United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For The Quarterly Period Ended March 31, 2012
Commission File Number 1-12254
SAUL CENTERS, INC.
(Exact name of registrant as specified in its charter)
Maryland | 52-1833074 | |
State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
7501 Wisconsin Avenue, Bethesda, Maryland 20814
(Address of principal executive office) (Zip Code)
Registrants telephone number, including area code (301) 986-6200
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. YES x NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of accelerated filer, large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ¨ | Accelerated filer | x | |||
Non-accelerated filer | ¨ | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x
Number of shares of common stock, par value $0.01 per share outstanding as of April 27, 2012: 19.5 million.
SAUL CENTERS, INC.
Table of Contents
-2-
PART I. | FINANCIAL INFORMATION |
Item 1. | Financial Statements |
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments necessary for the fair presentation of the financial position and results of operations of Saul Centers, Inc. for the interim periods have been included. All such adjustments are of a normal recurring nature. These consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements of Saul Centers, Inc. for the year ended December 31, 2011, which are included in its Annual Report on Form 10-K. The results of operations for interim periods are not necessarily indicative of results to be expected for the year.
-3-
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts) |
March 31, 2012 |
December 31, 2011 |
||||||
(Unaudited) | ||||||||
Assets |
||||||||
Real estate investments |
||||||||
Land |
$ | 324,183 | $ | 324,183 | ||||
Buildings and equipment |
1,094,078 | 1,092,533 | ||||||
Construction in progress |
1,263 | 1,129 | ||||||
|
|
|
|
|||||
1,419,524 | 1,417,845 | |||||||
Accumulated depreciation |
(333,518 | ) | (326,397 | ) | ||||
|
|
|
|
|||||
1,086,006 | 1,091,448 | |||||||
Cash and cash equivalents |
10,994 | 12,323 | ||||||
Accounts receivable and accrued income, net |
37,763 | 39,094 | ||||||
Deferred leasing costs, net |
25,611 | 25,876 | ||||||
Prepaid expenses, net |
3,257 | 3,868 | ||||||
Deferred debt costs, net |
6,719 | 7,090 | ||||||
Other assets |
15,126 | 12,870 | ||||||
|
|
|
|
|||||
Total assets |
$ | 1,185,476 | $ | 1,192,569 | ||||
|
|
|
|
|||||
Liabilities |
||||||||
Mortgage notes payable |
$ | 818,295 | $ | 823,871 | ||||
Revolving credit facility payable |
4,000 | 8,000 | ||||||
Dividends and distributions payable |
13,279 | 13,219 | ||||||
Accounts payable, accrued expenses and other liabilities |
23,544 | 22,992 | ||||||
Deferred income |
30,762 | 31,281 | ||||||
|
|
|
|
|||||
Total liabilities |
889,880 | 899,363 | ||||||
|
|
|
|
|||||
Stockholders equity |
||||||||
Preferred stock, 1,000,000 shares authorized: |
||||||||
Series A Cumulative Redeemable, 40,000 shares issued and outstanding |
100,000 | 100,000 | ||||||
Series B Cumulative Redeemable, 31,731 shares issued and outstanding |
79,328 | 79,328 | ||||||
Common stock, $0.01 par value, 30,000,000 shares authorized, 19,458,074 and 19,291,845 shares issued and outstanding, respectively |
195 | 193 | ||||||
Additional paid-in capital |
223,622 | 217,829 | ||||||
Accumulated deficit |
(147,585 | ) | (144,659 | ) | ||||
Accumulated other comprehensive loss |
(2,455 | ) | (2,863 | ) | ||||
|
|
|
|
|||||
Total Saul Centers, Inc. stockholders equity |
253,105 | 249,828 | ||||||
Noncontrolling interest |
42,491 | 43,378 | ||||||
|
|
|
|
|||||
Total stockholders equity |
295,596 | 293,206 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders equity |
$ | 1,185,476 | $ | 1,192,569 | ||||
|
|
|
|
The Notes to Financial Statements are an integral part of these statements.
-4-
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For The Three Months Ended March 31, |
||||||||
(Dollars in thousands, except per share amounts) |
2012 | 2011 | ||||||
Revenue |
||||||||
Base rent |
$ | 37,588 | $ | 32,697 | ||||
Expense recoveries |
7,709 | 7,426 | ||||||
Percentage rent |
406 | 375 | ||||||
Other |
1,401 | 1,235 | ||||||
|
|
|
|
|||||
Total revenue |
47,104 | 41,733 | ||||||
|
|
|
|
|||||
Operating expenses |
||||||||
Property operating expenses |
5,789 | 6,633 | ||||||
Provision for credit losses |
352 | 515 | ||||||
Real estate taxes |
5,844 | 4,482 | ||||||
Interest expense and amortization of deferred debt costs |
12,771 | 10,294 | ||||||
Depreciation and amortization of deferred leasing costs |
9,778 | 8,324 | ||||||
General and administrative |
3,247 | 3,166 | ||||||
|
|
|
|
|||||
Total operating expenses |
37,781 | 33,414 | ||||||
|
|
|
|
|||||
Operating income |
9,323 | 8,319 | ||||||
Change in fair value of derivatives |
(3 | ) | 87 | |||||
Acquisition related costs |
| (74 | ) | |||||
|
|
|
|
|||||
Net income |
9,320 | 8,332 | ||||||
Noncontrolling interest |
||||||||
Income attributable to noncontrolling interests |
(1,456 | ) | (1,023 | ) | ||||
|
|
|
|
|||||
Net income attributable to Saul Centers, Inc. |
7,864 | 7,309 | ||||||
Preferred dividends |
(3,785 | ) | (3,785 | ) | ||||
|
|
|
|
|||||
Net income available to common stockholders |
$ | 4,079 | $ | 3,524 | ||||
|
|
|
|
|||||
Per share net income available to common stockholders |
||||||||
Basic and diluted: |
$ | 0.21 | $ | 0.19 | ||||
|
|
|
|
|||||
Dividends declared per common share outstanding |
$ | 0.36 | $ | 0.36 | ||||
|
|
|
|
The Notes to Financial Statements are an integral part of these statements.
-5-
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
For The Three Months Ended March 31, |
||||||||
(Dollars in thousands) |
2012 | 2011 | ||||||
Net income |
$ | 9,320 | $ | 8,332 | ||||
Other comprehensive income |
||||||||
Change in unrealized gain on cash flow hedge |
554 | 569 | ||||||
|
|
|
|
|||||
Total comprehensive income |
9,874 | 8,901 | ||||||
Comprehensive income attributable to noncontrolling interests |
(1,602 | ) | (1,152 | ) | ||||
|
|
|
|
|||||
Total comprehensive income attributable to Saul Centers, Inc. |
8,272 | 7,749 | ||||||
Preferred dividends |
(3,785 | ) | (3,785 | ) | ||||
|
|
|
|
|||||
Total comprehensive income available to common stockholders |
$ | 4,487 | $ | 3,964 | ||||
|
|
|
|
The Notes to Financial Statements are an integral part of these statements.
-6-
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(Unaudited)
(Dollars in thousands, except per share amounts) |
Preferred Stock |
Common Stock |
Additional Paid-in Capital |
Accumulated Deficit |
Accumulated Other Comprehensive (Loss) |
Total Saul Centers, Inc. |
Noncontrolling Interest |
Total | ||||||||||||||||||||||||
Balance, December 31, 2011 |
$ | 179,328 | $ | 193 | $ | 217,829 | $ | (144,659 | ) | $ | (2,863 | ) | $ | 249,828 | $ | 43,378 | $ | 293,206 | ||||||||||||||
Issuance of 166,229 shares of common stock: |
||||||||||||||||||||||||||||||||
163,429 shares pursuant to dividend reinvestment plan |
| 1 | 5,627 | | | 5,628 | | 5,628 | ||||||||||||||||||||||||
2,800 shares due to exercise of employee stock options and issuance of directors deferred stock |
| 1 | 166 | | | 167 | | 167 | ||||||||||||||||||||||||
Net income |
| | | 7,864 | | 7,864 | 1,456 | 9,320 | ||||||||||||||||||||||||
Unrealized gain on cash flow hedge |
| | | | 408 | 408 | 146 | 554 | ||||||||||||||||||||||||
Distributions payable preferred stock: |
||||||||||||||||||||||||||||||||
Series A, $50.00 per share |
| | | (2,000 | ) | | (2,000 | ) | | (2,000 | ) | |||||||||||||||||||||
Series B, $56.25 per share |
| | | (1,785 | ) | | (1,785 | ) | | (1,785 | ) | |||||||||||||||||||||
Distributions payable common stock ($0.36/share) and distributions payable partnership units ($0.36/unit) |
| | | (7,005 | ) | | (7,005 | ) | (2,489 | ) | (9,494 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Balance, March 31, 2012 |
$ | 179,328 | $ | 195 | $ | 223,622 | $ | (147,585 | ) | $ | (2,455 | ) | $ | 253,105 | $ | 42,491 | $ | 295,596 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Notes to Financial Statements are an integral part of these statements.
-7-
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For The Three Months Ended March 31, |
||||||||
(Dollars in thousands) |
2012 | 2011 | ||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 9,320 | $ | 8,332 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Change in fair value of derivatives |
3 | (87 | ) | |||||
Depreciation and amortization of deferred leasing costs |
9,778 | 8,324 | ||||||
Amortization of deferred debt costs |
406 | 372 | ||||||
Non cash compensation costs of stock grants and options |
135 | 139 | ||||||
Provision for credit losses |
352 | 515 | ||||||
(Increase) decrease in accounts receivable and accrued income |
979 | (869 | ) | |||||
Increase in deferred leasing costs |
(1,166 | ) | (1,549 | ) | ||||
Decrease in prepaid expenses |
611 | 330 | ||||||
Increase in other assets |
(2,256 | ) | (4,652 | ) | ||||
Increase in accounts payable, accrued expenses and other liabilities |
2,098 | 1,129 | ||||||
Increase (decrease) in deferred income |
(519 | ) | 10 | |||||
|
|
|
|
|||||
Net cash provided by operating activities |
19,741 | 11,994 | ||||||
|
|
|
|
|||||
Cash flows from investing activities: |
||||||||
Acquisitions of real estate investments |
| (1,600 | ) | |||||
Additions to real estate investments |
(2,777 | ) | (2,440 | ) | ||||
Additions to development and redevelopment projects |
(1,123 | ) | (10,701 | ) | ||||
|
|
|
|
|||||
Net cash used in investing activities |
(3,900 | ) | (14,741 | ) | ||||
|
|
|
|
|||||
Cash flows from financing activities: |
||||||||
Proceeds from mortgage notes payable |
| 125,000 | ||||||
Repayments on mortgage notes payable |
(5,576 | ) | (4,015 | ) | ||||
Proceeds from construction loans payable |
| 13,410 | ||||||
Repayments on construction loans payable |
| (104,243 | ) | |||||
Repayments on revolving credit facility |
(4,000 | ) | | |||||
Additions to deferred debt costs |
(35 | ) | (391 | ) | ||||
Proceeds from the issuance of: |
||||||||
Common stock |
5,660 | 5,552 | ||||||
Distributions to: |
||||||||
Series A preferred stockholders |
(2,000 | ) | (2,000 | ) | ||||
Series B preferred stockholders |
(1,785 | ) | (1,785 | ) | ||||
Common stockholders |
(6,945 | ) | (6,693 | ) | ||||
Noncontrolling interest |
(2,489 | ) | (1,950 | ) | ||||
|
|
|
|
|||||
Net cash provided by (used in) financing activities |
(17,170 | ) | 22,885 | |||||
|
|
|
|
|||||
Net increase (decrease) in cash and cash equivalents |
(1,329 | ) | 20,138 | |||||
Cash and cash equivalents, beginning of period |
12,323 | 12,968 | ||||||
|
|
|
|
|||||
Cash and cash equivalents, end of period |
$ | 10,994 | $ | 33,106 | ||||
|
|
|
|
The Notes to Financial Statements are an integral part of these statements.
-8-
Notes to Consolidated Financial Statements (Unaudited)
1. | Organization, Formation and Structure |
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). A REIT is required to annually distribute at least 90% of its REIT taxable income (excluding net capital gains) to its stockholders and meet certain organizational and other requirements. Saul Centers has made and intends to continue to make regular quarterly distributions to its stockholders. Saul Centers, together with its wholly owned subsidiaries and the limited partnerships of which Saul Centers or one of its subsidiaries is the sole general partner, are referred to collectively as the Company. B. Francis Saul II serves as Chairman of the Board of Directors and Chief Executive Officer of Saul Centers.
Saul Centers was formed to continue and expand the shopping center business previously owned and conducted by the B.F. Saul Real Estate Investment Trust, the B.F. Saul Company and certain other affiliated entities, each of which is currently 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 Partnership, the Partnerships), shopping center and mixed-use properties, and the management functions related to the transferred properties. Since its formation, the Company has developed and purchased additional properties.
The following table lists the properties acquired and/or developed by the Company since December 31, 2010.
Name of Property |
Location |
Type |
Date of Development | |||
Acquisitions | ||||||
4469 Connecticut Ave |
Washington, DC | Mixed-Use | 2011 | |||
Kentlands Square II |
Gaithersburg, MD | Shopping Center | 2011 | |||
Severna Park MarketPlace |
Severna Park, MD | Shopping Center | 2011 | |||
Cranberry Square |
Westminster, MD | Shopping Center | 2011 | |||
Developments | ||||||
Clarendon Center North |
Arlington, VA | Mixed-Use | 2011 | |||
Clarendon Center South |
Arlington, VA | Mixed-Use | 2011 |
As of March 31, 2012, the Companys properties (the Current Portfolio Properties) consisted of 51 operating shopping center properties (the Shopping Centers), seven mixed-use properties which are comprised of office, retail and multi-family residential uses (the Mixed-Use Properties) and two (non-operating) development properties.
-9-
Notes to Consolidated Financial Statements (Unaudited)
2. | Summary of Significant Accounting Policies |
Nature of Operations
The Company, which conducts all of its activities through its subsidiaries, the Operating Partnership and Subsidiary Partnerships, engages in the ownership, operation, management, leasing, acquisition, renovation, expansion, development and financing of community and neighborhood shopping centers and mixed-use properties, primarily in the Washington, DC/Baltimore metropolitan area.
Because the properties are located primarily in the Washington, DC/Baltimore metropolitan area, the Company is subject to a concentration of credit risk related to these properties. A majority of the Shopping Centers are anchored by several major tenants. As of March 31, 2012, 35 of the Shopping Centers were anchored by a grocery store and offer primarily day-to-day necessities and services. Two retail tenants, Giant Food (5.0%), a tenant at ten Shopping Centers and Safeway (2.9%), a tenant at eight Shopping Centers, individually accounted for 2.5% or more of the Companys total revenue for the three months ended March 31, 2012.
Principles of Consolidation
The accompanying consolidated financial statements of the Company include the accounts of Saul Centers and its subsidiaries, including the Operating Partnership and Subsidiary Partnerships, which are majority owned by Saul Centers. All significant intercompany balances and transactions have been eliminated in consolidation.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments necessary for the fair presentation of the financial position and results of operations of Saul Centers, Inc. for the interim periods have been included. All such adjustments are of a normal recurring nature. These consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements of Saul Centers, Inc. for the year ended December 31, 2011, which are included in its Annual Report on Form 10-K. The results of operations for interim periods are not necessarily indicative of results to be expected for the year.
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 period. Actual results could differ from those estimates.
