2019
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
including (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.
Approximately 85% of the Company’s property
operating income is generated from properties in
the metropolitan Washington, DC/Baltimore area.
TOTAL REVENUE(a)
(In millions)
2019 | $231.5
2018 | $227.2
2017 | $226.3
2016 | $215.5
2015 | $208.1
NET INCOME
Available to Common Stockholders
(In millions)
2019 | $36.3
2018 | $36.0
2017 | $35.9
2016 | $32.9
2015 | $30.1
FUNDS FROM OPERATIONS
Available to Common Shareholders(b)
(In millions)
2019 | $95.1
2018 | $93.8
2017 | $94.0
2016 | $87.7
2015 | $83.8
ii
(a) Certain reclassifications have been made to prior years to conform to the
presentation used for year ended December 31, 2019.
(b) Funds From Operations (FFO) is a non-GAAP financial measure. The term Common
Shareholders means common stockholders and holders of noncontrolling interests.
See page 21 for a definition of FFO and reconciliation from Net Income.
2019 MESSAGE to Shareholders PORTFOLIO COMPOSITION BASED ON
2019 PROPERTY OPERATING INCOME(1)
75.9%
Shopping Centers
24.1%
Mixed-Use
85.0%
Metropolitan
Washington, DC/
Baltimore area
15.0%
Rest of U.S.
(1) Property Operating Income equals total property revenue (net of provision for credit losses) less the sum of property operating expenses and real estate taxes.
Summary Financial Data
2019
Year ended December 31,
2016
2017
2018
2015
Total Revenue(a)
$ 231,525,000
$ 227,219,000
$ 226,299,000
$ 215,524,000
$ 208,111,000
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 Coverage(b)
$
$
Property Data
Number of Operating Properties(c)
Total Portfolio Square Feet
Shopping Center Square Feet
Mixed-Use Square Feet
Average Percentage Leased(d)
$
36,253,000
$
35,964,000
$
35,882,000
$
32,904,000
$
30,093,000
$
95,059,000
$
93,821,000
$
93,987,000
$
87,749,000
$
83,815,000
23,053,000
22,425,000
22,008,000
21,615,000
21,196,000
30,913,000
30,156,000
29,511,000
28,990,000
28,449,000
1.57
$
1.60
$
1.63
$
1.52
$
3.08
$
3.11
$
3.18
$
3.03
$
69%
3.77 x
66%
3.53 x
64%
3.35 x
61%
3.29 x
1.42
2.95
57%
3.24 x
56
9,335,000
7,855,000
1,480,000
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
95%
95%
95%
95%
95%
(a) Certain reclassifications have been made to prior years to conform to the presentation used for year ended December 31, 2019.
(b) 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.
(c) Excludes land and development parcels (Ashland Square Phase II, New Market and Park Van Ness in 2015, Ashland Square Phase II, New
Market and N. Glebe Road in 2016, 2017, and 2018, and Ashland Square Phase II, New Market, N. Glebe Road and 7316 Wisconsin Avenue
in 2019). 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.
(d) Average percentage leased includes commercial space only.
1
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COM
2019 was another year of moderate domestic economic growth
with a historically low interest rate environment. However,
despite continuing global economic and political uncertainty,
consumer confidence endured. As a result, our portfolio’s same
property operating income increased a modest 1.2% over the
prior year. Leasing activity continued to be solid, with an overall
commercial space average percentage leased for 2019 of 95%
for the fifth consecutive year. While we are firmly committed to
well-located neighborhood shopping centers offering grocery,
dining, fitness and service uses, we believe that overall retail
challenges will continue for years to come. As a result, we are now
allocating our resources and capital to our transit-centric, urban,
mixed-use development pipeline, as we have over the past several
years with Park Van Ness and, most recently, The Waycroft.
THE WAYCROFT, ARLINGTON, VA
THE WAYCROFT, ARLINGTON, VA
CAPITAL MARKETS
ACCOMPLISHMENTS
In September 2019, we were able to take advantage
of the historically low interest rate environment and
the resulting attractive preferred stock market, and
issued 6.000% Series E preferred stock, using the
proceeds to redeem the remaining shares of our
6.875% Series C preferred stock. Additionally,
since December 2018, we have repaid $95.0 million
of fixed-rate loans on six of our properties, which
were maturing either during 2019 or early 2020.
During 2019, we completed two 15-year mortgage
refinancings, totaling $50.6 million, at a weighted
average interest rate of 4.40%. As of December 31,
2019, 30% of our total property operating income
was being generated from unencumbered assets,
compared to 22% five years ago, allowing us to
increase our unsecured revolving credit line and term
loan facility from $275 million to the current $400
million. Our weighted average cost of debt and
preferred equity capital was 4.94% at December
31, 2019, a decrease from one year earlier, resulting
in a savings of $3.8 million annually in combined
interest and preferred stock dividends. Over the
next five years, $145 million of our mortgage debt
will mature, which has a weighted average interest
rate of 6.7%, representing an opportunity to further
lower our weighted average cost of capital.
Our revolving credit line availability was $237.3
million at year-end 2019. Equity raised through our
dividend reinvestment plan has averaged $22.4
million per year over the past three years. Thus, we
believe that the combination of our credit facility,
unencumbered assets outside of our revolver pool,
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.
2
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COM2019 MESSAGE to Shareholders 2019
MESSAGE
to Shareholders
DEVELOPMENTS AND
ACQUISITIONS
The enhancement of liquidity through our 2018 and
2019 capital markets initiatives allows us to continue
supplementing our core operating performance
with mixed-use and pad site developments as
opportunities are identified.
The Waycroft, located at the corner of two major
thoroughfares, Glebe Road and Wilson Boulevard,
is within three blocks of the Ballston Metro Station
in Arlington, Virginia. It is our largest mixed–use
development to date. The Waycroft features three
separate buildings, each with its own entrance and
lobby, but internally connected with easy access
throughout the entire property. Amenities shared
amongst the three buildings include an interior
courtyard, business center/work-from-home area,
resident lounge and library, fitness center, clubroom,
THE WAYCROFT, ARLINGTON, VA
an expansive roof deck with a rooftop swimming
pool and an indoor dog grooming and exercise
facility. Construction is substantially complete with
approximately 50% of the 491 apartment units
expected to be ready for occupancy by April 2020,
and the balance delivering later in the second
quarter. The retail space is approximately 90%
leased. A Target store (with a CVS pharmacy), which
is scheduled to open in July 2020, accounts for
40,000 of the total 60,000 square feet. The leasing
office and model units opened in late February 2020,
and we have begun signing residential leases.
We anticipate Metro Tower, located at 7316
Wisconsin Avenue in downtown Bethesda, Maryland,
will be our next mixed-use development. The future
25-story high-rise will contain 366 residential
units and 10,300 square feet of retail space. It is
adjacent to both the new south entrance to the
Red Line Metro Station and eastern terminus of the
3
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COM Purple Line, which are both under construction.
The property is well-located, just blocks from the
future 1 million square foot Marriott International
headquarters. The building currently encumbering
the site is vacant, and we expect to begin demolition
during the second quarter of 2020. We have
completed development plans, and in July 2019, the
Montgomery County Planning Board unanimously
approved the site plan. Design and construction
documents are being prepared and a site plan
amendment has been submitted incorporating final
design parameters. Additional approvals from the
Washington Metropolitan Area Transit Authority
and the Maryland Transit Administration are in
process and are expected to be received by the
fourth quarter of 2020.
In November 2019, we entered into an agreement
to acquire additional land in Rockville, Maryland,
adjacent to the Twinbrook Metro Station. We
have filed with the City of Rockville a site plan for
Phase I of the Twinbrook Quarter development and
that plan is currently undergoing community and
governmental reviews. Combined with our adjacent
10.3 acre site, the redevelopment plan comprises
18.4 acres, and will contain 1,865 residential units,
431,000 square feet of office space and 473,000
square feet of retail space, including an 80,000
square foot Wegmans grocery store. Combining
all three of our Montgomery County, Maryland
development sites – Metro Tower, Twinbrook
Quarter and our 7.6 acres at the White Flint (Red
Line) Metro Station – the approved development
potential of these sites includes up to 3,700
apartments and 975,000 square feet of retail and
office space, which is further evidence of our focus
on transit-centric, mixed-use properties.
While we expect our mixed-use development
pipeline to be our long term growth engine, in
the near term, we will supplement these mixed-
use developments with selective shopping center
development and free-standing pad site buildings
within our shopping center portfolio. Construction
continues through 2020 on our 85,000 square foot
Ashbrook Marketplace, where the Lidl grocery store
opened for business prior to Thanksgiving. Overall,
the Ashbrook shop space and four pads are 100%
pre-leased, with initial tenant openings expected to
occur during the second quarter, and stabilization
expected in late 2020. Pad site development
continues to be a driver of our shopping center
operating income growth, requiring relatively less
tenant improvement capital. In addition to pads in
601 PENNSYLVANIA AVENUE,
WASHINGTON, DC
PARK VAN NESS, WASHINGTON, DC
4
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COM2019 MESSAGE to Shareholders Ashbrook Marketplace, we have executed leases, as
well as leases under negotiation, for a total of 12
additional pads, with aggregate annualized rents
of $1.7 million. These pad deals are projected to
become operational during 2020 and 2021. With
these expansions, we expect to incur approximately
$12.0 million in total capital costs, which would
result in cash-on-cash return on investment in excess
of 14%.
During 2019, the 16,000 square foot small shop
expansion of our Giant Food anchored Burtonsville
Town Square shopping center in Montgomery
County, Maryland came online, with the first tenant
openings occurring during the first quarter of 2019.
All new shop spaces are leased, with the last tenants
scheduled to open during the second quarter of
2020. In addition, a lease has been executed with
Taco Bell, which commenced construction on a free-
standing building, scheduled to open in spring of
2020.
At Lansdowne Town Center in Leesburg, Virginia,
a Chick-fil-A and a Starbucks, both with drive-up
windows, opened during the first quarter of 2020.
We expect these two store openings will significantly
increase traffic to that center.
2019 FINANCIAL RESULTS
Total revenue increased to $231.5 million, a $4.3
million increase over the prior year. Operating
income was $64.2 million, compared to $63.1 million
a year earlier, and net income available to common
stockholders was $36.3 million, compared to $36.0
million in 2018. The public real estate industry’s
key performance measure, Funds From Operations
(FFO) available to common stockholders and non-
controlling interests (after deducting preferred stock
dividends and preferred stock redemption costs),
increased 1.3% to $95.1 million in 2019 from
$93.8 million in 2018. The 2019 FFO increase was
primarily due to (a) higher other revenue, primarily
lease termination fees, exclusive of the impact of
7316 Wisconsin Avenue ($2.4 million), and (b)
lower interest expense, net and amortization of
deferred debt costs, exclusive of the impact of 7316
Wisconsin Avenue ($3.3 million), partially offset
by (c) higher general and administrative expenses
primarily due to a GAAP change requiring expensing
of previously capitalized leasing compensation costs
($2.2 million), (d) the impact of the operations of
7316 Wisconsin Avenue as we terminated leases
to prepare for redevelopment ($1.7 million), and
(e) higher extinguishment in 2019 of issuance costs
ASHBROOK MARKETPLACE, ASHBURN, VA
LANSDOWNE TOWN CENTER, LEESBURG, VA
5
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COM2019 MESSAGE to Shareholders upon redemption of preferred shares ($0.9 million).
Although absolute FFO increased, on a per diluted
share basis, FFO decreased to $3.08 in 2019
from $3.11 in 2018, due to an increase in shares
outstanding, primarily from shares issued through
the dividend reinvestment plan.
Same property operating income increased 1.2%
in 2019 as compared to 2018. Mixed-use same
property operating income remained flat, year
over year, while shopping center same property
operating income increased $2.0 million or 1.6%,
primarily due to termination fees received from
recaptured tenant spaces.
MIXED-USE HIGHLIGHTS
Workforce trends, globalization, and urbanization
are reshaping tenant preferences, changing the way
people work, live, play and shop. Our mixed-use
portfolio (including The Waycroft), contains over 2.0
million square feet of gross leasable area, comprised
of over 1,000 apartment units, over 1.0 million
square feet of office and 160,000 square feet of
retail space. As such, entering 2020, our mixed-
use assets represent a larger portion of the overall
portfolio’s asset value and square footage than in
the past. For the year ended December 31, 2019,
mixed-use same property revenue increased 0.9%,
while same property operating income increased
0.2%. The commercial average percentage leased
on a same property basis in our mixed-use portfolio
ended 2019 at over 90% for the fifth straight year.
Within these totals, our 2019 residential same
property operating income increased by 6.1%
over the prior year. During 2019, we entered into
431 new or renewed apartment leases, with rents
increasing by 2.3% over expiring leases.
