<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
---- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
-----------------------------------------
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
---- SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to _____________________
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 (I.R.S. Employer
Incorporation or Organization) Identification No.)
8401 Connecticut Avenue
Chevy Chase, Maryland 20815
- ------------------------------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
(301) 986-6000
- ------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
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 the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date: 12,061,551 shares of common
stock, $0.01 par value, outstanding as of August 12, 1996.
<PAGE>
SAUL CENTERS, INC.
PART I. FINANCIAL INFORMATION Page
----
Item 1. FINANCIAL STATEMENTS (UNAUDITED)
(a) Consolidated Balance Sheets as of June 30, 1996
and December 31, 1995. 3
(b) Consolidated Statements of Operations for the
three months and six months ended June 30, 1996 and 1995. 4
(c) Consolidated Statements of Stockholders' Equity
as of June 30, 1996. 5
(d) Consolidated Statements of Cash Flows for the
three months and six months ended June 30, 1996 and 1995. 6
(e) Notes to Consolidated Financial Statements 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(a) Financial Condition 17
(b) Liquidity and Capital Resources 19
(c) Results of Operations
Three Months Ended June 30, 1996 compared to
Three Months Ended June 30, 1995 21
Six Months Ended June 30, 1996 compared to
Six Months Ended June 30, 1995 22
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 24
2
<PAGE>
SAUL CENTERS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
(IN THOUSANDS) 1996 1995
- -------------- ------------- -------------
<S> <C> <C>
ASSETS
Real estate investments
Land $ 65,604 $ 64,258
Buildings and equipment 266,830 257,404
------------- -------------
332,434 321,662
Accumulated depreciation (97,309) (92,237)
------------- -------------
235,125 229,425
Construction in progress 3,050 6,986
Cash 1,309 674
Accounts receivable and accrued income, net 7,356 9,522
Prepaid expenses 3,532 4,629
Deferred debt expense, net 14,008 15,423
Other assets 5,281 2,748
------------- -------------
TOTAL ASSETS $ 269,661 $ 269,407
------------- -------------
------------- -------------
LIABILITIES
Notes payable $ 276,508 $ 273,083
Accounts payable, accrued expenses and other liabilities 12,729 11,982
Deferred income 1,762 1,077
------------- -------------
TOTAL LIABILITIES 290,999 286,142
------------- -------------
MINORITY INTERESTS -- --
------------- -------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $0.01 par value, 30,000,000 shares
authorized, 11,994,130 and 11,879,100 shares issued and
outstanding, respectively 120 119
Additional paid-in capital 13,776 12,243
Accumulated deficit (35,234) (29,097)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (21,338) (16,735)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 269,661 $ 269,407
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
SAUL CENTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------------- ----------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1996 1995 1996 1995
- ---------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUE
Base rent $ 12,378 $ 11,626 $ 24,638 $ 23,365
Expense recoveries 2,179 2,181 4,472 4,393
Percentage rent 709 758 1,425 1,359
Other 554 629 918 1,258
------------- ------------- ------------- -------------
TOTAL REVENUE 15,820 15,194 31,453 30,375
------------- ------------- ------------- -------------
EXPENSES
Operating expenses 1,902 2,043 4,119 4,088
Provision for credit losses 106 10 161 114
Real estate taxes 1,514 1,267 2,884 2,667
Interest expense 4,607 4,353 9,033 8,650
Amortization of deferred debt expense 734 602 1,466 1,139
Depreciation and amortization 2,927 2,382 5,607 4,794
General and administrative 808 750 1,562 1,492
------------- ------------- ------------- -------------
TOTAL EXPENSES 12,598 11,407 24,832 22,944
------------- ------------- ------------- -------------
NET INCOME BEFORE MINORITY INTERESTS 3,222 3,787 6,621 7,431
------------- ------------- ------------- -------------
MINORITY INTERESTS
Minority share of income (870) (1,022) (1,788) (2,006)
Distributions in excess of earnings (843) (691) (1,638) (1,420)
------------- ------------- ------------- -------------
TOTAL MINORITY INTERESTS (1,713) (1,713) (3,426) (3,426)
------------- ------------- ------------- -------------
NET INCOME $ 1,509 $ 2,074 $ 3,195 $ 4,005
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
NET INCOME PER SHARE
Net income per share before minority interests $ 0.20 $ 0.23 $ 0.41 $ 0.46
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Net income per share $ 0.13 $ 0.17 $ 0.27 $ 0.34
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
SAUL CENTERS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STOCK CAPITAL DEFICIT TOTAL
- ---------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
STOCKHOLDERS' EQUITY (DEFICIT):
Balance, December 31, 1994 $ 119 $ 12,243 $ (16,926) $ (4,564)
Net income -- -- 6,361 6,361
Distributions ($1.17 per share) -- -- (13,899) (13,899)
Distributions payable ($.39 per share) -- -- (4,633) (4,633)
------------- ------------- ------------- -------------
Balance, December 31, 1995 119 12,243 (29,097) (16,735)
Issuance of 56,050 shares of common
stock through dividend reinvestment plan -- 739 -- 739
Net income -- -- 1,686 1,686
Distributions payable ($.39 per share) -- -- (4,654) (4,654)
------------- ------------- ------------- -------------
Balance, March 31, 1996 119 12,982 (32,065) (18,964)
Issuance of 58,980 shares of common
stock through dividend reinvestment plan 1 794 -- 795
Net income -- -- 1,509 1,509
Distributions payable ($.39 per share) -- -- (4,678) (4,678)
------------- ------------- ------------- -------------
Balance, June 30, 1996 $ 120 $ 13,776 $ (35,234) $ (21,338)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
SAUL CENTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For The
Six Months
Ended June 30,
----------------------------
(In thousands) 1996 1995
- -------------- ------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,195 $ 4,005
------------- -------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Minority interests 3,426 3,426
Depreciation and amortization 7,073 5,933
Provision for credit losses 161 114
Decrease in accounts receivable 2,005 3,126
Decrease in prepaid expenses 562 414
Increase in other assets (2,533) (72)
Increase in accounts payable and other liabilities 747 1,672
Increase (decrease) in deferred income 685 (719)
------------- -------------
Total adjustments 12,126 13,894
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 15,321 17,899
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to real estate investments (3,956) (2,640)
Additions to construction in progress (2,880) (11,451)
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (6,836) (14,091)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 12,437 12,400
Repayments on notes payable (9,012) (1,225)
Additions to deferred debt expense (51) (2,383)
Proceeds from the reinvestment of dividends in
shares of common stock 1,534 --
Distributions to common stockholders and
holders of convertible limited partnership
units in the Operating Partnership (12,758) (12,692)
------------- -------------
NET CASH USED IN FINANCING ACTIVITIES (7,850) (3,900)
------------- -------------
Net increase (decrease) in cash 635 (92)
Cash, beginning of period 674 1,027
------------- -------------
Cash, end of period $ 1,309 $ 935
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION, FORMATION, STRUCTURE AND BASIS OF PRESENTATION
ORGANIZATION
Saul Centers, Inc. ("Saul Centers") was incorporated under the Maryland
General Corporation Law on June 10, 1993. The authorized capital stock of
Saul Centers consists of 30,000,000 shares of common stock, having a par
value of $0.01 per share, and 1,000,000 shares of preferred stock. Each
holder of common stock is entitled to one vote for each share held. In
conjunction with the organization of Saul Centers, 50 shares of common stock
were issued to The Saul Organization (as defined below). 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".
