributions payable on Series C preferred stock, $42.97 per share
Distributions payable common stock ($0.52/share) and partnership
units ($0.52/unit)
Balance, December 31, 2017
Issuance of 30,000 shares of Series D Cumulative preferred stock
Redemption of 30,000 shares of Series C Cumulative preferred stock
Issuance of common stock:
572,928 shares pursuant to dividend reinvestment plan
43,150 shares due to exercise of employee stock options and
issuance of directors’ deferred stock
Issuance of 284,113 partnership units
Net income
Change in unrealized loss on cash flow hedge
Preferred stock distributions:
Series C
Series D
Common stock distributions
Distributions payable on Series C preferred stock, $42.97 per share
Distributions payable on Series D preferred stock, $38.28 per share
Distributions payable common stock ($0.53/share) and partnership
units ($0.53/unit)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
180,000
75,000
(75,000)
—
—
—
—
—
—
—
—
—
—
—
Balance, December 31, 2018
$ 180,000
$
227
$ 384,533
$ (208,593 )
$
(255)
$ 355,912
$ 69,308
$ 425,220
The Notes to Financial Statements are an integral part of these statements.
SAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
Consolidated Statements
OF CASH FLOWS
(Dollars in thousands)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Change in fair value of derivatives
Gains on sales of properties
Depreciation and amortization of deferred leasing costs
Amortization of deferred debt costs
Non cash compensation costs of stock grants and options
Provision for credit losses
Increase in accounts receivable and accrued income
Additions to deferred leasing costs
Increase (decrease) in prepaid expenses
(Increase) decrease in other assets
Increase in accounts payable, accrued expenses and other liabilities
Increase (decrease) in deferred income
Net cash provided by operating activities
Cash flows from investing activities:
Acquisitions of real estate investments (1)
Additions to real estate investments
Additions to development and redevelopment projects
Proceeds from sale of properties (2)
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from mortgage notes payable
Repayments on mortgage notes payable
Proceeds from term loan facility
Proceeds from revolving credit facility
Repayments on revolving credit facility
Proceeds from construction loans payable
Additions to deferred debt costs
Proceeds from the issuance of:
Common stock
Partnership units (1)
Series D preferred stock
Series C preferred stock redemption
Preferred stock redemption costs
Distributions to:
Series C preferred stockholders
Series D preferred stockholders
Common stockholders
Noncontrolling interests
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental disclosure of cash flow information:
Cash paid for interest
Increase (decrease) in accrued real estate investments and
development costs
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For The Year Ended December 31,
2017
2018
2016
$
63,059
$
60,668
$
6,720
3
(509)
45,861
1,610
1,766
685
(336)
(6,034)
73
3,681
225
255
(70)
—
45,694
1,392
1,672
906
(1,643)
(4,615)
(294)
1,374
1,125
(2,759)
110,339
103,450
(40,836)
(12,883)
(76,257)
1,326
(79,499)
(17,653)
(22,842)
6,688
(128,650)
(113,306)
54,900
(72,572)
75,000
102,000
(116,000)
23,332
(3,233)
30,503
5,383
72,369
(75,000)
(12)
(9,238)
(3,164)
(46,306)
(15,981)
21,981
3,670
10,908
100,000
(55,679)
63,000
(51,000)
1,437
(2,583)
22,751
6,735
—
—
—
(12,375)
—
(44,576)
(15,268)
12,442
2,586
8,322
—
—
6
(1,013)
44,417
1,343
1,603
1,494
(3,525)
(4,633)
(399)
(6,368)
921
(1,476)
89,090
(48,250)
(15,564)
(27,231)
4,771
(86,274)
11,250
(24,653)
78,500
(57,500)
24,937
(125)
21,564
6,910
—
—
—
(12,375)
—
(39,472)
(13,533)
(4,497)
(1,681)
10,003
8,322
44,066
(7,098)
$
14,578
$
10,908
$
$
43,561
9,663
$
$
45,713
2,097
$
$
$
(1) The 2018 acquisition of real estate and proceeds from the issuance of partnership units each excludes $8,776 in connection with the acquisition of
Ashbrook Marketplace in exchange for limited partnership units.
(2) Proceeds from sales of property in 2017 excludes $1,275 of seller financing in connection with the sale of the Company’s Great Eastern property,
which were received in 2018.
The Notes to Financial Statements are an integral part of these statements.
SAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
NOTES to Consolidated Financial Statements
1. ORGANIZATION, FORMATION, AND
BASIS OF PRESENTATION
Organization
Saul Centers, Inc. (“Saul Centers”) was incorporated under
the Maryland General Corporation Law on June 10, 1993.
Saul Centers operates as a real estate investment trust
(a “REIT”) under the Internal Revenue Code of 1986, as
amended (the “Code”). The Company is required to annually
distribute at least 90% of its REIT taxable income (excluding
net capital gains) to its stockholders and meet certain orga-
nizational and other requirements. Saul Centers has made
and intends to continue to make regular quarterly distri-
butions to its stockholders. Saul Centers, together with its
wholly owned subsidiaries and the limited partnerships of
which Saul Centers or one of its subsidiaries is the sole gen-
eral 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 shop-
ping center business previously owned and conducted by
the B. F. Saul Real Estate Investment Trust (the “Saul Trust”),
the B. F. Saul Company and certain other affiliated enti-
ties, each of which is controlled by B. Francis Saul II and his
family members (collectively, the “Saul Organization”). On
August 26, 1993, members of the Saul Organization trans-
ferred to Saul Holdings Limited Partnership, a newly formed
Maryland limited partnership (the “Operating Partnership”),
and two newly formed subsidiary limited partnerships (the
“Subsidiary Partnerships,” and collectively with the Operating
Partnership, the “Partnerships”), shopping center and mixed-
used properties, and the management functions related to
the transferred properties. Since its formation, the Company
has developed and purchased additional properties.
The following table lists the significant properties acquired, devel-
oped and/or disposed of by the Company since January 1, 2016.
The following table lists the significant properties acquired, developed and/or disposed of by the Company since January 1, 2016.
Name of Property
Location
Type
Year of Acquisition/
Development/ Disposal
Acquisitions
Burtonsville Town Square
Burtonsville, Maryland
Shopping Center
7316 Wisconsin Avenue
Bethesda, Maryland
Mixed-Use
2017
2018
Developments
750 N. Glebe Road
Arlington, Virginia
Mixed-Use
2017 –2018
Ashbrook Marketplace
Ashburn, Virginia
Shopping Center
Dispositions
Crosstown Business Center
Tulsa, Oklahoma
Mixed-Use
Great Eastern
District Heights, Maryland
Shopping Center
* As of August 2016, this property was removed from operations and reclassified to development.
2018
2016
2017
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As of December 31, 2018, the Company’s properties (the
“Current Portfolio Properties”) consisted of 49 shopping
center properties (the “Shopping Centers”), seven mixed-
use properties, which are comprised of office, retail and
multi-family residential uses (the “Mixed-Use Properties”)
and four (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 be-
cause 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.
SAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
NOTES to Consolidated Financial Statements
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Nature of Operations
The Company, which conducts all of its activities through
its subsidiaries, the Operating Partnership and Subsidi-
ary Partnerships, engages in the ownership, operation,
management, leasing, acquisition, renovation, expansion,
development and financing of community and neighbor-
hood shopping centers and mixed-used properties, primarily
in the Washington, DC/Baltimore metropolitan area. Because
the properties are located primarily in the Washington, DC/
Baltimore metropolitan area, a disproportionate economic
downturn in the local economy would have a greater neg-
ative impact on our overall financial performance than on
the overall financial performance of a company with a port-
folio that is more geographically diverse. A majority of the
Shopping Centers are anchored by several major tenants.
As of December 31, 2018, 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 Capital
One Bank (2.7%), a tenant at 17 properties, individually ac-
counted for 2.5% or more of the Company’s total revenue
for the year ended December 31, 2018.
Principles of Consolidation
The accompanying consolidated financial statements include
the accounts of Saul Centers, its subsidiaries, and the Operat-
ing 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
substantive 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 74.3% of the net in-
come of the Operating Partnership. Because the Operating
Partnership was already consolidated into the financial state-
ments of the Company, the identification of it as a VIE has
no impact on the consolidated financial statements of the
Company.
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Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make certain estimates and as-
sumptions 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 pe-
riod. 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 acquisi-
tion and then subsequently leased at market rental rates and
considers the present value of all cash flows expected to
be generated by the property including an initial lease up
period. From time to time the Company may purchase a
property for future development purposes. The property
may be improved with an existing structure that would be
demolished as part of the development. In such cases, the
fair value of the building may be determined based only on
existing leases and not include estimated cash flows related
to future leases. In certain circumstances, such as if the
building is vacant and the Company intends to demolish the
building in the near term, the entire 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 assess-
ing the net effective rent and remaining term of the lease
relative to market terms for similar leases at acquisition
taking into consideration the remaining contractual lease
period, renewal periods, and the 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 con-
tractual lease period. If the fair value of the below market
lease intangible includes fair value associated with a renewal
option, such amounts are not accreted until the renewal
option is exercised. If the renewal option is not exercised
the value is recognized at that time. The fair value of above
market lease intangibles is recorded as a deferred asset and
is amortized as a reduction of lease revenue over the remain-
ing contractual lease term. The Company determines the
fair value of at-market in-place leases considering the cost of
acquiring similar leases, the foregone rents associated with
the lease-up period and carrying costs associated with the
lease-up period. Intangible assets associated with at-market
in-place leases are amortized as additional expense over the
remaining contractual lease term. To the extent customer
SAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM NOTES to Consolidated Financial Statements
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. Leasehold improvements expenditures are
capitalized when certain criteria are met, including when the
Company supervises construction and will own the improve-
ments. 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 Depreciation and amortization
of deferred leasing costs in the Consolidated Statements of
Operations, for the years ended December 31, 2018, 2017,
and 2016, was $39.8 million, $40.2 million, and $38.8 mil-
lion, respectively. Repairs and maintenance expense totaled
$11.9 million, $11.6 million, and $11.8 million for 2018,
2017, and 2016, respectively, and is included in property
operating expenses in the accompanying consolidated finan-
cial statements.