SHOPPING CENTER
HIGHLIGHTS
Types and sizes of retail tenants continued to evolve
throughout 2019 in order to remain competitive
with internet competition and changes in consumer
demand. Grocers that are new or expanding in
our market, such as Lidl and Aldi, are increasingly
absorbing market share, while the
increased
presence of Target, Walmart and Wegmans in
the grocery business, and pricing pressure from
on-line grocery shopping options continue to make
competition tight within the market. In spite of these
pressures, since late 2018, we were able to retenant
3 underperforming grocery anchors with a Giant
Food at Seven Corners, 99 Ranch at Shops at Fairfax,
and an Aldi and LA Fitness at Broadlands Village,
increasing annualized base rent on these spaces by
over 10%. We believe these tenants will be better
traffic generating anchors for these centers.
METRO TOWER, BETHESDA, MD (RENDERING)
LANSDOWNE TOWN CENTER, LEESBURG, VA
6
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COM2019 MESSAGE to Shareholders Our shopping centers rely heavily on the traffic
generated from grocery anchors. Twenty-six centers
are anchored by national grocers, collectively
reporting an average sales volume of over $500 per
square foot. Twenty-one of these grocery-anchored
centers are anchored by market leaders Giant,
Publix and Kroger/Harris Teeter, which provide 56%
of our shopping center property operating income.
for
Our 2019 same center property operating income
increased by $2.0 million (or 1.6%) as compared
to 2018, despite not having a full year of anchor
tenant income from a combined 179,000 square
feet of space at Seven Corners, Shops at Fairfax and
Broadlands Village. All of these anchor spaces are
rent
under construction and scheduled
commencement during the first half of 2020. Same
space rents on signed renewals or new leases in 2019
decreased by 0.2% over previous expiring rents for
1.3 million square feet of space. However, this rent
growth has been suppressed because certain of our
shopping centers are planned for redevelopment,
including our properties at Twinbrook and White
Flint on Rockville Pike. We often accept lower
rents at these properties in exchange for increased
flexibility and control, as we have been deliberate in
signing leases that have shorter terms and require
minimal tenant improvements. When excluding
these leases, same store rental rates for renewed or
new tenants increased by 1.7% from expiring lease
rates during 2019.
Looking forward, we anticipate the successful lease-
up of The Waycroft. This development will increase
our transit-oriented luxury apartment inventory to
over 1,000 units. In addition, while continuing to
develop urban, transit-centric, mixed-use projects,
we will deploy capital
into selective grocery
anchored shopping center construction, including
small shop and pad site expansion of existing
shopping centers, as opportunities arise. With 76%
of our current property operating income derived
from shopping centers in 2019, neighborhood and
community shopping center operations remain our
core business. However, we are reacting to changes
in the market place, shifting our focus away from
grocery anchored shopping centers, to become a
Washington, DC based diversified REIT. With each
mixed-use development added to our portfolio, our
cash flow generation becomes less concentrated
on shopping centers, moving towards our goal of a
more balanced cash flow stream.
Since our initial public offering, our compounded
annual total return at December 31, 2019 was
10.0%, slightly higher than the S&P’s 9.9% over
the same period. For 2019, our dividend payout
ratio, defined as dividends paid divided by FFO, was
a conservative 69%, while our leverage ratio, as
measured by debt to total capitalization, was 37.5%.
Although local and global political and economic
to be challenging, we
conditions continue
believe that through the continued efforts of our
diligent management team and our geographic
concentration in the metropolitan Washington, DC
area, Saul Centers will generate cash flow growth
and asset value creation from its core assets, while
adding incremental growth through our thoughtful
approach to development. We express our thanks
to our professional staff and to our shareholders for
their loyalty and trust throughout the years.
For the Board
THRUWAY, WINSTON-SALEM, NC
B. Francis Saul II
March 5, 2020
7
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COM2019 MESSAGE to Shareholders
Portfolio Properties
As of December 31, 2019, 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
Ashbrook Marketplace, Ashburn, VA,
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
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
Olney, Olney, MD
Orchard Park, Dunwoody, GA
Palm Springs Center, Altamonte Springs, FL,
Ravenwood, Baltimore, MD
78,453
221,596
23,120
356,971
115,660
121,269
49,140
194,258
174,438
138,021
138,804
141,450
78,686
21,500
246,148
18,982
136,440
91,666
131,700
107,103
96,201
114,381
253,052
40,697
189,422
97,752
192,718
67,488
111,316
100,032
143,577
53,765
87,365
126,446
93,328
8
Shopping Centers
11503 Rockville Pike/5541 Nicholson Lane, Rockville, MD 40,249
110,128
1500/1580/1582/1584 Rockville Pike, Rockville, MD
146,673
Seabreeze Plaza, Palm Harbor, FL
21,677
Marketplace at Sea Colony, Bethany Beach, DE
573,481
Seven Corners, Falls Church, VA
254,011
Severna Park Marketplace, Severna Park, MD
68,762
Shops at Fairfax, Fairfax, VA
173,341
Smallwood Village Center, Waldorf, MD
485,628
Southdale, Glen Burnie, MD
371,761
Southside Plaza, Richmond, VA
163,418
South Dekalb Plaza, Atlanta, GA
365,816
Thruway, Winston-Salem, NC
145,651
Village Center, Centreville, VA
101,058
Westview Village, Frederick, MD
480,676
White Oak, Silver Spring, MD
TOTAL SHOPPING CENTERS
7,855,275
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
223,447
227,651
236,376
390,683
108,386
293,565
TOTAL MIXED-USE PROPERTIES
1,480,108
Land and Development Parcels
7316 Wisconsin Avenue, Bethesda, MD
Ashland Square Phase II, Dumfries, VA
The Waycroft, Arlington, VA
New Market, New Market, MD
TOTAL PORTFOLIO
9,335,383
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COM
FINANCIAL SECTION
TABLE OF CONTENTS
Selected Financial Data ......................................10
Management’s Discussion and
Analysis of Financial Condition and
Results of Operations ............................................ 11
Quantitative and Qualitative
Disclosures About Market Risk ......................24
Management’s Report on Internal
Control Over Financial Reporting ................. 25
Report of Independent Registered
Public Accounting Firm: Opinion
on the Financial Statements ............................26
Report of Independent Registered
Public Accounting Firm: Opinion
on Internal Control over
Financial Reporting ............................................. 27
Report of Previous Independent
Registered Public Accounting
Firm: Opinion on the 2017
Financial Statements .......................................... 28
Consolidated Balance Sheets ..........................29
Consolidated Statements of
Operations ..............................................................30
Consolidated Statements of
Comprehensive Income .......................................31
Consolidated Statements of Equity .............. 32
Consolidated Statements of
Cash Flows ............................................................. 33
Notes to Consolidated
Financial Statements ..........................................34
9
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COM
SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)
2019
Years Ended December 31,
2017
2018
2016
2015
Operating data
Total revenue
Total expenses
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 dividends
Extinguishment of issuance costs upon redemption
of preferred shares
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 limited partnership units - diluted
Dividends Paid
$ 231,525
(166,893)
(436)
—
64,196
(12,473)
51,723
(12,235)
$ 227,219
(164,666)
(3)
509
63,059
(12,505)
50,554
(12,262)
$ 226,299
(165,701)
70
—
60,668
(12,411)
48,257
(12,375)
$ 215,524
(159,811)
(6)
1,013
56,720
(11,441)
45,279
(12,375)
$ 208,111
(155,181)
(10)
11
52,931
(10,463)
42,468
(12,375)
(3,235)
36,253
(2,328)
35,964
$
$
—
35,882
—
32,904
—
30,093
$
$
$
$
1.57
$
1.60
$
1.63
$
1.52
$
1.42
23,009
44
23,053
22,383
42
22,425
21,901
107
22,008
21,505
110
21,615
21,127
69
21,196
7,860
7,731
7,503
7,375
7,253
30,913
30,156
29,511
28,990
28,449
Cash dividends to common stockholders1
Cash dividends per share
$
$
48,568
2.12
$
$
46,306
2.08
$
$
44,576
2.04
$
$
39,472
1.84
$
$
35,645
1.69
Balance Sheet Data
Real estate investments (net of accumulated
depreciation)
Total assets
Total debt, including accrued interest
Preferred stock
Total equity
Other Data
Cash flow provided by (used in):
Operating activities
Investing activities
Financing activities
Funds from operations2:
Net income
Real property depreciation and amortization
Gain on sale of property
Funds from operations
Preferred stock dividends
Extinguishment of issuance costs upon
redemption of preferred shares
Funds from operations available to common
stockholders and noncontrolling interests
$ 1,518,123
1,618,340
1,094,715
185,000
443,356
$ 1,422,647
1,527,489
1,025,255
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
$ 115,383
$ (135,663)
19,607
$
$ 110,339
$ (128,650)
21,981
$
$ 103,450
$ (113,306)
12,442
$
$
$
$
89,090
(86,274)
(4,497
$
64,196
46,333
—
110,529
(12,235)
$
63,059
45,861
(509)
108,411
(12,262)
$
60,668
45,694
—
106,362
(12,375)
$
56,720
44,417
(1,013)
100,124
(12,375)
$
$
$
$
88,896
(69,587)
(21,434)
52,931
43,270
(11)
96,190
(12,375)
(3,235)
(2,328)
—
—
—
$
95,059
$
93,821
$
93,987
$
87,749
$
83,815
(1) During 2019, 2018, 2017, 2016, and 2015, shareholders reinvested $22.5 million, $28.8 million,
$15.8 million, $10.3 million and $10.6 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 Condi-
tion and Results of Operations-Funds From Operations.”
10
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COM
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 13, discusses the Company’s results of operations
for the past two years. Beginning on page 16, the Company
provides an analysis of its liquidity and capital resources,
including discussions of its cash flows, debt arrangements,
sources of capital and financial commitments. Finally, on
page 21, 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 29. We make statements in this section that are for-
ward-looking statements within the meaning of the federal
securities laws. For a complete discussion of forward-looking
statements, refer to the Company’s Form 10-K section enti-
tled “Forward-Looking Statements.” Certain risks may cause
our actual results, performance or achievements to differ
materially from those expressed or implied by the following
discussion. For a discussion of such risk factors, refer to the
Company’s Form 10-K “Item 1A. Risk Factors.”
OVERVIEW
The Company’s primary strategy is to continue to focus on
diversification of its assets through development of tran-
sit-centric, residential mixed-use projects in the Washington,
D.C. metropolitan area. The Company’s operating strategy
also includes improvement of the operating performance
and internal growth of its Shopping Centers and will sup-
plement its development of residential mixed-used projects
with selective redevelopment and renovations of its core
Shopping Centers.
The Company’s primary strategy is to continue to focus on
diversification of its assets through development of tran-
sit-centric, residential mixed-use projects in the Washington,
D.C. metropolitan area. Construction of The Waycroft, a
project with 491 apartment units and 60,000 square feet
of retail space, is nearing substantial completion on North
Glebe Road, within two blocks of the Ballston Metro Station,
in Arlington, Virginia. The Company also has a development
pipeline of zoned sites, either in its portfolio (some of which
are currently shopping center operating properties) or under
contract, for development of up to 3,700 apartment units
and 975,000 square feet of retail and office space. All such
sites are located adjacent to red line Metro stations in Mont-
gomery County, Maryland.
The Company’s operating strategy also includes improve-
ment of the operating performance and internal growth of
its Shopping Centers and will supplement its development of
residential mixed-used projects with selective redevelopment
and renovations of its core Shopping Centers. It intends
to selectively add free-standing pad site buildings within its
Shopping Center portfolio, and replace underperforming
tenants with tenants that generate strong traffic, generally
anchor stores such as supermarkets, drug stores and fitness
centers, as evidenced by the coming additions of a 69,000
square foot Giant Food at Seven Corners and a 36,000
square foot LA Fitness at Broadlands Village. Exclusive of
four pads under development within Ashbrook Marketplace,
the Company currently has signed leases or leases under
negotiation for 12 pad sites within its core portfolio. The
pad sites are expected to be completed and operational by
late 2021.
In recent years, there has been a limited amount of qual-
ity properties for sale and pricing of those properties has
escalated. Accordingly, management believes acquisition
opportunities for investment in existing and new shop-
ping center and mixed-use properties in the near future is
uncertain. Nevertheless, because of the Company’s con-
servative capital structure, including its cash and capacity
under its revolving credit facility, management believes that
the Company is positioned to take advantage of additional
investment opportunities as attractive properties are identi-
fied 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 evaluate ac-
quisition, development and redevelopment as integral parts
of its overall business plan.
Economic conditions within the local Washington, DC met-
ropolitan area have remained relatively stable. Issues facing
the Federal government relating to taxation, spending and
interest rate policy will likely continue to impact the office,
retail and residential real estate markets over the coming
years. Because the majority of the Company’s property op-
erating income is produced by our Shopping Centers, we
continually monitor the implications of government policy
changes, as well as shifts in consumer demand between
on-line and in-store shopping, on future shopping center
construction and retailer store expansion plans. Based on
our observations, we continue to adapt our marketing and
merchandising strategies in a way to maximize our future
performance. The Company’s 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, decreased to 95.1% at December 31,
2019, from 95.7% at December 31, 2018.
