<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 September 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: 12,125,703 shares of common
stock, $0.01 par value, outstanding as of November 12, 1996.
<PAGE>
SAUL CENTERS, INC.
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
(a) Consolidated Balance Sheets as of September 30, 1996
and December 31, 1995. 3
(b) Consolidated Statements of Operations for the
three months and nine months ended September 30, 1996 and 1995. 4
(c) Consolidated Statements of Stockholders' Equity
as of September 30, 1996. 5
(d) Consolidated Statements of Cash Flows for the
nine months ended September 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 20
(c) Results of Operations
Three Months Ended September 30, 1996 compared to
Three Months Ended September 30, 1995 21
Nine months Ended September 30, 1996 compared to
Nine months Ended September 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>
SEPTEMBER 30, DECEMBER 31,
(In thousands) 1996 1995
------------- ------------
<S> <C> <C>
ASSETS
Real estate investments
Land $ 65,604 $ 64,258
Buildings and equipment 269,533 257,404
--------- ---------
335,137 321,662
Accumulated depreciation (99,349) (92,237)
--------- ---------
235,788 229,425
Construction in progress 1,162 6,986
Cash 1,438 674
Accounts receivable and accrued income, net 7,786 9,522
Prepaid expenses 3,899 4,629
Deferred debt expense, net 13,289 15,423
Other assets 6,412 2,748
--------- ---------
TOTAL ASSETS $ 269,774 $ 269,407
--------- ---------
--------- ---------
LIABILITIES
Notes payable $ 276,981 $ 273,083
Accounts payable, accrued expenses and other liabilities 13,251 11,982
Deferred income 2,332 1,077
--------- ---------
TOTAL LIABILITIES 292,564 286,142
--------- ---------
MINORITY INTERESTS -- --
--------- ---------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $0.01 par value, 30,000,000 shares
authorized, 12,061,551 and 11,879,100 shares issued and
outstanding, respectively 121 119
Additional paid-in capital 14,625 12,243
Accumulated deficit (37,536) (29,097)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (22,790) (16,735)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 269,774 $ 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 Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
(In thousands, except per share amounts) 1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUE
Base rent $12,579 $11,879 $37,217 $35,244
Expense recoveries 2,413 2,309 6,885 6,702
Percentage rent 745 705 2,170 2,064
Other 394 412 1,312 1,670
------- ------- ------- -------
TOTAL REVENUE 16,131 15,305 47,584 45,680
------- ------- ------- -------
EXPENSES
Operating expenses 2,045 1,948 6,164 6,036
Provision for credit losses 90 75 251 189
Real estate taxes 1,498 1,240 4,382 3,907
Interest expense 4,683 4,505 13,716 13,155
Amortization of deferred debt expense 733 607 2,199 1,746
Depreciation and amortization 2,245 2,505 7,852 7,299
General and administrative 722 705 2,284 2,197
------- ------- ------- -------
TOTAL EXPENSES 12,016 11,585 36,848 34,529
------- ------- ------- -------
NET INCOME BEFORE MINORITY INTERESTS 4,115 3,720 10,736 11,151
------- ------- ------- -------
MINORITY INTERESTS
Minority share of income (1,111) (1,005) (2,899) (3,011)
Distributions in excess of earnings (602) (708) (2,240) (2,128)
------- ------- ------- -------
TOTAL MINORITY INTERESTS (1,713) (1,713) (5,139) (5,139)
------- ------- ------- -------
NET INCOME $ 2,402 $ 2,007 $ 5,597 $ 6,012
------- ------- ------- -------
------- ------- ------- -------
NET INCOME PER SHARE
Net income per share before minority interests $ 0.25 $ 0.23 $ 0.66 $ 0.69
------- ------- ------- -------
------- ------- ------- -------
Net income per share $ 0.20 $ 0.17 $ 0.47 $ 0.51
------- ------- ------- -------
------- ------- ------- -------
</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)
Issuance of 67,421 shares of common
stock through dividend reinvestment plan 1 849 -- 850
Net income -- -- 2,402 2,402
Distributions payable ($.39 per share) -- -- (4,704) (4,704)
----- ------- -------- --------
Balance, September 30, 1996 $ 121 $14,625 $(37,536) $(22,790)
----- ------- -------- --------
----- ------- -------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
SAUL CENTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For The
Nine Months
Ended September 30,
---------------------
(In thousands) 1996 1995
- ------------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,597 $ 6,012
-------- --------
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interests 5,139 5,139
Depreciation and amortization 10,051 9,045
Provision for credit losses 251 189
Decrease in accounts receivable 1,485 2,102
Increase in prepaid expenses (10) (1,014)
Increase in other assets (3,664) (291)
Increase (decrease) in accounts payable
and other liabilities 1,269 (15)
Increase (decrease) in deferred income 1,255 (523)
-------- --------
Total adjustments 15,776 14,632
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 21,373 20,644
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to real estate investments (6,659) (4,535)