-10-
Notes to Consolidated Financial Statements (Unaudited)
Accounts Receivable, Accrued Income and Allowance for Doubtful Accounts
Accounts receivable primarily represent amounts currently due from tenants in accordance with the terms of the respective leases. Receivables are reviewed monthly and reserves are established with a charge to current period operations when, in the opinion of management, collection of the receivable is doubtful. Accounts receivable in the accompanying financial statements are shown net of an allowance for doubtful accounts of approximately $841,000 and $671,000 at March 31, 2012 and December 31, 2011, respectively.
In addition to rents due currently, accounts receivable includes approximately $32.1 million and $31.0 million, at March 31, 2012 and December 31, 2011, respectively, net of allowance for doubtful accounts totaling $189,000 and $63,000 respectively, representing minimum rental income accrued on a straight-line basis to be paid by tenants over the remaining term of their respective leases.
Assets Held for Sale
The Company considers properties to be assets held for sale when all of the following criteria are met:
| management commits to a plan to sell a property; |
| it is unlikely that the disposal plan will be significantly modified or discontinued; |
| the property is available for immediate sale in its present condition; |
| actions required to complete the sale of the property have been initiated; |
| sale of the property is probable and the Company expects the completed sale will occur within one year; and |
| the property is actively being marketed for sale at a price that is reasonable given its current market value. |
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 the Company ceases depreciation. As of March 31, 2012, no properties were classified as held for sale.
Cash and Cash Equivalents
Cash and cash equivalents include short-term investments. Short-term investments include money market accounts and other investments which generally mature within three months, measured from the acquisition date, and/or are readily convertible to cash.
Construction In Progress
Construction in progress includes preconstruction and development costs of active projects. Preconstruction costs include legal, zoning and permitting costs and other project 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. Construction in progress totaled $1.3 million and $1.1 million as of March 31, 2012 and December 31, 2011, respectively.
-11-
Notes to Consolidated Financial Statements (Unaudited)
Deferred Debt Costs
Deferred debt costs consist of fees and costs incurred to obtain long-term financing, construction financing and the revolving line of credit. These fees and costs are being amortized on a straight-line basis over the terms of the respective loans or agreements, which approximates the effective interest method. Deferred debt costs totaled $6.7 million and $7.1 million, net of accumulated amortization of $7.3 million and $6.9 million, at March 31, 2012 and December 31, 2011, respectively.
Deferred Income
Deferred income consists of payments received from tenants prior to the time they are earned and recognized by the Company as revenue, including tenant prepayment of rent for future periods, real estate taxes when the taxing jurisdiction has a fiscal year 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.
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. Leasing related activities include evaluating the prospective tenants financial condition, evaluating and recording guarantees, collateral and other security arrangements, negotiating lease terms, preparing lease documents and closing the transaction. Unamortized deferred costs are charged to expense if the applicable lease is terminated prior to expiration of the initial lease term. Deferred leasing costs are amortized over the term of the lease or remaining term of acquired leases. Collectively, deferred leasing costs totaled $25.6 million and $25.9 million, net of accumulated amortization of $14.9 million and $14.7 million, as of March 31, 2012 and December 31, 2011, respectively. Amortization expense, included in depreciation and amortization in the consolidated statements of operations, totaled $1.4 million and $1.1 million for the three months ended March 31, 2012 and 2011, respectively.
Derivative Financial Instruments
The Company may, when appropriate, employ derivative instruments, such as interest-rate swaps, to mitigate the risk of interest rate fluctuations. The Company does not enter into derivative or other financial instruments for trading or speculative purposes. Derivative financial instruments are carried at fair value as either assets or liabilities on the consolidated balance sheets. For those derivative instruments that qualify and are designated as hedging instruments, the Company designates the hedging instrument, based upon the exposure being hedged, as a fair value hedge or a cash flow hedge. For derivative instruments that do not meet the criteria for hedge accounting, changes in fair value are immediately recognized in earnings. For those derivative instruments that qualify for hedge accounting, the effective portion of the gain or loss on the hedge instruments is reported as a component of accumulated other comprehensive income (loss) and recognized in earnings within the same line item associated with the forecasted transaction in the same period or periods during which the hedged transaction affects earnings. Any ineffective portion of a derivatives change in fair value is immediately recognized in earnings.
-12-
Notes to Consolidated Financial Statements (Unaudited)
Derivative financial instruments expose us to credit risk in the event of non-performance by the counterparties under the terms of the derivative instrument. The Company minimizes its credit risk on these transactions by dealing with major, creditworthy financial institutions as determined by management, and therefore, it believes that the likelihood of realizing losses from counterparty non-performance is remote.
Income Taxes
The Company made an election to be treated, and intends to continue operating so as to qualify, as a REIT under the Code, commencing with its taxable year ended December 31, 1993. A REIT generally will not be subject to federal income taxation, provided that distributions to its stockholders equal or exceed its REIT taxable income and complies with certain other requirements. Therefore, no provision has been made for federal income taxes in the accompanying consolidated financial statements.
Legal Contingencies
The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. These matters are generally covered by insurance. Once it has been determined that an uninsured loss is probable to occur and the amount of the loss can be reasonably estimated, the estimated amount of the loss is recorded in the financial statements.
Real Estate Investment Properties
The Company purchases real estate investment properties from time to time and allocates the purchase price to various components, such as land, buildings, and intangibles related to in-place leases and customer relationships, based on the fair value of each component. The fair value of buildings is determined as if the buildings were vacant upon acquisition and subsequently leased at market rental rates. As such, the determination of fair value considers the present value of all cash flows expected to be generated by the property including an initial lease up period. The Company determines the fair value of above and below market intangibles associated with in-place leases by assessing the net effective rent and remaining term of the lease relative to market terms for similar leases at acquisition taking into consideration the remaining contractual lease period, renewal periods, and the likelihood of the tenant exercising its renewal options. The fair value of a below market lease component is recorded as deferred income and accreted as additional revenue over the remaining contractual lease period and any renewal option periods included in the valuation analysis. The fair value of above market lease intangibles is recorded as a deferred asset and is amortized as a reduction of revenue over the remaining contractual lease term. The Company determines the fair value of at-market in-place leases considering the cost of acquiring similar leases, the foregone rents associated with the lease-up period and carrying costs associated with the lease-up period. Intangible assets associated with at-market in-place leases are amortized as additional expense over the remaining contractual lease term. To the extent customer relationship intangibles are present in an acquisition, the fair values of the intangibles are amortized over the lives of the customer relationships. The Company has never recorded a customer relationship intangible asset. The Company expenses acquisition-related costs as they are incurred.
-13-
Notes to Consolidated Financial Statements (Unaudited)
If there is an event or change in circumstance that indicates a potential impairment in the value of a real estate investment property, the Company prepares an impairment 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 such carrying value is greater than the undiscounted projected cash flows, the Company would recognize an impairment loss equivalent to an amount required to adjust the carrying amount to its then estimated fair value. The 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 managements projections, the valuation could be negatively or positively affected. The Company did not recognize an impairment loss on any of its real estate during the three months ended March 31, 2012 and 2011.
Interest, real estate taxes, development-related salary costs and other carrying costs are capitalized on projects under development and construction. Once construction is substantially completed and the assets are placed in service, their rental income, real estate tax expense, property operating expenses (consisting of payroll, repairs and maintenance, utilities, insurance and other property related expenses) and depreciation are included in current operations. Property operating expenses are charged to operations as incurred. No interest was capitalized during the three months ended March 31, 2012. Interest expense capitalized totaled $672,000, for the three months ended March 31, 2011. Commercial development projects are considered substantially complete and available for occupancy upon completion of tenant improvements, but no later than one year from the cessation of major construction activity. Multi-family residential development projects are considered substantially complete and available for occupancy upon receipt of the certificate of occupancy from the appropriate licensing authority. Substantially completed portions of a project are accounted for as separate projects.
Depreciation is calculated using the straight-line method and estimated useful lives of 35 to 50 years for base buildings and up to 20 years for certain other improvements that extend the useful lives. Leasehold improvements are capitalized when certain criteria are met, including when the Company supervises construction and will own the improvements. Tenant improvements are amortized, over the shorter of the lives of the related leases or the useful life of the improvements, using the straight-line method. The depreciation component included in depreciation and amortization expense in the consolidated statements of operations totaled $8.3 million and $7.2 million for the three months ended March 31, 2012 and 2011, respectively. Repairs and maintenance expense, included in property operating expenses, for the three months ended March 31, 2012 and 2011, was $2.1 million and $3.0 million respectively.
Revenue Recognition
Rental and interest income are accrued as earned except when doubt exists as to collectability, in which case the accrual is discontinued. Recognition of rental income commences when control of the space has been given to the tenant. When rental payments due under leases vary from a straight-line basis because of free rent periods or scheduled rent increases, income is recognized on a straight-line basis. Expense recoveries represent a portion
-14-
Notes to Consolidated Financial Statements (Unaudited)
of property operating expenses billed to tenants, including common area maintenance, real estate taxes and other recoverable costs and are recognized in the period when the expenses are incurred. Rental income based on a tenants revenue (percentage rent) is accrued when a tenant reports sales that exceed a specified breakpoint, pursuant to the terms of their respective leases.
Stock-based Employee Compensation, Stock Plan and Deferred Compensation Plan for Directors
The Company uses the fair value method to value and account for employee stock options. The fair value of options granted is determined at the time of each award using the Black-Scholes model, a widely used method for valuing stock based employee compensation, and the following assumptions: (1) Expected Volatility determined using the most recent trading history of the Companys 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 Companys current and historic dividend yield rates, the Companys yield in relation to other retail REITs and the Companys market yield at the grant date; and (4) a Risk-free Interest Rate based upon the market yields of US Treasury obligations with maturities corresponding to the average expected term of the options at the grant date. The Company amortizes the value of options granted ratably over the vesting period and includes the amounts as compensation in general and administrative expenses.
The Company has a stock plan, which was originally approved in 2004 and amended in 2008 and which expires in 2018, for the purpose of attracting and retaining executive officers, directors and other key personnel (the Stock Plan). Pursuant to the Stock Plan, the Compensation Committee established a Deferred Compensation Plan for Directors for the benefit of its directors and their beneficiaries, which replaced a previous Deferred Compensation and Stock Plan for Directors. A director may make an annual election to defer all or part of his or her directors fees and has the option to have the fees paid in cash, in shares of common stock or in a combination of cash and shares of common stock upon termination from the Board. If the director elects to have fees paid in stock, fees earned during a calendar quarter are aggregated and divided by the common stocks closing market price on the first trading day of the following quarter to determine the number of shares to be allocated to the director. As of March 31, 2012, 233,000 shares had been credited to the directors deferred fee accounts.
The Compensation Committee has also approved an annual award of shares of the Companys common stock as additional compensation to each director serving on the Board of Directors as of the record date for the Annual Meeting of Stockholders. The shares are awarded as of each Annual Meeting of Shareholders, and their issuance may not be deferred. Each director was issued 200 shares at the 2011 Annual Meeting of Shareholders. The shares were valued at the closing stock price on the date the shares were awarded and included in general and administrative expenses.
Noncontrolling Interest
Saul Centers is the sole general partner of the Operating Partnership, owning a 73.8% common interest as of March 31, 2012. Noncontrolling interest in the Operating Partnership is comprised of limited partnership units owned by The Saul Organization. Noncontrolling interest
-15-
Notes to Consolidated Financial Statements (Unaudited)
as reflected on the accompanying consolidated balance sheets is increased for earnings allocated to limited partnership interests and distributions reinvested in additional units, and is decreased for limited partner distributions. Noncontrolling interest as reflected on the consolidated statements of operations represent earnings allocated to limited partnership interests held by the Saul Organization.
Per Share Data
Per share data for net income (basic and diluted) is computed using weighted average shares of common stock. Convertible limited partnership units and employee stock options are the Companys potentially dilutive securities. For all periods presented, the convertible limited partnership units are non-dilutive. Certain options are dilutive because the average share price of the Companys common stock exceeded the exercise prices. The treasury stock method was used to measure the effect of the dilution. As of March 31, 2012, the stock options issued in 2007, 2008 and 2011 are anti-dilutive and are therefore excluded from this measurement.
Basic and Diluted Shares Outstanding |
||||||||
(In thousands) | Three months ended March 31, | |||||||
2012 | 2011 | |||||||
Weighted average common shares outstanding-Basic |
19,403 | 18,659 | ||||||
Effect of dilutive options |
46 | 95 | ||||||
|
|
|
|
|||||
Weighted average common shares outstanding-Diluted |
19,449 | 18,754 | ||||||
|
|
|
|
Reclassifications
Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation. The reclassifications have no impact on operating results previously reported.
3. | Real Estate Acquired or Developed |
4469 Connecticut Avenue
In January 2011, the Company purchased 4469 Connecticut Avenue for $1.6 million, a one retail space property, currently unleased, located adjacent to Van Ness Square in northwest Washington, DC and incurred acquisition costs of $74,000.
Kentlands Square II
In September 2011, the Company purchased for $74.5 million Kentlands Square II, a retail property located adjacent to the Companys Kentlands Square I and Kentlands Place shopping centers in Gaithersburg, Maryland, and incurred acquisition costs of $1.1 million.
Severna Park MarketPlace
In September 2011, the Company purchased for $61.0 million Severna Park MarketPlace, a retail property located in Severna Park, Maryland, and incurred acquisition costs of $0.8 million.
-16-
Notes to Consolidated Financial Statements (Unaudited)
Cranberry Square
In September 2011, the Company purchased for $33.0 million Cranberry Square, a retail property located in Westminster, Maryland, and incurred acquisition costs of $0.5 million.
4. | Noncontrolling Interest - Holders of Convertible Limited Partnership Units in the Operating Partnership |
The Saul Organization holds a 26.2% limited partnership interest in the Operating Partnership represented by approximately 6.9 million convertible limited partnership units as of March 31, 2012. These units are convertible into shares of Saul Centers common stock, at the option of the unit holder, on a one-for-one basis provided that, in accordance with the Saul Centers, Inc. Articles of Incorporation, the rights may not be exercised at any time that The Saul Organization beneficially owns, directly or indirectly, in the aggregate more than 39.9% of the value of the outstanding common stock and preferred stock of Saul Centers (the Equity Securities). As of March 31, 2012, 2.7 million units were convertible into shares of Saul Centers common stock.
The impact of The Saul Organizations approximately 26.2% limited partnership interest in the Operating Partnership is reflected as Noncontrolling Interest in the accompanying consolidated financial statements. Fully converted partnership units and diluted weighted average shares outstanding for the quarters ended March 31, 2012 and 2011, were approximately 26.4 million and 24.2 million, respectively.
5. | Mortgage Notes Payable, Revolving Credit Facility, Interest and Amortization of Deferred Debt Costs |
The Companys outstanding debt totaled approximately $822.3 million at March 31, 2012, of which approximately $803.2 million was fixed-rate debt and approximately $19.1 million was variable rate debt.