FORMATION AND STRUCTURE OF COMPANY
Saul Centers was formed to continue and expand the shopping center
business previously owned and conducted by the B.F. Saul Real Estate
Investment Trust, the B.F. Saul Company, Chevy Chase Bank, F.S.B. and certain
other affiliated entities (collectively, "The Saul Organization"). On August
26, 1993, 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") 26 shopping center properties, one office
property, one research park and one office/retail property and the management
functions related to the transferred properties. These properties and related
management functions collectively represent the "Saul Centers Portfolio
Properties." Since its formation, the Company has purchased three additional
community and neighborhood shopping center properties, and purchased a land
parcel which the Company developed into a neighborhood shopping center.
Therefore, as of June 30, 1996, the Company's properties (the "Current
Portfolio Properties") consisted of 30 operating shopping center properties
(the "Shopping Centers"), and three predominantly office properties (the
"Commercial Properties"). Saul Centers completed its initial stock offerings
on August 26, 1993, with the sale of 11,400,000 shares of common stock at $20
per share in an initial public offering and 479,050 shares of common stock at
$20 per share in a private offering to The Saul Organization (collectively,
the "Offerings"). Subsequent to the Offerings, there were 11,879,100 shares
of common stock and no shares of preferred stock outstanding. Net proceeds
of the Offerings (after expenses of approximately $18.2 million), and net
proceeds of new bank borrowings were primarily used to curtail existing
indebtedness related to the Saul Centers Portfolio Properties. After
consummation of the Offerings, Saul Centers owned a 73.0 percent general
partnership interest in the Operating Partnership and a 1.0 percent general
partnership interest in each of the two Subsidiary Partnerships, which were
formed for tax planning purposes and to facilitate future financing by the
Company. Saul Centers made an election to be treated as a real estate
investment trust under the Internal Revenue Code of 1986, as amended (a
"REIT").
7
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
1. ORGANIZATION, FORMATION, STRUCTURE AND BASIS OF PRESENTATION
(CONTINUED)
In July 1994, the Company established Saul QRS, Inc. and SC Finance
Corporation, each of which is a wholly owned subsidiary of Saul Centers. Saul
QRS, Inc. was established to succeed to the interest of Saul Centers as the sole
general partner of Saul Subsidiary I Limited Partnership, one of the Subsidiary
Partnerships, and SC Finance Corporation was established for the purpose of
issuing $128 million of collateralized floating rate mortgage notes (the
"Mortgage Notes"). In connection with these transactions, the Operating
Partnership transferred ten Shopping Centers previously owned by it to Saul
Subsidiary I Limited Partnership as an additional capital contribution and Saul
Subsidiary II Limited Partnership transferred one Shopping Center previously
owned by it to Saul Subsidiary I Limited Partnership as an initial capital
contribution in return for a limited partnership interest in Saul Subsidiary I
Limited Partnership. As a consequence of these transfers, Saul Subsidiary I
Limited Partnership currently owns a total of 17 Shopping Centers (the
"Mortgaged Properties"). The Mortgaged Properties, which continue to be managed
by the Operating Partnership, secure the mortgage purchased with proceeds of
issuance of the Mortgage Notes.
As a consequence of the transactions constituting the formation of the
Company and the later transactions described above undertaken in connection with
the Mortgage Note financing, Saul Centers serves as the sole general partner of
Saul Subsidiary II Limited Partnership, one of the Subsidiary Partnerships, and
Saul QRS, Inc., its wholly owned subsidiary, serves as the sole general partner
of Saul Subsidiary I Limited Partnership, in each case holding a 1 percent
general partnership interest. The remaining 99 percent interest in Saul
Subsidiary II Limited Partnership is held by the Operating Partnership as the
sole limited partner. The remaining 99 percent interest in Saul Subsidiary I
Limited Partnership is held in the form of 96.53 percent and 2.47 percent
limited partnership interests by the Operating Partnership and Saul Subsidiary
II Limited Partnership, respectively. Through this structure, the Company owns
100 percent of the Current Portfolio Properties.
BASIS OF PRESENTATION
In the opinion of management, the consolidated financial statements reflect
all adjustments necessary for fair presentation of the financial position and
results of operations of Saul Centers. 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 for the year ended December 31, 1995, which are
included in its
8
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
1. ORGANIZATION, FORMATION, STRUCTURE AND BASIS OF PRESENTATION
(CONTINUED)
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.
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, to a limited
extent, other commercial properties, primarily in the Mid-Atlantic region.
A majority of the Shopping Centers are anchored by several major tenants.
Eighteen of the 30 Shopping Centers are anchored by a grocery store and offer
primarily day-to-day necessities and services. As of August 1996, no single
Shopping Center accounted for more than 11.2 percent of the total Shopping
Center gross leasable area ("GLA"). Only one Shopping Center tenant, Giant
Food, accounted for more than 2.0 percent of the Company's total revenues for
the year ending December 31, 1995 and only three Shopping Center tenants,
Giant Food, Best Buy, and Chevy Chase Bank, F.S.B., individually accounted
for more than 1.5 percent of total revenues for 1995.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements of the Company include
the accounts of Saul Centers and the Operating Partnership and Subsidiary
Partnerships which are majority owned by Saul Centers. All significant
intercompany balances and transactions have been eliminated in consolidation.