Additions to construction in progress (992) (15,039)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (7,651) (19,574)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 18,302 23,400
Repayments on notes payable (14,404) (3,951)
Additions to deferred debt expense (65) (2,479)
Proceeds from the reinvestment of dividends in
shares of common stock 2,384 --
Distributions to common stockholders and
holders of convertible limited partnership
units in the Operating Partnership (19,175) (19,038)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (12,958) (2,068)
-------- --------
Net increase (decrease) in cash 764 (998)
Cash, beginning of period 674 1,027
-------- --------
Cash, end of period $ 1,438 $ 29
-------- --------
-------- --------
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
businesses 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 September 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 September 1996, no
single Shopping Center accounted for more than 11.1 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 month and nine month periods ended
September 30, 1996, was $101,000 and $419,000, 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 $2,055,000 at September 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 $232,000 at September 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 $7,199,000 at September 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
16,432,240 and 16,272,263, for the quarters ended September 30, 1996 and 1995,
respectively and 16,369,834 and 16,272,263 for the nine month periods ended
September 30, 1996 and 1995, respectively. Per share data relating to net
income after minority interests is computed on the basis of 12,039,077 and
11,879,100 weighted average common shares outstanding during the quarters ended
September 30, 1996 and 1995, respectively and 11,976,671 and 11,879,100 for the
nine month periods ended September 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
of the Operating Partnership, representing a 26.7 percent limited partnership
interest, as of September 30, 1996. These Convertible Limited Partnership Units
are convertible into shares of Saul Centers' common stock on a one-for-one
basis, 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 September 30, 1996, 24,296 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 construction phases
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.
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
$277.0 million at September 30, 1996, of which $265.7 million was floating rate
debt and $249.8 million of which was 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.
The ratings of the Company's $128 million of Mortgage Notes 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.
As of September 30, 1996, the Company had a $100.1 million secured
revolving credit facility with outstanding borrowings of $86.7 million. The
line requires monthly interest
13
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. NOTES PAYABLE (CONTINUED)
payments of LIBOR plus 1.875 percent. At September 30, 1996, $13.4 million was
available for borrowing on the line. As of September 30, 1996, the scheduled
maturities of all debt for years ending December 31, are as follows:
Debt Maturity Schedule
(IN THOUSANDS)
<TABLE>
<S> <C>
October through December 31, 1996 $ 319
1997............................................... 1,592
1998............................................... 88,510*
1999............................................... 37,917
2000............................................... 11,287*
2001............................................... 128,436
Thereafter......................................... 8,920
-------
Total $276,981
-------
-------
</TABLE>
* Subsequent to September 30, 1996, the Company closed on a new $77.0
million fixed rate secured mortgage loan, maturing in December 2011, which
repaid floating rate loans maturing during the year 1998, ($64.2 million),
and year 2000, ($10.8 million), as discussed further in "Management's
Discussion and Analysis of Financial Condition."
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 September 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
14
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. NOTES PAYABLE (CONTINUED)
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.
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 September 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 September 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 strike
prices of 5.25 percent ($199.8 million), and 7.5 percent ($50.0 million),
respectively. Approximately $15.9 million of the Company's September 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 counterparties of which there are three separate institutions. Income
earned by the operation of the interest rate protection agreements for the three
months and nine months ended September 30, 1996, was $131,000 and $383,000,
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
15
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. SHAREHOLDERS' EQUITY AND MINORITY INTERESTS (CONTINUED)
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.