At March 31, 2012, the Company had a $150 million unsecured revolving credit facility, which can be used for working capital, property acquisitions, development projects or letters of credit. The revolving credit facility matures on June 30, 2012, and may be extended by the Company for one additional year subject to the Companys satisfaction of certain conditions. Saul Centers and certain consolidated subsidiaries of the Operating Partnership have guaranteed the payment obligations of the Operating Partnership under the revolving credit facility. Letters of credit may be issued under the revolving credit facility. On March 31, 2012, approximately $145.8 million was available under the line and approximately $177,000 was committed for letters of credit. Interest rate pricing under the facility is primarily determined by operating income from the Companys existing unencumbered properties and, to a lesser extent, certain leverage tests. As of March 31, 2012, operating income from the unencumbered properties determined the interest rate for up to $103.0 million of the lines available borrowings, with interest expense to be calculated based upon the 1, 2, 3 or 6 month LIBOR plus a spread of 3.65% to 3.90%. The interest rate on the remaining $47.0 million of the lines availability is determined based upon the Companys consolidated operating income after debt service. On this portion of the facility, interest accrues at a rate of LIBOR plus a spread of 4.45% to 5.25%, determined by certain leverage tests. The Company may elect to use the 1, 2, 3 or 6 month LIBOR, but in no event shall LIBOR be less than 1.5%.
-17-
Notes to Consolidated Financial Statements (Unaudited)
Saul Centers is a guarantor of the revolving credit facility, of which the Operating Partnership is the borrower. Saul Centers is also the guarantor of 50% of the Northrock bank term loan (approximately $7.5 million of the $15.1 million outstanding at March 31, 2012). The fixed-rate notes payable are all non-recourse debt except for $3.9 million of the Great Falls Center mortgage, 25% of the Metro Pike Center loan (approximately $4.0 million of the $16.0 million outstanding at March 31, 2012) and $27.6 million of the Clarendon Center mortgage, which will be eliminated upon the achievement of certain leasing and debt service covenants which are guaranteed by Saul Centers.
At December 31, 2011, the Companys outstanding debt totaled approximately $831.9 million, of which $808.8 million was fixed rate debt and $23.1 million was variable rate debt, including $8.0 million outstanding on the Companys $150,000,000 unsecured revolving credit facility.
At March 31, 2012, the scheduled maturities of debt, including scheduled principal amortization, for years ending December 31, were as follows:
(In thousands) | Balloon Payments |
Scheduled Principal Amortization |
Total | |||||||||
April 1 through December 31, 2012 |
$ | 65,960 | (a) | $ | 16,180 | $ | 82,140 | |||||
2013 |
70,131 | 17,781 | 87,912 | |||||||||
2014 |
13,218 | 17,988 | 31,206 | |||||||||
2015 |
15,077 | 18,420 | 33,497 | |||||||||
2016 |
| 19,166 | 19,166 | |||||||||
2017 |
| 20,306 | 20,306 | |||||||||
Thereafter |
423,529 | 124,539 | 548,068 | |||||||||
|
|
|
|
|
|
|||||||
$ | 587,915 | $ | 234,380 | $ | 822,295 | |||||||
|
|
|
|
|
|
(a) | Includes $4.0 million outstanding under the revolving credit facility. |
Interest expense and amortization of deferred debt costs for the three months ended March 31, 2012 and 2011, were as follows:
(Dollars in thousands) | Three months ended March 31, | |||||||
2012 | 2011 | |||||||
Interest incurred |
$ | 12,365 | $ | 10,594 | ||||
Amortization of deferred debt costs |
406 | 372 | ||||||
Capitalized interest |
| (672 | ) | |||||
|
|
|
|
|||||
$ | 12,771 | $ | 10,294 | |||||
|
|
|
|
6. | Stockholders Equity and Noncontrolling Interest |
The consolidated statements of operations for the three months ended March 31, 2012 and 2011 reflect noncontrolling interest of $1.5 million and $1.0 million, respectively, representing The Saul Organizations share of net income for each period.
-18-
Notes to Consolidated Financial Statements (Unaudited)
The Company has outstanding 4,000,000 depositary shares, each representing 1/100th of a share of 8% Series A Cumulative Redeemable Preferred Stock. The depositary shares are redeemable, in whole or in part at the Companys option, from time to time, at $25.00 per share. The depositary shares pay an annual dividend of $2.00 per share, equivalent to 8% of the $25.00 per share liquidation preference. The Series A preferred stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and is not convertible into any other securities of the Company. Investors in the depositary shares generally have no voting rights, but will have limited voting rights if the Company fails to pay dividends for six or more quarters (whether or not declared or consecutive) and in certain other events.
The Company has outstanding 3,173,115 depositary shares, each representing 1/100th of a share of 9% Series B Cumulative Redeemable Preferred Stock. The depositary shares may be redeemed at the Companys option, on or after March 15, 2013, in whole or in part, at $25.00 per share. The depositary shares pay an annual dividend of $2.25 per share, equivalent to 9% of the $25.00 per share liquidation preference. The Series B preferred stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and is not convertible into any other securities of the Company. Investors in the 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.
7. | Related Party Transactions |
The Chairman and Chief Executive Officer, the President, the Senior Vice President- General Counsel and the Senior Vice President-Chief Accounting Officer of the Company are also officers of various members of The Saul Organization and their management time is shared with The Saul Organization. Their annual 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 agreement (described below).
The Company participates in a multiemployer 401K plan with entities in The Saul Organization which covers those full-time employees who meet the requirements as specified in the plan. Company contributions, which are included in general and administrative expense or property operating expenses in the consolidated statements of operations, at the discretionary amount of up to six percent of the employees cash compensation, subject to certain limits, were $86,000 and $74,000 for the three months ended March 31, 2012 and 2011, respectively. All amounts deferred by employees and the Company are fully vested.
The Company also participates in a multiemployer nonqualified deferred compensation plan with entities in The Saul Organization which covers those full-time employees who meet the requirements as specified in the plan. According to the plan, which can be modified or discontinued at any time, participating employees defer 2% of their compensation in excess of a specified amount. For the three months ended March 31, 2012 and 2011, the Company contributed $54,000 and $54,000, respectively, which is three times the amount deferred by employees and included in general and administrative expense. All amounts deferred by employees and the Company are fully vested. The cumulative unfunded liability under this plan was $2.0 million and $1.9 million, at March 31, 2012 and December 31, 2011, respectively, and is included in accounts payable, accrued expenses and other liabilities in the consolidated balance sheets.
-19-
Notes to Consolidated Financial Statements (Unaudited)
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. The terms of the Agreement and the payments made thereunder are deemed reasonable by management and are reviewed annually by the Audit Committee of the Board of Directors, which consists entirely of independent directors. Billings by The Saul Organization for the Companys share of these ancillary costs and expenses for the three months ended March 31, 2012 and 2011, which included rental expense for the Companys headquarters lease, totaled approximately $1.5 million and $1.5 million, respectively. The amounts are expensed as incurred and are primarily reported as general and administrative expenses in the consolidated financial statements. As of March 31, 2012 and December 31, 2011, accounts payable, accrued expenses and other liabilities included approximately $411,000 and $560,000, respectively, representing amounts due to The Saul Organization for the Companys share of these ancillary costs and expenses.
The Companys corporate headquarters space is leased by a member of The Saul Organization. The lease commenced in March 2002, was recently extended for five years through March 2017, and provides for base rent increases of 3% per year, with payment of a pro-rata share of operating expenses over a base year amount. The Agreement requires each party to pay an allocation of total rental payments based on a percentage proportionate to the number of employees employed by each party. The Companys rent expense was $250,000 for each of the three months ended March 31, 2012 and 2011, and is included in general and administrative expense.
The B. F. Saul Insurance Agency of Maryland, Inc., a subsidiary of the B. F. Saul Company and a member of The Saul Organization, is a general insurance agency that receives commissions and fees in connection with the Companys insurance program. Such commissions and fees amounted to $65,000 and $58,000 for the three months ended March 31, 2012 and 2011, respectively.
8. | Stock Option Plans |
The Company has established two stock incentive plans, the 1993 plan and the 2004 plan (together, the Plans). Under the Plans, 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 expensed straight-line over the vesting period. Director options vest immediately and are expensed as of the date of grant.
-20-
Notes to Consolidated Financial Statements (Unaudited)
The following table summarizes the amount and activity of each grant, the total value and variables used in the computation and the amount expensed and included in general and administrative expense in the Consolidated Statements of Operations for the three months ended March 31, 2012:
Stock options issued
Directors | ||||||||||||||||||||||||||||||||||||||||
Grant date | 04/26/2004 | 05/06/2005 | 05/01/2006 | 04/27/2007 | 04/25/2008 | 04/24/2009 | 05/07/2010 | 05/13/2011 | Subtotals | |||||||||||||||||||||||||||||||
Total grant |
30,000 | 30,000 | 30,000 | 30,000 | 30,000 | 32,500 | 32,500 | 32,500 | 247,500 | |||||||||||||||||||||||||||||||
Vested |
30,000 | 30,000 | 30,000 | 30,000 | 30,000 | 32,500 | 32,500 | 32,500 | 247,500 | |||||||||||||||||||||||||||||||
Exercised |
8,700 | 5,000 | | | | 5,000 | | | 18,700 | |||||||||||||||||||||||||||||||
Forfeited |
| | 2,500 | 2,500 | 2,500 | | 2,500 | 2,500 | 12,500 | |||||||||||||||||||||||||||||||
Exercisable at March 31, 2012 |
21,300 | 25,000 | 27,500 | 27,500 | 27,500 | 27,500 | 30,000 | 30,000 | 216,300 | |||||||||||||||||||||||||||||||
Remaining unexercised |
21,300 | 25,000 | 27,500 | 27,500 | 27,500 | 27,500 | 30,000 | 30,000 | 216,300 | |||||||||||||||||||||||||||||||
Exercise price |
$ | 25.78 | $ | 33.22 | $ | 40.35 | $ | 54.17 | $ | 50.15 | $ | 32.68 | $ | 38.76 | $ | 41.82 | ||||||||||||||||||||||||
Volatility |
0.183 | 0.198 | 0.206 | 0.225 | 0.237 | 0.344 | 0.369 | 0.358 | ||||||||||||||||||||||||||||||||
Expected life (years) |
5.0 | 10.0 | 9.0 | 8.0 | 7.0 | 6.0 | 5.0 | 5.0 | ||||||||||||||||||||||||||||||||
Assumed yield |
5.75 | % | 6.91 | % | 5.93 | % | 4.39 | % | 4.09 | % | 4.54 | % | 4.23 | % | 4.16 | % | ||||||||||||||||||||||||
Risk-free rate |
3.57 | % | 4.28 | % | 5.11 | % | 4.65 | % | 3.49 | % | 2.19 | % | 2.17 | % | 1.86 | % | ||||||||||||||||||||||||
Total value at grant date |
$ | 66,600 | $ | 71,100 | $ | 143,400 | $ | 285,300 | $ | 254,700 | $ | 222,950 | $ | 287,950 | $ | 297,375 | $ | 1,629,375 | ||||||||||||||||||||||
Forfeited options |
| | | | | | | | | |||||||||||||||||||||||||||||||
Expensed in previous years |
66,600 | 71,100 | 143,400 | 285,300 | 254,700 | 222,950 | 287,950 | 297,375 | 1,629,375 | |||||||||||||||||||||||||||||||
Expensed in 2012 |
| | | | | | | | | | ||||||||||||||||||||||||||||||
Future expense |
| | | | | | | | | |
Officers | ||||||||||||||||||||||||||||||||
Grant date | 05/23/2003 | 04/26/2004 | 05/06/2005 | 04/27/2007 | 05/13/2011 | Subtotals | Grand Totals |
|||||||||||||||||||||||||
Total grant |
220,000 | 122,500 | 132,500 | 135,000 | 162,500 | 772,500 | 1,020,000 | |||||||||||||||||||||||||
Vested |
212,500 | 115,000 | 118,750 | 122,500 | | 568,750 | 816,250 | |||||||||||||||||||||||||
Exercised |
200,585 | 48,525 | 25,125 | | | 274,235 | 292,935 | |||||||||||||||||||||||||
Forfeited |
7,500 | 7,500 | 13,750 | 12,500 | | 41,250 | 53,750 | |||||||||||||||||||||||||
Exercisable at March 31, 2012 |
11,915 | 66,475 | 93,625 | 122,500 | | 294,515 | 510,815 | |||||||||||||||||||||||||
Remaining unexercised |
11,915 | 66,475 | 93,625 | 122,500 | 162,500 | 457,015 | 673,315 | |||||||||||||||||||||||||
Exercise price |
$ | 24.91 | $ | 25.78 | $ | 33.22 | $ | 54.17 | $ | 41.82 | ||||||||||||||||||||||
Volatility |
0.175 | 0.183 | 0.207 | 0.233 | 0.330 | |||||||||||||||||||||||||||
Expected life (years) |
7.0 | 7.0 | 8.0 | 6.5 | 8.0 | |||||||||||||||||||||||||||
Assumed yield |
7.00 | % | 5.75 | % | 6.37 | % | 4.13 | % | 4.81 | % | ||||||||||||||||||||||
Risk-free rate |
4.00 | % | 4.05 | % | 4.15 | % | 4.61 | % | 2.75 | % | ||||||||||||||||||||||
Total value at grant date |
$ | 332,200 | $ | 292,775 | $ | 413,400 | $ | 1,258,848 | $ | 1,277,794 | $ | 3,575,017 | $ | 5,204,392 | ||||||||||||||||||
Forfeited options |
11,325 | 17,925 | 35,100 | | | 64,350 | 64,350 | |||||||||||||||||||||||||
Expensed in previous years |
320,875 | 274,850 | 378,300 | 1,258,848 | 186,347 | 2,419,220 | 4,048,595 | |||||||||||||||||||||||||
Expensed in 2012 |
| | | | 79,863 | 79,863 | 79,863 | |||||||||||||||||||||||||
Future expense |
| | | | 1,011,584 | | 1,011,584 | 1,011,584 | ||||||||||||||||||||||||
Remaining term of future expense |
3.2 | years |
-21-
Notes to Consolidated Financial Statements (Unaudited)
The table below summarizes the option activity for the three months ended March 31, 2012:
Number of Shares |
Wtd Avg Exercise Price per share |
Aggregate Intrinsic Value |
||||||||||
Outstanding at January 1 |
674,585 | $ | 40.40 | |||||||||
Granted |
| | ||||||||||
Exercised |
1,270 | 24.91 | $ | 13,000 | ||||||||
Expired/Forfeited |
| | ||||||||||
|
|
|||||||||||
Outstanding March 31 |
673,315 | 40.44 | 2,570,000 | |||||||||
|
|
|||||||||||
Exercisable at March 31 |
510,815 | 40.00 | 2,570,000 | |||||||||
|
|
The intrinsic value measures the price 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 intrinsic value for shares exercised during the period was calculated by using the closing share price on the date of exercise. At March 30, 2012, the closing share price of $40.36 was lower than the exercise price of options granted in 2007, 2008 and 2011 and, therefore, those options had no intrinsic value as of March 31, 2012. The weighted average remaining contractual life of the Companys outstanding and exercisable options is 5.4 years and 4.5 years, respectively.
9. | Fair Value of Financial Instruments |
The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are reasonable estimates of their fair value. Based upon managements estimate of borrowing rates and loan terms currently available to the Company for fixed-rate financing, the aggregate fair value of the notes payable with fixed-rate payment terms, assuming long-term interest rates of approximately 4.65% and 4.30%, would be approximately $862.2 million and $889.2 million, respectively, compared to the carrying value of $803.2 million and $808.8 million, at March 31, 2012 and December 31, 2011, respectively.
The Company carries its interest rate swaps at fair value. The Company has determined the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy with the exception of the impact of counter-party risk, which was determined using Level 3 inputs and are not significant. As of March 31, 2012, the fair value of the interest-rate swaps was approximately $4.7 million and is included in Accounts payable, accrued expenses and other liabilities in the consolidated balance sheets. The decrease in value from inception, of the swap designated as a cash flow hedge is reflected in Other Comprehensive Income in the Consolidated Statements of Comprehensive Income.