11
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COMMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, 2019, amortizing fixed-rate mortgage debt with
staggered maturities from 2020 to 2035 represented ap-
proximately 85.2% of the Company’s notes payable, thus
minimizing refinancing risk. The Company’s variable-rate
debt consists of $162.5 million outstanding under the credit
facility. As of December 31, 2019, the Company has loan
availability of approximately $237.3 million under its $325.0
million revolving credit facility.
Although it is management’s present intention to con-
centrate future acquisition and development activities on
transit-centric, primarily residential mixed-use properties
in the Washington, D.C./Baltimore metropolitan area, the
Company may, in the future, also acquire other types of real
estate in other areas of the country as opportunities present
themselves. The Company plans to continue to diversify in
terms of property types, locations, size and market, and it
does not set any limit on the amount or percentage of as-
sets 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 con-
ditions, 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.
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 fac-
tors in identifying impairment indicators including recurring
operating losses, significant decreases in occupancy, and sig-
nificant 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 undiscounted
basis, to the carrying value of that property. The Company
assesses its undiscounted projected cash flows based upon
estimated capitalization rates, historic operating results
and market conditions that may affect the property. If the
carrying value is greater than the undiscounted projected
cash flows, the Company would recognize an impairment
loss equivalent to an amount required to adjust the carry-
ing 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 man-
agement’s projections, the valuation could be negatively or
positively affected.
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 Com-
pany 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.
12
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COM RESULTS OF OPERATIONS
The following is a discussion of the components of revenue and expense for the entire Company. This section generally dis-
cusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018. For year-to-year comparison between
2018 and 2017, refer to the Company’s Form 10-K “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” Part II, Item 7.
Revenue
(Dollars in thousands)
Base rent
Expense recoveries
Percentage rent
Other property revenue
Credit losses on operating
lease receivables
Rental revenue
Other revenue
Total revenue
Year ended December 31,
2018
2019
2017
Percentage Change
2019 from 2018
2018 from 2017
$ 185,724
36,521
910
1,423
$ 184,684
35,537
994
1,204
$ 181,141
35,347
1,458
1,145
(1,226)
223,352
8,173
$ 231,525
(685)
221,734
5,485
$ 227,219
(906)
218,185
8,114
$ 226,299
0.6 %
2.8 %
(8.5) %
18.2 %
79.0 %
0.7 %
49.0 %
1.9 %
2.0 %
0.5 %
(31.8) %
5.2 %
(24.4) %
1.6 %
(32.4) %
0.4 %
Base rent includes $(1.4) million and $(0.9) million, for the years 2019 and 2018, respectively, to recognize base rent on a
straight-line basis. In addition, base rent includes $1.4 million and $1.5 million for the years 2019 and 2018, respectively, to
recognize income from the amortization of in-place leases.
Total revenue increased 1.9% in 2019 compared to 2018.
Base rent
The $1.0 million increase in base rent in 2019 compared to
2018 was attributable to (a) a 110,187 square foot increase
in leased space ($2.2 million) and (b) higher residential base
rent ($0.7 million), partially offset by (c) a $0.22 per square
foot decrease in base rent ($1.8 million).
erable property operating expenses, largely repairs and
maintenance and snow removal.
Credit losses on operating lease receivables
Credit losses increased $0.5 million in 2019 compared to
2018 primarily due to two office tenants.
Expense recoveries
Expense recovery income increased $1.0 million in 2019
compared to 2018 primarily due to an increase in recov-
Other revenue
Other revenue increased $2.7 million in 2019 compared to
2018 primarily due to higher lease termination fees.
Operating Expenses
(Dollars in thousands)
Property operating expenses
Real estate taxes
Interest expense, net and
amortization of deferred debt costs
Depreciation and amortization
of deferred leasing costs
General and administrative
Total expenses
Year ended December 31,
2018
2019
2017
Percentage Change
2019 from 2018
2018 from 2017
$ 29,946
27,987
$ 28,202
27,376
$ 27,689
26,997
6.2 %
2.2 %
41,834
44,768
47,145
(6.6) %
46,333
20,793
$ 166,893
45,861
18,459
$ 164,666
45,694
18,176
$ 165,701
1.0 %
12.6 %
1.4 %
1.9 %
1.4 %
(5.0) %
0.4 %
1.6 %
(0.6) %
Total expenses increased 1.4% in 2019 compared to 2018.
13
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COMMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Property operating expenses
Property operating expenses increased $1.7 million in 2019
compared to 2018 primarily due to (a) higher repairs and
maintenance expenses throughout the portfolio ($0.3 mil-
lion), (b) higher snow removal costs ($0.3 million), and
(c) initial direct costs related to leasing activities that, in
accordance with ASU 2016-02, are no longer capitalized
($0.7 million).
Real estate taxes
Real estate taxes increased $0.6 million in 2019 compared
to 2018 primarily due to increased tax assessments at 601
Pennsylvania Avenue and Clarendon Center ($0.4 million).
Interest expense, net and amortization of
deferred debt costs
Interest expense and amortization of deferred debt costs de-
creased by $2.9 million in 2019 compared to 2018 primarily
due to increased capitalized interest ($5.3 million), partially
offset by higher interest incurred due to higher outstanding
debt balances ($2.4 million).
Depreciation and amortization
Depreciation and amortization of deferred leasing costs in-
creased by $0.5 million in 2019 compared to 2018 primarily
due to the write off of the remaining assets at 7316 Wiscon-
sin Avenue when the property was moved to development
($0.6 million).
General and administrative
General and administrative costs increased $2.3 million in
2019 compared to 2018 primarily due to higher compensa-
tion and benefits expense related to leasing activities that,
in accordance with ASU 2016-02, are no longer capitalized
($1.5 million).
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 total 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 net income plus (a) interest expense,
net and amortization of deferred debt costs, (b) deprecia-
tion and amortization of deferred leasing costs, (c) general
and administrative expenses, and (d) change in fair value of
derivatives, minus (e) gains on sale of property and (f) the
operating income of properties which were not in operation
for the entirety of the comparable periods.
Other REITs may use different methodologies for calculat-
ing 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 op-
erating performance of our properties, and to determine
trends in earnings, because these measures are not affected
by the cost of our funding, the impact of depreciation and
amortization expenses, gains or losses from the acquisition
and sale of operating real estate assets, general and admin-
istrative expenses 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.
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.
14
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSSAUL CENTERS, INC. 2019 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 49
Shopping Centers and six Mixed-Use properties for each period.
Same Property Revenue
(Dollars in thousands)
Total 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 revenue
Total Mixed-Use property revenue
Less: Mixed-Use acquisitions, dispositions and development properties
Total same Mixed-Use revenue
Year ended December 31,
2018
2019
$
$
$
$
$
$
$
$
231,525
(1,209)
230,316
167,834
62,482
230,316
167,888
(54)
167,834
63,637
(1,155)
62,482
$
$
$
$
$
$
$
$
227,219
(973)
226,246
164,344
61,902
226,246
164,344
—
164,344
62,875
(973)
61,902
The $4.1 million increase in same property revenue for 2019 compared to 2018 was primarily due to (a) higher other reve-
nue ($2.4 million), (b) a 63,023 square foot increase in leased space ($1.3 million), and (c) higher expense recovery income
($1.0 million), partially offset by (d) an $0.11 per square foot decrease in base rent ($0.9 million).
15
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COMMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Same Property Operating Income
Year ended December 31,
(Dollars in thousands)
Net income
Add: Interest expense, net and amortization of deferred debt costs
Add: Depreciation and amortization of deferred leasing costs
Add: General and administrative
Add: Change in fair value of derivatives
Less: Gain on sale of property
Property operating income
Add (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
Add (Less): Mixed-Use acquisitions, dispositions and development properties
Total same Mixed-Use property operating income
2019
64,196
41,834
46,333
20,793
436
—
173,592
(568)
173,024
131,720
41,304
173,024
131,769
(49)
131,720
41,823
(519)
41,304
$
$
$
$
$
$
$
2018
63,059
44,768
45,861
18,459
3
(509)
171,641
(727)
170,914
129,701
41,213
170,914
129,701
—
129,701
41,940
(727)
41,213
$
$
$
$
$
$
$
Same property operating income increased $2.1 million for
2019 compared to 2018 due primarily to (a) higher other
revenue ($2.4 million) and (b) a 63,023 square foot in-
crease in leased space ($1.3 million), partially offset by (c) an
$0.11 per square foot decrease in base rent ($0.9 million)
and (d) initial direct costs related to leasing activities that,
in accordance with ASU 2016-02, are no longer capitalized
($0.7 million).
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.
IMPACT OF INFLATION
Inflation has remained relatively low during 2019 and 2018.
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 the change in the consumer price index,
commonly referred to as the CPI.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $13.9 million and $14.6 mil-
lion at December 31, 2019 and 2018, respectively. The
changes in cash and cash equivalents during the years ended
December 31, 2019 and 2018 were attributable to operat-
ing, investing and financing activities, as described below.
(Dollars in thousands)
Net cash provided by
operating activities
Net cash used in
investing activities
Net cash provided in
financing activities
Year Ended December 31,
2019
2018
$ 115,383
$ 110,339
(135,663)
(128,650)
19,607
21,981
Increase (decrease) in cash
and cash equivalents
$
(673)
$
3,670
16
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSSAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COM
Operating Activities
Net cash provided by operating activities represents cash re-
ceived primarily from rental revenue, plus other revenue, less
property operating expenses, leasing costs, normal recurring
general and administrative expenses and interest payments
on debt outstanding.
Investing Activities
Net cash used in investing activities includes property acquisi-
tions, developments, redevelopments, tenant improvements
and other property capital expenditures. The $7.0 million in-
crease in cash used in investing activities is primarily due
to (a) development expenditures, primarily related to The
Waycroft ($37.5 million) and (b) increased additions to real
estate investments throughout the portfolio ($9.0 million)
partially offset by (c) lower acquisitions of real estate invest-
ments ($40.8 million).
Financing Activities
Net cash provided by financing activities represents (a) cash
received from loan proceeds and issuance of common stock,
preferred stock and limited partnership units minus (b) cash
used to repay and curtail loans, redeem preferred stock and
pay dividends and distributions to holders of common stock,
preferred stock and limited partnership units. See note 5 to
the Consolidated Financial Statements for a discussion of
financing activity.
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 common
and preferred stockholders, distributions to unit holders
and amounts required for expansion and renovation of the
Current Portfolio Properties and selective acquisition and
development of additional properties. In order to qualify as
a REIT for federal income tax purposes, the Company must
distribute to its stockholders at least 90% of its “real estate
investment trust taxable income,” as defined in the Code.
The Company expects to meet these short-term liquidity
requirements (other than amounts required for additional
property acquisitions and developments) through cash
provided from operations, available cash and its existing line
of credit.
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 expected
to be approximately $275.0 million. The Company had
incurred costs totaling $255.4 million as of December 31,
2019. The remaining cost will be funded by a $157.0 million
construction-to-permanent loan. The Company may also re-
develop certain of the Current Portfolio Properties and may
develop additional freestanding outparcels or expansions
within certain of the Shopping Centers.
Acquisition and development of properties are undertaken
only after careful analysis and review, and management’s
determination that such properties are expected to provide
long-term earnings and cash flow growth. During the com-
ing year, developments, expansions or acquisitions (if any)
are expected to be funded with available cash, bank bor-
rowings from the Company’s credit line, construction and
permanent financing, proceeds from the operation of the
Company’s dividend reinvestment plan or other external
debt or equity capital resources available to the Company.
Any future borrowings may be at the Saul Centers, Operat-
ing Partnership or Subsidiary Partnership level, and securities
offerings may include (subject to certain limitations) the
issuance of additional limited partnership interests in the
Operating Partnership which can be converted into shares
of Saul Centers common stock. The availability and terms
of any such financing will depend upon market and other
conditions.
Management believes that the Company’s capital resources,
which at December 31, 2019 included cash balances of
approximately $13.9 million and borrowing availability of
approximately $237.3 million on its unsecured revolving
credit facility, will be sufficient to meet its liquidity needs for
the foreseeable future.
Contractual Payment Obligations
As of December 31, 2019, the Company had unfunded
contractual payment obligations of approximately
$116.1 million, excluding operating obligations, due within
the next 12 months. The table below shows the total con-
tractual payment obligations as of December 31, 2019.
17
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COMMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands)
Payments Due By Period
Contractual Payment Obligations
One Year
or Less
More than 1
and up to
3 Years
More than 3
and up to
5 Years
After 5 Years
Total
Notes Payable:
Interest
Scheduled Principal
Balloon Payments
Subtotal
Corporate Headquarters Lease (1)
Development and Predevelopment
Obligations
Tenant Improvements
$
46,166
$
85,156
$
72,305
$ 162,323
$ 365,950
28,421
16,074
90,661
901
14,785
9,729
58,670
135,014
278,840
1,883
1,973
4,513
58,762
150,874
281,941
125,809
527,297
815,429
—
—
—
—
—
—
271,662
829,259
1,466,871
2,784
16,758
14,242
Total Contractual Obligations
$ 116,076
$ 287,209
$ 281,941
$ 815,429
$ 1,500,655
(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.