Deferred Leasing Costs
Deferred leasing costs consist of commissions paid to third-
party leasing agents, internal direct costs such as employee
compensation and payroll-related fringe benefits directly
related to time spent performing leasing-related activities
for successful commercial leases and amounts attributed to
in place leases associated with acquired properties and are
amortized, using the straight-line method, over the term of
the lease or the remaining term of an acquired lease. Leasing
related activities include evaluating the prospective tenant’s
financial condition, evaluating and recording guarantees,
collateral and other security arrangements, negotiating lease
terms, preparing lease documents and closing the transac-
tion. Unamortized deferred costs are charged to expense if
the applicable lease is terminated prior to expiration of the
initial lease term. Collectively, deferred leasing costs totaled
$28.1 million and $27.3 million, net of accumulated amorti-
zation of approximately $37.7 million and $35.3 million, as
of December 31, 2018 and 2017, respectively. Amortization
expense, which is included in Depreciation and amortization
of deferred leasing costs in the Consolidated Statements of
Operations, totaled approximately $6.1 million, $5.5 million,
and $5.6 million, for the years ended December 31, 2018,
2017, and 2016, respectively.
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relationship intangibles are present in an acquisition, the fair
values of the intangibles are amortized over the lives of the
customer relationships. The Company has never recorded
a customer relationship intangible asset. Acquisition-related
transaction costs are 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 indi-
cates a potential impairment in the value of a real estate
investment property, the Company prepares an analysis
to determine whether the carrying value of the real estate
investment property exceeds its estimated fair value. The
Company considers both quantitative and qualitative factors
including recurring operating losses, significant decreases in
occupancy, and significant adverse changes in legal factors
and business climate. If impairment indicators are present,
the Company compares the projected cash flows of the
property over its remaining useful life, on an undiscounted
basis, to the carrying value of that property. The Company
assesses its undiscounted projected cash flows based upon
estimated capitalization rates, historic operating results and
market conditions that may affect the property. If the car-
rying value is greater than the undiscounted projected cash
flows, the Company would recognize an impairment loss
equivalent to an amount required to adjust the carrying
amount to its then estimated fair value. The fair value of any
property is sensitive to the actual results of any of the afore-
mentioned estimated factors, either individually or taken as a
whole. Should the actual results differ from management’s
projections, the valuation could be negatively or positively
affected. The Company did not recognize an impairment
loss on any of its real estate in 2018, 2017, or 2016.
Interest, real estate taxes, development related salary costs
and other carrying costs are capitalized on projects under
development and construction. Once construction is sub-
stantially completed and the assets are placed in service,
their rental income, real estate tax expense, property operat-
ing expenses (consisting of payroll, repairs and maintenance,
utilities, insurance 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 $6.2 million, $3.5 mil-
lion, and $2.5 million during 2018, 2017, and 2016,
respectively. Commercial development projects are con-
sidered substantially complete and available for occupancy
upon completion of tenant improvements, but no later than
one year from the cessation of major construction activity.
Multi-family residential development projects are considered
substantially complete and available for occupancy upon re-
ceipt of the certificate of occupancy from the appropriate
licensing authority. Substantially completed portions of a
project are accounted for as separate projects.
SAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM 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
condition;
• 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 contingencies 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 December 31, 2018 and 2017, the
Company had no assets designated as held for sale.
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 convertible to cash. Substantially all of the Company’s
cash balances at December 31, 2018 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 federally insured limits. The Com-
pany has not experienced any losses on such deposits and
believes it is not exposed to any significant credit risk on
those deposits.
Construction in Progress
Construction in progress includes preconstruction and de-
velopment costs of active projects. Preconstruction costs
include legal, zoning and permitting costs and other proj-
ect carrying costs incurred prior to the commencement of
construction. Development costs include direct construction
costs and indirect costs incurred subsequent to the start of
construction such as architectural, engineering, construction
management and carrying costs consisting of interest, real
estate taxes and insurance. The following table shows the
components of construction in progress.
(in thousands)
December 31,
2018
2017
N. Glebe Road
$ 162,176
$
83,462
Ashbrook Marketplace
Other
Total
11,124
12,672
—
7,652
$ 185,972
$
91,114
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Accounts Receivable and Accrued Income
Accounts receivable primarily represent amounts currently
due from tenants in accordance with the terms of the re-
spective leases. Receivables are reviewed monthly and
reserves are established with a charge to current period op-
erations when, in the opinion of management, collection of
the receivable is doubtful. Accounts receivable in the accom-
panying consolidated financial statements are shown net
of an allowance for doubtful accounts of $0.6 million and
$0.4 million, at December 31, 2018 and 2017, respectively.
(in thousands)
Year ended December 31,
2018
2017
2016
Beginning Balance
$ 405
$ 1,958 $ 1,263
Provision for Credit Losses
685
906
1,494
Charge-offs
(531)
(2,459)
(799)
Ending Balance
$ 559
$
405 $ 1,958
In addition to rents due currently, accounts receivable also
includes $43.3 million and $44.1 million, at December 31,
2018 and 2017, respectively, net of allowance for doubtful
accounts totaling $0.1 million and $0.2 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.
NOTES to Consolidated Financial StatementsSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
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 amor-
tized on a straight-line basis over the terms of the respective
loans or agreements, which approximates the effective in-
terest method. Deferred debt costs totaled $10.3 million and
$6.9 million, net of accumulated amortization of $7.3 mil-
lion and $8.2 million at December 31, 2018 and 2017,
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 had no outstand-
ing balance, are included in Other Assets in the Consolidated
Balance Sheets.
Deferred Income
Deferred income consists of payments received from ten-
ants prior to the time they are earned and recognized by
the Company as revenue, including tenant prepayment of
rent for future periods, real estate taxes when the taxing
jurisdiction has a fiscal year 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 in-
struments, such as interest-rate swaps, to mitigate the risk of
interest rate fluctuations. The Company does not enter into
derivative or other financial instruments for trading or specu-
lative purposes. Derivative financial instruments are carried
at fair value as either assets or liabilities on the consolidated
balance sheets. For those derivative instruments that qualify,
the Company may designate the hedging instrument, based
upon the exposure being hedged, as a fair value hedge or a
cash flow hedge. Derivative instruments that are designated
as a hedge are evaluated to ensure they continue to qualify
for hedge accounting. The effective portion of any gain or
loss on the hedge instruments is reported as a component of
accumulated other comprehensive income (loss) and recog-
nized in earnings within the same line item associated with
the forecasted transaction in the same period or periods
during which the hedged transaction affects earnings. Any
ineffective portion of the change in fair value of a derivative
instrument is immediately recognized in earnings. For de-
rivative 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. Recogni-
tion of rental income commences when control of the space
has been given to the tenant. When rental payments due
under leases vary from a straight-line basis because of free
rent periods or stepped increases, income is recognized on
a straight-line basis. Expense recoveries represent a portion
of property operating expenses billed to the tenants, includ-
ing common area maintenance, real estate taxes and other
recoverable costs. Expense recoveries are recognized in the
period in which the expenses are incurred. Rental income
based on a tenant’s revenue (“percentage rent”) is accrued
when a tenant reports sales that exceed a specified break-
point, 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 Decem-
ber 31, 1993. A REIT generally will not be subject to federal
income taxation, provided that distributions to its stockhold-
ers equal or exceed its REIT taxable income and complies
with certain other requirements. Therefore, no provision has
been made for federal income taxes in the accompanying
consolidated financial statements.
As of December 31, 2018, the Company had no material
unrecognized tax benefits and there exist no potentially
significant unrecognized tax benefits which are reasonably
expected to occur within the next twelve months. The Com-
pany recognizes penalties and interest accrued related to
unrecognized tax benefits, if any, as general and administra-
tive expense. No penalties and interest have been accrued
in years 2018, 2017, and 2016. The tax basis of the Compa-
ny’s real estate investments was approximately $1.35 billion
and $1.32 billion as of December 31, 2018 and 2017, re-
spectively. With few exceptions, the Company is no longer
subject to U.S. federal, state, and local tax examinations by
tax authorities for years before 2015.
Stock Based Employee Compensation,
Deferred Compensation and Stock Plan
for Directors
The Company uses the fair value method to value and ac-
count 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) corresponding to the average
expected term of the options; (2) Average Expected Term
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NOTES to Consolidated Financial StatementsSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM of the options is based on prior exercise history, scheduled
vesting and the expiration date; (3) Expected Dividend Yield
determined by management after considering the Compa-
ny’s current and historic dividend yield rates, the Company’s
yield in relation to other retail REITs and the Company’s mar-
ket yield at the grant date; and (4) a Risk-free Interest Rate
based upon the market yields of US Treasury obligations
with maturities corresponding to the average expected term
of the options at the grant date. The Company amortizes
the value of options granted ratably over the vesting period
and includes the amounts as compensation in general and
administrative expenses.
The Company has a stock plan, which was originally ap-
proved in 2004, amended in 2008 and 2013 and which
expires in 2023, for the purpose of attracting and retaining
executive officers, directors and other key personnel (the
“Stock Plan”). Pursuant to the Stock Plan, the Compensa-
tion Committee established a Deferred Compensation Plan
for Directors for the benefit of its directors and their bene-
ficiaries, 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 di-
rector elects to have fees paid in stock, fees earned during
a calendar quarter are aggregated and divided by the com-
mon 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, 2018, the
directors’ deferred fee accounts comprise 114,644 shares.
The Compensation Committee has also approved an annual
award of shares of the Company’s common stock as addi-
tional 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 An-
nual Meeting of Shareholders, and their issuance may not
be deferred. Each director was issued 200 shares for each
of the years ended December 31, 2018, 2017, and 2016.
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 $108,800,
$130,700, and $150,100, for the years ended December 31,
2018, 2017, and 2016, respectively.
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Noncontrolling Interest
Saul Centers is the sole general partner of the Operating
Partnership, owning a 74.3% common interest as of De-
cember 31, 2018. Noncontrolling interest in the Operating
Partnership is comprised of limited partnership units owned
by the Saul Organization. Noncontrolling interest reflected
on the accompanying consolidated balance sheets is
increased for earnings allocated to limited partnership inter-
ests and distributions reinvested in additional units, and is
decreased for limited partner distributions. Noncontrolling
interest reflected on the consolidated statements of oper-
ations represents earnings allocated to limited partnership
interests held by the Saul Organization.
Per Share Data
Per share data for net income (basic and diluted) is com-
puted using weighted average shares of common stock.
Convertible limited partnership units and employee stock
options are the Company’s potentially dilutive securities.