(In thousands) | Three months ended March 31, | |||||||
2012 | 2011 | |||||||
Change in fair value: |
||||||||
Recognized in earnings |
$ | (3 | ) | $ | 87 | |||
Recognized in other comprehensive income |
554 | 569 | ||||||
|
|
|
|
|||||
$ | 551 | $ | 656 | |||||
|
|
|
|
-22-
Notes to Consolidated Financial Statements (Unaudited)
10. | Commitments and Contingencies |
Neither the Company nor the current portfolio properties are subject to any material litigation, nor, to managements knowledge, is any material litigation currently threatened against the Company, other than routine litigation and administrative proceedings arising in the ordinary course of business. Management believes that these items, individually or in the aggregate, will not have a material adverse impact on the Company or the current portfolio properties.
-23-
Notes to Consolidated Financial Statements (Unaudited)
11. | Business Segments |
The Company has two reportable business segments: Shopping Centers and Mixed-Use Properties. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 2). The Company evaluates performance based upon income from real estate of the combined properties in each segment. All of our properties within each segment generate similar types of revenues and expenses related to tenant rent, reimbursements and operating expenses. Although services are provided to a range of tenants, the types of services provided to them are similar within each segment. As such, the properties in each portfolio have similar economic characteristics and the nature of the products and services provided to our tenants and the method to distribute such services are consistent throughout the portfolio. Certain reclassifications have been made to prior year information to conform to the 2012 presentation.
(Dollars in thousands) | Shopping Centers |
Mixed-Use Properties |
Corporate and Other |
Consolidated Totals |
||||||||||||
Three months ended March 31, 2012 |
||||||||||||||||
Real estate rental operations: |
||||||||||||||||
Revenue |
$ | 34,054 | $ | 13,038 | $ | 12 | $ | 47,104 | ||||||||
Expenses |
(7,642 | ) | (4,343 | ) | | (11,985 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Income from real estate |
26,412 | 8,695 | 12 | 35,119 | ||||||||||||
Interest expense and amortization of deferred debt costs |
| | (12,771 | ) | (12,771 | ) | ||||||||||
General and administrative |
| | (3,247 | ) | (3,247 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Subtotal |
26,412 | 8,695 | (16,006 | ) | 19,101 | |||||||||||
Depreciation and amortization of deferred leasing costs |
(6,386 | ) | (3,392 | ) | | (9,778 | ) | |||||||||
Change in fair value of derivatives |
| | (3 | ) | (3 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
$ | 20,026 | $ | 5,303 | $ | (16,009 | ) | $ | 9,320 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Capital investment |
$ | 2,253 | $ | 1,647 | $ | | $ | 3,900 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 867,048 | $ | 306,924 | $ | 11,504 | $ | 1,185,476 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Three months ended March 31, 2011 |
||||||||||||||||
Real estate rental operations: |
||||||||||||||||
Revenue |
$ | 31,808 | $ | 9,911 | $ | 14 | $ | 41,733 | ||||||||
Expenses |
(8,069 | ) | (3,561 | ) | | (11,630 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Income from real estate |
23,739 | 6,350 | 14 | 30,103 | ||||||||||||
Interest expense and amortization of deferred debt costs |
| | (10,294 | ) | (10,294 | ) | ||||||||||
General and administrative |
| | (3,166 | ) | (3,166 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Subtotal |
23,739 | 6,350 | (13,446 | ) | 16,643 | |||||||||||
Depreciation and amortization of deferred leasing costs |
(5,476 | ) | (2,848 | ) | | (8,324 | ) | |||||||||
Change in fair value of derivatives |
| | 87 | 87 | ||||||||||||
Acquisition related costs |
| (74 | ) | | (74 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
$ | 18,263 | $ | 3,428 | $ | (13,359 | ) | $ | 8,332 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Capital investment |
$ | 2,379 | $ | 12,362 | $ | | $ | 14,741 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 702,601 | $ | 306,816 | $ | 33,916 | $ | 1,043,333 | ||||||||
|
|
|
|
|
|
|
|
-24-
Notes to Consolidated Financial Statements (Unaudited)
12. | Subsequent Events |
The Company has reviewed operating activities for the period subsequent to March 31, 2012 and prior to the date the financial statements are issued or are available to be issued, and determined the following subsequent events are required to be disclosed.
On April 11, 2012, the Company closed on a $73.0 million mortgage loan secured by Seven Corners. Proceeds from this loan were used to pay-off the $63 million remaining balance of existing debt currently secured by Seven Corners and six other shopping center properties which was scheduled to mature in October 2012, and provide cash of approximately $10 million. The new 15-year mortgage loan requires equal monthly principal and interest payments totaling $463,226 based upon a fixed 5.84% interest rate and 25-year principal amortization, a final payment of $42.5 million, and matures in May 2027.
On April 26, 2012, the Company substituted the White Oak shopping center for Van Ness Square as collateral for one of its existing mortgage loans which will allow the Company to analyze the feasibility of repositioning Van Ness Square. The terms of the original loan, including its 8.11% interest rate, are unchanged and, in conjunction with the collateral substitution, the Company borrowed an additional $10.5 million, also secured by White Oak. The new borrowing requires equal monthly payments based upon a fixed 4.90% interest rate and 25-year principal amortization, and will mature in July 2024, coterminous with the original loan. The consolidated loan has an outstanding balance of $26.9 million, requires equal monthly payments based upon a blended fixed interest rate of 7.0% and will require a final payment of $18.5 million at maturity.
-25-
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
This section should be read in conjunction with the consolidated financial statements of the Company and the accompanying notes in Item 1. Financial Statements of this report and the more detailed information contained in the Companys Form 10-K for the year ended December 31, 2011. Historical results and percentage relationships set forth in Item 1 and this section should not be taken as indicative of future operations of the Company. Capitalized terms used but not otherwise defined in this section have the meanings given to them in Item 1 of this Form 10-Q.
Forward-Looking Statements
This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are generally characterized by terms such as believe, expect and may.
Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, the Companys actual results could differ materially from those given in the forward-looking statements as a result of changes in factors which include, among others, the following:
| continuing risks related to the challenging domestic and global credit markets and their effect on discretionary spending; |
| risks that the Companys tenants will not pay rent; |
| risks related to the Companys reliance on shopping center anchor tenants and other significant tenants; |
| risks related to the Companys substantial relationships with members of The Saul Organization; |
| risks of financing, such as increases in interest rates, restrictions imposed by the Companys debt, the Companys ability to meet existing financial covenants and the Companys ability to consummate planned and additional financings on acceptable terms; |
| risks related to the Companys development activities; |
| risks that the Companys growth will be limited if the Company cannot obtain additional capital; |
| risks that planned and additional acquisitions or redevelopments may not be consummated, or if they are consummated, that they will not perform as expected; |
| risks generally incident to the ownership of real property, including adverse changes in economic conditions, changes in the investment climate for real estate, changes in real estate taxes and other operating expenses, adverse changes in governmental rules and fiscal policies, the relative illiquidity of real estate and environmental risks; |
| risks related to the Companys status as a REIT for federal income tax purposes, such as the existence of complex regulations relating to the Companys status as a REIT, the effect of future changes in REIT requirements as a result of new legislation and the adverse consequences of the failure to qualify as a REIT; and |
| such other risks as described in Part I, Item 1A of the Companys Form 10-K for the year ended December 31, 2011. |
-26-
General
The following discussion is based primarily on the consolidated financial statements of the Company as of and for the three months ended March 31, 2012.
Overview
The Companys principal business activity is the ownership, management and development of income-producing properties. The Companys long-term objectives are to increase cash flow from operations and to maximize capital appreciation of its real estate investments.
The Companys primary operating strategy is to focus on its community and neighborhood shopping center business and to operate its properties to achieve both cash flow growth and capital appreciation. Management believes there is potential for long term growth in cash flow as existing leases for space in the Shopping Centers and Mixed-Use properties expire and are renewed, or newly available or vacant space is leased. The Company intends to renegotiate leases where possible and seek new tenants for available space in order to optimize the mix of uses to improve foot traffic through the Shopping Centers. As leases expire, management expects to revise rental rates, lease terms and conditions, relocate existing tenants, reconfigure tenant spaces and introduce new tenants with the goals of increasing occupancy, improving overall retail sales, and ultimately increasing cash flow as economic conditions improve. In those circumstances in which leases are not otherwise expiring, management selectively attempts to increase cash flow through a variety of means, or in connection with renovations or relocations, recapturing leases with below market rents and re-leasing at market rates, as well as replacing financially troubled tenants. When possible, management also will seek to include scheduled increases in base rent, as well as percentage rental provisions, in its leases.
The Companys redevelopment and renovation objective is to selectively and opportunistically redevelop and renovate its properties, by replacing leases that have below market rents with strong, traffic-generating anchor stores such as supermarkets and drug stores, as well as other desirable local, regional and national tenants. The Companys strategy remains focused on continuing the operating performance and internal growth of its existing Shopping Centers, while enhancing this growth with selective retail redevelopments and renovations.
The Company purchased six operating retail properties in 2010 and 2011 which provide current income and potential redevelopment opportunities. In light of the limited amount of quality properties for sale and the escalated pricing of properties that the Company has been presented with or has inquired about over the past year, management believes acquisition opportunities for investment in existing and new Shopping Center and Mixed-Use Properties in the near future is uncertain. Because of its conservative capital structure, including its cash and unused credit line, management believes that the Company is positioned to take advantage of additional investment opportunities as attractive properties are located and market conditions improve. It is managements view that several of the sub-markets in which the Company operates have or will in the future have attractive supply/demand characteristics. The Company will continue to evaluate acquisition, development and redevelopment as an integral part of its overall business plan.
-27-
After several challenging years in the financial and real estate markets, there have been recent signs of economic improvement. During the last several quarters, the Company has seen modestly improved retail sales and retail leasing activity across its portfolio, however, rents remain under pressure. Office space demand throughout the Companys properties has slowed during early 2012 due to uncertainty surrounding federal government spending levels.
While overall consumer confidence appears to have improved, retailers continue to be cautious about capital allocation when implementing store expansion. Vacancies continue to remain elevated compared to pre-recession levels; however, the Companys overall leasing percentage on a comparative same-center basis at March 31, 2012 increased to 90.4% from 90.2% at March 31, 2011, an increase in space leased of approximately 13,000 square feet. This net increase occurred even as a 49,000 square foot space at Seven Corners was returned to the Company as a result of the Syms bankruptcy late in 2011. As of April 30, 2012, this space was leased to Burlington Coat Factory, with occupancy projected to occur during the fall of 2012.
Because of the Companys conservative capital structure, its liquidity has not been significantly affected by the recent turmoil in the credit markets. First, 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. Second, as of March 31, 2012, amortizing fixed-rate mortgage debt with staggered maturities from 2012 to 2027 represented approximately 98% of the Companys notes payable, thus minimizing refinancing risk. Third, the Companys only 2012 fixed-rate debt maturity, which was scheduled to mature in October 2012, was refinanced in April 2012. As of March 31, 2012, the Companys variable-rate debt consists of a bank term loan secured by the Northrock development and $4.0 million outstanding under its line of credit. As of March 31, 2012, the Company has loan availability of approximately $145.8 million under its $150.0 million unsecured revolving line of credit.
Although it is managements present intention to concentrate future acquisition and development activities on community and neighborhood shopping centers and Mixed-Use Properties in the Washington, DC/Baltimore metropolitan area and the southeastern region of the United States, the Company may, in the future, also acquire other types of real estate in other areas of the country as opportunities present themselves. While the Company may diversify in terms of property locations, size and market, the Company does not set any limit on the amount or percentage of Company assets that may be invested in any one property or any one geographic area.
The Companys financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP), which requires management to make certain estimates and assumptions that affect the reporting of financial position and results of operations. If judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied resulting in a different presentation of the financial statements. The Company has identified the following policies that, due to estimates and assumptions inherent in these policies, involve a relatively high degree of judgment and complexity.
-28-
Real Estate Investments
Real estate investment properties are stated at historic cost less depreciation. Although the Company intends to own its real estate investment properties over a long term, from time to time it will evaluate its market position, market conditions, and other factors and may elect to sell properties that do not conform to the Companys investment profile. Management believes that these 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 Companys liabilities as reported in these financial statements. Because these financial statements are prepared in conformity with GAAP, they do not report the current value of the Companys real estate investment properties.
The Company purchases real estate investment properties from time to time and records assets acquired and liabilities assumed, including land, buildings, and intangibles related to in-place leases and customer relationships based on their fair values. The fair value of buildings is determined as if the buildings were vacant upon acquisition and subsequently leased at market rental rates and considers the present value of all cash flows expected to be generated by the property including an initial lease up period. The Company determines the fair value of above and below market intangibles associated with in-place leases by assessing the net effective rent and remaining term of the in-place lease relative to market terms for similar leases at acquisition taking into consideration the remaining contractual lease period, renewal periods, and the likelihood of the tenant exercising its renewal options. The fair value of a below market lease component is recorded as deferred income and amortized as additional lease revenue over the remaining contractual lease period and any renewal option periods included in the valuation analysis. The fair value of above market lease intangibles is recorded as a deferred asset and is amortized as a reduction of lease revenue over the remaining contractual lease term. The Company determines the fair value of at-market in-place leases considering the cost of acquiring similar leases, the foregone rents associated with the lease-up period and carrying costs associated with the lease-up period. Intangible assets associated with at-market in-place leases are amortized as additional expense over the remaining contractual lease term. To the extent customer relationship intangibles are present in an acquisition, the fair value of the intangibles are amortized over the life of the customer relationship.
If there is an event or change in circumstance that indicates a potential impairment in the value of a real estate investment property, the Company prepares an analysis to determine whether the carrying value of the real estate investment property exceeds its estimated fair value. The Company considers both quantitative and qualitative factors in identifying impairment indicators 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 carrying value is greater than the undiscounted projected cash flows, the Company would recognize an impairment loss equivalent to an amount required to adjust the carrying amount to its then estimated fair market value. The 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 managements projections, the valuation could be negatively or positively affected.
-29-
When incurred, the Company capitalizes the cost of improvements that extend the useful life of property and equipment. All repair and maintenance expenditures are expensed when incurred. Leasehold improvements expenditures are capitalized when certain criteria are met, including when we supervise construction and will own the improvement. Tenant improvements we own are depreciated over the life of the respective lease or the estimated useful life of the improvements, whichever is shorter.
Interest, real estate taxes, development-related salary costs and other carrying costs are capitalized on projects under construction. Once construction is substantially complete and the assets are placed in service, rental income, direct operating expenses, and depreciation associated with such properties are included in current operations. Commercial development projects are substantially complete and available for occupancy upon completion of tenant improvements, but no later than one year from the cessation of major construction activity. Residential development projects are considered substantially complete and available for occupancy upon receipt of the certificate of occupancy from the appropriate licensing authority. Substantially completed portions of a project are accounted for as separate projects. Depreciation is calculated using the straight-line method and estimated useful lives of 35 to 50 years for base buildings and up to 20 years for certain other improvements.