REAL ESTATE INVESTMENT PROPERTIES
Real estate investment properties are stated at the lower of depreciated
cost or net realizable value based on management's intent to hold such
properties on a long-term basis.
9
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Interest, real estate taxes 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. Expenditures for repairs and maintenance are charged to
operations as incurred. Interest expense capitalized during the three months
and six months ended June 30, 1996, was $83,000 and $254,000, respectively.
In the initial rental operations of development projects, a project is
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. 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 33 to 50 years for buildings
and up to 20 years for certain other improvements. Leasehold improvements are
amortized over the lives of the related leases using the straight-line method.
ACCOUNTS RECEIVABLE AND ACCRUED INCOME
Accounts receivable primarily represent amounts currently due from tenants
in accordance with the terms of the respective leases. In addition, accounts
receivable include $2,144,000 at June 30, 1996, representing minimum rental
income accrued on a straight-line basis to be paid by tenants over the term of
the respective leases. Receivables are reviewed monthly and reserves are
charged 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 $249,000 at June 30, 1996.
DEFERRED DEBT EXPENSE
Deferred debt expense consists of financing fees and costs incurred to
obtain long-term financing and interest rate protection agreements. These fees
and costs are being amortized over the terms of the respective loans or
agreements. Deferred debt expense in the accompanying financial statements is
shown net of accumulated amortization of $1,920,000 at June 30, 1996.
REVENUE RECOGNITION
Rental and interest income are accrued as earned, except, when doubt exists
as to
10
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
collectibility, accrual is discontinued. Expense recoveries represent
property operating expenses billed to tenants, including common area
maintenance, real estate taxes and other recoverable costs. Expense
recoveries are recognized in the period in which the expenses are accrued.
Generally, additional rental income based on a tenant's gross revenue
("percentage rent") is accrued on the basis of the tenant's prior year's
percentage rent, adjusted to give effect to current sales data.
INCOME TAXES
Saul Centers made an election to be treated, and intends to continue
operating so as to qualify, as a REIT under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended, commencing with its taxable year
ended December 31, 1993. A REIT generally will not be subject to federal
income taxation on that portion of its income that qualifies as REIT taxable
income to the extent that it distributes to stockholders at least 95 percent
of its REIT taxable income and complies with certain other requirements.
Saul Centers continues to qualify as a REIT and, therefore, no provision has
been made for federal income taxes in the accompanying financial statements.
STATEMENT OF CASH FLOWS
For purposes of reporting cash flows, cash includes balances on hand and
demand deposits with financial institutions.
PER SHARE DATA
Per share data for net income before minority interests is presented on a
fully converted basis and is computed using weighted average shares of
16,367,631 and 16,272,263, for the quarters ended June 30, 1996 and 1995,
respectively and 16,338,630 and 16,272,263 for the six month periods ended June
30, 1996 and 1995, respectively. Per share data relating to net income after
minority interests is computed on the basis of 11,974,468 and 11,879,100
weighted average common shares outstanding during the quarters ended June 30,
1996 and 1995, respectively and 11,945,467 and 11,879,100 for the six month
periods ended June 30, 1996 and 1995, respectively.
11
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MINORITY INTERESTS - HOLDERS OF CONVERTIBLE LIMITED PARTNER UNITS IN THE
OPERATING PARTNERSHIP
The Saul Organization holds 4,393,163 Convertible Limited Partnership
Units in the Operating Partnership representing a 26.7 percent limited
partnership interest, as of June 30, 1996. Under the terms of the Operating
Partnership Agreement, The Saul Organization received rights which enable it
to convert its Convertible Limited Partnership Units into shares of Saul
Centers' common stock on a one-for-one basis at the end of the 36-month
period commencing after the completion of the Offerings, provided that it may
not exercise the rights at any time that The Saul Organization owns, directly
or indirectly, in the aggregate more than 24.9 percent of the outstanding
equity securities of Saul Centers. The Saul Organization's 26.7 percent
limited partnership interest in the Operating Partnership is presented as
minority interests in the accompanying financial statements.
DIRECTORS DEFERRED COMPENSATION PLAN
A Deferred Compensation Plan was established by Saul Centers, effective
January 1, 1994, for the benefit of its directors and their beneficiaries.
Before the beginning of any calendar year, a director may elect to defer all or
part of his or her director's fees to be earned in that year and the following
years. A director has the option to have deferred director's fees paid in cash
or in shares of common stock. If the director elects to have the deferred fees
paid in stock, the number of shares distributed to the director is determined
based on the market value of the common stock on the day the deferred director's
fee was earned. Shares authorized and registered for use under the plan total
70,000. As of June 30, 1996, 21,652 shares had been credited to the director's
deferred fee accounts.
NEW ACCOUNTING PRONOUNCEMENTS
During 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS 121,
establishes standards for measuring and accounting for impairment of long-lived
assets held for production of income as well as long-lived assets to be
"Disposed Of". The standard is required to be implemented in 1996 and, in the
opinion of management, will not have a material impact on the Company's
consolidated results of operations or financial position.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which requires entities to measure compensation costs related to
awards of stock-
12
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
based compensation using either the fair value method or the intrinsic value
method. The Company will elect to account for stock-based compensation programs
using the intrinsic value method consistent with existing accounting policies
and therefore, the standard will not have a material impact on the consolidated
financial statements.
3. CONSTRUCTION IN PROGRESS
Construction in progress represents the costs of open projects in the
redevelopment of Seven Corners center, including direct construction costs and
indirect costs such as architectural, engineering, construction management and
carrying costs such as interest, real estate taxes and insurance. The
construction in progress balance as of June 30, 1996 was $3,050,000.
4. NOTES PAYABLE
In conjunction with the Offerings, the Company assumed and refinanced
with the existing lenders $74.8 million of mortgage notes payable. The
remaining mortgage and other notes payable assumed by the Company (including
accrued interest and prepayment penalties) were repaid with the net proceeds
of the Offerings and $117.8 million of new bank borrowings. Notes payable
totaled $276.5 million at June 30, 1996, of which $265.2 million is floating
rate debt and $249.8 million of which is capped by interest rate protection
agreements (see "Notes Payable - Interest Rate Protection Agreements").