For all periods presented, the 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
(Shares in thousands)
Weighted average common
shares outstanding - Basic
December 31,
2017
2016
2018
22,383
21,901
21,505
Effect of dilutive options
42
107
110
Weighted average common
shares outstanding - Diluted
22,425
22,008
21,615
Average share price
$ 52.50 $ 61.63 $ 58.96
Non-dilutive options
Years non-dilutive
options were issued
492
—
129
2015, 2016
and 2017
2007, 2015
and 2016
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.
NOTES to Consolidated Financial StatementsSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
Recently Issued Accounting Standards
In May 2014, the FASB issued ASU No. 2014-09 titled “Reve-
nue from Contracts with Customers” and subsequently issued
several related ASUs (collectively “ASU 2014-09”). ASU 2014-
09 replaces most existing revenue recognition guidance and
requires 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
periods beginning after December 15, 2017, and interim pe-
riods within those years and early adoption is not permitted.
ASU 2014-09 must be applied retrospectively by either re-
stating prior periods or by recognizing the cumulative effect
as of the first date of application. The Company adopted
ASU 2014-09 effective January 1, 2018, using the modified
retrospective approach. The adoption of ASU 2014-09 did
not have an impact on the consolidated financial statements
because the majority of the Company’s revenue consists of
lease-related income from leasing arrangements, which is
specifically excluded from ASU 2014-09. Other revenues,
as a whole, are immaterial to total revenues. There was no
change to previously reported amounts as a result of the
adoption of ASU 2014-09.
In February 2016, the FASB issued ASU 2016-02, ‘‘Leases’’
(“ASU 2016-02”). ASU 2016-02 amends the existing ac-
counting standards for lease accounting, including requiring
lessees to recognize most leases on their balance sheets and
making targeted 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 ex-
isting at the date of initial application, with an option to use
certain practical expedients for those existing leases. Upon
adoption of ASU 2016-02 effective January 1, 2019, we
anticipate election of the practical expedient with respect
to cost recoveries. We anticipate that the accounting for
initial direct costs will impact the amount of those costs that
are charged to expense. In 2018, we capitalized approx-
imately $2.1 million of initial direct costs that would have
been charged to expense under ASU 2016-02. For those
leases where we are lessee, the adoption of ASU 2016-02
will require us to record a right of use asset and a lease
liability on the consolidated balance sheet. The right of use
asset and lease liability are not expected to be material to
the financial statements.
In June 2016, the FASB issued ASU 2016-13, “Financial In-
struments-Credit Losses” (“ASU 2016-13”). ASU 2016-13
replaces the incurred loss impairment methodology with
a methodology that reflects expected credit losses and re-
quires consideration of a broader range of information to
support credit loss estimates. ASU 2016-13 is effective for
annual periods beginning after December 15, 2019, includ-
ing 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 provides 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 pe-
riods 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 re-
ported in the financial statements. 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 assumed 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, 2018.
3. REAL ESTATE ACQUIRED
700, 726, 730 and 750 N. Glebe Road
In August 2014, the Company purchased for $40.0 mil-
lion, 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 acquisi-
tion 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 Com-
pany purchased for $7.2 million, including acquisition costs,
700 N. Glebe Road. These properties are contiguous and
are located in Arlington, Virginia.
Thruway pad
In August 2016, the Company purchased for $3.1 million,
a retail 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 underly-
ing 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.
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NOTES to Consolidated Financial StatementsSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM Allocation of Purchase Price of Real Estate
Acquired
The Company allocates the purchase price of real estate in-
vestment properties to various components, such as land,
buildings and intangibles related to in-place leases and cus-
tomer relationships, based on their relative fair values. See
Note 2. Summary of Significant Accounting Policies-Real Es-
tate Investment Properties.
During 2018, the Company acquired properties that had an
aggregate cost of $49.5 million, including acquisition costs.
The purchase price was allocated to assets acquired and lia-
bilities assumed based on their relative fair values as shown
in the following table.
Purchase Price Allocation of Acquisitions
7316
Ashbrook Wisconsin
(in thousands)
Marketplace Avenue
Total
Land
Buildings
In-place Leases
Above Market Rent
Below Market Rent
$ 8,776
—
—
—
—
$ 38,662
979
886
168
(21)
$ 47,438
979
886
—
(21)
Total Purchase Price $ 8,776
$ 40,674
$ 49,450
During 2017, the Company purchased one property,
Burtonsville Town Square, at a cost of $76.4 million, in-
cluding acquisition costs. Of the total acquisition cost,
$28.4 million was allocated to land, $45.8 million was al-
located 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 allocated to below-market rent, based on
their relative fair values.
Southdale
In the fourth quarter of 2016, the Company purchased
for $15.3 million, including acquisition costs, the land un-
derlying 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,
including acquisition costs, Burtonsville Town Square located
in Burtonsville, Maryland.
Olney Shopping Center
In March 2017, the Company purchased for $3.1 million,
including acquisition costs, the land underlying Olney Shop-
ping Center. The land was previously leased by the Company
with an annual rent of approximately $56,000. The pur-
chase price was funded by the revolving credit facility.
Ashbrook Marketplace
In May 2018, the Company acquired from the Saul Trust,
in exchange for 176,680 limited partnership units, ap-
proximately 13.7 acres of land located at the intersection
of Ashburn Village Boulevard and Russell Branch Parkway
in Loudoun County, Virginia. Based on the closing price
of the Company’s common stock, the land and the limited
partnership units were recorded at a value of $8.8 million.
Acquisition costs related to the transaction totaled approxi-
mately $0.2 million.
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7316 Wisconsin Avenue
In September 2018, the Company purchased for $35.5
million, plus $0.7 million of acquisition costs, an office build-
ing and the underlying ground located at 7316 Wisconsin
Avenue in Bethesda, Maryland. This site has mixed-use
development potential of up to 325 apartment units and
approximately 10,000 square feet of street level retail
pursuant to the approved Bethesda Downtown Plan. In
December 2018, the Company purchased for $4.5 million,
including acquisition costs, an interest in an adjacent parcel
of land and retail building. The Company is evaluating con-
cept plans for the combined property in order to increase
the mixed-use development potential by up to 40 additional
apartment units. The purchase price was funded through
the Company’s credit facility.
NOTES to Consolidated Financial StatementsSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
During 2016, the Company purchased properties that had
an aggregate 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 Road
Thruway
Pad
Total
(in thousands)
Land
Buildings
In-place Leases
Above Market Rent
Below Market Rent
$ 7,236
—
—
—
—
$ 2,196
874
93
—
(63)
$ 9,432
874
93
—
(63)
Total Purchase Price $ 7,236
$ 3,100
$ 10,336
The gross carrying amount of lease intangible assets included
in deferred leasing costs as of December 31, 2018 and 2017
was $12.5 million and $12.3 million, respectively, and ac-
cumulated amortization was $8.1 million and $7.5 million,
respectively. Amortization expense totaled $1.3 million,
$1.1 million and $1.0 million, for the years ended Decem-
ber 31, 2018, 2017, and 2016, respectively. The gross
carrying amount of below market lease intangible liabilities
included in deferred income as of December 31, 2018 and
2017 was $24.8 million and $25.1 million, respectively, and
accumulated amortization was $13.1 million and $11.8 mil-
lion, respectively. Accretion income totaled $1.7 million,
$1.7 million, and $1.8 million, for the years ended Decem-
ber 31, 2018, 2017, and 2016, respectively. The gross
carrying amount of above market lease intangible assets in-
cluded in accounts receivable as of December 31, 2018 and
2017 was $0.8 million and $0.6 million, respectively, and
accumulated amortization was $0.1 million and $39,500,
respectively. Amortization expense totaled $110,500,
$31,600 and $1,500, for the years ended December 31,
2018, 2017 and 2016, respectively. The remaining weight-
ed-average amortization period as of December 31, 2018 is
4.1 years, 7.2 years, and 5.5 years for lease acquisition costs,
above market leases and below market leases, respectively.
As of December 31, 2018, scheduled amortization of intan-
gible 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
acquisition
costs
Below-
Above-
market market
leases
leases
$ 1,141
785
538
383
316
1,197
$
102
52
36
33
33
376
$ 1,533
1,434
1,409
1,306
1,297
4,731
(in thousands)
2019
2020
2021
2022
2023
Thereafter
Total
$ 4,360
$
632
$ 11,710
4. NONCONTROLLING INTERESTS
- HOLDERS OF CONVERTIBLE
LIMITED PARTNERSHIP UNITS IN
THE OPERATING PARTNERSHIP
The Saul Organization holds a 25.7% limited partnership in-
terest in the Operating Partnership represented by 7,825,980
limited partnership units, as of December 31, 2018. The units
are convertible into shares of Saul Centers’ common stock,
at the option of the unit holder, on a one-for-one basis pro-
vided that, in accordance with the Saul Centers, Inc. Articles
of Incorporation, the rights may not be exercised at any time
that the Saul Organization beneficially owns, directly or in-
directly, 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, 2018,
approximately 920,000 units were eligible for conversion.
The impact of the Saul Organization’s 25.7% limited part-
nership interest in the Operating Partnership is reflected
as Noncontrolling Interests in the accompanying consoli-
dated financial statements. Fully converted partnership units
and diluted weighted average shares outstanding for the
years ended December 31, 2018, 2017, and 2016, were
30,156,100, 29,510,900, and 28,989,900, respectively.
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NOTES to Consolidated Financial StatementsSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
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5. MORTGAGE NOTES PAYABLE,
REVOLVING CREDIT FACILITY,
INTEREST EXPENSE AND
AMORTIZATION OF DEFERRED
DEBT COSTS
At December 31, 2018, the principal amount of outstand-
ing debt totaled $1.0 billion, of which $910.2 million was
fixed rate debt and $122.0 million was variable rate debt.
The principal amount of the Company’s outstanding debt
totaled $965.5 million at December 31, 2017, of which
$890.4 million was fixed rate debt and $75.1 million was
variable rate debt.