Deferred Leasing Costs
Certain initial direct costs incurred by the Company in negotiating and consummating successful commercial leases are capitalized and amortized over the initial base term of the leases. Deferred leasing costs consist of commissions paid to third-party leasing agents as well as internal direct costs such as employee compensation and payroll-related fringe benefits directly related to time spent performing successful leasing-related activities. Such activities include evaluating prospective tenants financial condition, evaluating and recording guarantees, collateral and other security arrangements, negotiating lease terms, preparing lease documents and closing transactions. In addition, deferred leasing costs include amounts attributed to in-place leases associated with acquisition properties.
Revenue Recognition
Rental and interest income is accrued as earned except when doubt exists as to collectability, in which case the accrual is discontinued. Recognition of rental income commences when control of the space has been given to the tenant. When rental payments due under leases vary from a straight-line basis because of free rent periods or scheduled rent increases, income is recognized on a straight-line basis throughout the initial term of the lease. Expense recoveries represent a portion of property operating expenses billed to tenants, including common area maintenance, real estate taxes and other recoverable costs. Expense recoveries are recognized in the period when the expenses are incurred. Rental income based on a tenants revenue, known as percentage rent, is accrued when a tenant reports sales that exceed a specified breakpoint specified in the lease agreement.
Allowance for Doubtful Accounts - Current and Deferred Receivables
Accounts receivable primarily represent amounts accrued and unpaid from tenants in accordance with the terms of the respective leases, subject to the Companys revenue recognition policy. Receivables are reviewed monthly and reserves are established with a charge to current
-30-
period operations when, in the opinion of management, collection of the receivable is doubtful. In addition to rents due currently, accounts receivable include amounts representing minimum rental income accrued on a straight-line basis to be paid by tenants over the remaining term of their respective leases. Reserves are established with a charge to income for tenants whose rent payment history or financial condition casts doubt upon the tenants ability to perform under its lease obligations.
Legal Contingencies
The Company is subject to various legal proceedings and claims that arise in the ordinary course of business, which are generally covered by insurance. While the resolution of these matters cannot be predicted with certainty, the Company believes the final outcome of such matters will not have a material adverse effect on its financial position or the results of operations. Once it has been determined that a loss is probable to occur, the estimated amount of the loss is recorded in the financial statements. Both the amount of the loss and the point at which its occurrence is considered probable can be difficult to determine.
Quarter ended March 31, 2012 compared to quarter ended March 31, 2011
Revenue
(Dollars in thousands) | Quarter ended March 31, | 2012 to 2011 Change | ||||||||||||||
2012 | 2011 | Amount | % | |||||||||||||
Base rent |
$ | 37,588 | $ | 32,697 | $ | 4,891 | 15.0 | % | ||||||||
Expense recoveries |
7,709 | 7,426 | 283 | 3.8 | % | |||||||||||
Percentage rent |
406 | 375 | 31 | 8.3 | % | |||||||||||
Other |
1,401 | 1,235 | 166 | 13.4 | % | |||||||||||
|
|
|
|
|
|
|||||||||||
Total revenue |
$ | 47,104 | $ | 41,733 | $ | 5,371 | 12.9 | % | ||||||||
|
|
|
|
|
|
Note: (Dollars in thousands)
Base rent includes $1,119 and $708 for the quarters ended March 31, 2012 and 2011, respectively, to recognize base rent on a straight-line basis. In addition, base rent includes $387 and $245, for the quarters ended March 31, 2012 and 2011, respectively, to recognize income from the amortization of in-place leases acquired in connection with purchased real estate investment properties.
Total revenue increased 12.9% in the quarter ended March 31, 2012 (2012 Quarter) compared to the corresponding prior years quarter (2011 Quarter) primarily due to $5.8 million of aggregate revenue generated by Clarendon Center and the three shopping centers acquired in 2011 (collectively, the New Properties), partially offset by lower expense recoveries in the remainder of the portfolio, which resulted from lower incurred expenses.
The increase in base rent for the 2012 Quarter compared to the 2011 Quarter was generated primarily by the New Properties.
-31-
Operating Expenses
(Dollars in thousands) | Quarter ended March 31, | 2012 to 2011 Change | ||||||||||||||
2012 | 2011 | Amount | % | |||||||||||||
Property operating expenses |
$ | 5,789 | $ | 6,633 | $ | (844 | ) | -12.7 | % | |||||||
Provision for credit losses |
352 | 515 | (163 | ) | -31.7 | % | ||||||||||
Real estate taxes |
5,844 | 4,482 | 1,362 | 30.4 | % | |||||||||||
Interest expense and amortization of deferred debt costs |
12,771 | 10,294 | 2,477 | 24.1 | % | |||||||||||
Depreciation and amortization of leasing costs |
9,778 | 8,324 | 1,454 | 17.5 | % | |||||||||||
General and administrative |
3,247 | 3,166 | 81 | 2.6 | % | |||||||||||
|
|
|
|
|
|
|||||||||||
Total operating expenses |
$ | 37,781 | $ | 33,414 | $ | 4,367 | 13.1 | % | ||||||||
|
|
|
|
|
|
Property operating expenses. Property operating expenses for the 2012 Quarter decreased from the 2011 Quarter primarily due to reduced snow removal and repair costs in the core portfolio partially offset by expenses related to the New Properties.
Real estate taxes. The increase in real estate taxes for the 2012 Quarter was primarily due to an increase in property tax rates charged by the District of Columbia and taxes related to the New Properties.
Interest expense and amortization of deferred debt. Interest expense increased in the 2012 Quarter compared to the 2011 Quarter primarily because of interest related to the New Properties.
Depreciation and amortization of leasing costs. The increase in depreciation and amortization to $9.8 million in the 2012 Quarter from $8.3 million in the 2011 Quarter was primarily due to the New Properties.
Liquidity and Capital Resources
Cash and cash equivalents were $11.0 million and $33.1 million at March 31, 2012 and 2011, respectively. The Companys cash flow is affected by its operating, investing and financing activities, as described below.
(Dollars in thousands) | Three Months Ended March 31, | |||||||
2012 | 2011 | |||||||
Net cash provided by operating activities |
$ | 19,741 | $ | 11,994 | ||||
Net cash used in investing activities |
(3,900 | ) | (14,741 | ) | ||||
Net cash provided by (used in) financing activities |
(17,170 | ) | 22,885 | |||||
|
|
|
|
|||||
Increase (decrease) in cash and cash equivalents |
$ | (1,329 | ) | $ | 20,138 | |||
|
|
|
|
Operating Activities
Net cash provided by operating activities represents cash received primarily from rental income, plus other income, less property operating expenses, leasing costs, normal recurring general and administrative expenses and interest payments on debt outstanding.
-32-
Investing Activities
Net cash used in investing activities includes property acquisitions, developments, redevelopments, tenant improvements and other property capital expenditures. Investing activities in the 2011 Quarter primarily reflect the development and construction costs of Clarendon Center. Tenant improvement and property capital expenditures totaled $2.8 million and $2.4 million, for the three months ended March 31, 2012 and 2011, respectively.
Financing Activities
Net cash used in financing activities for the three months ended March 31, 2012 primarily reflects:
| proceeds of $5.7 million from the issuance of common stock pursuant to our Dividend Reinvestment and Stock Purchase Plan (DRIP), directors Deferred Compensation Plan and the exercise of stock options, |
which was partially offset by:
| revolving credit facility principal payments of $4.0 million; |
| the repayment of mortgage notes payable totaling $5.6 million; |
| distributions to common stockholders totaling $6.9 million; |
| distributions to holders of convertible limited partnership units in the Operating Partnership totaling $2.5 million; and |
| distributions made to preferred stockholders totaling $3.8 million. |
Net cash provided by financing activities for the three months ended March 31, 2011 primarily reflects:
| proceeds of $125.0 million received from mortgage notes payable; |
| proceeds of $13.4 million received from construction loan draws; and |
| proceeds of $5.6 million from the issuance of common stock pursuant to the DRIP, directors Deferred Compensation Plan and the exercise of stock options; |
which was partially offset by:
| the repayment of construction loans payable totaling $104.2 million; |
| the repayment of mortgage notes payable totaling $4.0 million; |
| distributions to common stockholders totaling $6.7 million; |
| distributions to holders of convertible limited partnership units in the Operating Partnership totaling $2.0 million; |
| distributions made to preferred stockholders totaling $3.8 million; and |
| payments of $391,000 for financing costs of mortgage notes payable. |
-33-
Liquidity Requirements
Short-term liquidity requirements consist primarily of normal 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 obligations under our long-term debt and dividends paid to our preferred shareholders. The Company anticipates that long-term liquidity requirements will also include amounts required for property acquisitions and developments. Management anticipates that during the remainder of the year the Company may develop certain freestanding outparcels within certain of the Shopping Centers. Although not currently planned, it is possible that the Company may redevelop certain of the Current Portfolio Properties and may develop expansions within certain of the Shopping Centers.
Acquisition and development of properties are undertaken only after careful analysis and review, and managements determination that such properties are expected to provide long-term earnings and cash flow growth. During the coming year, developments, expansions or acquisitions (if any) are expected to be funded with available cash, bank borrowings from the Companys credit line, construction and permanent financing, proceeds from the operation of the Companys dividend reinvestment plan or other external debt or equity capital resources available to the Company. Any future borrowings may be at the Saul Centers, Operating Partnership or Subsidiary Partnership level, and securities offerings may include (subject to certain limitations) the issuance of additional limited partnership interests in the Operating Partnership which can be converted into shares of Saul Centers common stock. The availability and terms of any such financing will depend upon market and other conditions.
-34-
As of March 31, 2012, the scheduled maturities of debt, including scheduled principal amortization, for years ending December 31, were as follows:
(In thousands) | Balloon Payments |
Scheduled Principal Amortization |
Total | |||||||||
April 1 through December 31, 2012 |
$ | 65,960 | (a) | $ | 16,180 | $ | 82,140 | |||||
2013 |
70,131 | 17,781 | 87,912 | |||||||||
2014 |
13,218 | 17,988 | 31,206 | |||||||||
2015 |
15,077 | 18,420 | 33,497 | |||||||||
2016 |
| 19,166 | 19,166 | |||||||||
2017 |
| 20,306 | 20,306 | |||||||||
Thereafter |
423,529 | 124,539 | 548,068 | |||||||||
|
|
|
|
|
|
|||||||
$ | 587,915 | $ | 234,380 | $ | 822,295 | |||||||
|
|
|
|
|
|
(a) | Includes $4.0 million outstanding under the revolving credit facility. |
Management believes that the Companys capital resources, which at March 31, 2012 included cash balances of approximately $11 million and borrowing availability of approximately $145.8 million on its unsecured revolving credit facility will be sufficient to meet its liquidity needs for the foreseeable future.
Dividend Reinvestments
In December 1995, the Company established a DRIP to allow its common stockholders and holders of limited partnership interests an opportunity to buy additional shares of common stock by reinvesting all or a portion of their dividends or distributions. The DRIP 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 DRIP are paid by the Company. The Company issued 161,023 and 98,299 shares under the DRIP at a weighted average discounted price of $34.44 and $45.92 per share, during the three months ended March 31, 2012 and 2011, respectively. The Company also credited 2,406 and 1,795 shares to directors pursuant to the reinvestment of dividends specified by the Directors Deferred Compensation Plan at a weighted average discounted price of $34.44 and $45.92 per share, during the three months ended March 31, 2012 and 2011, respectively.
Capital Strategy and Financing Activity
As a general policy, the Company intends to maintain a ratio of its total debt to total asset value of 50% or less and to actively manage the Companys leverage and debt expense on an ongoing basis in order to maintain prudent coverage of fixed charges. Asset value is the aggregate fair market value of the Current Portfolio Properties and any subsequently acquired properties as reasonably determined by management by reference to the properties aggregate cash flow. Given the Companys current debt level, it is managements belief that the ratio of the Companys debt to total asset value was below 50% as of March 31, 2012.
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,
-35-
reevaluate the Companys debt/capitalization strategy in light of current economic conditions, relative costs of capital, market values of the Companys property portfolio, opportunities for acquisition, development or expansion, and such other factors as the Board of Directors then deems relevant. The Board of Directors may modify the Companys debt/capitalization policy based on such a reevaluation without shareholder approval and consequently, may increase or decrease the Companys debt to total asset ratio above or below 50% or may waive the policy for certain periods of time. The Company selectively continues to refinance or renegotiate the terms of its outstanding debt in order to achieve longer maturities, and obtain generally more favorable loan terms, whenever management determines the financing environment is favorable.
The Company maintains an unsecured revolving credit facility. The facility provides working capital and funds for acquisitions, certain developments, redevelopments and letters of credit, expires on June 30, 2012, and provides for an additional one-year extension at the Companys option, subject to the Companys satisfaction of certain conditions. On March 31, 2012, approximately $145.8 million was available under the line and approximately $177,000 was committed for letters of credit. Interest rate pricing under the facility is primarily determined by operating income from the Companys existing unencumbered properties and, to a lesser extent, certain leverage tests. As of March 31, 2012, operating income from the unencumbered properties determined the interest rate for up to $103.0 million of the lines available borrowings, with interest expense to be calculated based upon the 1, 2, 3 or 6 month LIBOR plus a spread of 3.65% to 3.90%. The interest rate on the remaining $47.0 million of the lines availability is determined based upon the Companys consolidated operating income after debt service. On this portion of the facility, interest accrues at a rate of LIBOR plus a spread of 4.45% to 5.25%, determined by certain leverage tests. The Company may elect to use the 1, 2, 3 or 6 month LIBOR, but in no event shall LIBOR be less than 1.5%.
The facility requires the Company and its subsidiaries to maintain certain financial covenants. As of March 31, 2012, the material covenants required the Company, on a consolidated basis, to:
| limit the amount of debt so as to maintain a gross asset value, as defined in the loan agreement, in excess of liabilities of at least $600 million plus 90% of the Companys future net equity proceeds; |
| 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 2.2x on a trailing 12-full calendar month basis (interest expense coverage); |
| limit the amount of debt so that interest and scheduled principal amortization coverage exceeds 1.6x (debt service coverage); |
| limit the amount of debt so that interest, scheduled principal amortization and preferred dividend coverage exceeds 1.4x (fixed charge coverage); |
| limit the amount of variable rate debt and debt with initial loan terms of less than five years to no more than 40% of total debt; and |
-36-
| limit the outstanding debt plus undrawn loan availability to 8.0x trailing twelve month adjusted EBITDA, as defined in the loan agreement. |
As of March 31, 2012, the Company was in compliance with all such covenants.
Saul Centers is a guarantor of the revolving credit facility, of which the Operating Partnership is the borrower. Saul Centers is also the guarantor of 50% of the Northrock bank term loan (approximately $7.5 million of the $15.1 million outstanding at March 31, 2012). The fixed-rate notes payable are all non-recourse debt except for $3.9 million of the Great Falls Center mortgage, 25% of the Metro Pike Center loan (approximately $4.0 million of the $16.0 million outstanding at March 31, 2012) and $27.6 million of the Clarendon Center mortgage, which will be eliminated upon the achievement of certain leasing and debt service requirements, which are guaranteed by Saul Centers.
On April 11, 2012, the Company closed on a $73.0 million mortgage loan secured by Seven Corners. Proceeds from this loan were used to pay-off the $63 million remaining balance of existing debt currently secured by Seven Corners and six other shopping center properties which was scheduled to mature in October 2012, and provide cash of approximately $10 million. The new 15-year mortgage loan requires equal monthly principal and interest payments totaling $463,226 based upon a fixed 5.84% interest rate and 25-year principal amortization, a final payment of $42.5 million, and matures in May 2027.