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 distributions.
The Plan provides for investing in newly issued shares of
common stock at a 3% discount from market price without
payment of any brokerage commissions, service charges or
other expenses. All expenses of the Plan are paid by the
Company. The Company issued 425,956 and 566,435
shares under the Plan at a weighted average discounted
price of $52.27 and $50.31 per share during the years ended
December 31, 2019 and 2018, respectively. The Company
issued 60,936 and 107,433 limited partnership units under
the Plan at a weighted average price of $52.99 and $50.56
per unit during the years ended December 31, 2019 and
2018, respectively. The Company also credited 4,506 and
6,493 shares to directors pursuant to the reinvestment of
dividends specified by the Directors’ Deferred Compensa-
tion Plan at a weighted average discounted price of $52.28
and $50.28 per share, during the years ended December 31,
2019 and 2018, respectively.
CAPITAL STRATEGY AND
FINANCING ACTIVITY
As a general policy, the Company intends to maintain a ratio
of its total debt to total asset value of 50% or less and to ac-
tively 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 ac-
quired 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, 2019.
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 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 Com-
pany continues to refinance or renegotiate the terms of its
outstanding debt in order to extend maturities and obtain
generally more favorable loan terms, whenever manage-
ment determines the financing environment is favorable.
The Company’s financing activity is described within note
5 to the Consolidated Financial Statements. The follow-
ing is a summary of notes payable as of December 31,
2019 and 2018.
18
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSSAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COM
The following is a summary of notes payable as of December 31, 2019 and 2018.
Notes Payable
Year Ended December 31,
2019
2018
Interest
Rate*
Scheduled
Maturity*
(Dollars in thousands)
Fixed rate mortgages:
Olde Forte Village
Countryside Marketplace
Briggs Chaney Marketplace
Shops at Monocacy
Boca Valley Plaza
Palm Springs Center
Thruway
Jamestown Place
Hunt Club Corners
Lansdowne Town Center
Orchard Park
BJ’s Wholesale Club
Great Falls Center
Leesburg Pike Center
Village Center
White Oak
Avenel Business Park
Ashburn Village
Ravenwood
Clarendon Center
Severna Park Marketplace
Kentlands Square II
Cranberry Square
Seven Corners
Hampshire-Langley
Beacon Center
Seabreeze Plaza
Shops at Fairfax / Boulevard
Northrock
Burtonsville Town Square
Park Van Ness
Washington Square
Broadlands Village
The Glen
Olde Forte Village
Olney
Shops at Monocacy
The Waycroft
$
—
—
—
—
9,234
7,262
—
6,539
5,300
30,719
9,441
10,323
10,774
14,414
12,555
22,475
26,260
26,245
13,606
98,611
29,710
33,952
15,917
60,677
14,810
36,206
15,019
26,205
14,085
36,975
68,095
56,990
31,221
22,448
21,702
11,952
28,500
110,199
$
9,159
12,676
12,714
11,295
9,601
7,766
36,711
6,943
5,480
31,723
9,728
10,609
11,702
14,952
13,013
23,198
27,222
27,168
14,086
102,310
30,888
35,258
16,515
62,630
15,345
38,120
15,547
27,060
14,526
38,076
69,691
58,523
31,941
22,900
—
11,781
—
23,332
910,189
47,000
75,000
122,000
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%
7.45%
7.02%
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%
4.65%
8.00%
4.14%
4.67%
5.04%
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
Feb-2034
Apr-2034
Dec-2034
Sep-2035
9.3 Years
LIBOR + 1.35%
LIBOR + 1.30%
3.09%
Jan-2022
Jan-2023
2.5 Years
Total fixed rate
938,421
Variable rate loans:
Revolving credit facility
Term loan facility
Total variable rate
87,500
75,000
162,500
Total notes payable
$ 1,100,921
$ 1,032,189
4.75%
8.3 Years
* Interest rate and scheduled maturity data presented as of December 31, 2019. Totals computed using weighted averages.
19
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COMMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
At December 31, 2019, the Company had a $400.0 mil-
lion credit facility comprised of a $325.0 million revolving
facility and a $75.0 million term loan. As of December 31,
2019, 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 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. As of December 31, 2019, based on
the value of the Company’s unencumbered properties, ap-
proximately $237.3 million was available under the revolving
credit facility, $87.5 million was outstanding and approxi-
mately $185,000 was committed for letters of credit.
The Company’s credit facility requires the Company and its
subsidiaries to maintain certain financial covenants, which
are summarized below. As of December 31, 2019, the Com-
pany was in compliance 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
exceed 2.0x on a trailing four-quarter basis (interest
expense coverage); and
limit the amount of debt so that interest, scheduled
principal amortization and preferred dividend cover-
age exceeds 1.4x on a trailing four-quarter basis (fixed
charge coverage).
On September 17, 2019, Saul Centers sold, in an under-
written public offering, 4.0 million depositary shares,
each representing 1/100th of a share of 6.000% Series E
Cumulative Redeemable Preferred Stock (the “Series E
Stock”), providing net cash proceeds of approximately $96.8
million. The depositary shares may be redeemed in whole
or in part, on or after September 17, 2024, at the $25.00
liquidation preference, plus accrued but unpaid dividends
to, but not including the redemption date. The depositary
shares pay an annual dividend of $1.50 per share, equivalent
to 6.000% of the $25.00 liquidation preference. The Series
E 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 depositary shares generally have no voting rights, but
will have limited voting rights if the Company fails to pay
dividends for six or more quarters (whether or not declared
or consecutive) and in certain other events. On September
23, 2019, Saul Centers sold, as a result of the exercise by the
underwriters of their over-allotment option, an additional
0.4 million depositary shares of Series E Stock, providing net
cash proceeds of approximately $9.5 million. On October
17, 2019, the Company used the proceeds from the Series E
Stock offering to redeem the outstanding 4.2 million depos-
itary shares of its Series C Stock, including all accumulated
and unpaid distributions to, but not including the redemp-
tion date. In the fourth quarter, approximately $3.2 million
of costs associated with the redemption were charged
against Net income available to common stockholders.
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.
20
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSSAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COM FUNDS FROM OPERATIONS
In 2019, the Company reported Funds From Operations (“FFO”)1 available to common stockholders and noncontrolling in-
terests of $95.1 million, a 1.3% increase from 2018 FFO available to common stockholders and noncontrolling interests of
$93.8 million. The following table presents a reconciliation from net income to FFO available to common stockholders and
noncontrolling interests for the periods indicated:
(Dollars in thousands except per share amounts)
2019
2018
2017
2016
2015
Year ended December 31,
Net income
Subtract:
$
64,196
$
63,059
$
60,668
$
56,720
$
52,931
Gains on sales of properties
—
(509)
—
(1,013)
(11)
Add:
Real estate depreciation and amortization
FFO
Subtract:
46,333
110,529
45,861
108,411
45,694
106,362
44,417
100,124
43,270
96,190
Preferred stock dividends
(12,235)
(12,262)
(12,375)
(12,375)
(12,375)
Extinguishment of issuance costs
upon redemption of preferred shares
FFO available to common stockholders
and noncontrolling interests
Average shares and units used to
compute FFO per share
(3,235)
(2,328)
—
—
—
$
95,059
$
93,821
$
93,987
$
87,749
$
83,815
30,913
30,156
29,511
28,990
28,449
FFO per share
$
3.08
$
3.11
$
3.18
$
3.03
$
2.95
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.
21
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COMMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ACQUISITIONS AND
REDEVELOPMENTS
Management anticipates that during the coming year, the
Company will complete its development activities at The
Waycroft, may 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 provide
long-term earnings and cash flow growth. During the com-
ing year, any developments, expansions or acquisitions are
expected to be funded with bank borrowings from the Com-
pany’s credit line, construction financing, proceeds from the
operation of the Company’s dividend reinvestment plan or
other external capital resources available to the Company.
The Company has been selectively involved in acquisition,
development, redevelopment and renovation activities. It
continues to evaluate the acquisition of land parcels for retail
and mixed-use development and acquisitions of operating
properties for opportunities to enhance operating income
and cash flow growth. The Company also continues to ana-
lyze redevelopment, renovation and expansion opportunities
within the portfolio.
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. 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 purchase price was funded through the Com-
pany’s revolving credit facility. The Company has completed
development plans for the combined property for the devel-
opment of up to 366 apartment units and 10,300 square
feet of retail space. In July 2019, the Montgomery County
Planning Commission unanimously approved the Compa-
ny’s site plan. Design and construction documents are being
prepared and a site plan amendment has been submitted
incorporating final design parameters. Additional approvals
from the Washington Metropolitan Area Transit Authority
and the Maryland Transit Administration are in process and
are expected to be received by the fourth quarter of 2020.
The Company has executed lease termination agreements
with the final office tenants and, effective September 1,
2019, the asset was removed from service and transferred
to construction in progress.
The Company, as contract purchaser, has filed with the City
of Rockville a site plan for Phase I of the Twinbrook Quarter
development and is conducting community hearings and
awaiting design review committee comments on its plan.
The plan includes an 80,000 square foot Wegmans grocery
store, 29,000 square feet of retail shop space, 460 resi-
dential units and 237,000 square feet of office space. The
phasing of these improvements and the timing of construc-
tion will depend on removal of contingencies, final site plan
approval, building permit approval and market conditions.
The total development potential of this 8.1 acre site, when
combined with the Company’s adjacent 10.3 acre site, totals
1,865 residential units, 473,000 square feet of retail space,
and 431,000 square feet of office space.
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
2019
2018
50
49
6
7
7,855,275
1,076,837
7,750,271
1,146,438
95.5%
96.0%
91.6%
92.3%
22
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSSAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COM
The residential components of Clarendon Center and Park
Van Ness were 95.5% and 97.0% leased, respectively, at De-
cember 31, 2019. The residential components of Clarendon
Center and Park Van Ness were 99.6% and 97.0% leased,
respectively, at December 31, 2018. 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 decreased to 95.6% from 96.0%
and the Mixed-Use leasing percentage decreased to 91.6%
from 93.6%. The overall portfolio leasing percentage, on
a comparative same property basis, decreased to 95.1% at
December 31, 2019 from 95.7% at December 31, 2018.
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
Base Rent per Square Foot
Year ended December 31,
Square Feet
Number
of Leases
New/Renewed
Leases
2019
2018
1,471,429
1,555,620
255
281
$
18.24
19.52
Expiring
Leases
$
18.39
19.26
Certain of the Company’s operating properties are planned
for redevelopment, including its properties at Twinbrook and
White Flint. Prior to the commencement of redevelopment,
the Company continues to operate the properties. However,
in order to provide the greatest amount of flexibility, the
Company generally enters into leases with shorter terms at
these “pre-development” properties. The shorter-term leases
require less capital, but also yield lower rents. The impact of
these leases with shorter terms and lower rents can impact
the averages shown for all leasing activity. During 2019, the
Company entered into six new or renewed leases, for 53,400
square feet of retail space, at pre-development properties that
have shorter terms and lower rents than typical market condi-
tions would suggest. Excluding these leases, the base rent on
the 249 new or renewed leases on a same space basis would
have been $18.26 per square foot compared to $18.10 per
square foot for expiring leases.
Additional information about commercial leasing activity
during the three months ended December 31, 2019, 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.
Number of leases
Square feet
Per square foot average annualized:
Base rent
Tenant improvements
Leasing costs
Rent concessions
Effective rents
Commercial Leasing Activity
New Leases
13
54,300
First Generation/
Development
6
11,381
Renewed Leases
53
430,858
$ 32.01
$ 43.12
$ 12.84
(4.82)
(0.38)
(0.63)
(9.70)
(1.60)
(0.31)
(1.19)
(0.10)
(0.30)
$ 26.18
$ 31.51
$ 11.25
23
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COMMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
During 2019, the Company entered into 431 new or re-
newed apartment leases. The monthly rent per square foot
for these leases increased to $3.53 from $3.45. During 2018,
the Company entered into 465 new or renewed apartment
leases. The monthly rent per square foot for these leases was
unchanged at $3.44. As of December 31, 2019, 746,234
square feet of commercial space was subject to leases sched-
uled to expire in 2020. 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
764,234
22.29
$
22.35
$
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 terminated on November 21,
2019, and the Company incurred a $0.4 million charge to
change in fair value of derivatives.
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, 2019, the Company had variable rate indebt-
edness totaling $162.5 million. If the interest rates on the
Company’s variable rate debt instruments outstanding at De-
cember 31, 2019 had been one percent higher, our annual
interest expense relating to these debt instruments would
have increased by $1.6 million, based on those balances.