On August 1, 1994, SC Finance Corporation, a wholly owned subsidiary of
Saul Centers, issued $128 million of Fitch Investors Services, Inc. rated
seven-year Mortgage Notes, consisting of $91 million of Class A
Collateralized Floating Rate Commercial Mortgage Notes, rated "AA", bearing
interest at a rate equal to 0.65 percent above LIBOR, $13 million of Class B
Collateralized Floating Rate Commercial Mortgage Notes, rated "A", bearing
interest at a rate equal to 1.05 percent above LIBOR and $24 million of Class
C Collateralized Floating Rate Commercial Mortgage Notes, rated "BBB",
bearing interest at a rate equal to 1.55 percent above LIBOR. Proceeds from
the issuance of these Mortgage Notes were used to prepay debt of
approximately $118 million, which was scheduled to mature primarily in 1996
and 1997.
As of June 30, 1996, the Company had a $100.1 million secured revolving
credit facility with outstanding borrowings of $86.0 million. The line
requires monthly interest payments of LIBOR plus 1.875 percent. At June 30,
1996, $14.1 million was available for borrowing on the line. As of June 30,
1996, the scheduled maturities of all debt for years ending December 31, are
as follows:
13
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. NOTES PAYABLE (CONTINUED)
DEBT MATURITY SCHEDULE
(IN THOUSANDS)
July through December 31, $ 637
1997............................. 1,592
1998............................. 87,810
1999............................. 37,917
2000............................. 11,196
2001............................. 128,436
Thereafter....................... 8,920
--------
Total $276,508
--------
--------
INTEREST RATE PROTECTION AGREEMENTS
Simultaneously with the completion of the Offerings, the Company (i)
entered into interest rate protection agreements (interest rate caps) to
limit the Company's exposure to increases in interest rates on $199.8 million
of its floating rate debt above a LIBOR strike price of 4.25 percent for a
period of one year ending in August 1994 and (ii) entered into additional
interest rate protection agreements for $199.8 million with a LIBOR strike
price of 5.25 percent for the ensuing four years ending in August 1998. When
adding the Company's current weighted average interest rate "spread" of
approximately 1.45 percent over LIBOR at June 30, 1996 to the 5.25 percent
strike price, the result is a maximum interest rate of approximately 6.70
percent for $199.8 million of the Company's debt. The costs of these
interest rate protection agreements were paid at the time of the Offerings
and the expense is being amortized over the terms of the respective
agreements.
In conjunction with the August 1994 issue of the Mortgage Notes, the
Company purchased $128 million of interest rate protection with a LIBOR
strike price of 7.50 percent for a three-year term following the August 1998
expiration of the 5.25 percent interest rate protection agreement. The cost
of this interest rate protection agreement was paid at the time of the issue
of the Mortgage Notes and the expense will be amortized over the final
three-year term of the Notes.
14
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. NOTES PAYABLE (CONTINUED)
In March of 1995, the Company purchased $50 million of interest rate
protection with a LIBOR strike price of 7.5 percent for a four-year term
expiring March 1999. When adding the Company's current weighted average
interest rate "spread" of approximately 1.45 percent over LIBOR at June 30,
1996 to the 7.5 percent strike price, the result is a maximum interest rate
of approximately 8.95 percent for $50 million of the Company's June 30, 1996
floating rate debt. Additionally the Company purchased $71.8 million of
interest rate protection with a LIBOR strike price of 7.5 percent for a
two-year term following the August 1998 expiration of the 5.25 percent
interest rate protection agreement. The cost of these interest rate
protection agreements was paid at the March 20, 1995 purchase date and is
being amortized on a straight-line basis over the respective term of the
agreements.
As a result of the purchased interest rate protection agreements, $249.8
million of the Company's current floating rate debt is capped, at LIBOR
prices of 5.25 percent ($199.8 million), and 7.5 percent ($50.0 million),
respectively. Approximately $15.4 million of the Company's June 30, 1996
floating rate debt was not capped.
The Company is exposed to interest rate risk and to risk of credit loss
to the extent the counter party to the interest rate protection agreement is
unable to perform. The interest rate risk refers to the Company's continuing
obligation related to the stated interest rates in the existing debt
agreements. Risk of credit loss is limited to the cost of replacing the
interest rate protection agreements at current rates and not the notional
principal amount, which is the amount upon which interest rates are applied
to determine payment streams under the agreements. The Company does not
anticipate non-performance by the counter parties of which there are three
separate institutions. Income earned by the operation of the interest rate
protection agreements for the three months and six months ended June 30,
1996, was $60,000 and $252,000, respectively, and was reported as an offset
to interest expense.
5. SHAREHOLDERS' EQUITY AND MINORITY INTERESTS
In September 1994, the Emerging Issues Task Force (EITF) reached a
consensus regarding the calculation and presentation of minority interests in
the financial statements of certain real estate investment trusts. The
Company had followed an accepted industry practice presenting minority
interests (calculated as the excess of liabilities over assets contributed,
at the predecessor's historical cost basis, together with the predecessor's
subsequent share of income and distributions) as a component of shareholders'
equity.
15
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. SHAREHOLDERS' EQUITY AND MINORITY INTERESTS (CONTINUED)
The EITF concluded that the minority interests should be calculated based
on the predecessor's percentage interest in the equity of the Operating
Partnership and presented outside of shareholders' equity.
The financial statements for the three months and six months ended June
30, 1996 reflect the EITF consensus and include charges to net income of
$1,713,000 and $3,426,000, respectively. For the three month period ended
June 30, 1996, the $1,713,000 charge consisted of $870,000 related to the
predecessor's share of the net income and $843,000 related to distributions
to minority interests in excess of allocated net income. For the six-month
period ended June 30, 1996, the $3,426,000 charge consisted of $1,788,000
related to the predecessor's share of net income and $1,638,000 related to
distributions to minority interests in excess of allocated net income.
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion is based primarily on the consolidated financial
statements of Saul Centers, Inc. ("Saul Centers" and, together with its wholly
owned subsidiaries and the limited partnerships of which it or one if its wholly
owned subsidiaries is the sole general partner, the "Company") as of June 30,
1996 and for the three and six month periods ending June 30, 1996.