At December 31, 2018, the Company had a $400.0 million
unsecured credit facility, which can be used for working cap-
ital, property acquisitions or development projects, of which
$325.0 million is a revolving credit facility and $75.0 mil-
lion is a term loan. The revolving credit facility matures on
January 26, 2022, and may be extended by the Company
for one additional year subject to the Company’s satisfac-
tion of certain conditions. The term loan matures on January
26, 2023, and may not be extended. Saul Centers and cer-
tain consolidated subsidiaries of the Operating Partnership
have guaranteed the payment obligations of the Operating
Partnership under the credit facility. Letters of credit may be
issued under the revolving credit facility. On December 31,
2018, based on the value of the Company’s unencumbered
properties, approximately $190.7 million was available under
the revolving credit facility, $47.0 million was outstanding
and approximately $184,600 was committed for letters of
credit. Interest at a rate equal to the sum of one-month
LIBOR and a margin that is based on the Company’s leverage
ratio and which can range from 135 basis points to 195 basis
points under the revolving facility and from 130 basis points
to 190 basis points under the term loan. As of December 31,
2018, the margin was 135 basis points under the revolving
facility and 130 basis points under the term loan.
Saul Centers is a guarantor of the credit facility, of which
the Operating Partnership is the borrower. The Operating
Partnership is the guarantor of (a) a portion of the Park Van
Ness loan (approximately $10.0 million of the $69.7 million
outstanding balance at December 31, 2018, which guaran-
tee will be reduced to (i) $6.7 million on October 1, 2019,
(ii) $3.3 million on October 1, 2020 and (iii) zero on October
1, 2021), (b) a portion of the Kentlands Square II mortgage
loan (approximately $8.8 million of the $35.3 million out-
standing balance at December 31, 2018) and (c) a portion of
the Broadlands mortgage (approximately $4.0 million of the
$31.9 million outstanding balance at December 31, 2018).
All other notes payable are non-recourse.
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 princi-
pal and interest payments of $197,900 based on a 25-year
amortization schedule and requires 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 proj-
ect. 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 amortization schedule will be required.
Effective September 1, 2017, the Company’s $71.6 million
construction-to-permanent loan, which is fully drawn and
secured by Park Van Ness, converted to permanent financ-
ing. 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 in-
terest at a fixed rate of 3.75%, requires monthly principal
and interest payments of $308,500 based on a 25-year
amortization schedule and requires 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.
On October 3, 2018, the Company closed on a 15-year,
non-recourse $32.0 million mortgage loan secured by
Broadlands Village. The loan matures in 2033, bears interest at
a fixed-rate of 4.41%, requires monthly principal and interest
payments of $176,200 based on a 25-year amortization sched-
ule and requires a final payment of $17.3 million at maturity.
On December 18, 2018, the Company closed on a 15-year,
non-recourse $22.9 million mortgage loan secured by The
Glen. The loan matures in 2034, bears interest at a fixed-rate
of 4.69%, requires monthly principal and interest payments
of $129,800 based on a 25-year amortization schedule and
requires a final payment of $12.5 million at maturity.
NOTES to Consolidated Financial StatementsSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM The following is a summary of notes payable as of December 31, 2018 and 2017.
The following is a summary of notes payable as of December 31, 2018 and 2017.
Notes Payable
Notes Payable
Year Ended December 31,
Year Ended December 31,
Interest
Interest
Rate*
Rate*
(Dollars in thousands)
(Dollars in thousands)
2018
2018
2017
2017
Fixed rate mortgages:
Fixed rate mortgages:
$
$
Total fixed rate
Total fixed rate
Variable rate loans:
Variable rate loans:
$
$
(a)
—
(a)
—
9,159 (b)
9,159 (b)
12,676 (c)
12,676 (c)
12,714 (d)
12,714 (d)
11,295 (e)
11,295 (e)
9,601 (f)
9,601 (f)
7,766 (g)
7,766 (g)
36,711 (h)
36,711 (h)
6,943 (i)
6,943 (i)
5,480 (j)
5,480 (j)
31,723 (k)
31,723 (k)
9,728 (l)
9,728 (l)
10,609 (m)
10,609 (m)
11,702 (n)
11,702 (n)
14,952 (o)
14,952 (o)
13,013 (p)
13,013 (p)
23,198 (q)
23,198 (q)
27,222 (r)
27,222 (r)
27,168 (s)
27,168 (s)
14,086 (t)
14,086 (t)
102,310 (u)
102,310 (u)
30,888 (v)
30,888 (v)
35,258 (w)
35,258 (w)
16,515 (x)
16,515 (x)
62,630 (y)
62,630 (y)
15,345 (z)
15,345 (z)
38,120 (aa)
38,120 (aa)
15,547 (bb)
15,547 (bb)
27,060 (cc)
27,060 (cc)
14,526 (dd)
14,526 (dd)
38,076 (ee)
38,076 (ee)
69,691 (ff)
69,691 (ff)
58,523 (gg)
58,523 (gg)
31,941 (hh)
31,941 (hh)
22,900 (ii)
22,900 (ii)
11,781 (jj)
11,781 (jj)
23,332 (kk)
23,332 (kk)
910,189
910,189
47,000 (ll)
47,000 (ll)
75,000 (mm)
75,000 (mm)
—
—
(nn)
(nn)
Total variable rate
Total variable rate
Total notes payable
Total notes payable
122,000
$ 122,000
$ 1,032,189
$ 1,032,189
$
$
$
30,201
30,201
9,783
9,783
13,529
13,529
13,543
13,543
12,029
12,029
9,948
9,948
8,244
8,244
37,998
37,998
7,325
7,325
5,649
5,649
32,673
32,673
9,999
9,999
10,877
10,877
12,577
12,577
15,452
15,452
13,438
13,438
23,873
23,873
28,115
28,115
28,025
28,025
14,537
14,537
105,817
105,817
32,016
32,016
36,507
36,507
17,086
17,086
64,472
64,472
15,859
15,859
39,968
39,968
16,055
16,055
27,884
27,884
14,950
14,950
39,140
39,140
71,211
71,211
60,000
60,000
—
—
—
—
11,613
11,613
—
—
890,393
890,393
61,000
61,000
—
—
14,135
14,135
75,135
75,135
965,528
965,528
5.88%
5.88%
5.76%
5.76%
5.62%
5.62%
5.79%
5.79%
5.22%
5.22%
5.60%
5.60%
5.30%
5.30%
5.83%
5.83%
5.81%
5.81%
6.01%
6.01%
5.62%
5.62%
6.08%
6.08%
6.43%
6.43%
6.28%
6.28%
7.35%
7.35%
7.60%
7.60%
7.02%
7.02%
7.45%
7.45%
7.30%
7.30%
6.18%
6.18%
5.31%
5.31%
4.30%
4.30%
4.53%
4.53%
4.70%
4.70%
5.84%
5.84%
4.04%
4.04%
3.51%
3.51%
3.99%
3.99%
3.69%
3.69%
3.99%
3.99%
3.39%
3.39%
4.88%
4.88%
3.75%
3.75%
4.41%
4.41%
4.69%
4.69%
8.00%
8.00%
4.67%
4.67%
5.18%
5.18%
LIBOR + 1.35%
LIBOR + 1.35%
LIBOR + 1.30%
LIBOR + 1.30%
LIBOR + 1.65%
LIBOR + 1.65%
3.84%
3.84%
5.02%
5.02%
Scheduled
Scheduled
Maturity*
Maturity*
Jan-2019
Jan-2019
May-2019
May-2019
Jul-2019
Jul-2019
Sep-2019
Sep-2019
Jan-2020
Jan-2020
May-2020
May-2020
Jun-2020
Jun-2020
Jul-2020
Jul-2020
Feb-2021
Feb-2021
Aug-2021
Aug-2021
Jun-2022
Jun-2022
Sep-2022
Sep-2022
Apr-2023
Apr-2023
Feb-2024
Feb-2024
Jun-2024
Jun-2024
Jun-2024
Jun-2024
Jul-2024
Jul-2024
Jul-2024
Jul-2024
Jan-2025
Jan-2025
Jan-2026
Jan-2026
Apr-2026
Apr-2026
Oct-2026
Oct-2026
Nov-2026
Nov-2026
Dec-2026
Dec-2026
May-2027
May-2027
Apr-2028
Apr-2028
Jun-2028
Jun-2028
Sep-2028
Sep-2028
Mar-2030
Mar-2030
Apr-2030
Apr-2030
Feb-2032
Feb-2032
Sep-2032
Sep-2032
Dec-2032
Dec-2032
Nov-2033
Nov-2033
Jan-2034
Jan-2034
Apr-2034
Apr-2034
Sept-2035
Sept-2035
8.5 Years
8.5 Years
Jan-2022
Jan-2022
Jan-2023
Jan-2023
Feb-2018
Feb-2018
3.7 Years
3.7 Years
8.0 Years
8.0 Years
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* Interest rate and scheduled maturity data presented as of December 31, 2018. Totals computed using weighted averages. Amounts
* Interest rate and scheduled maturity data presented as of December 31, 2018. Totals computed using weighted averages. Amounts shown are
shown are principal amounts and have not been reduced by any deferred debt issuance costs.
principal amounts and have not been reduced by any deferred debt issuance costs.
NOTES to Consolidated Financial StatementsSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
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(a) The loan was collateralized by three shopping centers, Broad-
lands Village, The Glen and Kentlands Square I, and required equal
monthly principal and interest payments of $306,000 based upon a
25-year amortization schedule and a final payment of $28.4 million
at loan maturity. The loan was repaid in full in 2018 and replaced
with two new loans. See (hh) and (ii) below.
(b) The loan is collateralized by Olde Forte Village and requires equal
monthly principal and interest payments of $98,000 based upon a
25-year amortization schedule and a final payment of $9.0 million
at loan maturity. Principal of $624,100 was amortized during 2018.
(c) 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 $853,100 was amortized during 2018.
(d) 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 $829,100 was amortized
during 2018.
(i)
(f)
(e) The loan is collateralized by Shops at Monocacy and requires equal
monthly principal and interest payments of $112,000 based upon a
25-year amortization schedule and a final payment of $10.6 million
at loan maturity. Principal of $733,800 was amortized during 2018.
The loan is collateralized by Boca Valley Plaza and requires equal
monthly principal and interest payments of $75,000 based upon a
30-year amortization schedule and a final payment of $9.1 million
at loan maturity. Principal of $347,300 was amortized during 2018.
(g) 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 $477,900 was amortized during 2018.
(h) The loan and a corresponding interest-rate swap closed on June 29,
2010 and are collateralized by Thruway. On a combined basis, the
loan and the interest-rate swap require equal monthly principal and
interest payments of $289,000 based upon a 25-year amortization
schedule and a final payment of $34.8 million at loan maturity.