As of December 31, 2019, the Company had fixed-rate in-
debtedness totaling $938.4 million with a weighted average
interest rate of 5.04%. If interest rates on the Company’s
fixed-rate debt instruments at December 31, 2019 had
been one percent higher, the fair value of those debt instru-
ments on that date would have decreased by approximately
$51.7 million.
24
SAUL CENTERS, INC. 2019 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, 2019,
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
27 in this Annual Report.
the Company’s
25
SAUL CENTERS, INC. 2019 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
We have audited the accompanying consolidated balance
sheets of Saul Centers, Inc. and subsidiaries (the “Company”)
as of December 31, 2019 and 2018, the related consoli-
dated statements of operations, comprehensive income,
equity and cash flows for the years ended December 31,
2019 and 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 finan-
cial position of the Company as of December 31, 2019 and
2018, and the results of its operations and its cash flows for
the years ended December 31, 2019 and 2018, in confor-
mity 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 reporting as of December 31, 2019, based on cri-
teria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organiza-
tions of the Treadway Commission and our report dated
February 27, 2020, expressed an unqualified opinion on the
Company’s internal control over financial reporting.
Basis for Opinion
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 fi-
nancial 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.
Critical Audit Matters
Critical audit matters are matters arising from the cur-
rent-period audit of the financial statements that were
communicated or required to be communicated to the audit
committee and that (1) relate to accounts or disclosures that
are material to the financial statements and (2) involved our
especially challenging, subjective, or complex judgments.
We determined that there are no critical audit matters.
/s/ Deloitte & Touche LLP
McLean, Virginia
February 27, 2020
We have served as the Company’s auditor since 2018.
26
SAUL CENTERS, INC. 2019 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.
/s/ Deloitte & Touche LLP
McLean, Virginia
February 27, 2020
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, 2019, based on criteria established in
Internal Control - Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Tread-
way Commission (COSO). In our opinion, the Company has
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2019, based
on the criteria established in Internal Control - Integrated
Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of
the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated financial statements as of
and for the year ended December 31, 2019, of the Company
and our report dated February 27, 2020, expressed an un-
qualified opinion on those financial statements.
Basis for Opinion
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.
27
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COM REPORT OF PREVIOUS INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Saul Centers, Inc.
Opinion on the 2017 Financial Statements
We have audited the accompanying consolidated state-
ments of operations, comprehensive income, equity and
cash flows of Saul Centers, Inc. (the Company) for the year
ended December 31, 2017, and the related notes and fi-
nancial statement schedule for the year ended December
31, 2017 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 material respects, the consolidated results of the
Company at December 31, 2017, and the results of its op-
erations and its cash flows for the year ended December 31,
2017, in conformity with U.S. generally accepted accounting
principles.
Basis for Opinion
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 fi-
nancial 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.
/s/ Ernst & Young LLP
We served as the Company’s auditor from 2002 to 2018.
Tysons, Virginia
February 27, 2018
28
SAUL CENTERS, INC. 2019 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
Preferred stock, 1,000,000 shares authorized:
Series C Cumulative Redeemable, 0 and 42,000 shares issued
and outstanding, respectively
Series D Cumulative Redeemable, 30,000 shares issued
and outstanding, respectively
Series E Cumulative Redeemable, 44,000 and 0 shares issued
and outstanding, respectively
Common stock, $0.01 par value, 40,000,000 shares authorized,
23,231,240 and 22,739,207 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,
2019
December 31,
2018
$
453,322
$
488,918
1,292,631
335,644
2,081,597
(563,474)
1,518,123
13,905
52,311
24,083
5,363
4,555
1,273,275
185,972
1,948,165
(525,518)
1,422,647
14,578
53,876
28,083
5,175
3,130
$
1,618,340
$ 1,527,489
$
821,503
$
880,271
74,691
86,371
108,623
19,291
35,199
29,306
74,591
45,329
21,655
19,153
32,419
28,851
1,174,984
1,102,269
—
75,000
110,000
232
410,926
(221,177)
—
374,981
68,375
443,356
105,000
75,000
—
227
384,533
(208,593)
(255)
355,912
69,308
425,220
$
1,618,340
$ 1,527,489
29
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COM
CONSOLIDATED STATEMENTS
OF OPERATIONS
(Dollars in thousands, except per share amounts)
For The Year Ended December 31,
2018
2019
2017
Revenue
Rental revenue
Other
Total revenue
Expenses
Property operating expenses
Real estate taxes
Interest expense, net and amortization of deferred debt costs
Depreciation and amortization of deferred leasing costs
General and administrative
Total expenses
Change in fair value of derivatives
Gains on sale of property
Net Income
Noncontrolling interests
Income attributable to noncontrolling interests
Net income attributable to Saul Centers, Inc.
Preferred stock dividends
$ 223,352
$ 221,734
$ 218,185
8,173
5,485
8,114
231,525
227,219
226,299
29,946
27,987
41,834
46,333
20,793
28,202
27,376
44,768
45,861
18,459
27,689
26,997
47,145
45,694
18,176
166,893
164,666
165,701
(436)
—
64,196
(12,473)
51,723
(12,235)
(3)
509
63,059
(12,505)
50,554
(12,262)
(2,328)
70
—
60,668
(12,411)
48,257
(12,375)
—
Extinguishment of issuance costs upon redemption of preferred shares
(3,235)
Net income available to common stockholders
$ 36,253
$ 35,964
$ 35,882
Per share net income available to common stockholders
Basic
Diluted
The Notes to Financial Statements are an integral part of these statements.
$ 1.58
$ 1.57
$ 1.61
$ 1.60
$ 1.64
$ 1.63
30
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COM
(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.
Preferred stock dividends
Extinguishment of issuance costs upon redemption
of preferred shares
Total comprehensive income available to common stockholders
The Notes to Financial Statements are an integral part of these statements.
CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOME
For The Year Ended December 31,
2018
2019
2017
$ 64,196
$ 63,059
$ 60,668
93
64,289
(12,561)
51,728
(12,235)
594
63,653
(12,658)
50,995
(12,262)
812
61,480
(12,620)
48,860
(12,375)
(3,235)
(2,328)
—
$ 36,258
$ 36,405
$ 36,485
31
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COM
CONSOLIDATED STATEMENTS
OF EQUITY
(Dollars in thousands, except per share amounts)
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)
Balance, December 31, 2018
Issuance of 44,000 shares of Series E Cumulative preferred stock
Redemption of 42,000 shares of Series C Cumulative preferred stock
Issuance of common stock:
430,462 shares pursuant to dividend reinvestment plan
61,571 shares due to exercise of employee stock options and
issuance of directors’ deferred stock
Issuance of 60,936 partnership units
Net income
Change in unrealized loss on cash flow hedge
Preferred stock distributions:
Series C
Series D
Series E
Common stock distributions
Distributions payable on Series D preferred stock, $38.28 per share
Distributions payable on Series E preferred stock, $37.50 per share
Distributions payable common stock ($0.53/share) and partnership
units ($0.53/unit)
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
$
217
$ 328,171
$ (188,584)
$
(1,299)
$ 318,505
$ 54,744
$ 373,249
—
—
—
—
—
—
—
—
—
180,000
75,000
(75,000)
—
—
—
—
—
—
—
—
—
—
—
180,000
110,000
(105,000)
—
—
—
—
—
—
—
—
—
—
—
—
2
15,748
2
8,671
—
—
—
48,257
—
(9,282)
(33,490)
(3,093)
—
—
—
—
—
—
—
(11,518)
352,590
(2,633)
2,311
(197,710)
—
(2,328)
—
—
—
—
—
—
—
221
—
—
—
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)
6
28,817
—
—
28,823
—
28,823
—
—
—
—
—
—
—
—
—
—
227
—
—
3,448
—
—
—
—
—
—
—
—
—
—
50,554
—
(6,145)
(3,164)
(34,841)
(1,805)
(1,148)
—
(12,006)
384,533
(3,735)
3,235
(208,593 )
—
(3,235)
—
—
—
441
—
—
—
—
—
—
(255)
—
—
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)
(4,148)
(16,154)
355,912
106,265
(105,000)
69,308
—
—
425,220
106,265
(105,000)
4
22,494
—
—
22,498
—
22,498
1
—
—
—
—
—
—
—
—
—
—
4,399
—
—
—
—
—
—
—
—
—
—
—
51,723
—
(5,736)
(3,444)
(257)
(36,562)
(1,148)
(1,650)
—
—
—
255
—
—
—
—
—
—
4,400
—
51,723
255
(5,736)
(3,444)
—
(36,562)
(1,148)
(1,650)
—
3,180
12,473
88
—
—
—
(12,494)
—
—
4,400
3,180
64,196
343
(5,736)
(3,444)
(257)
(49,056)
(1,148)
(1,650)
—
(12,275)
—
(12,275)
(4,180)
(16,455)
Balance, December 31, 2019
$ 185,000
$
232
$ 410,926
$ (221,177)
$
—
$ 374,981
$ 68,375
$ 443,356
The Notes to Financial Statements are an integral part of these statements.
32
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COM
(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
Gain on sale of property
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) decrease in accounts receivable and accrued income
Additions to deferred leasing costs
Increase (decrease) in prepaid expenses
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 property (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 E preferred stock
Series C preferred stock redemption
Preferred stock redemption costs
Distributions to:
Series C preferred stockholders
Series D preferred stockholders
Series E preferred stockholders
Common stockholders
Noncontrolling interests
Net cash provided by 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
CONSOLIDATED STATEMENTS
OF CASH FLOWS
For The Year Ended December 31,
2018
2019
2017
$
64,196
$
63,059
$
60,668
436
—
46,333
1,518
1,859
1,226
339
(1,843)
(188)
894
158
455
115,383
—
(21,891)
(113,772)
—
(135,663)
50,600
(109,235)
—
152,500
(112,000)
86,868
(1,010)
25,039
3,180
—
106,265
(105,000)
—
(7,541)
(4,592)
(257)
(48,568)
(16,642)
19,607
(673)
14,578
13,905
40,434
303
$
$
$
3
(509)
45,861
1,610
1,766
685
(336)
(6,034)
73
3,681
225
255
110,339
(40,836)
(12,883)
(76,257)
1,326
(128,650)
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
14,578
43,561
9,663
$
$
$
(70)
—
45,694
1,392
1,672
906
(1,643)
(4,615)
(294)
1,374
1,125
(2,759)
103,450
(79,499)
(17,653)
(22,842)
6,688
(113,306)
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
10,908
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, plus accrued interest of $51.
The Notes to Financial Statements are an integral part of these statements.
33
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COM
1. ORGANIZATION, BASIS OF
PRESENTATION
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,
Chief Executive Officer and President of Saul Centers.
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 entities,
each of which is controlled by B. Francis Saul II and his family
members (collectively, the “Saul Organization”). On August
26, 1993, members of the Saul Organization transferred to
Saul Holdings Limited Partnership, a newly formed Maryland
limited partnership (the “Operating Partnership”), and two
newly formed subsidiary limited partnerships (the “Subsidiary
Partnerships,” and collectively with the Operating Partner-
ship, the “Partnerships”), Shopping Centers 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 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 Wash-
ington, DC/Baltimore metropolitan area, a disproportionate
economic downturn in the local economy would have a
greater negative impact on our overall financial performance
than on the overall financial performance of a company with
a portfolio that is more geographically diverse. A major-
ity of the Shopping Centers are anchored by several major
tenants. As of December 31, 2019, 33 of the Shopping
Centers were anchored by a grocery store and offer primarily
day-to-day necessities and services. One retail tenant, Giant
Food (4.7%), a tenant at ten Shopping Centers, individually
accounted for 2.5% or more of the Company’s total revenue
for the year ended December 31, 2019.
As of December 31, 2019, the Current Portfolio Properties
consisted of 50 Shopping Centers, six Mixed-Use Properties,
and four (non-operating) development properties.
The accompanying consolidated financial statements of the
Company include the accounts of Saul Centers and its sub-
sidiaries, including the Operating Partnership and Subsidiary
Partnerships, which are majority owned by Saul Centers.
Substantially all assets and liabilities of the Company as of
December 31, 2019 and December 31, 2018, are comprised
of the assets and liabilities of the Operating Partnership. The
debt arrangements which are subject to recourse are de-
scribed in Note 5. 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 74.6% 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.
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with
GAAP requires management to make certain estimates and
assumptions 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. The most significant estimates and assumptions relate
to impairment of real estate properties. Actual results could
differ from those estimates.
Real Estate Investment Properties
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 con-
ditions, 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.
34
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COMNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 2019, 2018, or 2017.
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, 2019, 2018,
and 2017, was $40.5 million, $39.8 million, and $40.2 mil-
lion, respectively. Repairs and maintenance expense totaled
$12.5 million, $11.9 million, and $11.6 million for 2019,
2018, and 2017, respectively, and is included in property
operating expenses in the accompanying consolidated finan-
cial statements.
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 ex-
pects 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, 2019 and 2018, the
Company had no assets designated as held for sale.
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.