FINANCIAL CONDITION
As of June 30, 1996, the Current Portfolio Properties consisted of 30
community and neighborhood shopping center properties (the "Shopping Centers"),
and three predominantly office properties (the "Commercial Properties"), located
in seven states and the District of Columbia. The Commercial Properties consist
of one office property and one office/retail property, both located in the
District of Columbia, and one research park located in a Maryland suburb of
Washington, D.C. See attached Exhibit (Schedule of Portfolio Properties) for a
listing of all properties owned as of June 30, 1996.
At June 30, 1996 and 1995, tenants leased 90.4 and 90.9 percent,
respectively, of the Company's leasable area, exclusive of the Seven Corners
center which is undergoing a significant redevelopment (see discussion below).
The Company's total percentage leased as of June 30, 1996 and 1995 was 90.2
percent and 90.9 percent, respectively, including Seven Corners.
The Company has been selectively involved in development and acquisition
activities. The Company continues to evaluate land parcels for retail
development and to evaluate potential acquisitions of operating retail
properties in order to enhance operating income and cash flow growth. The
Company also continues to take advantage of redevelopment and renovation
opportunities within the portfolio, as demonstrated by its recent activities at
Great Eastern, Seven Corners, and Leesburg Pike.
Great Eastern, a neighborhood shopping center currently anchored by Giant
Food, has more than doubled in size to over 250,000 square feet with the
addition of a 113,000 square foot Caldor store and approximately 22,500 square
feet of retail shop space. The construction and development of the Caldor store
was completed in late 1995, and a facade renovation of the entire shopping
center was also substantially completed at that time. The Caldor store opened
and the tenant began paying rent on April 18, 1996.
The first phase renovation and repositioning of Seven Corners, the
Company's largest shopping center, from an enclosed mall to a large community
retail center has been completed, with the facade of the redeveloped center
completed in September 1995. A 35,000 square foot Barnes & Noble book
superstore opened in early October 1995, and a 50,000 square foot Bob's Store
opened in March 1996. These new tenants accompany the 26,000 square foot Ross
Dress for Less, the 50,000 square foot Best Buy and the renovated and
reopened 23,000 square foot Woolworth's store. These five anchor tenants
comprise nearly 34 percent of the current leasable
17
<PAGE>
space in the shopping center. Construction was completed in June 1995 of a
16,000 square foot expansion of an outparcel building. This space is fully
leased to service oriented tenants, some of which relocated from the former
enclosed mall. Construction has been substantially completed on two
free-standing restaurant pads, Pizzeria Uno and Wendy's, totaling
10,000 square feet. Wendy's opened in May 1996 while Pizzeria Uno is
expected to open for business in September 1996.
Also at Seven Corners, in February 1996, the Company entered into a
twenty year lease agreement with Shoppers Food Warehouse to locate their
latest prototype 65,000 square foot Shoppers Club grocery store. In May
1996, the company announced that it had entered into a lease agreement with
Home Depot U.S.A., Inc. for 127,000 square feet of space, to include
approximately 106,000 square feet of indoor home improvement space and 21,000
square feet of outside garden center area. The lease will have an initial
term of thirty years. The former Woodward and Lothrop department and
furniture store buildings will be demolished to accommodate the construction
of The Home Depot store and associated parking, and the Shoppers Club grocery
store. Construction and development of this phase of the development is
projected to be completed in the fall of 1997. The signing of these two
anchor leases substantially completes the retail leasing for the
redevelopment of the Company's 570,000 square foot Seven Corners shopping
center.
The Company recently completed a facade renovation at its 80,000 square
foot Leesburg Pike shopping center in Baileys Crossroads, Virginia, which is now
100 percent leased. Zany Brainy, a children's educational game and toy
retailer, opened a 13,300 foot store in September 1995 and joins other
recognized tenants such as CVS Pharmacy, Kinko's and Bruegger's Bagel in the
center.
On January 22, 1996, the Company acquired Clarendon Station, 4,868 square
feet of retail shop space adjacent to the Company's Clarendon property. Both
properties are located across from a Metro subway station entrance in Arlington,
Virginia. The newly acquired property is 100 percent leased to 5 retail service
tenants. The purchase price was $833,500, of which $431,750 was paid in cash
and $401,750 was paid in the form of a four-year mortgage note at a fixed
interest rate of 8.0 percent. The property is zoned for higher density retail
and office uses. There is considerable development activity in the neighborhood
surrounding the Clarendon property.
The Company's capital strategy is to maintain a ratio of total debt to
total asset value of 50 percent or less. Management believes that current total
debt remains less than 50 percent of total asset value. Additionally, the
Company's interest rate protection agreements cap LIBOR on $249.8 million of its
$265.2 million of floating rate debt which was outstanding at June 30, 1996,
limiting the Company's exposure to increases in interest rates. The Company has
capped LIBOR at 5.25 percent on $199.8 million through August 1998 and has
capped LIBOR at 7.50 percent on an additional $50 million through March 1999.
In conjunction with the August 1, 1994 issue of the Mortgage Notes, the Company
purchased $128 million of interest rate protection agreements, with a LIBOR
strike price of 7.50 percent for a three-year term following the expiration of
the 5.25 percent interest rate protection agreements. In March 1995, the
Company
18
<PAGE>
purchased $71.8 million of interest rate protection agreements, with a LIBOR
strike price of 7.50 percent for a two-year term following the expiration of
the balance of the 5.25 percent interest rate protection agreements.
On July 24, 1996, the Company announced that it executed a loan commitment
with an institutional investor for a secured mortgage loan in the amount of
approximately $78 million. The loan is for a term of 15 years, and the interest
rate is fixed at 8.64%. The loan will be secured by six of the Company's retail
and office properties. Closing and funding is expected to be in October 1996.
The proceeds of this loan will be used to repay existing floating rate debt
which currently has a weighted average remaining term of approximately 2.3 years
and a weighted average interest rate of LIBOR plus 1.93%. Upon closing of this
loan, the Company will have fixed interest rates on approximately 32% of its
total debt. The balance of the Company's debt is floating rate debt tied to
LIBOR rates, and will all be covered by interest rate protection agreements
which cap LIBOR at 5.25 percent through August 1998. Thereafter, a significant
portion of the remaining floating rate debt will be capped at a LIBOR rate of
7.5 percent into the year 2001.