On April 26, 2012, the Company substituted the White Oak shopping center for Van Ness Square as collateral for one of its existing mortgage loans which will allow the Company to analyze the feasibility of repositioning Van Ness Square. The terms of the original loan, including its 8.11% interest rate, are unchanged and, in conjunction with the collateral substitution, the Company borrowed an additional $10.5 million, also secured by White Oak. The new borrowing requires equal monthly payments based upon a fixed 4.90% interest rate and 25-year principal amortization, and will mature in July 2024, coterminous with the original loan. The consolidated loan has an outstanding balance of $26.9 million, requires equal monthly payments based upon a blended fixed interest rate of 7.0% and will require a final payment of $18.5 million at maturity.
Preferred Stock
In November 2003, the Company sold 4,000,000 depositary shares, each representing 1/100th of a share of 8% Series A Cumulative Redeemable Preferred Stock. The depositary shares may be redeemed at the Companys option, in whole or in part from time to time, at the $25.00 liquidation preference. The depositary shares pay an annual dividend of $2.00 per share, equivalent to 8% of the $25.00 liquidation preference. The Series A preferred stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and is not convertible into any other securities of the Company. Investors in the depositary shares generally have no voting rights, but will have limited voting rights if the Company fails to pay dividends for six or more quarters (whether or not declared or consecutive) and in certain other events.
In March 2008, the Company sold 3,173,115 depositary shares, each representing 1/100th of a share of 9% Series B Cumulative Redeemable Preferred Stock. The depositary shares may be redeemed at the Companys option, in whole or in part, at the $25.00 liquidation preference
-37-
on or after March 15, 2013. The depositary shares pay an annual dividend of $2.25 per share, equivalent to 9% of the $25.00 liquidation preference. The Series B preferred stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and is not convertible into any other securities of the Company. Investors in the 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.
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 Companys financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.
Funds From Operations
Funds From Operations (FFO)(1) available to common shareholders for the three months ended March 31, 2012, totaled $15.3 million, a 19.0% increase over the three months ended March 31, 2011. The following table presents a reconciliation from net income to FFO available to common stockholders for the periods indicated:
(Amounts in thousands) | Three months ended March 31, |
|||||||
2012 | 2011 | |||||||
Net income |
$ | 9,320 | $ | 8,332 | ||||
Add: |
||||||||
Real property depreciation & amortization |
9,778 | 8,324 | ||||||
|
|
|
|
|||||
FFO |
19,098 | 16,656 | ||||||
Subtract: |
||||||||
Preferred stock dividends |
(3,785 | ) | (3,785 | ) | ||||
|
|
|
|
|||||
FFO available to common shareholders |
$ | 15,313 | $ | 12,871 | ||||
|
|
|
|
|||||
Average shares & units used to compute FFO per share |
26,363 | 24,170 | ||||||
|
|
|
|
(1) | The National Association of Real Estate Investment Trusts (NAREIT) developed FFO as a relative non-GAAP financial measure of performance of an equity REIT in order to recognize that income-producing real estate historically has not depreciated on the basis determined under GAAP. FFO is defined by NAREIT as net income, computed in accordance with GAAP, plus real estate depreciation and amortization, and excluding extraordinary items, impairment charges on depreciable real estate assets and gains or losses from property dispositions. FFO does not represent cash generated from operating activities in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs, which is disclosed in the Companys 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 Companys 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 the Company believes occurs with its assets, and because industry analysts have accepted it as a performance measure. FFO may not be comparable to similarly titled measures employed by other REITs. |
Acquisitions, Redevelopments and Renovations
During the remainder of the year the Company may develop certain freestanding outparcels within certain of the Shopping Centers. Although not currently planned, it is possible
-38-
that the Company may redevelop certain of the Current Portfolio Properties and may develop expansions within certain of the Shopping Centers. Acquisition and development of properties are undertaken only after careful analysis and review, and managements determination that such properties are expected to provide long-term earnings and cash flow growth. During the balance of the year, any developments, expansions or acquisitions are expected to be funded with bank borrowings from the Companys credit line, construction financing, proceeds from the operation of the Companys 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 office development and acquisitions of operating properties for opportunities to enhance operating income and cash flow growth. The Company also continues to analyze redevelopment, renovation and expansion opportunities within the portfolio. The following describes the acquisition, development, redevelopment and renovation activities of the Company in 2011 and the three months ended March 31, 2012.
Ashland Square Phase I
On December 15, 2004, the Company purchased for $6.3 million, a 19.3 acre parcel of land in Manassas, Prince William County, Virginia. The Company has an approved site plan to develop a grocery-anchored neighborhood shopping center totaling approximately 160,000 square feet. Capital One Bank operates a branch on the site and the Company previously executed a lease with CVS. The Company is in the process of completing site work for two pads. CVS will construct a 13,000 square foot pharmacy building and the Company will construct a 6,500 square foot building which it expects to lease to a restaurant. Both facilities are projected to be completed in the fourth quarter of 2012, at a cost to the Company of approximately $3.0 million. The balance of the center is being marketed to grocers and other retail businesses, with a development timetable yet to be finalized.
Clarendon Center
In late 2010, the Company substantially completed construction of a mixed-use project which includes approximately 42,000 square feet of retail space, 171,000 square feet of office space, 244 apartments and 600 underground parking spaces, on two city blocks, adjacent to the Clarendon Metro Station in Arlington County, Virginia. Development costs are expected to total approximately $195.0 million upon completion of final office tenant improvements.
As of March 31, 2012, 197,000 square feet of the commercial space (92.4%) (comprising of all of the retail space and 155,000 square feet (90.6%) of the office space) as well as 239 (98%) of the apartments, were leased.
Westview Village
In November 2007, the Company purchased for $5.0 million, a 10.4 acre site in the Westview development on Buckeystown Pike (MD Route 85) in Frederick, Maryland. Construction was substantially completed in 2009 on a development that totals approximately 101,000 square feet of commercial space, including 60,000 square feet of retail shop space, 11,000 square feet of retail pads and 30,000 square feet of professional office space. Total construction and development costs, including land, lease-up and tenant improvement costs are projected to be approximately $26.5 million. As of March 31, 2012, 45,000 square feet of retail space and 13,000 square feet of office space, or approximately 57.0% of the total space, had been leased.
-39-
Northrock
In January 2008, the Company purchased for $12.5 million, approximately 15.4 acres of undeveloped land in Warrenton, Virginia, located at the southwest corner of the U. S. Route 29/211 and Fletcher Drive intersection. The Company constructed Northrock shopping center, a neighborhood shopping center totaling approximately 103,000 square feet of leasable area. Approximately 78.0% of the project was leased at March 31, 2012, including a 52,700 square foot Harris Teeter supermarket store, 27,800 square feet of small shop space, and pad leases with Capital One Bank and Longhorn Steakhouse. Total construction and development costs, including land, lease-up and tenant improvement costs, are projected to be approximately $27.9 million.
4469 Connecticut Ave
On February 17, 2011, the Company purchased for $1.7 million, including acquisition costs, approximately 3,000 square feet of retail space located adjacent to the Companys Van Ness Square in Washington DC. The property is unoccupied as of March 31, 2012.
Kentlands Square II
On September 23, 2011, the Company purchased for $74.5 million Kentlands Square II, and incurred acquisition costs of $1.1 million. Kentlands Square II is a 241,000 square foot neighborhood shopping center located in Gaithersburg, Maryland, in Montgomery County, the states most populous and affluent county. More than 38,000 households, with annual household incomes averaging over $114,000, are located within a three-mile radius of the center. The center was constructed in 1993, is 100% leased and is anchored by a 61,000 square foot Giant Food supermarket and a 104,000 square foot Kmart. The property is adjacent to the Companys Kentlands Square I, which is anchored by Lowes Home Improvement and Kentlands Place.
Severna Park MarketPlace
On September 23, 2011, the Company purchased for $61.0 million Severna Park MarketPlace, and incurred acquisition costs of $0.8 million. Severna Park MarketPlace is a 254,000 square foot neighborhood shopping center located in Severna Park, Maryland, in Anne Arundel County. More than 15,000 households, with annual household incomes averaging over $112,000, are located within a three-mile radius of the center. The center was constructed in 1974 and renovated in 2000, is 100% leased and is anchored by a 63,000 square foot Giant Food supermarket and a 92,000 square foot Kohls.
Cranberry Square
On September 23, 2011, the Company purchased for $33.0 million Cranberry Square, and incurred acquisition costs of $0.5 million. Cranberry Square is a 140,000 square foot neighborhood shopping center located in Westminster, Maryland, in Carroll County. More than 12,000 households, with annual household incomes averaging over $72,000, are located within a three-mile radius of the center. The center was constructed in 1991, is 91.2% leased and is anchored by a 56,000 square foot Giant Food supermarket and a 24,000 square foot Staples.
-40-
Portfolio Leasing Status
The following chart sets forth certain information regarding commercial leases at our properties.
Total Properties | Total Square Footage | Percent Leased | ||||||||||||||||||||||
Shopping Centers |
Mixed-Use | Shopping Centers |
Mixed-Use | Shopping Centers |
Mixed-Use | |||||||||||||||||||
March 31, 2012 |
51 | 7 | 7,930,000 | 1,610,400 | 91.9 | % | 85.5 | % | ||||||||||||||||
March 31, 2011 |
48 | 7 | 7,291,000 | 1,422,000 | 91.6 | % | 79.3 | % |
As of March 31, 2012, 90.9% of the commercial portfolio (all properties except Clarendon Centers apartments) was leased, an increase from 89.6% at March 31, 2011. On a same property basis, 90.4% of the commercial portfolio was leased, an increase from the prior year level of 90.2%. The Clarendon Center apartments were 98.0% leased at March 31, 2012.
Item 3. | 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 Companys overall risk management program, which recognizes the unpredictability of financial markets and seeks to reduce the potentially adverse effect on the Companys 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 entered into an interest rate swap agreement with a $45.6 million notional amount to manage the interest rate risk associated with $45.6 million of variable-rate mortgage debt. The swap agreement was effective July 1, 2010, terminates on July 1, 2020 and effectively fixes the interest rate on the mortgage debt at 5.83%. In conjunction with the purchase of Metro Pike Center, and the assumption of the related variable-rate mortgage loan, the Company assumed an interest-rate swap agreement with a $16.2 million notional amount to manage the interest rate risk associated with the loan. The swap agreement was effective as of the closing date, terminates on June 30, 2013 and effectively fixes the interest rate on the mortgage debt at 4.67%. The aggregate fair value of these swaps at March 31, 2012 was approximately $4.7 million and is reflected in accounts payable, accrued expenses and other liabilities in the consolidated balance sheet.
The Company is exposed to interest rate fluctuations which will affect the amount of interest expense of its variable rate debt and the fair value of its fixed rate debt. As of March 31, 2012, the Company had variable rate indebtedness totaling $19.1 million. If the interest rates on the Companys variable rate debt instruments outstanding at March 31, 2012 had been one percent higher, our annual interest expense relating to these debt instruments would have increased by $200,000, based on those balances. As of March 31, 2012, the Company had fixed-rate indebtedness totaling $803.2 million with a weighted average interest rate of 6.04%. If interest rates on the Companys fixed-rate debt instruments at March 31, 2012 had been one percent higher, the fair value of those debt instruments on that date would have been approximately $44.0 million less than the carrying value.
-41-
Item 4. | Controls and Procedures |
The Company maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the Companys reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and that such information is accumulated and communicated to the Companys management, including its Chairman and Chief Executive Officer, its Senior Vice President-Chief Financial Officer, Secretary and Treasurer, and its Senior Vice President-Chief Accounting Officer as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of disclosure controls and procedures in Rule 13a-15(e) promulgated under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
The Company carried out an evaluation under the supervision and with the participation of the Companys management, including its Chairman and Chief Executive Officer, its Senior Vice President-Chief Financial Officer, Secretary and Treasurer, and its Senior Vice President-Chief Accounting Officer of the effectiveness of the design and operation of the Companys disclosure controls and procedures as of March 31, 2012. Based on the foregoing, the Companys Chairman and Chief Executive Officer, its Senior Vice President-Chief Financial Officer, Secretary and Treasurer and its Senior Vice President-Chief Accounting Officer concluded that the Companys disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2012.
During the quarter ended March 31, 2012, there were no changes in the Companys internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
PART II. | OTHER INFORMATION |
Item 1. | Legal Proceedings |
None
Item 1A. | Risk Factors |
The Company has no material updates to the risk factors presented in Item 1A. Risk Factors in the 2011 Annual Report of the Company on Form 10-K.
-42-
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
B. Francis Saul II, the Companys Chairman of the Board and Chief Executive Officer, his spouse and entities affiliated with Mr. Saul II, through participation in the Companys Dividend Reinvestment and Stock Purchase Plan for the January 31, 2012 dividend distribution acquired 135,702 shares of common stock at a price of $34.44 per share.
The B. F. Saul Real Estate Investment Trust, an entity affiliated with B. Francis Saul II, acquired 151,392 shares of common stock at an average price of $38.68 in open market trades during the period from March 13, 2012 through March 30, 2012.