Accounts Receivable, Accrued Income, and
Allowance for Doubtful Accounts
Accounts receivable primarily represent amounts currently
due from tenants in accordance with the terms of their re-
spective leases. Lease related receivables are reduced for
credit losses. Such losses are recognized as a reduction of
rental revenue in the consolidated statements of operations.
Receivables are reviewed monthly and reserves are estab-
lished with a charge to current period operations when, in
the opinion of management, collection of the receivable is
doubtful. Accounts receivable in the accompanying consol-
idated financial statements are shown net of an allowance
for doubtful accounts of $0.4 million and $0.6 million, at
December 31, 2019 and 2018, respectively.
In addition to rents due currently, accounts receivable also
includes $42.1 million and $43.3 million, at December 31,
2019 and 2018, respectively, net of allowance for doubtful
accounts totaling $30,000 and $58,500, respectively, rep-
resenting minimum rental income accrued on a straight-line
basis to be paid by tenants over the remaining term of their
respective leases.
35
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COMNOTES TO CONSOLIDATED FINANCIAL 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
$24.1 million and $28.1 million, net of accumulated amorti-
zation of approximately $41.6 million and $37.7 million, as
of December 31, 2019 and 2018, respectively. Amortization
expense, which is included in Depreciation and amortization
of deferred leasing costs in the Consolidated Statements of
Operations, totaled approximately $5.8 million, $6.1 million,
and $5.5 million, for the years ended December 31, 2019,
2018, and 2017, respectively.
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, 2019 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.
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.
Income Taxes
The Company made an election to be treated, and intends
to continue operating so as to qualify, as a REIT under the
Code, commencing with its taxable year ended December
31, 1993. A REIT generally will not be subject to federal in-
come taxation, provided that distributions to its stockholders
equal or exceed its REIT taxable income and complies with
certain other requirements. Therefore, no provision has been
made for federal income taxes in the accompanying consoli-
dated financial statements.
As of December 31, 2019, 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 2019, 2018, and 2017. The tax basis of the Compa-
ny’s real estate investments was approximately $1.33 billion
and $1.35 billion as of December 31, 2019 and 2018, 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 2016.
36
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COMNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Legal Contingencies
The Company is subject to various legal proceedings and
claims that arise in the ordinary course of business, which
are generally covered by insurance. Upon determination that
a loss is probable to occur and can be reasonably estimated,
the estimated amount of the loss is recorded in the financial
statements.
Recently Issued Accounting Standards
In February 2016, the Financial Accounting Standards Board
(‘‘FASB’’) issued Accounting Standards Update (‘‘ASU’’)
2016-02, ‘‘Leases’’ (“ASU 2016-02”). ASU 2016-02 amends
the existing accounting standards for lease accounting, in-
cluding 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 existing at the date of initial appli-
cation, with an option to use certain practical expedients
for those existing leases. Upon adoption of ASU 2016-02
effective January 1, 2019, we elected the practical expedient
for all leases with respect to lease identification, lease clas-
sification, and initial direct costs. We made a policy election
not to separate lease and nonlease components and have
accounted for each lease component and the related non-
lease components together as a single component. There
have been no significant changes to our lessor accounting
for operating leases as a result of ASU 2016-02.
We lease Shopping Centers and Mixed-Use Properties to les-
sees in exchange for monthly payments that cover rent, and
where applicable, reimbursement for property taxes, insur-
ance, and certain property operating expenses. Our leases
were determined to be operating leases and generally range
in term from one to 15 years.
Some of our leases have termination options and/or extension
options. Termination options allow the lessee to terminate
the lease prior to the end of the lease term, provided certain
conditions are met. Termination options generally require
advance notification from the lessee and payment of a ter-
mination fee. Termination fees are recognized as revenue
over the modified lease term. Extension options are subject
to terms and conditions stated in the lease.
On January 1, 2019, a right of use asset and correspond-
ing lease liability related to our headquarters lease were
recorded in other assets and other liabilities, respectively.
The lease expires on February 28, 2022, with one option to
renew for an additional five years. The right of use asset and
corresponding lease liability totaled $1.6 million and $1.6
million, respectively, at December 31, 2019.
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. Management has
determined that the adoption of ASU 2016-13 will not have
a material impact on our consolidated financial statements
and related disclosures because the vast majority of the
Company’s receivables relate to operating leases which are
accounted for under ASC 842.
In August 2017, the FASB issued ASU 2017-12, “Derivatives
and Hedging” (“ASU 2017-12”). ASU 2017-12 amends fi-
nancial reporting for hedging activities to better align that
reporting with risk management activities. ASU 2017-12 ex-
pands and refines hedge accounting for both financial and
nonfinancial risk components and aligns the recognition and
presentation of the effects of the hedging instrument and
the hedged item in the financial statements. Effective with
the adoption of ASU 2017-12 on January 1, 2019, changes
in the fair value of the Company’s interest rate swap related
to changes in the cash flow of the hedged item are reported
as a component of interest expense and amortization of de-
ferred debt costs in the Statements of Operations.
Reclassifications
Certain reclassifications have been made to prior years to
conform to the presentation used for year ended December
31, 2019.
3. REAL ESTATE
Construction in Progress
Construction in progress includes land, preconstruction and
development 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.
December 31,
(In thousands)
The Waycroft
7316 Wisconsin Avenue
Ashbrook Marketplace
Other
Total
2019
$ 255,443
44,638
19,128
16,435
$ 335,644
2018
$ 162,176
—
11,124
12,672
$ 185,972
37
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COMNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Acquisitions
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
Shopping Center. The land was previously leased by the
Company with an annual rent of approximately $56,000. The
purchase price was funded by the revolving credit facility.
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.
7316 Wisconsin Avenue
In September 2018, the Company purchased for $35.5
million, plus $0.7 million of acquisition costs, an office
building and the underlying ground located at 7316 Wis-
consin Avenue in Bethesda, Maryland. In December 2018,
the Company purchased for $4.5 million, including acqui-
sition costs, an interest in an adjacent parcel of land and
retail building. The purchase price was funded through the
Company’s credit facility. The Company has executed lease
termination agreements with the final two office tenants
and, effective September 1, 2019, the asset was removed
from service and transferred to construction in progress at
its carrying value of $42.6 million.
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.
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, includ-
ing acquisition costs. Of the total acquisition cost, $28.4
million was allocated to land, $45.8 million was allocated
to buildings, $2.2 million was allocated to in-place leases,
$0.6 million was allocated to above-market rent, and $(0.6)
million was allocated to below-market rent, based on their
relative fair values.
The gross carrying amount of lease intangible assets in-
cluded in deferred leasing costs as of December 31, 2019
and 2018 was $11.7 million and $12.5 million, respectively,
and accumulated amortization was $8.5 million and $8.1
million, respectively. Amortization expense totaled $0.9
million, $1.3 million and $1.1 million, for the years ended
December 31, 2019, 2018, and 2017, respectively. The
gross carrying amount of below market lease intangible lia-
bilities included in deferred income as of December 31, 2019
and 2018 was $24.1 million and $24.8 million, respectively,
and accumulated amortization was $13.9 million and $13.1
million, respectively. Accretion income totaled $1.5 million,
$1.7 million, and $1.7 million, for the years ended December
31, 2019, 2018, and 2017, respectively. The gross carrying
amount of above market lease intangible assets included in
accounts receivable as of December 31, 2019 and 2018 was
$0.6 million and $0.8 million, respectively, and accumulated
amortization was $108,300 and $143,900, respectively.
Amortization expense totaled $109,600, $110,500 and
$31,600, for the years ended December 31, 2019, 2018
and 2017, respectively. The remaining weighted-average
amortization period as of December 31, 2019 is 4.5 years,
7.6 years, and 5.3 years for lease acquisition costs, above
market leases and below market leases, respectively.
38
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COMNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2019, scheduled amortization of intan-
gible assets and deferred income related to in place leases
is as follows:
ended December 31, 2019, 2018, and 2017, were 30.9 mil-
lion, 30.2 million, and 29.5 million, respectively.
Amortization of Intangible Assets
and Deferred Income Related
to In-Place Leases
Lease
acquisition
costs
$
708
535
383
317
198
996
(Dollars in thousands)
2020
2021
2022
2023
2024
Thereafter
Above-
Below-
market market
leases
leases
$ 1,434
43
$
1,409
33
1,306
33
1,297
33
878
33
3,853
343
Total
$ 3,137
$ 518
$ 10,177
4. NONCONTROLLING INTERESTS
– HOLDERS OF CONVERTIBLE
LIMITED PARTNERSHIP UNITS IN
THE OPERATING PARTNERSHIP
Saul Centers is the sole general partner of the Operating
Partnership, owning a 74.6% common interest as of De-
cember 31, 2019. 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.
The Saul Organization holds a 25.4% limited partnership in-
terest in the Operating Partnership represented by 7,886,916
limited partnership units, as of December 31, 2019. 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, 2019,
approximately 925,000 units were eligible for conversion.
The impact of the Saul Organization’s 25.4% limited part-
nership interest in the Operating Partnership is reflected as
Noncontrolling Interests in the accompanying consolidated
financial statements. Fully converted partnership units and
diluted weighted average shares outstanding for the years
5. MORTGAGE NOTES PAYABLE,
REVOLVING CREDIT FACILITY,
INTEREST EXPENSE AND
AMORTIZATION OF DEFERRED
DEBT COSTS
At December 31, 2019, the principal amount of outstanding
debt totaled $1.1 billion, of which $938.4 million was fixed
rate debt and $162.5 million was variable rate debt. The prin-
cipal amount of the Company’s outstanding debt totaled $1.0
billion at December 31, 2018, of which $910.2 million was
fixed rate debt and $122.0 million was variable rate debt.
At December 31, 2019, the Company had a $400.0 mil-
lion unsecured credit facility, which can be used for working
capital, property acquisitions or development projects, 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 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,
2019, based on the value of the Company’s unencumbered
properties, approximately $237.3 million was available under
the revolving credit facility, $87.5 million was outstanding
and approximately $185,000 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,
2019, 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 mortgage (approximately $6.7 million of the $68.1
million outstanding balance at December 31, 2019, which
guarantee will be reduced to (i) $3.3 million on October 1,
2020 and (ii) zero on October 1, 2021), (b) a portion of
the Kentlands Square II mortgage (approximately $8.5 mil-
lion of the $34.0 million outstanding balance at December
31, 2019), (c) a portion of the Broadlands mortgage (ap-
proximately $3.9 million of the $31.2 million outstanding
balance at December 31, 2019), and (d) a portion of the
Avenel Business Park mortgage (approximately $6.3 million
of the $26.3 million outstanding balance at December 31,
2019). All other notes payable are non-recourse.
39
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COMNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On January 18, 2017, the Company closed on a 15-year,
non-recourse $40.0 million mortgage loan secured by Bur-
tonsville 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 mil-
lion construction-to-permanent loan, the proceeds of which
will be used to partially fund The Waycroft 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 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 ma-
turity. Proceeds were used to repay the remaining principal
balance of approximately $15.2 million on the existing mort-
gage, the remaining balance of approximately $7.3 million
on the existing mortgage collateralized by the Glen, the re-
maining balance of approximately $6.1 million on the existing
mortgage collateralized by Kentlands Square I, and reduce
the outstanding balance of the revolving credit facility.
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.
On January 4, 2019, the Company repaid in full the remain-
ing principal balance of $12.7 million 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.
On June 3, 2019, the Company repaid in full the remaining
principal balance of $12.4 million of the mortgage loan se-
cured by Briggs Chaney Marketplace, which was scheduled
to mature in September 2019.
On November 12, 2019, the Company closed on a 15-
year, non-recourse $28.5 million mortgage loan secured
by Shops at Monocacy. The loan matures in 2034, bears
interest at a fixed-rate of 4.14%, requires monthly princi-
pal and interest payments of $152,600 based on a 25-year
amortization schedule and requires a final payment of $15.1
million. Proceeds were partially used to repay in full the ex-
isting mortgage secured by Shops at Monocacy, which was
scheduled to mature in January 2020.
On November 21, 2019, the Company repaid in full the re-
maining principal balance of $35.6 million of the mortgage
loan secured by Thruway, which was scheduled to mature in
July 2020. The Company’s corresponding swap agreement
was terminated on the same day.
The carrying value of the properties collateralizing the
mortgage notes payable totaled $1.1 billion and $1.1 bil-
lion, as of December 31, 2019 and 2018, respectively. The
Company’s credit facility requires the Company and its sub-
sidiaries to maintain certain financial covenants, which are
summarized below. The Company was in compliance as of
December 31, 2019.
•
•
•
limit the amount of debt as a percentage of gross asset
value, as defined in the loan agreement, to less than
60% (leverage ratio);
limit the amount of debt so that interest coverage will
exceed 2.0 x on a trailing four-quarter basis (interest
expense coverage); and
limit the amount of debt so that interest, scheduled
principal amortization and preferred dividend cover-
age exceeds 1.4x on a trailing four-quarter basis (fixed
charge coverage).