Principal of $1.3 million was amortized during 2018.
The loan is collateralized by Jamestown Place and requires equal
monthly principal and interest payments of $66,000 based upon a
25-year amortization schedule and a final payment of $6.1 million
at loan maturity. Principal of $381,700 was amortized during 2018.
The loan is collateralized by Hunt Club Corners and requires equal
monthly principal and interest payments of $42,000 based upon a
30-year amortization schedule and a final payment of $5.0 million,
at loan maturity. Principal of $169,300 was amortized during 2018.
(k) The loan is collateralized by Lansdowne Town Center and requires
monthly principal and interest payments of $230,000 based on a
30-year amortization schedule and a final payment of $28.2 million
at loan maturity. Principal of $949,600 was amortized during 2018.
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 $270,300 was amortized during 2018.
(m) 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 $268,400 was amortized during 2018.
(n) 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 $874,800 was amortized during 2018.
(l)
(j)
(o) 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 $499,800 was amortized during 2018.
(p) 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 $424,700 was amortized during 2018.
(q) The loan is collateralized by White Oak and requires equal monthly
principal and interest payments of $193,000 based upon a 24.4 year
weighted amortization schedule and a final payment of $18.5 mil-
lion at loan maturity. The loan was previously collateralized by Van
Ness Square. During 2012, the Company substituted White Oak as
the collateral and borrowed an additional $10.5 million. Principal
of $675,200 was amortized during 2018.
(r) The loan is collateralized by Avenel Business Park and requires equal
monthly principal and interest payments of $246,000 based upon a
25-year amortization schedule and a final payment of $20.9 million
at loan maturity. Principal of $893,200 was amortized during 2018.
(s) The loan is collateralized by Ashburn Village and requires equal
monthly principal and interest payments of $240,000 based upon a
25-year amortization schedule and a final payment of $20.5 million
at loan maturity. Principal of $857,000 was amortized during 2018.
(t) 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 $451,200 was amortized during 2018.
(u) The loan is collateralized by Clarendon Center and requires equal
monthly principal and interest payments of $753,000 based upon a
25-year amortization schedule and a final payment of $70.5 million
at loan maturity. Principal of $3.5 million was amortized during
2018.
(v) 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 amor-
tized during 2018.
(w) The loan is collateralized by Kentlands Square II and requires equal
monthly principal and interest payments of $240,000 based upon a
25-year amortization schedule and a final payment of $23.1 million
at loan maturity. Principal of $1.2 million was amortized during
2018.
(x) The loan is collateralized by Cranberry Square and requires equal
monthly principal and interest payments of $113,000 based upon a
25-year amortization schedule and a final payment of $10.9 million
at loan maturity. Principal of $570,500 was amortized during 2018.
(y) The loan in the original amount of $73.0 million closed in May
2012, is collateralized by Seven Corners and requires equal monthly
principal and interest payments of $463,200 based upon a 25-year
amortization schedule and a final payment of $42.3 million at loan
maturity. Principal of $1.8 million was amortized during 2018.
(z) The loan is collateralized by Hampshire Langley and requires equal
monthly principal and interest payments of $95,400 based upon a
25-year amortization schedule and a final payment of $9.5 million
at loan maturity. Principal of $513,700 was amortized in 2018.
(aa) 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 2018.
NOTES to Consolidated Financial StatementsSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM (bb) 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 $507,600 was amortized in 2018.
(cc) The loan is collateralized by Shops at Fairfax and Boulevard shop-
ping 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 million at maturity. Principal
of $824,000 was amortized in 2018.
(dd) The loan is collateralized by Northrock and requires equal monthly
principal and interest payments totaling $84,400 based upon a 25-
year amortization schedule and a final payment of $8.4 million at
maturity. Principal of $423,600 was amortized in 2018.
(ee) The loan is collateralized by Burtonsville Town Square and requires
equal monthly principal and interest payments of $197,900 based
on a 25-year amortization schedule and a final payment of $20.3
million at loan maturity. Principal of $1.1 million was amortized in
2018.
(ff) The loan is a $71.6 million construction-to-permanent facility that is
collateralized 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 $1.5 million was amortized in 2018.
(gg) The loan is collateralized by Washington Square and requires equal
monthly principal and interest payments of $308,500 based upon a
25-year amortization schedule and a final payment of $31.1 million
at loan maturity. Principal of $1.5 million was amortized in 2018.
(hh) The loan is collateralized by Broadlands Village and requires equal
monthly principal and interest payments of $176,200 based on a
25-year amortization schedule and a final payment of $17.3 million
at loan maturity. Principal of $58,600 was amortized in 2018.
The carrying value of the properties collateralizing the
mortgage notes payable totaled $1.1 billion and $1.0
billion, as of December 31, 2018 and 2017, respectively.
The Company’s credit facility requires the Company and its
subsidiaries to maintain certain financial covenants, which
are summarized below. The Company was in compliance as
of December 31, 2018.
• 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 princi-
pal amortization and preferred dividend coverage exceeds
1.4x on a trailing four-quarter basis (fixed charge coverage).
Mortgage notes payable at each of December 31, 2018 and
2017, totaling $51.0 million, are guaranteed by members
of the Saul Organization. As of December 31, 2018, the
(ii) The loan is collateralized by The Glen and requires equal monthly
principal and interest payments of $129,800 based on a 25-year
amortization schedule and a final payment of $12.5 million at loan
maturity.
(jj) 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 thereaf-
ter. The arrangement provides for a final payment of $14.7 million
and has an implicit interest rate of 8.0%. Negative amortization in
2018 totaled $168,600.
(kk) The loan is a $157.0 million construction-to-permanent facility that
is collateralized by and will finance a portion of the construction
costs of Glebe Road. During the construction period, interest will be
funded by the loan. After conversion to a permanent loan, monthly
principal and interest payments totaling $887,900 will be required
based upon a 25-year amortization schedule.
(ll) The loan is a $325.0 million unsecured revolving credit facility. In-
terest accrues at a rate equal to the sum of one-month LIBOR plus
a spread of 135 basis points. The line may be extended at the Com-
pany’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.
(mm) The loan is a $75.0 million unsecured term facility. Interest accrues
at a rate equal to the sum of one-month LIBOR plus a spread of 130
basis points. Monthly payments are interest only.
(nn) The loan was collateralized by Metro Pike Center and required
monthly principal and interest payments of approximately $48,000
and a final payment of $14.2 million at loan maturity. The loan was
repaid in full during 2018.
scheduled maturities of all debt including scheduled principal
amortization for years ended December 31 are as follows:
Debt Maturity Schedule
Scheduled
Principal
Amortization
Balloon
Payments
Total
$ 60,794
$
2,257
$
63,051
61,163
11,012
28,042
27,815
89,205
38,827
83,502 (a)
28,381
111,883
84,225
28,745
112,970
(in thousands)
2019
2020
2021
2022
2023
Thereafter
480,132
136,121
616,253
Principal Amount
$ 780,828
$ 251,361
$ 1,032,189
Unamortized
deferred debt costs
Net
10,343
$ 1,021,846
(a) Includes $47.0 million outstanding under the revolving facility.
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NOTES to Consolidated Financial StatementsSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
The components of interest expense are set forth below.
7. LONG-TERM LEASE OBLIGATIONS
Interest Expense
Year ended December 31,
2017
2016
2018
(in thousands)
Interest incurred
$ 49,652 $ 49,322 $ 46,867
Amortization of
deferred debt costs
1,610
1,392
1,343
Capitalized interest
(6,222)
(3,489)
(2,527)
Total
$ 45,040 $ 47,225 $ 45,683
Deferred debt costs capitalized during the years ending
December 31, 2018, 2017 and 2016 totaled $3.2 million,
$2.6 million and $0.1 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, 2018, 2017, and 2016,
amounted to $184.7 million, $181.1 million, and $172.4 mil-
lion, respectively. Future contractual payments under
noncancelable leases for years ended December 31 (which
exclude the effect of straight-line rents), are as follows:
Future Contractual Rent Payments
$ 163,489
146,425
125,372
101,778
79,903
244,801
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(in thousands)
2019
2020
2021
2022
2023
Thereafter
Total
During 2016 and 2017, the Company purchased the land
underlying Olney, Beacon Center and Southdale - See Note
3. As a result, at December 31, 2018, no properties are
subject to noncancelable long-term leases which apply to
underlying land. Reflected in the accompanying consoli-
dated financial statements is minimum ground rent expense
of $10,500 and $159,000, for the years ended December
31, 2017 and 2016, 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 tenant in 1991. The Company has a 90-year
ground leasehold interest which commenced in September
1991 with a minimum rent of one dollar per year. Coun-
tryside shopping center was acquired in February 2004.
Because of certain land use considerations, approximately
3.4% of the underlying land is held under a 99-year ground
lease. The lease requires the Company to pay minimum rent
of one dollar per year as well as its pro-rata share of the real
estate taxes.
The Company’s corporate headquarters space is leased by a
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 employees employed by each party. The Compa-
ny’s rent expense for the years ended December 31, 2018,
2017, and 2016 was $779,800, $774,700, and $843,300,
respectively. Expenses arising from the lease are included
in general and administrative expense (see Note 9 – Related
Party Transactions).
8. EQUITY AND NONCONTROLLING
$ 861,768
INTEREST
The majority of the leases provide for rental increases
and expense recoveries based on fixed annual increases
or increases in the Consumer Price Index and increases in
operating expenses. The expense recoveries generally are
payable in equal installments throughout the year based on
estimates, with adjustments made in the succeeding year.
Expense recoveries for the years ended December 31, 2018,
2017, and 2016, amounted to $35.5 million, $35.3 million,
and $34.3 million, respectively. In addition, certain retail
leases provide for percentage rent based on sales in excess
of the minimum specified in the tenant’s lease. Percentage
rent amounted to $1.0 million, $1.5 million, and $1.4 mil-
lion, for the years ended December 31, 2018, 2017, and
2016, respectively.
The Consolidated Statements of Operations for the years
ended December 31, 2018, 2017, and 2016 reflect non-
controlling interest of $12.5 million, $12.4 million, and
$11.4 million, respectively, representing the Saul Organiza-
tion’s share of the net income for the year.
On January 23, 2018, Saul Centers sold, in an underwritten
public offering, 3.0 million depositary shares, each repre-
senting 1/100th of a share of 6.125% Series D Cumulative
Redeemable Preferred Stock (the “Series D Stock”), pro-
viding 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 accrued but un-
paid dividends to but not including the redemption date.