Item 3. | Defaults Upon Senior Securities |
None
Item 4. | Mine Safety Disclosures |
Not Applicable
Item 5. | Other Information |
None
Item 6. | Exhibits |
3. | (a) | First Amended and Restated Articles of Incorporation of Saul Centers, Inc. filed with the Maryland Department of Assessments and Taxation on August 23, 1994 and filed as Exhibit 3.(a) of the 1993 Annual Report of the Company on Form 10-K are hereby incorporated by reference. Articles of Amendment to the First Amended and Restated Articles of Incorporation of Saul Centers, Inc., filed with the Maryland Department of Assessments and Taxation on May 28, 2004 and filed as Exhibit 3.(a) of the June 30, 2004 Quarterly Report of the Company is hereby incorporated by reference. Articles of Amendment to the First Amended and Restated Articles of Incorporation of Saul Centers, Inc., filed with the Maryland Department of Assessments and Taxation on May 26, 2006 and filed as Exhibit 3.(a) of the Companys Current Report on Form 8-K filed May 30, 2006 is hereby incorporated by reference. | ||||
(b) | Amended and Restated Bylaws of Saul Centers, Inc. as in effect at and after August 24, 1993 and as of August 26, 1993 and filed as Exhibit 3.(b) of the 1993 Annual Report of the Company on Form 10-K are hereby incorporated by reference. Amendment No. 1 to Amended and Restate Bylaws of Saul Centers, Inc. adopted November 29, 2007 and filed as Exhibit 3(b) of the Companys Current Report on Form 8-K filed December 3, 2007 is hereby incorporated by reference. |
-43-
(c) | Articles Supplementary to First Amended and Restated Articles of Incorporation of the Company, dated October 30, 2003, filed as Exhibit 2 to the Companys Current Report on Form 8-A dated October 31, 2003, is hereby incorporated by reference. | |||||
(d) | Articles Supplementary to First Amended and Restated Articles of Incorporation of the Company, as amended, dated March 26, 2008, filed as Exhibit 3.1 to the Companys Current Report on Form 8-K, filed March 27, 2008, is hereby incorporated by reference. | |||||
4. | (a) | Deposit Agreement, dated November 5, 2003, among the Company, Continental Stock Transfer & Trust Company, as Depositary, and the holders of depositary receipts, each representing 1/100th of a share of 8% Series A Cumulative Redeemable Preferred Stock of Saul Centers, Inc. and filed as Exhibit 4 to the Registration Statement on Form 8-A on October 31, 2003 is hereby incorporated by reference. | ||||
(b) | Deposit Agreement, dated March 27, 2008, among the Company, Continental Stock Transfer & Trust Company, as Depositary, and the holders of depositary receipts, each representing 1/100th of a share of 9% Series B Cumulative Redeemable Preferred Stock of Saul Centers, Inc. and filed as Exhibit 4.1 to the Registration Statement on Form 8-A on March 27, 2008 is hereby incorporated by reference. | |||||
(c) | Form specimen of receipt representing the depositary shares, each representing 1/100th of a share of 8% Series A Cumulative Redeemable Preferred Stock of Saul Centers, Inc. and included as part of Exhibit 4 to the Registration Statement on Form 8-A on October 31, 2003 is hereby incorporated by reference. | |||||
(d) | Form specimen of receipt representing the depositary shares, each representing 1/100th of a share of 9% Series B Cumulative Redeemable Preferred Stock of Saul Centers, Inc. and included as part of Exhibit 4.2 to the Registration Statement on Form 8-A on March 27, 2008 is hereby incorporated by reference. | |||||
10. | (a) | First Amended and Restated Agreement of Limited Partnership of Saul Holdings Limited Partnership filed as Exhibit No. 10.1 to Registration Statement No. 33-64562 is hereby incorporated by reference. The First Amendment to the First Amended and Restated Agreement of Limited Partnership of Saul Holdings Limited Partnership, the Second Amendment to the First Amended and Restated Agreement of Limited Partnership of Saul Holdings Limited Partnership, and the Third Amendment to the First Amended and Restated Agreement of Limited Partnership of Saul Holdings Limited Partnership filed as Exhibit 10.(a) of the 1995 Annual Report of the Company on Form 10-K is hereby incorporated by reference. The Fourth Amendment to the First Amended and Restated Agreement of Limited Partnership of Saul Holdings Limited Partnership filed as Exhibit 10.(a) of the March 31, 1997 Quarterly Report of the |
-44-
Company is hereby incorporated by reference. The Fifth Amendment to the First Amended and Restated Agreement of Limited Partnership of Saul Holdings Limited Partnership filed as Exhibit 4.(c) to Registration Statement No. 333-41436, is hereby incorporated by reference. The Sixth Amendment to the First Amended and Restated Agreement of Limited Partnership of Saul Holdings Limited Partnership filed as Exhibit 10.(a) of the September 30, 2003 Quarterly Report of the Company on Form 10-Q is hereby incorporated by reference. The Seventh Amendment to the First Amended and Restated Agreement of Limited Partnership of Saul Holdings Limited Partnership filed as Exhibit 10.(a) of the December 31, 2003 Annual Report of the Company on Form 10-K is hereby incorporated by reference. The Eighth Amendment to the First Amended and Restated Agreement of Limited Partnership of Saul Holdings Limited Partnership filed as Exhibit 10.(a) of the December 31, 2007 Annual Report of the Company on Form 10-K is hereby incorporated by reference. The Ninth Amendment to the First Amended and Restated Agreement of Limited Partnership of Saul Holdings Limited Partnership filed as Exhibit 10.(a) of the March 31, 2008 Quarterly Report of the Company on Form 10-Q is hereby incorporated by reference. The Tenth Amendment to the First Amended and Restated Agreement of Limited Partnership of Saul Holdings Limited Partnership filed as Exhibit 10.(a) of the March 31, 2008 Quarterly Report of the Company on Form 10-Q is hereby incorporated by reference. The Eleventh Amendment to the First Amended and Restated Agreement of Limited Partnership of Saul Holdings Limited Partnership filed as Exhibit 10.(a) of the September 30, 2011 Quarterly Report of the Company on Form 10-Q is hereby incorporated by reference. | ||||||
(b) | First Amended and Restated Agreement of Limited Partnership of Saul Subsidiary I Limited Partnership and Amendment No. 1 thereto filed as Exhibit 10.2 to Registration Statement No. 33-64562 are hereby incorporated by reference. The Second Amendment to the First Amended and Restated Agreement of Limited Partnership of Saul Subsidiary I Limited Partnership, the Third Amendment to the First Amended and Restated Agreement of Limited Partnership of Saul Subsidiary I Limited Partnership and the Fourth Amendment to the First Amended and Restated Agreement of Limited Partnership of Saul Subsidiary I Limited Partnership as filed as Exhibit 10.(b) of the 1997 Annual Report of the Company on Form 10-K are hereby incorporated by reference. | |||||
(c) | First Amended and Restated Agreement of Limited Partnership of Saul Subsidiary II Limited Partnership and Amendment No. 1 thereto filed as Exhibit 10.3 to Registration Statement No. 33-64562 are hereby incorporated by reference. The Second Amendment to the First Amended and Restated Agreement of Limited Partnership of Saul Subsidiary II Limited Partnership filed as Exhibit 10.(c) of the June 30, 2001 Quarterly Report of the Company is hereby incorporated by reference. The Third Amendment to the First Amended and Restated Agreement of Limited Partnership of Saul Subsidiary II Limited Partnership as filed as exhibit 10.(c) |
-45-
of the 2006 Annual Report of the Company on Form 10-K are hereby incorporated by reference. The Fourth Amendment to the First Amended and Restated Agreement of Limited Partnership of Saul Subsidiary II Limited Partnership as filed as Exhibit 10.(c) of the 2009 Annual Report of the Company on Form 10-K are hereby incorporated by reference. | ||||||
(d) | Property Conveyance Agreement filed as Exhibit 10.4 to Registration Statement No. 33-64562 is hereby incorporated by reference. | |||||
(e) | Management Functions Conveyance Agreement filed as Exhibit 10.5 to Registration Statement No. 33-64562 is hereby incorporated by reference. | |||||
(f) | Registration Rights and Lock-Up Agreement filed as Exhibit 10.6 to Registration Statement No. 33-64562 is hereby incorporated by reference. | |||||
(g) | Exclusivity and Right of First Refusal Agreement filed as Exhibit 10.7 to Registration Statement No. 33-64562 is hereby incorporated by reference. | |||||
(h) | Agreement of Assumption dated as of August 26, 1993 executed by Saul Holdings Limited Partnership and filed as Exhibit 10.(i) of the 1993 Annual Report of the Company on Form 10-K is hereby incorporated by reference. | |||||
(i) | Deferred Compensation Plan for Directors, dated as of April 23, 2004 and filed as Exhibit 10.(k) of the June 30, 2004 Quarterly Report of the Company is hereby incorporated by reference. | |||||
(j) | Revolving Credit Agreement, dated as of December 19, 2007, by and among Saul Holdings Limited Partnership as Borrower; U.S. Bank National Association, as Administrative Agent and Sole Lead Arranger; Wells Fargo Bank National Association, as Syndication Agent; and U.S. Bank National Association, Wells Fargo Bank National Association, Compass Bank, and Sovereign Bank, as Lenders, as filed as Exhibit 10.(b) of the Companys Current Report on Form 8-K, dated August 11, 2010, is hereby incorporated by reference. Modification to Revolving Credit Agreement, dated April 30, 2009, as filed as Exhibit 10.(l) of the June 30, 2009 Quarterly Report of the Company, is hereby incorporated by reference. Second Modification to Revolving Credit Agreement, dated July 9, 2009, as filed as Exhibit 10.(l) of the June 30, 2009 Quarterly Report of the Company, is hereby incorporated by reference. Third Modification to Revolving Credit Agreement, dated July 28, 2009, as filed as Exhibit 10.(l) of the June 30, 2009 Quarterly Report of the Company, is hereby incorporated by reference. Fourth Modification to Revolving Credit Agreement dated August 30, 2010, as filed as Exhibit 10.(j) of the September 30, 2010 Quarterly Report of the Company, is hereby incorporated by reference. | |||||
(k) | Guaranty, dated as of December 19, 2007, by and between Saul Centers, Inc., as Guarantor, and U.S. Bank National Association, as Administrative |
-46-
Agent and Sole Lead Arranger for itself and other financial institutions as Lenders, as filed as Exhibit 10.(o) of the December 31, 2007 Annual Report of the Company on Form 10-K, is hereby incorporated by reference. | ||||||
(l) | The Saul Centers, Inc. 2004 Stock Plan, as filed as Annex A to the Proxy Statement of the Company for its 2004 Annual Meeting of Stockholders, is hereby incorporated by reference. The Amendment to Saul Centers, Inc. 2004 Stock Plan, as filed as Annex A to the Proxy Statement of the Company for its 2008 Annual Meeting of Stockholders, is hereby incorporated by reference. | |||||
(m) | Form of Director Stock Option Agreements, as filed as Exhibit 10.(j) of the September 30, 2004 Quarterly Report of the Company, is hereby incorporated by reference. | |||||
(n) | Form of Officer Stock Option Grant Agreements, as filed as Exhibit 10.(k) of the September 30, 2004 Quarterly Report of the Company, is hereby incorporated by reference. | |||||
(o) | Promissory Note, dated as of March 23, 2011, by Clarendon Center LLC to The Prudential Life Insurance Company of America as filed as Exhibit 10.(a) of the Companys Current Report on Form 8-K dated April 28, 2011, is hereby incorporated by reference. | |||||
(p) | Deed of Trust, Security Agreement and Fixture Filing, dated as of March 23, 2011, by Clarendon Center LLC to Lawyers Title Realty Services, Inc. as trustee for the benefit of The Prudential Insurance Company of America, as beneficiary, as filed as Exhibit 10.(b) of the Companys Current Report on Form 8-K dated April 28, 2011, is hereby incorporated by reference. | |||||
(q) | Shared Services Agreement, dated as of July 1, 2004, between B. F. Saul Company and Saul Centers, Inc., as filed as Exhibit 10. (c) of the Companys Current Report on Form 8-K dated August 11, 2010, is hereby incorporated by reference. | |||||
(r) | Purchase Agreement, dated as of August 9, 2011, by and among the Company, Saul Holdings Limited Partnership and B. F. Saul Real Estate Investment Trust and filed as Exhibit 10.(r) of the September 30, 2011 Quarterly Report of the Company is hereby incorporated by reference. | |||||
(s) | Agreement of Purchase and Sale, dated as of August 9, 2011, between Cranberry Retail, Inc. and Saul Holdings Limited Partnership, as amended and filed as Exhibit 2.(a) of the September 30, 2011 Quarterly Report of the Company is hereby incorporated by reference. | |||||
(t) | Agreement of Purchase and Sale, dated as of August 9, 2011, between Kentlands Retail, Inc. and Saul Holdings Limited Partnership, as amended and filed as Exhibit 2.(b) of the September 30, 2011 Quarterly Report of the Company is hereby incorporated by reference. |
-47-
(u) | Agreement of Purchase and Sale, dated as of August 9, 2011, between Severna Retail, Inc. and Saul Holdings Limited Partnership, as amended and filed as Exhibit 2.(c) of the September 30, 2011 Quarterly Report of the Company is hereby incorporated by reference. | |||||
31. | Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive Officer and Chief Financial Officer (filed herewith). | |||||
32. | Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer (filed herewith). | |||||
99. | Schedule of Portfolio Properties (filed herewith). | |||||
101. | The following financial statements from the Companys Quarterly Report on Form 10-Q for the three month period ended March 31, 2012, formatted in Extensible Business Reporting Language (XBRL): (i) consolidated balance sheets, (ii) consolidated statements of operations, (iii) consolidated statements of changes in stockholders equity and comprehensive income, (iv) consolidated statements of cash flows, and (v) the notes to the consolidated financial statements, tagged as blocks of text as filed herewith. Under Rule 406T of Regulation S-T, this exhibit is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise is not subject to liability under those sections. |
-48-
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SAUL CENTERS, INC. | ||||
(Registrant) | ||||
Date: May 3, 2012 | /s/ B. Francis Saul III | |||
B. Francis Saul III, President | ||||
Date: May 3, 2012 | /s/ Scott V. Schneider | |||
Scott V. Schneider | ||||
Senior Vice President, Chief Financial Officer | ||||
(principal financial officer) | ||||
Date: May 3, 2012 | /s/ Joel A. Friedman | |||
Joel A. Friedman | ||||
Senior Vice President, Chief Accounting Officer | ||||
(principal accounting officer) |
-49-
Exhibit 31
CERTIFICATIONS
I, B. Francis Saul II, certify that:
1. | I have reviewed this report on Form 10-Q of Saul Centers, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal period that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: May 3, 2012 |
/S/ B. Francis Saul II |
B. Francis Saul II |
Chairman and Chief Executive Officer |
CERTIFICATIONS
I, Scott V. Schneider, certify that:
1. | I have reviewed this report on Form 10-Q of Saul Centers, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal period that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: May 3, 2012 |
/S/ Scott V. Schneider |
Scott V. Schneider |
Senior Vice President, |
Chief Financial Officer, |
Secretary and Treasurer |
Exhibit 32
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, B. Francis Saul II, the Chairman and Chief Executive Officer of Saul Centers, Inc. (the Company), has executed this certification in connection with the filing with the Securities and Exchange Commission of the Companys Quarterly Report on Form 10-Q for the period ending March 31, 2012 (the Report). The undersigned hereby certifies that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: | May 3, 2012 |
/S/ B. Francis Saul II | ||||
Name: B. Francis Saul II | ||||||
Title: Chairman & Chief Executive Officer |
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Scott V. Schneider, the Chief Financial Officer of Saul Centers, Inc. (the Company), has executed this certification in connection with the filing with the Securities and Exchange Commission of the Companys Quarterly Report on Form 10-Q for the period ending March 31, 2012 (the Report). The undersigned hereby certifies that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: | May 3, 2012 |
/S/ Scott V. Schneider | ||||||
Name: | Scott V. Schneider | |||||||
Title: | Senior Vice President, Chief Financial Officer, Secretary & Treasurer |
Exhibit 99
Saul Centers, Inc.