The Company expects to use a portion of its unused line of credit, of which
$14.1 million was available at June 30, 1996, to fund the remaining construction
and development costs for its Seven Corners redevelopment and other renovation
activities (see "Liquidity and Capital Resources - Borrowing Capacity"). The
Company intends to finance future acquisitions, development and debt repayments
by utilizing various capital sources, which could include bank and institutional
borrowings and private and public offerings of debt or equity securities.
The ratings of the Company's $128 million of Mortgage Notes (see "Notes to
Consolidated Financial Statements - Note 4"), which were issued in July, 1994,
were affirmed by Fitch Investors Service, Inc. as of March 1996. Fitch noted
that the affirmation of ratings reflected financial performance consistent with
the initial underwriting of these Mortgage Notes.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
The Company's principal demands for liquidity are expected to be
distributions to its common stockholders and holders of convertible limited
partnership units, debt service and loan repayments, repair and renovation of
the Current Portfolio Properties and acquisition and development activities. In
order to qualify as a REIT for federal income tax purposes, the Company must
distribute to its stockholders at least 95 percent of its "real estate
investment trust taxable income," as defined in the Internal Revenue Code of
1986, as amended.
19
<PAGE>
The Company anticipates that operating revenues will provide the funds
necessary for operations, debt service and distributions. Balloon principal
repayments are expected to be funded by refinancings. The Company expects to
use its unused line of credit to fund its current construction and development
activities.
The Company expects to fulfill its requirements for capital resources in a
variety of ways, by using undistributed cash flow from operations, secured or
unsecured bank and institutional borrowings, private or public offerings of debt
or equity securities and proceeds from the sales of properties. 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 convertible into shares of Saul Centers common stock.
In December 1995, the Company established a Dividend Reinvestment and Stock
Purchase Plan (the "Plan"), to allow its stockholders and holders of limited
partnership interests an opportunity to buy additional shares of common stock by
reinvesting all or a portion of their dividends or distributions. The Plan
provides for investing in newly issued shares of common stock at a 3 percent
discount from market price without payment of any brokerage commission, service
charges or other expenses. All expenses of the Plan will be paid for by the
Company. The January 31, 1996 dividend was the initial dividend payment date
under which the Company's stockholders could participate in the Plan. A total
of 56,050 and 58,980 new shares were issued as of the January 31, 1996 and April
30, 1996 dividend pay dates. Subsequent to the quarter ended June 30, 1996,
stockholders owning a total of 2,179,931 shares of common stock reinvested their
dividends on July 31, 1996, resulting in the issue of 67,421 new shares at a
discounted share price of $12.61 per share.
For the six months ended June 30, 1996, cash flow of $15,321,000 was
provided from operations, $3,400,000 was provided from borrowings on a line of
credit, $402,000 was financing provided by Clarendon Station's seller, and
$1,534,000 was provided by dividends reinvested in the Company's dividend
reinvestment program. Cash was required primarily for net repayment of debt of
$377,000, distributions to common stockholders and holders of convertible
limited partnership units of $12,758,000, additions to real estate investments
(including the Clarendon Station acquisition) of $3,956,000, and construction
projects of $2,880,000.
BORROWING CAPACITY
As of June 30, 1996, the Company had a $100.1 million secured revolving
credit facility with outstanding borrowings of $86.0 million. Borrowings under
this facility require monthly interest payments at 1.875 percent above LIBOR.
The Company had $14.1 million available under the line of credit as of June 30,
1996.
Management believes that the Company's current capital resources, together
with its
20
<PAGE>
borrowing capacity and its intended refinancings, will be sufficient to meet
its liquidity needs for the foreseeable future.
RESULTS OF OPERATIONS
The following discussion compares the results of the Company for the three
and six month periods ended June 30, 1996 and 1995. This information should be
read in conjunction with the accompanying consolidated and combined financial
statements and the notes related thereto. These financial statements include
all adjustments (consisting solely of normal recurring adjustments) which are,
in the opinion of management, necessary for a fair presentation of the interim
periods presented.
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
Base rent and expense recoveries were $12,378,000 and $2,179,000,
respectively, for the three months ended June 30, 1996 (the "1996 Quarter"),
compared to $11,626,000 and $2,181,000, respectively, for the comparable quarter
in 1995 (the "1995 Quarter"), representing a $752,000 (6.5 percent) increase in
base rent and $2,000 (0.1 percent) decrease in expense recoveries. The increase
in base rent results primarily from new leases placed in service at Seven
Corners, Great Eastern and Leesburg Pike for the 1996 Quarter but not present
during the 1995 Quarter.
Percentage rent was $709,000 in the 1996 Quarter, compared to $758,000 in
the 1995 Quarter, representing a decrease of $49,000 (6.5 percent).
Other income, which is composed primarily of parking income, kiosk leasing,
temporary leases, and payments associated with early termination of leases, was
$554,000 in the 1996 Quarter, compared to $629,000 in the 1995 Quarter,
representing a decrease of $75,000 (11.9 percent). The decrease resulted
primarily from the reduction in the 1996 Quarter of lease termination payments
compared to amounts received during the 1995 Quarter.
Operating expenses, composed primarily of repairs and maintenance,
utilities, payroll and insurance, decreased $141,000 (6.9 percent) to $1,902,000
in the 1996 Quarter from $2,043,000 in the 1995 Quarter. The operating
expense decrease resulted from reduced property payroll expenses and reduced
operating expenses at shopping centers under development, primarily the mall
conversion at Seven Corners.
Real estate taxes increased $247,000 (19.5 percent) to $1,514,000 in the
1996 Quarter from $1,267,000 in the 1995 Quarter. The real estate tax
increase was mainly attributable to a significant increase in taxes assessed
at Seven Corners center, due to this shopping center's redevelopment.
The provisions for credit losses increased $96,000 (960.0 percent) to
$106,000 in the 1996
21
<PAGE>
Quarter from $10,000 in the 1995 Quarter. The credit loss increase results
from the comparison with the 1995 Quarter, in which the provision was reduced
by collections of several tenant receivables previously written-off. The
provision for the 1996 Quarter represents a return to historically normal
credit loss activity.