NOTES to Consolidated Financial StatementsSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
NOTES to Consolidated Financial Statements
The depositary shares pay an annual dividend of $1.53125
per share, equivalent to 6.125% of the $25.00 liquidation
preference. 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 Com-
pany 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 quar-
ters (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 (the “Series C Stock”). Costs
associated with the redemption were charged against Net
income available to common stockholders.
At December 31, 2018, the Company had outstanding, 4.2
million depositary shares, each representing 1/100th of a
share of Series C Stock. The depositary shares are redeem-
able at the Company’s option, in whole or in part, at the
$25.00 liquidation preference plus accrued but unpaid div-
idends. The depositary shares pay an annual dividend of
$1.71875 per share, equivalent to 6.875% of the $25.00
liquidation 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 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.
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 Presi-
dent-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 compensation is fixed by the Compensation Commit-
tee of the Board of Directors, with the exception of the Senior
Vice President-Chief Accounting Officer whose share of an-
nual compensation allocated to the Company is determined
by the shared services agreement (described below).
The Company participates in a multiemployer 401K plan
with entities in the Saul Organization which covers those
full-time employees who meet the requirements as specified
in the plan. Company contributions, which are included in
general and administrative expense or property operating
expenses in the consolidated statements of operations, at
the discretionary amount of up to six percent of the em-
ployee’s cash compensation, subject to certain limits, were
$345,900, $349,500, and $329,000, for 2018, 2017, and
2016, respectively. All amounts deferred by employees and
contributed by the Company are fully vested.
The Company also participates in a multiemployer nonqual-
ified deferred compensation plan with entities in the Saul
Organization which covers those full-time employees who
meet the requirements as specified in the plan. Accord-
ing to the plan, which can be modified or discontinued at
any time, participating employees defer 2% of their com-
pensation in excess of a specified amount. For the years
ended December 31, 2018, 2017, and 2016, the Company
contributed three times the amount deferred by employees.
The Company’s expense, included in general and administra-
tive expense, totaled $282,500, $228,500, and $250,800,
for the years ended December 31, 2018, 2017, and 2016,
respectively. All amounts deferred by employees and the
Company are fully vested. The cumulative unfunded liability
under this plan was $2.7 million and $2.4 million, at De-
cember 31, 2018 and 2017, 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 management has determined that the
final allocations of shared costs are reasonable. The terms
of the Agreement and the payments made thereunder are
reviewed annually by the Audit Committee of the Board of
Directors, which consists entirely of independent directors.
Net billings by the Saul Organization for the Company’s
share of these ancillary costs and expenses for the years
ended December 31, 2018, 2017, and 2016, which included
rental expense for the Company’s headquarters lease (see
Note 7. Long Term Lease Obligations), totaled $8.4 million,
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SAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM $8.1 million, and $7.2 million, respectively. The amounts
are expensed when incurred and are primarily reported as
general and administrative expenses or capitalized to spe-
cific development projects in these consolidated financial
statements. As of December 31, 2018 and 2017, accounts
payable, accrued expenses and other liabilities included
$933,400 and $993,200, 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 pre-
development cost agreement with the Saul 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 redevelopment of certain ad-
jacent real estate assets in the Twinbrook area of Rockville,
Maryland. On December 8, 2016, the 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 ei-
ther 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 sub-
sidiary of the B. F. Saul Company and a member of the Saul
Organization, is a general insurance agency that receives
commissions and counter-signature fees in connection with
the Company’s insurance program. Such commissions and
fees amounted to approximately $407,900, $288,400, and
$360,500, for the years ended December 31, 2018, 2017,
and 2016, respectively.
In August 2016, the Company entered into an agreement to
acquire from the Saul Trust, approximately 13.7 acres of land
located at the intersection of Ashburn Village Boulevard and
Russell Branch Parkway in Ashburn, Virginia. The transaction
closed on May 9, 2018, and the Company issued 176,680
limited partnership units to the Saul Trust. The Company in-
tends to construct a shopping center and, upon stabilization,
may be obligated to issue additional limited partnership units
to the Saul Trust.
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10. STOCK OPTION PLAN
The Company established a stock option plan in 1993 (the
“1993 Plan”) for the purpose of attracting and retaining
executive officers and other key personnel. The 1993 Plan
provides for grants of options to purchase up to 400,000
shares of common stock. The 1993 Plan authorizes the
Compensation Committee of the Board of Directors to grant
options at an exercise price which may not be less than the
market value of the common stock on the date the option
is granted.
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 ex-
ecutive officers, directors and other key personnel. The
2004 stock plan was subsequently amended by the Compa-
ny’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 purchase up to 2,000,000
shares of common stock as well as grants of up to 200,000
shares of common stock to directors. The Amended 2004
Plan authorizes the Compensation Committee of the Board
of Directors to grant options at an exercise price which may
not be less than the market value of the common stock on
the date the option is granted.
Effective April 24, 2009, the Compensation Committee
granted options to purchase 32,500 shares (all nonquali-
fied stock options) 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 directors’ op-
tions 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 options) to 13 Company directors (the “2010 Op-
tions”), which were immediately exercisable and expire on
May 6, 2020. The exercise price of $38.76 per share was
the closing market price of the Company’s common stock
on the date of the award. Using the Black-Scholes model,
the Company determined the total fair value of the 2010
Options to be $287,950. Because the directors’ options
vested immediately, the entire $287,950 was expensed as
of the date of grant. No options were granted to the Com-
pany’s officers in 2010.
NOTES to Consolidated Financial StatementsSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM Effective May 13, 2011, the Compensation Committee
granted options to purchase 195,000 shares (65,300 in-
centive stock options 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 em-
ployment. 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 Com-
pany 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, respec-
tively. Because the directors’ options vested immediately,
the entire $297,375 was expensed as of the date of grant.
The expense for the officers’ options is being recognized as
compensation expense monthly during the four years the
options vest.
Effective May 4, 2012, the Compensation Committee
granted options to purchase 277,500 shares (26,157 in-
centive stock options 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 termination of em-
ployment. 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
assigned to the officer options and director options, respec-
tively. Because the directors’ options vested immediately,
the entire $257,250 was expensed as of the date of grant.
The expense for the officers’ options is being recognized as
compensation expense monthly during the four years the
options vest.
Effective May 10, 2013, the Compensation Committee
granted options to purchase 237,500 shares (35,592 incen-
tive stock options 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 termination of employment.
The directors’ 2013 options were immediately exercisable.
The exercise price of $44.42 per share was the closing mar-
ket price of the Company’s common stock on the date of
award. Using the Black-Scholes model, the Company de-
termined the total fair value of the 2013 Options to be
$1.5 million, of which $1.2 million and $278,250 were
assigned to the officer options and director options, respec-
tively. 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 expense monthly during the four years the
option was vested.
Effective May 9, 2014, the Compensation Committee
granted options to purchase 200,000 shares (29,300 in-
centive stock options 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 termination of em-
ployment. 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
assigned to the officer options and director options, respec-
tively. Because the directors’ options vested immediately,
the entire $109,500 was expensed as of the date of grant.
The expense for the officers’ options is being recognized as
compensation expense monthly during the four years the
options vest.
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NOTES to Consolidated Financial StatementsSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM Effective May 8, 2015, the Compensation Committee
granted options to purchase 225,000 shares (33,690 incen-
tive stock options 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 termination of employment.
The directors’ 2015 Options were immediately exercisable.
The exercise price of $51.07 per share was the closing mar-
ket price of the Company’s common stock on the date of
award. Using the Black-Scholes model, the Company de-
termined the total fair value of the 2015 Options to be
$1.57 million, of which $1.44 million and $125,300 were
assigned to the officer options and director options, respec-
tively. 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 expense monthly during the four years the
options vest.
Effective May 6, 2016, the Compensation Committee
granted options to purchase 226,500 shares (24,248 incen-
tive stock options 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 termination of employment.
The directors’ 2016 Options were immediately exercisable.
The exercise price of $57.74 per share was the closing mar-
ket price of the Company’s common stock on the date of
award. Using the Black-Scholes model, the Company deter-
mined the total fair value of the 2016 Options to be $1.2
million, of which $1.0 million and $151,100 were assigned
to the officer options and director options, respectively. Be-
cause the directors’ options vested immediately, the entire
$151,100 was expensed as of the date of grant. The expense
for the officers’ options is being recognized as compensation
expense monthly during the four years the options vest.
Effective May 5, 2017, the Compensation Committee
granted options to purchase 232,500 shares (21,492 incen-
tive stock options 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 termination of employment.
The directors’ 2017 Options were immediately exercisable.
The exercise price of $59.41 per share was the closing mar-
ket price of the Company’s common stock on the date of
award. Using the Black-Scholes model, the Company deter-
mined the total fair value of the 2017 Options to be $1.4
million, of which $1.2 million and $165,600 were assigned
to the officer options and director options, respectively. Be-
cause the directors’ options vested immediately, the entire
$165,600 was expensed as of the date of grant. The expense
for the officers’ options is being recognized as compensation
expense monthly during the four years the options vest.
Effective May 11, 2018, the Compensation Committee
granted options to purchase 245,000 shares (25,914 in-
centive stock options and 219,086 nonqualified stock
options) to 22 Company officers and 11 Company Directors
(the “2018 options”), which expire on May 10, 2028. The
officers’ 2018 Options vest 25% per year over four years
and are subject to early expiration upon termination of em-
ployment. The directors’ 2018 Options were immediately
exercisable. The exercise price of $49.46 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 2018 Options to
be $1.4 million, of which $1.2 million and $169,400 were
assigned to the officer options and director options, respec-
tively. Because the directors’ options vested immediately,
the entire $169,400 was expensed as of the date of grant.
The expense for the officers’ options is being recognized as
compensation expense monthly during the four years the
options vest.
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NOTES to Consolidated Financial StatementsSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM 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, 2018, 2017 and 2016.