Schedule of Current Portfolio Properties
March 31, 2012
Property |
Location |
Leasable Area (Square Feet) |
Year Acquired or
Developed |
Land Area (Acres) |
Percentage Leased (1) | Anchor / Significant Tenants | ||||||||||||
Mar-12 | Mar-11 |
|||||||||||||||||
Shopping Centers |
||||||||||||||||||
Ashburn Village |
Ashburn, VA |
221,770 | 1994/00/01/02/06 | 26.4 | 91% | 88% | Giant Food, Hallmark Cards, McDonalds, Burger King, Dunkin Donuts, Kinder Care | |||||||||||
Ashland Square Phase I |
Dumfries, VA |
16,550 | 2007 | 2.0 | 100% | 100% | Capital One Bank, CVS Pharmacy | |||||||||||
Beacon Center |
Alexandria, VA |
358,015 | 1972 (1993/99/07) | 32.3 | 100% | 100% | Lowes Home Improvement Center, Giant Food, Office Depot, Outback Steakhouse, Marshalls, Hancock Fabrics, Party Depot, Panera Bread, TGI Fridays, Starbucks, Famous Daves, Chipotle | |||||||||||
Belvedere Gardens |
Baltimore, MD |
54,941 | 1972 | 4.8 | 93% | 93% | Fresh Point Grocery Store, Family Dollar | |||||||||||
BJs Wholesale Club |
Alexandria, VA |
115,660 | 2008 | 9.6 | 100% | 100% | BJs Wholesale Club | |||||||||||
Boca Valley Plaza |
Boca Raton, FL |
121,269 | 2004 | 12.7 | 81% | 82% | Publix, Wachovia Bank | |||||||||||
Boulevard |
Fairfax, VA |
49,140 | 1994 (1999/09) | 5.0 | 98% | 100% | Panera Bread, Party City, Petco | |||||||||||
Briggs Chaney MarketPlace |
Silver Spring, MD |
194,347 | 2004 | 18.2 | 100% | 100% | Safeway, Ross Dress For Less, Family Dollar, Advance Auto. McDonalds, Wendys, Chuck E Cheese | |||||||||||
Broadlands Village |
Ashburn, VA |
159,734 | 2003/4/6 | 24.0 | 90% | 87% | Safeway, The All American Steakhouse, Bonefish Grill, Starbucks | |||||||||||
Countryside Marketplace |
Sterling, VA |
141,696 | 2004 | 16.0 | 90% | 92% | Safeway, CVS Pharmacy, Starbucks | |||||||||||
Cranberry Square |
Westminster, MD |
141,569 | 2011 | 18.9 | 91% | NA | Giant Food, Staples, Party City, Pier 1 Imports, Jos A Banks, Wendys | |||||||||||
Cruse MarketPlace |
Cumming, GA |
78,686 | 2004 | 10.6 | 88% | 86% | Publix | |||||||||||
Flagship Center |
Rockville, MD |
21,500 | 1972, 1989 | 0.5 | 100% | 100% | Capital One Bank | |||||||||||
French Market |
Oklahoma City, OK |
244,724 | 1974 (1984/98) | 13.8 | 94% | 98% | Burlington Coat Factory, Bed Bath & Beyond, Staples, Famous Footwear, Lakeshore Learning Center, Alfred Angelo, Dollar Tree | |||||||||||
Germantown |
Germantown, MD |
27,241 | 1992 | 2.7 | 91% | 79% | Jiffy Lube | |||||||||||
Giant |
Milford Mill, MD |
70,040 | 1972 (1990) | 5.0 | 94% | 94% | Giant Food | |||||||||||
The Glen |
Woodbridge, VA |
135,870 | 1994 (2005) | 14.7 | 98% | 96% | Safeway Marketplace, The All American Steakhouse, Panera Bread, Five Guys | |||||||||||
Great Eastern |
District Heights, MD |
255,398 | 1972 (1995) | 31.9 | 99% | 98% | Fresh World, Pep Boys, Big Lots, Capital Sports Complex | |||||||||||
Great Falls Center |
Great Falls, VA |
91,666 | 2008 | 11.0 | 99% | 92% | Safeway, CVS Pharmacy, Capital One Bank, Starbucks, Subway | |||||||||||
Hampshire Langley |
Takoma Park, MD |
131,700 | 1972 (1979) | 9.9 | 95% | 100% | Expo E Mart, Radio Shack, Starbucks, Footlocker | |||||||||||
Hunt Club Corners |
Apopka, FL |
101,522 | 2006 | 13.1 | 94% | 94% | Publix, Walgreens, Radio Shack, Hallmark | |||||||||||
Jamestown Place |
Altamonte Springs, FL |
96,372 | 2005 | 10.9 | 92% | 92% | Publix, Carrabas Italian Grill | |||||||||||
Kentlands Square I |
Gaithersburg, MD |
114,381 | 2002 | 11.5 | 100% | 100% | Lowes Home Improvement Center, Chipotle | |||||||||||
Kentlands Square II |
Gaithersburg, MD |
240,683 | 2011 | 22.3 | 100% | NA | Giant Food, Kmart, Party City, Panera Bread, Not Your Average Joes, Payless Shoes, Hallmark, Chick-Fil-A | |||||||||||
Kentlands Place |
Gaithersburg, MD |
40,648 | 2005 | 3.4 | 97% | 93% | Elizabeth Ardens Red Door Salon, Bonefish Grill, Subway |
Exhibit
Saul Centers, Inc.
Schedule of Current Portfolio Properties
March 31, 2012
Property |
Location |
Leasable Area (Square Feet) |
Year Acquired or
Developed |
Land Area (Acres) |
Percentage Leased (1) | Anchor / Significant Tenants | ||||||||||||||
Mar-12 | Mar-11 |
|||||||||||||||||||
Shopping Centers (continued) |
||||||||||||||||||||
Lansdowne Town Center |
Leesburg, VA |
189,352 | 2006 | 23.4 | 96% | 92% | Harris Teeter, CVS Pharmacy, Panera Bread, Not Your Average Joes, Starbucks, Velocity 5 | |||||||||||||
Leesburg Pike Plaza |
Baileys Crossroads, VA |
97,752 | 1966 (1982/95) | 9.4 | 95% | 100% | CVS Pharmacy, Party Depot, FedEx Kinkos, Radio Shack, Verizon Wireless | |||||||||||||
Lumberton Plaza |
Lumberton, NJ |
193,044 | 1975 (1992/96) | 23.3 | 82% | 90% | Bottom Dollar Food, Rite Aid, Virtua Health Center, Radio Shack, Family Dollar, Retro Fitness | |||||||||||||
Metro Pike Center |
Rockville, MD |
67,487 | 2010 | 4.6 | 74% | 89% | McDonalds, Jennifer Convertibles, Fed ExKinkos, Dunkin Donuts, Seven Eleven | |||||||||||||
Shops at Monocacy |
Frederick, MD |
109,144 | 2004 | 13.0 | 86% | 90% | Giant Food, Giant Gas Station, Panera Bread, Starbucks, Five Guys, California Tortilla | |||||||||||||
Northrock |
Warrenton, VA |
103,439 | 2009 | 15.4 | 78% | 72% | Harris Teeter, Longhorn Steakhouse, Ledos Pizza, Capital One Bank | |||||||||||||
Olde Forte Village |
Ft. Washington, MD |
143,577 | 2003 | 16.0 | 93% | 91% | Safeway, Advance Auto, Dollar Tree, Radio Shack, McDonalds, Wendys, Ledos Pizza | |||||||||||||
Olney |
Olney, MD |
53,765 | 1975 (1990) | 3.7 | 95% | 94% | Rite Aid, Olney Grill, Ledos Pizza, Popeyes | |||||||||||||
Orchard Park |
Dunwoody, GA |
87,885 | 2007 | 10.5 | 88% | 91% | Kroger | |||||||||||||
Palm Springs Center |
Altamonte Springs, FL |
126,446 | 2005 | 12.0 | 94% | 91% | Albertsons, Office Depot, Mimis Cafe, Toojays Deli | |||||||||||||
Ravenwood |
Baltimore, MD |
93,328 | 1972 (2006) | 8.0 | 91% | 91% | Giant Food, Starbucks | |||||||||||||
11503 Rockville Pike |
Rockville, MD |
20,149 | 2010 | 1.9 | 100% | 100% | Staples | |||||||||||||
Seabreeze Plaza |
Palm Harbor, FL |
146,673 | 2005 | 18.4 | 96% | 95% | Publix, Earth Origins Health Food, Petco, Planet Fitness, Vision Works | |||||||||||||
Marketplace at Sea Colony |
Bethany Beach, DE |
21,677 | 2008 | 5.1 | 95% | 78% | Seacoast Realty, Armands Pizza, Candy Kitchen, Turquoise Restaurant | |||||||||||||
Seven Corners |
Falls Church, VA |
574,831 | 1973 (1994-7/07) | 31.6 | 91% | 100% | The Home Depot, Shoppers Food & Pharmacy, Michaels Arts & Crafts, Barnes & Noble, Ross Dress For Less, Ski Chalet, G Street Fabrics, Off-Broadway Shoes, The Room Store, Dress Barn, Starbucks, Dogfishhead Ale House, Red Robin Gourmet Burgers, Chipotle, Wendys | |||||||||||||
Severna Park Marketplace |
Severna Park, MD |
254,174 | 2011 | 20.6 | 100% | NA | Giant Food, Kohls, Office Depot, A.C. Moore, Goodyear, Chipotle, McDonalds, Jos. A Banks, Radio Shack, Atlanta Bread Company, Five Guys, Unleashed | |||||||||||||
Shops at Fairfax |
Fairfax, VA |
68,743 | 1975 (1993/99) | 6.7 | 100% | 93% | Super H Mart | |||||||||||||
Smallwood Village Center |
Waldorf, MD |
173,281 | 2006 | 25.1 | 69% | 64% | Safeway, CVS Pharmacy, Family Dollar | |||||||||||||
Southdale |
Glen Burnie, MD |
484,115 | 1972 (1986) | 39.6 | 93% | 94% | The Home Depot, Foodvalu, Michaels Arts & Crafts, Marshalls, PetSmart, Value City Furniture, Athletic Warehouse, Starbucks, Gallo Clothing | |||||||||||||
Southside Plaza |
Richmond, VA |
371,761 | 1972 | 32.8 | 93% | 92% | Community Supermarket, Maxway, Citi Trends, City of Richmond, McDonalds, Burger King, Kool Smiles | |||||||||||||
South Dekalb Plaza |
Atlanta, GA |
163,418 | 1976 | 14.6 | 89% | 82% | Maxway, Big Lots, Emory Clinic, Deal$ (Dollar Tree) | |||||||||||||
Thruway |
Winston-Salem, NC |
362,600 | 1972 (1997) | 30.5 | 90% | 90% | Harris Teeter, Trader Joes, Stein Mart, Talbots, Hanes Brands, Jos. A Banks, Bonefish Grill, Chicos, Ann Taylor Loft, Coldwater Creek, Rite Aid, FedEx/Kinkos, Plow & Hearth, New Balance, Aveda Salon, Christies Hallmark, Carters Kids, McDonalds, Chick-Fil-A, Wells Fargo Bank, Francescas Collections, Great Outdoor Provision Company | |||||||||||||
Village Center |
Centreville, VA |
146,309 | 1990 | 17.2 | 94% | 92% | Giant Food, Tuesday Morning, Starbucks, McDonalds | |||||||||||||
West Park |
Oklahoma City, OK |
76,610 | 1975 | 11.2 | 12% | 12% | Family Dollar | |||||||||||||
Westview Village |
Frederick, MD |
100,997 | 2009 | 10.4 | 57% | 45% | Mimis Cafe, Sleepys, Music & Arts, Firehouse Subs, CiCis Pizza | |||||||||||||
White Oak |
Silver Spring, MD |
480,276 | 1972 (1993) | 28.5 | 99% | 99% | Giant Food, Sears, Walgreens, Radio Shack, Boston Market, Sarku | |||||||||||||
|
|
|
|
|
|
|
||||||||||||||
Total Shopping Centers | 7,935,955 | 764.7 | 91.9% | 91.6% | ||||||||||||||||
|
|
|
|
|
|
|
Exhibit
Saul Centers, Inc.
Schedule of Current Portfolio Properties
March 31, 2012
Property |
Location |
Leasable Area (Square Feet) |
Year Acquired or
Developed |
Land Area (Acres) |
Percentage Leased (1) | Anchor / Significant Tenants | ||||||||||||||
Mar-12 | Mar-11 |
|||||||||||||||||||
Mixed-Use Properties |
||||||||||||||||||||
Avenel Business Park |
Gaithersburg, MD | 390,579 | 1981-2000 | 37.1 | 82% | 81% | General Services Administration, VIRxSYS, SeraCare Life Sciences, Bio-Reference Laboratories, Inc, Direct Buy | |||||||||||||
Clarendon Center-North Block |
Arlington, VA | 108,387 | 2010 | 0.6 | 86% | 75% | Petes New Haven Pizza, AT&T, BGR, Airline Reporting Corporation, Personnel Decisions | |||||||||||||
Clarendon Center-South Block |
Arlington, VA | 104,638 | 2010 | 1.3 | 99% | 57% | Trader Joes, Circa, Burke Herbert Bank, Cannon Design, Winston Partners, Keppler Speakers Bureau, ECG Management Co., Leadership Institute, Capital One | |||||||||||||
Clarendon Center Residential-South Block (244 units) |
188,671 | 2010 | 98% | 99% | ||||||||||||||||
Crosstown Business Center |
Tulsa, OK | 197,127 | 1975 (2000) | 22.4 | 87% | 87% | Compass Group, Roxtec, Keystone Automotive, Freedom Express, Direct TV, Auto Panels Plus, Valhoma Corporation | |||||||||||||
601 Pennsylvania Ave. |
Washington, DC | 226,604 | 1973 (1986) | 1.0 | 95% | 95% | National Gallery of Art, American Assn. of Health Plans, Credit Union National Assn., Southern Company, HQ Global, Freedom Forum, Pharmaceutical Care Management Assn., Capital Grille | |||||||||||||
Van Ness Square |
Washington, DC | 159,411 | (3) | 1973 (1990) | 1.4 | (3) | 60% | (3) | 64% | Office Depot, Pier 1 | ||||||||||
Washington Square |
Alexandria, VA | 235,042 | 1975 (2000) | 2.0 | 92% | 76% | Vanderweil Engineering, AECOM, Freeman Decorating Services, Tauri Group, Cooper Carry, Bank of America, Marketing General, Alexandria Economic Development, Trader Joes, Fed Ex/Kinkos, Talbots, Teaism Restaurant, Starbucks, The Business Bank | |||||||||||||
|
|
|
|
|
|
|
||||||||||||||
Total Mixed-Use Properties | 1,610,459 | 65.8 | 85.5% | (2) | 79.3% | |||||||||||||||
|
|
|
|
|
|
|
||||||||||||||
Total Portfolio | 9,546,414 | 830.5 | 90.9% | (2) | 89.6% | |||||||||||||||
|
|
|
|
|
|
|
||||||||||||||
Land and Development Parcels | ||||||||||||||||||||
Ashland Square Phase II |
Manassas, VA | 2004 | 17.3 | |
Marketing to grocers and other retail businesses, with a development timetable yet to be finalized. | |||||||||||||||
New Market |
New Market, MD | 2005 | 35.5 | |
Parcel will accommodate retail development in excess of 120,000 SF near I-70, east of Frederick, Maryland. A development timetable has not been determined. | |||||||||||||||
|
|
|||||||||||||||||||
Total Development Properties | 52.8 | |||||||||||||||||||
|
|
(1) | Percentage leased is a percentage of rentable square feet leased for commercial space and a percentage of units leased for apartments. |
(2) | Total percentage leased is for commercial space only. |
(3) | Includes 2011 acquisition of 4469 Connecticut Avenue (2,918 SF). |
Exhibit
Organization, Formation and Structure
|
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2012
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Organization, Formation and Structure |
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”). A REIT is required to annually distribute at least 90% of its REIT taxable income (excluding net capital gains) to its stockholders and meet certain organizational and other requirements. Saul Centers has made and intends to continue to make regular quarterly distributions to its stockholders. Saul Centers, together with its wholly owned subsidiaries and the limited partnerships of which Saul Centers or one of its subsidiaries is the sole general partner, are referred to collectively as the “Company.” B. Francis Saul II serves as Chairman of the Board of Directors and Chief Executive Officer of Saul Centers. Saul Centers was formed to continue and expand the shopping center business previously owned and conducted by the B.F. Saul Real Estate Investment Trust, the B.F. Saul Company and certain other affiliated entities, each of which is currently 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 Partnership, the “Partnerships”), shopping center and mixed-use properties, and the management functions related to the transferred properties. Since its formation, the Company has developed and purchased additional properties. The following table lists the properties acquired and/or developed by the Company since December 31, 2010.
As of March 31, 2012, the Company’s properties (the “Current Portfolio Properties”) consisted of 51 operating shopping center properties (the “Shopping Centers”), seven mixed-use properties which are comprised of office, retail and multi-family residential uses (the “Mixed-Use Properties”) and two (non-operating) development properties. |
'0O:'1M;#L@8VAA
M