Interest expense of $4,607,000 for the 1996 Quarter represented an increase
of $254,000 (5.8 percent) over $4,353,000 reported for the 1995 Quarter. This
increase is primarily attributable to an approximately $16.8 million increase
in average loan balances outstanding. The additional borrowings were used
primarily to fund the Company's acquisition and development activities. The
interest expense increase was partially offset by a 64 basis point decrease in
average LIBOR during the 1996 Quarter compared to the 1995 Quarter. LIBOR is
the rate used as the base index for the Company's floating rate debt.
Amortization of deferred debt expense increased to $734,000 for the 1996
Quarter from $602,000 for the 1995 Quarter, representing an increase of
$132,000 (21.9 percent). The increase resulted primarily from an accounting
adjustment of deferred debt amortization in the 1995 Quarter, not present in
the 1996 Quarter.
General and administrative expense, which consists primarily of
administrative, payroll and other overhead expense, was $808,000 for the 1996
Quarter, as compared to $750,000 for the 1995 Quarter, representing an
increase of $58,000 (7.7 percent).
Depreciation and amortization expense increased $545,000 (22.9 percent)
from $2,382,000 in the 1995 Quarter to $2,927,000 in the 1996 Quarter. The
increase resulted primarily from placing in service the newly redeveloped
portions of Seven Corners, Great Eastern and Leesburg Pike centers.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Base rent and expense recoveries were $24,638,000 and $4,472,000,
respectively, for the six months ended June 30, 1996 (the "1996 Period"),
compared to $23,365,000 and $4,393,000, respectively, for the comparable period
in 1995 (the "1995 Period"), representing a $1,273,000 (5.4 percent) increase in
base rent and $79,000 (1.8 percent) increase in expense recoveries. The
increase in base rent resulted primarily from new leases placed in service at
Seven Corners, Great Eastern and Leesburg Pike for the 1996 Period but not
present during the 1995 Period.
Percentage rent was $1,425,000 in the 1996 Period, compared to $1,359,000
in the 1995 Period, representing an increase of $66,000 (4.9 percent).
Other income, which consists primarily of parking income at two of the
Commercial Properties, kiosk leasing, temporary leases, and lease termination
payments associated with early termination of leases, was $918,000 in the 1996
Period, compared to $1,258,000 in the 1995 Period, representing a decrease of
$340,000 (27.0 percent). The decrease resulted primarily from lower lease
termination payments in the 1996 period compared to amounts received during the
1995 Period.
22
<PAGE>
Operating expenses, consisting mainly of repairs and maintenance,
utilities, payroll and insurance, increased $31,000 (0.8 percent) to $4,119,000
in the 1996 Period from $4,088,000 in the 1995 Period.
Real estate taxes increased 217,000 (8.1 percent) to $2,884,000 in the
1996 Period from $2,667,000 in the 1995 Period. The real estate tax increase
was mainly attributable to a significant increase in taxes assessed at Seven
Corners center, due to this shopping center's redevelopment.
The provision for credit losses increased $47,000 (41.2 percent) to
$161,000 in the 1996 Period from $114,000 in the 1995 Period. The credit
loss increase results from the comparison with the 1995 Period, in which the
provision was reduced by collections of several tenant receivables previously
written-off. The provision for the 1996 Period represents a return to
historically normal credit loss activity.
Interest expense of $9,033,000 for the 1996 Period represented an
increase of $383,000 (4.4 percent) from $8,650,000 in the 1995 Period. The
increase is primarily attributable to an approximately $20.9 million increase
in average outstanding loan balances. The additional borrowings were used
primarily to fund the Company's acquisition and development activities. The
interest expense increase was partially offset by a 60 basis point decrease
in average LIBOR during the 1996 Period compared to the 1995 Period. LIBOR
is the rate used as the base index for the Company's floating rate debt.
Amortization of deferred debt expense increased to $1,466,000 for the 1996
Period from $1,139,000 for the 1995 Period, representing a increase of $327,000
(28.7 percent). The increase resulted primarily from the amortization of
costs incurred for interest rate protection agreements acquired in March 1995
and an accounting adjustment of deferred debt amortization in the 1995 Period,
not present in the 1996 Period.
General and administrative expense, which consists primarily of
administrative, payroll and other overhead expenses, was $1,562,000 for the
1996 Period, as compared to $1,492,000 for the 1995 Period, representing an
increase of $70,000 (4.7 percent).
Depreciation and amortization expense increased $813,000 (17.0 percent)
from $4,794,000 in the 1995 period to $5,607,000 in the 1996 period. The
increase resulted primarily from placing in service the newly redeveloped
portions of Seven Corners, Great Eastern and Leesburg Pike centers.
23
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The Company's Schedule of Portfolio Properties and the Financial Data
Schedule are attached hereto.
24
<PAGE>
SIGNATURES
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: August 14, 1996 /s/ Philip D. Caraci
-----------------------------------
Philip D. Caraci, President
Date: August 14, 1996 /s/ Scott V. Schneider
-----------------------------------
Scott V. Schneider
Vice President, Chief Financial Officer
25
<PAGE>
SAUL CENTERS, INC
SCHEDULE OF CURRENT PORTFOLIO PROPERTIES
JUNE 30, 1996
<TABLE>
<CAPTION>
Leasable Year
Area Developed Land
(Square or Acquire Area
Property Location Feet) (Renovated (Acres)
---------------- --------------------- ----------- ------------ --------
<S> <C> <C> <C> <C>
SHOPPING CENTERS
Ashburn Village Ashburn, VA 108,204 1994 12.7
Beacon Mall Alexandria, VA 290,845 1972 (1993) 32.3
Belvedere Baltimore, MD 54,941 1972 4.8
Boulevard Fairfax, VA 56,578 1994 5.0
Clarendon Arlington, VA 6,940 1974 0.5
Clarendon Station Arlington, VA 4,868 1996 0.1
Crosstown Tulsa, OK 197,135 1975 26.4
Flagship Center Rockville, MD 21,500 1972, 1989 0.5
French Market Oklahoma City, OK 213,658 1974 (1984) 13.8
Germantown Germantown, MD 26,241 1992 2.7
Giant Baltimore, MD 70,040 1972 (1990) 5.0
The Glen Lake Ridge, VA 109,759 1994 14.7
Great Eastern District Heights, MD 255,448 1972 (1995) 23.9
Hampshire Langley Langley Park, MD 137,669 1972 (1979) 9.9
Leesburg Pike Baileys Crossroads, VA 80,854 1966 (1982/95) 9.4
Lexington Mall Lexington, KY 315,426 1974 30.0
Lumberton Lumberton, NJ 182,229 1975 (1992/3) 23.3
North Washington Alexandria, VA 41,500 1974 2.0
Olney Olney, MD 53,765 1975 (1990) 3.7
Park Road Center Washington, DC 106,650 1974 (1993) 1.7
Ravenwood Baltimore, MD 87,750 1972 8.0
Shops at Fairfax Fairfax, VA 64,580 1975 (1992/3) 6.7
Southdale Glen Burnie, MD 470,744 1972 (1986) 39.6
Southside Plaza Richmond, VA 345,330 1972 32.8
Sunshine City Atlanta, GA 195,653 1976 14.6
<CAPTION>
Percentage Leased
Property 6/30/96 6/30/95 Anchor / Significant Tenants
---------------- --------- -------- ---------------------------------------------------
<S> <C> <C> <C>
SHOPPING CENTERS
Ashburn Village 100% 100% Giant Food, Blockbuster
Beacon Mall 73% 94% Giant Food, Office Depot, Outback Steakhouse, Marshalls
Belvedere 100% 100% Giant Food, Rite Aid
Boulevard 100% 100% Magruders, Danker Furniture
Clarendon 100% 100%
Clarendon Station 100% (A)
Crosstown 36% 17% C. R. Anthony
Flagship Center 100% 100% NationsBank, Chevy Chase Bank, F.S.B.