(Dollars in thousands, except per share data)
Stock Options Issued to Directors
Grant date
Total grant
Vested
Exercised
Forfeited
Exercisable at
December 31, 2018
Remaining unexercised
Exercise price
Volatility
Expected life (years)
Assumed yield
Risk-free rate
Total value at
grant date
Expensed in
previous years
Expensed in 2016
Expensed in 2017
Expensed in 2018
Future expense
Grant date
Total grant
Vested
Exercised
Forfeited
Exercisable at
December 31, 2018
Remaining unexercised
Exercise price
Volatility
Expected life (years)
Assumed yield
Risk-free rate
Gross value at
grant date
Estimated forfeitures
Expensed in
previous years
Expensed in 2016
Expensed in 2017
Expensed in 2018
Future expense
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
5/11/2018
Subtotals
32,500
32,500
32,500
35,000
35,000
30,000
35,000
32,500
27,500
27,500
320,000
32,500
32,500
32,500
35,000
35,000
30,000
35,000
32,500
27,500
27,500
320,000
30,000
27,500
25,000
25,000
22,500
17,500
12,500
—
2,500
2,500
—
—
—
—
7,500
—
—
2,500
2,500
170,000
—
7,500
2,500
2,500
2,500
2,500
5,000
5,000
10,000
12,500
12,500
22,500
25,000
25,000
25,000
142,500
10,000
12,500
12,500
22,500
25,000
25,000
25,000
142,500
$ 32.68
$ 38.76
$ 41.82
$ 39.29
$ 44.42
$ 47.03
$ 51.07
$ 57.74
$ 59.41
$ 49.46
0.344
6.0
4.54%
2.19%
0.369
5.0
4.23%
2.17%
0.358
5.0
0.348
5.0
4.16%
1.86%
4.61%
0.78%
0.333
5.0
4.53%
0.82%
0.173
5.0
4.48%
1.63%
0.166
5.0
4.54%
1.50%
0.166
5.0
3.75%
1.23%
0.173
5.0
3.45%
1.89%
0.192
5.0
3.70%
2.84%
$
223
$
288
$
298
$
257
$
278
$
110
$
125
$
151
$
166
$
169
$
2,065
223
288
298
257
278
110
125
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
151
—
—
—
—
—
166
—
—
—
—
—
169
—
1,579
151
166
169
—
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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
5/11/2018
Subtotals
162,500
242,500
202,500
170,000
190,000
194,000
205,000
217,500
1,584,000
118,750
107,500
171,875
168,125
140,625
103,750
92,455
129,375
43,750
135,000
30,625
46,126
1,875
20,625
3,125
96,375
3,750
1,875
51,250
—
—
—
—
—
854,500
396,081
216,250
15,000
15,000
15,045
15,045
42,500
42,500
121,999
120,000
92,625
51,250
—
458,419
121,999
166,250
188,375
205,000
217,500
971,669
$ 41.82
$ 39.29
$ 44.42
$ 47.03
$ 51.07
$ 57.74
$ 59.41
$ 49.46
0.330
8.0
4.81%
2.75%
0.315
8.0
5.28%
1.49%
0.304
8.0
5.12%
1.49%
0.306
7.0
4.89%
2.17%
0.298
7.0
4.94%
1.89%
0.185
7.0
3.80%
1.55%
0.170
7.0
3.50%
2.17%
0.177
7.0
3.75%
2.94%
$ 1,367
$ 1,518
$ 1,401
$ 1,350
$ 1,585
$ 1,137
$ 1,324
$ 1,313
$ 10,995
$
368
999
—
—
—
—
845
576
97
—
—
—
212
762
269
158
—
—
15
492
296
295
252
—
142
240
360
361
361
121
86
—
175
263
263
350
92
—
—
205
308
719
83
—
—
—
205
1,025
1,843
3,069
1,197
1,282
1,389
2,215
Grand
Totals
1,904,000
1,174,500
566,081
223,750
600,919
1,114,169
13,060
1,843
4,648
1,348
1,448
1,558
2,215
Weighted average term of remaining future expense 2.5 years
NOTES to Consolidated Financial StatementsSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
The table below summarizes the option activity for the years 2018, 2017, and 2016:
Option Activity
2018
2017
Weighted Average
Weighted Average
2016
Weighted
Shares
Exercise Price
Shares
Exercise Price
Shares
Exercise Price
Average
Outstanding at January 1
913,320
$ 52.80
833,630
$ 49.92
860,274
$ 46.58
Granted
Exercised
Expired/Forfeited
245,000
(39,151)
(5,000)
Outstanding December 31
1,114,169
Exercisable at December 31
600,919
49.46
42.98
54.78
52.40
50.93
232,500
(149,060)
(3,750)
913,320
430,945
59.41
46.97
53.73
52.80
48.94
226,500
(246,894)
(6,250)
833,630
375,255
57.74
45.59
45.31
49.92
46.68
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The intrinsic value of options exercised in 2018, 2017, and
2016, was $0.5 million, $2.2 million and $3.4 million, re-
spectively. The intrinsic value of options outstanding and
exercisable at year end 2018 was $0.5 million and $0.5 mil-
lion, respectively. The intrinsic value measures the difference
between the options’ exercise price and the closing share
price quoted by the New York Stock Exchange as of the date
of measurement. The date of exercise was the measurement
date for shares exercised during the period. At December 31,
2018, the final trading day of calendar 2018, the closing
price of $47.22 per share was used for the calculation of ag-
gregate intrinsic value of options outstanding and exercisable
at that date. The weighted average remaining contractual
life of the Company’s exercisable and outstanding options at
December 31, 2018 are 6.2 and 7.2 years, respectively.
11. FAIR VALUE OF FINANCIAL
INSTRUMENTS
The carrying values of cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses and
floating rate debt are reasonable estimates of their fair
value. The aggregate fair value of the notes payable with
fixed-rate payment terms was determined using Level 3 data
in a discounted cash flow approach, which is based upon
management’s estimate of borrowing rates and loan terms
currently available to the Company for fixed rate financing,
and assuming long term interest rates of approximately
4.40% and 3.90%, would be approximately $927.0 mil-
lion and $951.7 million as of December 31, 2018 and
2017, respectively, compared to the principal balance of
$910.2 million and $890.4 million at December 31, 2018
and 2017, 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 its only
interest-rate swap arrangement was a highly effective hedge
of the cash flows under one of its variable-rate mortgage loans
and designated the swap as a cash flow hedge of that mort-
gage. The swap is carried at fair value with changes in fair
value recognized either in income or comprehensive income
depending on the effectiveness of the swap. The following
chart summarizes the changes in fair value of the Company’s
swap for the indicated periods.
Swaps Fair Value
(Dollars in thousands)
Increase (decrease)
in fair value:
Recognized in earnings
Recognized in other
comprehensive income
Year ended December 31,
2016
2017
2018
$
(3)
$ 70
$
(6)
594
812
678
Total
$ 591
$ 882
$ 672
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. Derivative 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 observable market data. Where
possible, the values produced by the pricing models are ver-
ified 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
NOTES to Consolidated Financial StatementsSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
of such inputs. The swap agreement terminates on July 1,
2020. As of December 31, 2018, the fair value of the inter-
est-rate swap was approximately $0.4 million and is included
in “Accounts payable, accrued expenses and other liabilities”
in the consolidated balance sheets. The decrease in value
from inception of the swap designated as a cash flow hedge
is reflected in “Other Comprehensive Income” in the Consol-
idated 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
knowledge, is any material litigation currently threatened
against the Company, other than routine litigation and ad-
ministrative proceedings arising in the ordinary course of
business. Management believes that these items, individually
or in the aggregate, will not have a material adverse impact
on the Company or the Current Portfolio Properties.
13. DISTRIBUTIONS
In December 1995, the Company established a Dividend Re-
investment and Stock Purchase Plan (the “Plan”), to allow
its stockholders and holders of limited partnership interests
an opportunity to buy additional shares of common stock
by reinvesting all or a portion of their dividends or distribu-
tions. The Plan provides for investing in newly issued shares
of common stock at a 3% discount from market price with-
out payment of any brokerage commissions, service charges
or other expenses. All expenses of the Plan are paid by the
Company. The Operating Partnership also maintains a sim-
ilar dividend reinvestment plan that mirrors the Plan, which
allows holders of limited partnership interests the oppor-
tunity to buy either additional limited partnership units or
common stock shares of the Company.
The Company paid common stock distributions of $2.08 per
share in 2018, $2.04 per share in 2017, and $1.84 per share
in 2016, Series C preferred stock dividends of $1.72 per de-
positary share during each of 2018, 2017, and 2016, and
Series D preferred stock dividends of $1.05 per depositary
share in 2018. Of the common stock dividends paid, $1.61
per share, $1.70 per share, and $1.75 per share, represented
ordinary dividend income in 2018, 2017, and 2016, respec-
tively, and $0.47, per share $0.34 per share and $0.09 per
share represented return of capital to the shareholders in
2018, 2017, and 2016, respectively. All of the preferred stock
dividends paid were considered ordinary dividend income.
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(Dollars in thousands,
except per share amounts)
Preferred
Stockholders
Common
Stockholders
Limited
Partnership
Unitholders
Common
Stock Shares
Issued
Limited
Discounted
Partnership
Share Price Units Issued
Average
Unit
Price
Total Distributions to
Dividend Reinvestments
Distributions during 2018
October 31
July 31
April 30
January 31
Total 2018
Distributions during 2017
October 31
July 31
April 30
January 31
Total 2017
Distributions during 2016
October 31
July 31
April 30
January 31
Total 2016
$ 2,953
2,953
2,672
3,824
$ 11,706
11,590
11,545
11,465
$ 4,062
4,055
3,942
3,922
216,476
201,500
85,202
69,750
$ 49.34
51.68
47.54
52.71
$ 12,402
$ 46,306
$ 15,981
572,928
$ 3,094
3,094
3,094
3,093
$ 11,221
11,160
11,119
11,076
$ 3,838
3,830
3,810
3,790
82,991
85,731
51,003
46,286
$ 59.33
57.40
59.64
61.85
$ 12,375
$ 44,576
$ 15,268
266,011
$ 3,094
3,094
3,094
3,093
$ 10,168
10,133
10,029
9,142
$ 3,478
3,465
3,449
3,141
44,176
39,487
48,854
54,280
$ 57.18
65.64
51.59
49.24
$ 12,375
$ 39,472
$ 13,533
186,797
13,867
13,107
42,422
38,037
107,433
15,596
16,021
40,623
39,111
111,351
30,891
26,897
34,201
32,769
124,758
$ 50.20
52.60
47.83
53.03
$ 60.08
58.13
59.96
62.15
$ 57.18
65.64
51.59
49.24
NOTES to Consolidated Financial StatementsSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
In December 2018, the Board of Directors of the Company
authorized a distribution of $0.53 per common share payable
in January 2019, to holders of record on January 17, 2019.