40
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COMNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Mortgage notes payable at December 31, 2019 and 2018,
totaling $41.0 million and $51.0 million, respectively, are
guaranteed by members of the Saul Organization. As of
December 31, 2019, the scheduled maturities of all debt
including scheduled principal amortization for years ended
December 31 are as follows:
Balloon
Payments
$ 16,074
11,012
124,002 (a)
84,225
66,649
527,297
Scheduled
Principal
Amortization
Total
$ 28,421
29,025
29,645
30,065
28,697
125,809
$ 44,495
40,037
153,647
114,290
95,346
653,106
$ 829,259
$ 271,662
$ 1,100,921
9,733
$ 1,091,188
(In thousands)
2020
2021
2022
2023
2024
Thereafter
Principal
amount
Unamortized
deferred debt
costs
Net
(a) Includes $87.5 million outstanding under the revolving facility.
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
interest method. Deferred debt costs totaled $9.7 million
and $10.3 million, net of accumulated amortization of $7.5
million and $7.3 million at December 31, 2019 and 2018,
respectively, and are reflected as a reduction of the related
debt in the Consolidated Balance Sheets.
The components of interest expense are set forth below.
Interest Expense
(In thousands)
Year ended December 31,
2018
2019
2017
Interest incurred
$ 52,044 $ 49,652 $ 49,322
Amortization of
deferred debt costs
1,518
1,610
1,392
Capitalized interest
(11,480)
(6,222)
(3,489)
Interest expense
42,082
45,040
47,225
Less: Interest income
248
272
80
Interest expense,
net and amortization
of deferred debt costs
$ 41,834 $ 44,768 $ 47,145
Deferred debt costs capitalized during the years ending De-
cember 31, 2019, 2018 and 2017 totaled $1.0 million, $3.2
million and $2.6 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, 2019, 2018, and 2017,
amounted to $185.7 million, $184.7 million, and $181.1
million, respectively. Future contractual payments under
noncancelable leases for years ended December 31 (which
exclude the effect of straight-line rents), are as follows:
Future Contractual Rent Payments
(In thousands)
2020
2021
2022
2023
2024
Thereafter
Total
$ 166,227
149,949
126,101
104,489
75,172
260,141
$ 882,079
The majority of the leases provide for rental increases based
on fixed annual increases or increases in the Consumer
Price Index and expense recoveries based on 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, 2019,
2018, and 2017, amounted to $36.5 million, $35.5 million,
and $35.3 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 $0.9 million, $1.0 million, and $1.5 mil-
lion, for the years ended December 31, 2019, 2018, and
2017, respectively.
7. LONG-TERM LEASE OBLIGATIONS
At December 31, 2018 and 2019, no properties are sub-
ject to noncancelable long-term leases which apply to
underlying land.
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
41
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COMNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2019,
2018, and 2017 was $806,500, $779,800, and $774,700,
respectively. Expenses arising from the lease are included
in general and administrative expense (see Note 9 – Related
Party Transactions).
8. EQUITY AND NONCONTROLLING
INTEREST
The Consolidated Statements of Operations for the years
ended December 31, 2019, 2018, and 2017 reflect noncon-
trolling interest of $12.5 million, $12.5 million, and $12.4
million, respectively, representing the Saul Organization’s
share of the net income for the year.
At December 31, 2019, the Company had outstanding 3.0
million depositary shares, each representing 1/100th of a
share of 6.125% Series D Cumulative Redeemable Preferred
Stock (the “Series D Stock”). The depositary shares may be
redeemed at the Company’s option, in whole or in part,
on or after January 23, 2023, at the $25.00 liquidation
preference, plus accrued but unpaid dividends to but not
including the redemption date. 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 Company except in connection
with certain changes in control or delisting events. Investors
in the depositary shares generally have no voting rights, but
will have limited voting rights if the Company fails to pay
dividends for six or more quarters (whether or not declared
or consecutive) and in certain other events.
On September 17, 2019, Saul Centers sold, in an under-
written public offering, 4.0 million depositary shares, each
representing 1/100th of a share of 6.000% Series E Cumu-
lative Redeemable Preferred Stock (the “Series E Stock”),
providing net cash proceeds of approximately $96.8 million.
The depositary shares may be redeemed in whole or in part,
on or after September 17, 2024, at the $25.00 liquidation
preference, plus accrued but unpaid dividends to but not in-
cluding the redemption date. The depositary shares pay an
annual dividend of $1.50 per share, equivalent to 6.000%
of the $25.00 liquidation preference. The Series E 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 depositary shares generally have no voting rights, but
will have limited voting rights if the Company fails to pay
dividends for six or more quarters (whether or not declared
or consecutive) and in certain other events. On September
23, 2019, Saul Centers sold, as a result of the exercise by the
underwriters of their over-allotment option, an additional
0.4 million depositary shares of Series E Stock, providing net
cash proceeds of approximately $9.5 million.
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 (the “Series C Stock”). The depositary shares are re-
deemable at the Company’s option, in whole or in part, at
the $25.00 liquidation preference plus accrued but unpaid
dividends. The depositary shares pay an annual dividend of
$1.71875 per share, equivalent to 6.875% of the $25.00
liquidation preference. The 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. In September 2019, the Company an-
nounced the redemption of all outstanding depositary shares
representing interests in its Series C Stock. The depositary
shares were redeemed on October 17, 2019 at $25.00 per
depositary share, plus all accrued and unpaid dividends to,
but not including, the redemption date, for an aggregate
redemption price of $25.07638 per depositary share. In the
fourth quarter, costs associated with the redemption were
charged against Net income available to common stockhold-
ers. After the redemption date, dividends on the depositary
shares representing interests in the Series C Stock ceased to
accrue.
42
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COMNOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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.
(Shares in thousands)
Weighted average
common shares
outstanding - Basic
Effect of dilutive options
Weighted average
common shares
outstanding - Diluted
December 31,
2018
2017
2019
23,009
44
22,383
42
21,901
107
23,053
22,425
22,008
Average share price
$ 53.41 $ 52.50 $ 61.63
Non-dilutive options
Years non-dilutive
options were issued
633
492
—
2016,
2017
2015,
2016
and 2019 and 2017
9. RELATED PARTY TRANSACTIONS
The Chairman, Chief Executive Officer and President, the
Executive Vice President of Real Estate, the Executive Vice
President-Chief Legal and Administrative Officer and the Se-
nior Vice President-Chief Accounting Officer of the Company
are also officers of various members of the Saul Organiza-
tion and their management time is shared with the Saul
Organization. Their annual compensation is fixed by the
Compensation Committee of the Board of Directors, with
the exception of the Senior Vice President-Chief Accounting
Officer whose share of annual compensation allocated to
the Company is determined by the shared services agree-
ment (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
$322,200, $345,900, and $349,500, for 2019, 2018, and
2017, 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, 2019, 2018, and 2017, the Company
contributed three times the amount deferred by employees.
The Company’s expense, included in general and administra-
tive expense, totaled $345,200, $282,500, and $228,500,
for the years ended December 31, 2019, 2018, and 2017,
respectively. All amounts deferred by employees and the
Company are fully vested. The cumulative unfunded liability
under this plan was $3.1 million and $2.7 million, at De-
cember 31, 2019 and 2018, 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, 2019, 2018, and 2017, which included
rental expense for the Company’s headquarters lease (see
Note 7. Long Term Lease Obligations), totaled $8.4 million,
$8.4 million, and $8.1 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, 2019 and 2018, accounts
payable, accrued expenses and other liabilities included
$918,700 and $933,400, 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
43
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COMNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
On November 5, 2019, the Company entered into an agree-
ment (the “Contribution Agreement”) to acquire from the
Saul Trust, approximately 6.8 acres of land and its leasehold
interest in approximately 1.3 acres of contiguous land, to-
gether in each case with the improvements located thereon,
located at the Twinbrook Metro Station in Rockville, Mary-
land (the “Contributed Property”). In exchange for the
Contributed Property, the Company will issue to the Saul
Trust 1,416,071 limited partnership units in the Operating
Partnership (“OP Units”) at an agreed upon value of $56.00
per OP Unit, representing an aggregate value of $79.3 mil-
lion for the Contributed Property. Deed to the Contributed
Property and the OP Units have been placed in escrow
until certain conditions of the Contribution Agreement are
satisfied.
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 $399,600, $407,900, and
$288,400, for the years ended December 31, 2019, 2018,
and 2017, 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.
10. STOCK OPTION PLAN
Stock Based Employee Compensation, Deferred Compensa-
tion and Stock Plan for Directors
In 2004, the Company established a stock incentive plan (the
“Plan”), as amended. Under the Plan, options were granted
at an exercise price not less than the market value of the
common stock on the date of grant and expire ten years
from the date of grant. Officer options vest ratably over four
years following the grant and are charged to expense using
the straight-line method over the vesting period. Director
options vest immediately and are charged to expense as of
the date of grant.
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
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 expense in gen-
eral and administrative expenses.
Pursuant to the Plan, the Compensation Committee estab-
lished a Deferred Compensation Plan for Directors for the
benefit of the Company’s directors and their beneficiaries,
which replaced a previous Deferred Compensation and
Stock Plan for Directors. Annually, directors are given the
ability to make an election to defer all or part of their fees
and have the option to have their 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 a director
elects to their have fees paid in stock, fees earned during a
calendar quarter are aggregated and divided by the clos-
ing market price of the Company’s common stock on the
first trading day of the following quarter to determine the
number of shares to be credited to the director. During
the twelve months ended December 31, 2019, 6,822 shares
were credited to director’s deferred fee accounts and 7,058
shares were issued. As of December 31, 2019, the director’s
deferred fee accounts comprise 114,408 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 Annual
Meeting of Stockholders, and their issuance may not be de-
ferred.
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 exec-
utive officers, directors and other key personnel. The 2004
stock plan was subsequently amended by the Company’s
stockholders at the 2008 Annual Meeting, further amended
44
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COMNOTES TO CONSOLIDATED FINANCIAL STATEMENTS at the 2013 Annual Meeting, and further amended at the
2019 Annual Meeting (the “Amended 2004 Plan”). The
Amended 2004 Plan, which terminates in 2029, provides
for grants of options to purchase up to 3,400,000 shares
of common stock. 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 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.
Effective May 3, 2019, the Compensation Committee
granted options to purchase 260,000 shares (34,651 incen-
tive stock options and 225,349 nonqualified stock options)
to 23 Company officers and 11 Company Directors (the
“2019 options”), which expire on May 2, 2029. The officers’
2019 Options vest 25% per year over four years and are
subject to early expiration upon termination of employment.
The directors’ 2018 Options were immediately exercisable.
The exercise price of $55.71 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 2019 Options to be $1.9
million, of which $1.7 million and $226,600 were assigned
to the officer options and director options, respectively. Be-
cause the directors’ options vested immediately, the entire
$226,600 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.
The following table summarizes the assumptions used in
the valuation of the 2017, 2018, and 2019 option grants.
During the twelve months ended December 31, 2019, stock
option expense totaling $1.6 million was included in general
and administrative expense in the Consolidated Statements
of Operations. As of December 31, 2019, the estimated
future expense related to unvested stock options was
$2.6 million.
45
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COMNOTES TO CONSOLIDATED FINANCIAL STATEMENTS Grant date
May 5, 2017
Exercise price
Volatility
Expected life
(years)
Assumed yield
Risk-free rate
$
59.41
0.173
5.0
3.45 %
1.89 %
Directors
May 11, 2018
$
49.46
0.192
May 3, 2019
55.71
$
0.236
May 5, 2017
59.41
$
0.170
Officers
May 11, 2018
$
49.46
0.177
May 3, 2019
55.71
$
0.206
5.0
3.70 %
2.84 %
5.0
3.75 %
2.33 %
7.0
3.50 %
2.17 %
7.0
3.75 %
2.94 %
7.0
3.80 %
2.43 %
The table below summarizes the option activity for the years 2019, 2018, and 2017:
2019
2018
2017
Weighted
Average
Exercise
Price
Shares
$
1,114,169
260,000
(57,055)
(7,500)
52.40
55.71
44.53
56.07
Weighted
Average
Exercise
Price
$
52.80
49.46
42.98
54.78
Shares
913,320
245,000
(39,151)
(5,000)
$
Shares
833,630
232,500
(149,060)
(3,750)
1,309,614
53.38
1,114,169
52.40
913,320
Weighted
Average
Exercise
Price
49.92
59.41
46.97
53.73
52.80
763,614
$
52.43
600,919
$
50.93
430,945
$
48.94
Outstanding at
January 1
Granted
Exercised
Expired/
Forfeited
Outstanding
December 31
Exercisable at
December 31
The intrinsic value of options exercised in 2019, 2018, and
2017, was $0.6 million, $0.5 million and $2.2 million, re-
spectively. The intrinsic value of options outstanding and
exercisable at year end 2019 was $2.5 million and $2.0 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, 2019, the final trading day of calendar 2019, the clos-
ing price of $52.78 per share was used for the calculation
of aggregate intrinsic value of options outstanding and
exercisable at that date. The weighted average remaining
contractual life of the Company’s exercisable and outstand-
ing options at December 31, 2019 are 5.9 and 7.0 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
3.55% and 4.40%, would be approximately $957.4 million
and $927.0 million as of December 31, 2019 and 2018,
respectively, compared to the principal balance of $938.4
million and $910.2 million at December 31, 2019 and 2018,
respectively. A change in any of the significant inputs may
lead to a change in the Company’s fair value measurement
of its debt.