French Market 96% 97% Fleming Food, Treasury Drug, Furr's Cafeteria
Germantown 75% 58%
Giant 100% 100% Giant Food
The Glen 100% 97% Safeway Marketplace, CVS Pharmacy
Great Eastern 90% 91% Giant Food, Caldor, Pep Boys
Hampshire Langley 91% 96% Safeway, McCrory, Rite Aid
Leesburg Pike 97% 91% Zany Brainy, CVS Pharmacy, Trak Auto
Lexington Mall 97% 92% McAlpin's, Dawahares of Lexington, Rite Aid
Lumberton 83% 84% Super Fresh, Rite Aid, Blockbuster, Mandee
North Washington 100% 100% Mastercraft Interiors
Olney 87% 91%
Park Road Center 100% 100% Woolworth
Ravenwood 100% 98% Giant Food
Shops at Fairfax 43% 43% Office Depot
Southdale 99% 98% Circuit City, Giant Food, Hechinger, Kids R Us, Michaels,
Marshalls, Petsmart, Value City Furniture, Discovery Zone
Southside Plaza 95% 95% G.C. Murphy, Nick's Supermarket, CVS Pharmacy
Sunshine City 98% 99% Bolton Furniture, McFrugals, Pep Boys, The Emory Clinic
</TABLE>
EXHIBIT
<PAGE>
SAUL CENTERS, INC
SCHEDULE OF CURRENT PORTFOLIO PROPERTIES
JUNE 30, 1996
<TABLE>
<CAPTION>
Leasable Year
Area Developed Land
(Square or Acquired Area
Property Location Feet) (Renovated) (Acres)
---------------- --------------------- ----------- ------------ --------
<S> <C> <C> <C> <C>
SHOPPING CENTERS (CONTINUED)
Thruway Winston-Salem, NC 339,564 1972 30.5
Village Center Centreville, VA 142,881 1990 17.2
West Park Oklahoma City, OK 107,895 1975 11.2
White Oak Silver Spring, MD 480,556 1972 (1993) 28.5
---------- -----
Total Shopping Centers 4,569,203 411.3
---------- -----
COMMERCIAL PROPERTIES
Avenel Gaithersburg, MD 284,557 1981/85/89 28.2
601 Pennsylvania Ave Washington, DC 225,153 1974 (1986) 1.0
Van Ness Square Washington, DC 161,058 1974 (1990) 1.2
---------- -----
Total Commercial Properties 670,768 30.4
---------- -----
TOTAL SHOPPING CENTER AND COMMERCIAL PROPERTIES 5,239,971 SF 441.7
---------- -----
---------- -----
SHOPPING CENTER REDEVELOPMENT PROPERTY
Seven Corners Falls Church, VA 570,726 1974 (1994/5) 31.6
---------- -----
---------- -----
TOTAL PORTFOLIO 5,810,697 SF
----------
----------
<CAPTION>
Percentage Leased
Property 6/30/96 6/30/95 Anchor / Significant Tenants
---------------- --------- -------- ---------------------------------------------------
<S> <C> <C> <C>
SHOPPING CENTERS (CONTINUED)
Thruway 96% 94% Steinmart, Reading China & Glass, Harris Teeter,
Fresh Market, Woolworth, Blockbuster, Piece Goods Shop
Village Center 79% 83% Giant Food
West Park 76% 73% Homeland Stores, Treasury Drug
White Oak 99% 99% Giant Food, Sears
---- ----
90% 90%
---- ----
Commercial Properties
Avenel 98% 94% Oncor, Quanta Systems, General Services Administration
601 Pennsylvania Ave 99% 100% General Services Administration, Capital Grille
Van Ness Square 69% 91% United Mine Workers Pension Trust, Office Depot
---- ----
91% 95%
---- ----
90% 91%
---- ----
SHOPPING CENTER REDEVELOPMENT PROPERTY
Seven Corners 88% 91% Best Buy, Bob's, Barnes & Noble, Ross Stores, Woolworth,
Shoppers Club, Home Depot (B)
---- ----
---- ----
(A) Contiguous retail space adjacent to Clarendon, acquired January 22, 1996.
(B) The Shoppers Club and Home Depot stores, totaling 196,000 SF, are currently in development.
</TABLE>
EXHIBIT
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS, SCHEDULES AND OTHER DISCLOSURE CONTAINED IN FORM 10-Q FOR THE PERIOD
ENDED JUNE 30, 1996 OF SAUL CENTERS, INC AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,309
<SECURITIES> 0
<RECEIVABLES> 7,356
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 332,434
<DEPRECIATION> 97,309
<TOTAL-ASSETS> 269,661
<CURRENT-LIABILITIES> 0
<BONDS> 276,508
0
0
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