As a result, $12.0 million was paid to common shareholders
on January 31, 2019. Also, $4.1 million was paid to limited
partnership unitholders on January 31, 2019 ($0.53 per Op-
erating Partnership unit). The Board of Directors authorized
preferred stock dividends of (a) $0.4297 per Series C depos-
itary share and (b) $0.3828 per Series D depositary share to
holders of record on January 2, 2019. As a result, $3.0 mil-
lion was paid to preferred shareholders on January 15, 2019.
These amounts are reflected as a reduction of stockholders’
equity in the case of common stock and preferred stock div-
idends and noncontrolling interests deductions in the case
of limited partner distributions and are included in dividends
and distributions payable in the accompanying consolidated
financial statements.
14. INTERIM RESULTS (UNAUDITED)
The following summary presents the results of operations of the Company for the quarterly periods of calendar years 2018 and 2017.
(In thousands, except per share amounts)
2018
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Total Revenue
$
56,496
$
56,293
$
57,059
$
58,328
Operating income before loss on early extinguishment
of debt, gain on casualty settlement, and
noncontrolling interests
Gain on sales of properties
Net income attributable to Saul Centers, Inc.
Net income available to common stockholders
Net income available to common stockholders
per diluted share
(In thousands, except per share amounts)
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14,946
—
12,587
6,856
15,405
509
12,543
9,590
16,692
—
13,155
10,202
15,510
—
12,269
9,316
0.31
0.43
0.45
0.41
2017
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Total 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
Gain on sales of properties
Net income attributable to Saul Centers, Inc.
Net income available to common stockholders
Net income available to common stockholders
per diluted share
17,374
—
13,704
10,610
14,422
—
11,510
8,416
14,386
—
11,483
8,390
14,416
—
11,560
8,466
0.49
0.38
0.38
0.38
NOTES to Consolidated Financial StatementsSAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
NOTES to Consolidated Financial Statements
15. BUSINESS SEGMENTS
The Company has two reportable business segments: Shop-
ping 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. Al-
though services are provided to a range of tenants, the types
of services provided to them are similar within each seg-
ment. The properties in each portfolio have similar economic
characteristics and the nature of the products and services
provided to our tenants and the method to distribute such
services are consistent throughout the portfolio. Certain re-
classifications have been made to prior year information to
conform to the 2018 presentation.
(In thousands)
As of or for the year ended December 31, 2018
Shopping
Centers
Mixed-Use
Properties
Corporate and
Other
Consolidated
Totals
Real estate rental operations:
Revenue
Expenses
Income from real estate
Other revenue
Interest expense and amortization
of deferred debt costs
General and administrative
Depreciation and amortization of
deferred leasing costs
Change in fair value of derivatives
Gain on sale of property
Net income (loss)
Capital investment
Total assets
(In thousands)
$ 164,671
(34,970)
129,701
—
—
—
(29,251)
—
509
$
63,233
(21,293)
$
41,940
—
—
—
(16,610)
—
—
—
—
—
272
(45,040)
(18,459)
—
(3)
—
$ 227,904
(56,263)
171,641
272
(45,040)
(18,459)
(45,861)
(3)
509
$ 100,959
$
25,330
$ 13,485
$ 115,165
$ 971,321
$ 537,500
$
$
$
(63,230)
$
63,059
—
$ 128,650
18,668
$ 1,527,489
Shopping
Centers
Mixed-Use
Properties
Corporate and
Other
Consolidated
Totals
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As of or for the year ended December 31, 2017
Real estate rental operations:
Revenue
Expenses
Income from real estate
Other revenue
Interest expense and amortization of
deferred debt costs
General and administrative
Depreciation and amortization of
deferred leasing costs
Change in fair value of derivatives
Net income (loss)
Capital investment
Total assets
$ 165,853
(34,675)
131,178
—
—
—
(29,977)
—
$
61,352
(20,917)
$
40,435
—
—
—
(15,717)
—
—
—
—
80
(47,225)
(18,176)
—
70
$ 227,205
(55,592)
171,613
80
(47,225)
(18,176)
(45,694)
70
$ 101,201
$ 90,896
$
$
24,718
29,098
$ 974,061
$ 438,283
$
$
$
(65,251)
$
60,668
—
$ 119,994
10,108
$ 1,422,452
SAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
NOTES to Consolidated Financial Statements
(In thousands)
As of or for the year ended December 31, 2016
Shopping
Centers
Mixed-Use
Properties
Corporate and
Other
Consolidated
Totals
Real estate rental operations:
Revenue
Expenses
Income from real estate
Other revenue
Interest expense and amortization of
deferred debt costs
General and administrative
Depreciation and amortization of
deferred leasing costs
Acquisition related costs
Change in fair value of derivatives
Gain on sale of property
Net income (loss)
Capital investment
Total assets
$ 160,179
(34,931)
125,248
—
—
—
(29,964)
(60)
—
—
$
56,840
(18,770)
$
38,070
—
—
—
(14,453)
—
—
1,013
$ 95,224
$ 64,044
$
$
24,630
27,001
$ 976,545
$ 358,419
$
$
$
—
—
—
51
$ 217,019
(53,701)
163,318
51
(45,683)
(17,496)
—
—
(6)
—
(63,134)
—
$
$
(45,683)
(17,496)
(44,417)
(60)
(6)
1,013
56,720
91,045
8,061
$ 1,343,025
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16. SUBSEQUENT EVENTS
The Company has reviewed operating activities for the
period subsequent to December 31, 2018 and prior to the
date that financial statements are issued, February 26, 2019,
and determined there are no subsequent events that are
required to be disclosed.
SAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
Dividend Reinvestment Plan and Distributions
ACQUISITION OF EQUITY SECURITIES
BY THE SAUL ORGANIZATION
Through participation in the Company’s Dividend Reinvest-
ment Plan, during the quarter ended December 31, 2018, (a)
B. Francis Saul II, the Company’s Chairman of the Board and
Chief Executive Officer, (b) his spouse, (c) the Saul Trust and
B. F. Saul Company, for each of which Mr. B. F. Saul II serves
as either President or Chairman, and (d) B. F. Saul Property
Company, Avenel Executive Park Phase II, LLC, SHLP Unit
Acquisition Corp. and Dearborn, LLC, which are whol-
ly-owned subsidiaries of either B. F. Saul Company or the
Saul Trust, acquired an aggregate of 162,367 shares of
common stock and 13,867 limited partnership units at an
average price of $49.41 per share/unit, in respect of the
October 31, 2018 dividend distribution.
No shares were acquired pursuant to a publicly announced
plan or program.
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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 share-
holders with a convenient and cost-free way to increase their
investment in Saul Centers. Shares purchased under the divi-
dend reinvestment plan are issued at a 3% discount from the
average price of the stock on the dividend payment date. The
Plan’s prospectus is available for review in the Shareholders
Information section of the Company’s web site.
To receive more information please call the plan administra-
tor at (800) 509-5586 and request to speak with a service
representative or write:
Continental Stock Transfer and Trust Company
Attention: Saul Centers, Inc.
Dividend Reinvestment Plan
17 Battery Place
New York, NY 10004
DIVIDENDS AND DISTRIBUTIONS
Under the Code, REITs are subject to numerous organiza-
tional and operating requirements, including the requirement
to distribute at least 90% of REIT taxable income. The Com-
pany distributed more than the required amount in 2018 and
2017. See Notes to Consolidated 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 distribu-
tions is believed to be based on reasonable assumptions and
represents a reasonable basis for setting distributions. How-
ever, the actual results of operations of the Company will be
affected by a variety of factors, including but not limited to
actual rental revenue, operating expenses of the Company,
interest expense, general economic conditions, federal, state
and local taxes (if any), unanticipated capital expenditures,
the adequacy of reserves and preferred dividends. While the
Company intends to continue paying regular quarterly distri-
butions, any future payments will be determined solely by the
Board of Directors and will depend on a number of factors,
including cash flow of the Company, its financial condition
and capital requirements, the annual distribution amounts
required to maintain its status as a REIT under the Code,
and such other factors as the Board of Directors deems rele-
vant. We are obligated to pay regular quarterly distributions
to holders of depositary shares, prior to distributions on the
common stock.
SAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
Market Information
Shares of Saul Centers common stock are listed on the New York Stock Exchange under the symbol “BFS”. The composite
high and low closing sale prices for the Company’s shares of common stock were reported by the New York Stock Exchange
for each quarter of 2018 and 2017 as follows:
COMMON STOCK PRICES
Period
Share Price
October 1, 2018 – December 31, 2018
July 1, 2018 – September 30, 2018
April 1, 2018 – June 30, 2018
January 1, 2018– March 31, 2018
October 1, 2017 – December 31, 2017
July 1, 2017 – September 30, 2017
April 1, 2017 – June 30, 2017
January 1, 2017– March 31, 2017
High
$ 54.39
$ 60.00
$ 53.74
$ 61.86
$ 65.30
$ 62.76
$ 64.59
$ 66.80
Low
$ 45.71
$ 52.28
$ 47.50
$ 48.93
$ 60.09
$ 57.58
$ 56.33
$ 60.57
On February 20, 2019, the closing price was $57.58 per share.
The approximate number of holders of record of the common stock was 166 as of February 20, 2019.
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SAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
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, 2013.
Comparison of Cumulative Total Return
$175
$150
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
$125
$100
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Dec. 31, 2013
Dec. 31, 2014
Dec. 31, 2015
Dec. 31, 2016
Dec. 31, 2017
Dec. 31, 2018
Period Ended
INDEX
Saul Centers1
S&P 5002
Russell 20003
NAREIT Equity4
Dec. 31, 2013
Dec. 31, 2014
Dec. 31, 2015
Dec. 31, 2016
Dec. 31, 2017
Dec. 31, 2018
$100
$100
$100
$100
$123.76
$114.49
$153.66
$142.31
$108.64
$113.69
$115.26
$129.05
$157.22
$150.33
$104.89
$100.26
$121.63
$139.44
$124.09
$130.14
$134.30
$145.74
$153.36
$146.27
SAUL CENTERS, INC. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM
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
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
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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 2018, 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. 2018 ANNUAL REPORT | WWW.SAULCENTERS.COM ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders will be
held at 11:00 a.m., local time, on May 3, 2019,
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