46
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COMNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Effective June 30, 2011, the Company determined that one
of its interest-rate swap arrangements was a highly effective
hedge of the cash flows under one of its variable-rate mort-
gage loans and designated the swap as a cash flow hedge
of that mortgage. The swap was carried at fair value with
changes in fair value recognized either in income or compre-
hensive income depending on the effectiveness of the swap.
The swap was terminated on November 21, 2019.
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.
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
The Company paid common stock distributions of $2.12 per
share in 2019, $2.08 per share in 2018, and $2.04 per share
in 2017, Series C preferred stock dividends of $1.80, $1.72,
and $1.72, respectively, per depositary share during each of
2019, 2018, and 2017, Series D preferred stock dividends
of $1.53 and $1.05, respectively, per depositary share in
2019 and 2018, and Series E preferred stock dividends of
$0.06 per depositary share in 2019. Of the common stock
dividends paid, $2.00 per share, $1.61 per share, and $1.70
per share, represented ordinary dividend income in 2019,
2018, and 2017, respectively, and $0.12 per share, $0.47
per share, and $0.34 per share represented return of capital
to the shareholders in 2019, 2018, and 2017, respectively.
All of the preferred stock dividends paid were considered
ordinary dividend income.
The following summarizes distributions paid during the years
ended December 31, 2019, 2018, and 2017, and includes
activity in the Plan as well as limited partnership units issued
from the reinvestment of unit distributions:
(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 2019
4th Quarter
3rd Quarter
2nd Quarter
1st Quarter
$ 3,531
2,953
2,953
2,953
$ 12,251
12,195
12,116
12,006
$ 4,173
4,166
4,155
4,148
104,558
105,753
99,804
120,347
$ 52.84
53.66
51.38
51.28
Total 2019
$ 12,390
$ 48,568
$ 16,642
430,462
Distributions during 2018
4th Quarter
3rd Quarter
2nd Quarter
1st Quarter
$ 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
Total 2018
$ 12,402
$ 46,306
$ 15,981
572,928
Distributions during 2017
4th Quarter
3rd Quarter
2nd Quarter
1st Quarter
$ 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
Total 2017
$ 12,375
$ 44,576
$ 15,268
266,011
13,747
13,406
20,041
13,742
60,936
13,867
13,107
42,422
38,037
107,433
15,596
16,021
40,623
39,111
111,351
$ 53.73
54.56
51.99
52.16
$ 50.20
52.60
47.83
53.03
$ 60.08
58.13
59.96
62.15
47
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COMNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In December 2019, the Board of Directors of the Com-
pany authorized a distribution of $0.53 per common share
payable in January 2020 to holders of record on January
17, 2020. As a result, $12.3 million was paid to common
shareholders on January 31, 2020. Also, $4.2 million was
paid to limited partnership unitholders on January 31, 2020
($0.53 per Operating Partnership unit). The Board of Di-
rectors authorized preferred stock dividends of (a) $0.3750
per Series E depositary share and (b) $0.3828 per Series D
depositary share to holders of record on January 2, 2020.
14. INTERIM RESULTS (UNAUDITED)
As a result, $2.8 million was paid to preferred shareholders
on January 15, 2020. These amounts are reflected as a re-
duction of stockholders’ equity in the case of common stock
and preferred stock dividends and noncontrolling interests
deductions in the case of limited partner distributions and
are included in dividends and distributions payable in the
accompanying consolidated financial statements.
The following summary presents the results of operations of the Company for the quarterly periods of calendar years 2019 and 2018.
(Dollars in thousands, except per share amounts)
2019
Net income attributable to Saul Centers, Inc.
Net income available to common stockholders
Net income available to common stockholders per diluted share
(Dollars in thousands, except per share amounts)
2018
Total revenue
Net Income
Total revenue
Net Income
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
$
59,750
$
58,141
$
57,052
$
56,582
17,077
13,447
10,494
0.46
16,750
13,232
10,279
0.45
15,328
12,226
9,016
0.39
15,041
12,818
6,464
0.27
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
$
56,109
$
56,081
$
56,910
$
58,119
14,946
12,587
6,856
0.31
15,902
12,543
9,590
0.43
16,702
13,155
10,202
0.45
15,509
12,269
9,316
0.41
Net income attributable to Saul Centers, Inc.
Net income available to common stockholders
Net income available to common stockholders per diluted share
48
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COMNOTES 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 2019 presentation.
(In thousands)
As of or for the year ended
December 31, 2019
Real estate rental operations:
Revenue
Expenses
Income from real estate
Interest expense, net 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
As of or for the year ended
December 31, 2018
Real estate rental operations:
Revenue
Expenses
Income from real estate
Interest expense, net 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
Shopping
Centers
Mixed-Use
Properties
Corporate
and Other
Consolidated
Totals
$
167,888
(36,119)
131,769
$
63,637
(21,814)
41,823
$
—
—
—
$
231,525
(57,933)
173,592
—
—
—
—
(41,834)
(20,793)
(41,834)
(20,793)
(29,112)
(17,221)
—
(46,333)
$
$
$
$
—
102,657
33,968
980,096
164,344
(34,643)
129,701
—
—
$
$
$
$
—
24,602
101,695
625,183
62,875
(20,935)
41,940
—
—
$
$
$
$
(436)
(63,063)
—
13,061
(436)
64,196
135,663
$
$
$ 1,618,340
—
—
$
227,219
(55,578)
—
(44,768)
(18,459)
171,641
(44,768)
(18,459)
(29,251)
(16,610)
—
(45,861)
—
509
100,959
13,485
971,321
$
$
$
—
—
25,330
115,165
537,500
$
$
$
(3)
—
(63,230)
—
18,668
$
$
$
(3)
509
63,059
128,650
$
$
$ 1,527,489
49
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COMNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
As of or for the year ended
December 31, 2017
Real estate rental operations:
Revenue
Expenses
Income from real estate
Interest expense, net 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
Shopping
Centers
Mixed-Use
Properties
Corporate
and Other
Consolidated
Totals
$
165,232
(34,054)
131,178
$
61,067
(20,632)
40,435
$
—
—
—
$
226,299
(54,686)
171,613
—
—
—
—
(47,145)
(18,176)
(47,145)
(18,176)
(29,977)
(15,717)
—
(45,694)
—
101,201
90,896
974,061
$
$
$
—
24,718
29,098
438,283
$
$
$
70
(65,251)
—
10,108
$
$
$
70
60,668
119,994
$
$
$ 1,422,452
16. SUBSEQUENT EVENTS
The Company has reviewed operating activities for the pe-
riod subsequent to December 31, 2019 and prior to the date
that financial statements are issued, February 27, 2020, and
determined there are no subsequent events that are required
to be disclosed.
50
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COMNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIVIDEND REINVESTMENT PLAN AND DISTRIBUTIONS
DIVIDEND REINVESTMENT PLAN
Saul Centers, Inc. offers a dividend reinvestment plan which
enables its shareholders to automatically invest some of or
all dividends in additional shares. The plan provides share-
holders with a convenient and cost-free way to increase
their investment in Saul Centers. Shares purchased under
the dividend reinvestment plan are issued at a 3% discount
from the average price of the stock on the dividend pay-
ment 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
ACQUISITION OF EQUITY SECURITIES
BY THE SAUL ORGANIZATION
Through participation in the Company’s Dividend Reinvest-
ment Plan, during the quarter ended December 31, 2019,
(a) B. Francis Saul II, the Company’s Chairman of the Board,
Chief Executive Officer, and President (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 wholly-owned subsidiaries of either B. F. Saul Company
or the Saul Trust, acquired an aggregate of 65,293 shares
of common stock and 13,747 limited partnership units at
an average price of $53.00 per share/unit, in respect of the
October 31, 2019 dividend distribution. Such limited part-
nership units were issued in reliance on Section 4(a)(2) of the
Securities Act of 1933.
No shares were acquired pursuant to a publicly announced
plan or program.
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 2019
and 2018. 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 fu-
ture 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
distributions, any future payments will be determined solely
by the Board of Directors and will depend on a number of
factors, including cash flow of the Company, its financial
condition and capital requirements, the annual distribution
amounts required to maintain its status as a REIT under
the Code, and such other factors as the Board of Directors
deems relevant. We are obligated to pay regular quarterly
distributions to holders of depositary shares, prior to distri-
butions on the common stock.
51
SAUL CENTERS, INC. 2019 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 2019 and 2018 as follows:
COMMON STOCK PRICES
Period
Share Price
October 1, 2019 – December 31, 2019
July 1, 2019 – September 30, 2019
April 1, 2019 – June 30, 2019
January 1, 2019– March 31, 2019
October 1, 2018 – December 31, 2018
July 1, 2018 – September 30, 2018
April 1, 2018 – June 30, 2018
January 1, 2018– March 31, 2018
High
$ 57.23
$ 56.86
$ 58.06
$ 58.11
$ 54.39
$ 60.00
$ 53.74
$ 61.86
Low
$ 50.09
$ 49.30
$ 52.09
$ 45.89
$ 45.71
$ 52.28
$ 47.50
$ 48.93
On February 20, 2020, the closing price was $48.37 per share.
The approximate number of holders of record of the common stock was 128 as of February 20, 2020.
Many of our shares of common stock are held by brokers and institutions on behalf of stockholders.
We are unable to estimate the total number of stockholders represented by these record holders.
52
SAUL CENTERS, INC. 2019 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 Financial Times Stock
Exchange Group National Association of Real Estate Investment Trust Equity Index (“FTSE 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, 2014.
COMPARISON OF CUMULATIVE TOTAL RETURN
200
$200
175
$175
d
e
t
s
e
v
n
150
I
$150
0
0
1
$
r
e
p
n
r
u
t
e
R
125
$125
l
a
t
o
T
100
$100
$75
75
Dec. 31, 2014
Dec. 31, 2015
Dec. 31, 2016
Dec. 31, 2017
Dec. 31, 2018
Dec. 31, 2019
Period Ended
INDEX
Saul Centers
S&P 500
Russell 2000
Dec. 31, 2014
Dec. 31, 2015
Dec. 31, 2016
Dec. 31, 2017
Dec. 31, 2018
Dec. 31, 2019
$100
$100
$100
$92.51
$124.16
$118.92
$94.56
$110.00
$101.38
$113.51
$138.29
$132.23
$173.34
$95.59
$115.95
$132.94
$118.30
$148.49
FTSE NAREIT Equity
$100
$103.20
$111.99
$117.84
$112.39
$141.61
53
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COM
SAUL CENTERS CORPORATE INFORMATION
DIRECTORS
EXECUTIVE OFFICERS
B. Francis Saul II
Chairman, Chief Executive Officer
and President
B. Francis Saul II
Chairman, Chief Executive Officer
and President
COUNSEL
Pillsbury Winthrop
Shaw Pittman LLP
Washington, DC 20036
J. Page Lansdale
President and Chief Operating
Officer, Emeritus
D. Todd Pearson
Executive Vice President,
Real Estate
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
Willoughby B. Laycock
Senior Vice President,
Residential
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
Christine N. Kearns
Executive Vice President,
Chief Legal and Administrative Officer
Scott V. Schneider
Executive Vice President,
Chief Financial Officer and
Treasurer
Christopher H. Netter
Executive Vice President,
Retail Leasing
John F. Collich
Senior Vice President,
Chief Acquisitions and
Development Officer
Steven N. Corey
Senior Vice President,
Office Leasing
Joel A. Friedman
Senior Vice President,
Chief Accounting Officer
Bettina Guevara
Senior Vice President,
General Counsel and Secretary
Donald A. Hachey
Senior Vice President,
Construction
Willoughby B. Laycock
Senior Vice President,
Residential
Amitha Prabhu
Senior Vice President,
Internal Audit
Charles W. Sherren, Jr.
Senior Vice President,
Management
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.PrD
Preferred Stock: BFS.PrE
TRANSFER AGENT
Continental Stock Transfer and
Trust Company
17 Battery Place
New York, NY 10004
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 2019, 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
54
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COM 2020
A N N U A L
MEETING
of Stockholders
The Annual Meeting of Stockholders will be
held at 11:00 a.m., local time, on April 24, 2020,
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.)
55
SAUL CENTERS, INC. 2019 ANNUAL REPORT | WWW.SAULCENTERS.COM 7501 Wisconsin Avenue, Suite 1500E
Bethesda, MD 20814-6522
Phone: (301) 986-6200
Website: www.saulcenters.com