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 month and nine month periods ended
September 30, 1996 reflect the EITF consensus and include charges to net income
of $1,713,000 and $5,139,000, respectively. For the three month period ended
September 30, 1996, the $1,713,000 charge consisted of $1,111,000 related to the
predecessor's share of the net income and $602,000 related to distributions to
minority interests in excess of allocated net income. For the nine month period
ended September 30, 1996, the $5,139,000 charge consisted of $2,899,000 related
to the predecessor's share of net income and $2,240,000 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 September
30, 1996 and for the three and nine month periods ending September 30, 1996.
FINANCIAL CONDITION
As of September 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 September 30, 1996.
At September 30, 1996 and 1995, tenants leased 90.7 and 92.2 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 September 30, 1996 and 1995 was 90.5
percent and 92.2 percent, respectively, including Seven Corners. The decline in
the leasing percentages at September 30, 1996 versus September 30, 1995 were
caused primarily by the bankruptcy of F&M Distributors located at Beacon Mall
and Seven Corners and the United Mine Workers Pension Trust's (UMWA) reduced
space requirements of approximately 20,000 square feet at Van Ness Square.
The UMWA renewed their lease for 55,000 square feet effective January 1996.
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
Seven Corners, Lumberton and Great Eastern.
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 over
32 percent of the current leasable space in the shopping center. Construction
was completed in June 1995 of a 16,000 square foot
17
<PAGE>
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 recently completed on two free-standing restaurant
pads, leased by Pizzeria Uno and Wendy's, totaling 10,000 square feet.
Wendy's opened in May 1996, while Pizzeria Uno opened for business in September
1996.
Also at Seven Corners, in February 1996, the Company entered into a
twenty-year lease with Shoppers Food Warehouse for their latest prototype 65,000
square foot Shoppers Club grocery store, and in May 1996, the Company entered
into a thirty-year lease 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 former Woodward
and Lothrop department store building was demolished in October 1996 to
accommodate the construction of The Home Depot store and associated parking, and
the Shoppers Club grocery store. Construction of this phase of the development
is projected to be completed in late summer 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, with
approximately 32,000 square feet of the former F & M Distributors drug store
space remaining to lease.
Lumberton is a 182,000 square foot, neighborhood shopping center anchored
by Super Fresh and Rite Aid, located east of Philadelphia in southern New
Jersey. The Company is renovating the shopping center's facade and upgrading
signage and lighting. This renovation will be substantially completed in
November 1996.
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.
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 five 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 continue to maintain a ratio of total
debt to total asset value of 50 percent or less and to limit its exposure to
increases in interest rates. The Company's interest rate protection agreements
cap LIBOR on $249.8 million of its $265.7 million of floating rate debt which
was outstanding at September 30, 1996. The Company has also capped LIBOR at
5.25 percent on $199.8 million through August 1998 and has capped LIBOR at 7.50
percent
18
<PAGE>
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
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 November 7, 1996, the Company closed a $77.0 million secured mortgage
loan with AEGON USA Realty Advisors, Inc. The loan is for a term of fifteen
years and requires monthly payments of principal and interest based upon an
annual fixed interest rate of 8.64% and a twenty-year principal amortization
rate. A balloon payment of approximately $34 million is scheduled to be due
at maturity December 2011. The loan is secured by six of the Company's retail
and office properties. The proceeds of this loan were used to repay existing
floating rate debt which had a weighted average remaining term of
approximately 2.3 years and a weighted average interest rate of LIBOR plus
1.93%, or 7.56% assuming the three month LIBOR rate effective as of September
30, 1996.
The Company has also executed a loan commitment with an institutional
investor, for a secured mortgage loan in the amount of $38.5 million. The loan
is for a term of 16 years, and the interest rate is fixed at 7.88%. The loan
will be secured by the Company's 601 Pennsylvania Avenue, Washington, D.C.
office property. Closing and funding is expected to be in late December 1996.
The proceeds of this loan will be used to repay the property's existing floating
rate debt which currently has a remaining term of approximately 3 years. The
interest rate on the debt being repaid is LIBOR plus 2.25% equivalent to 7.88%
assuming the three month LIBOR rate effective as of September 30, 1996. Upon
closing of this loan, the Company will have fixed interest rates on
approximately 46% of its total debt. The balance of the Company's debt is
floating rate debt tied to LIBOR rates, and is all covered by interest rate
protection agreements which cap LIBOR at 5.25 percent through August 1998 and
7.5 percent through August 2000. Thereafter, a significant portion of this
floating rate debt is capped at a LIBOR rate of 7.5 percent into the year 2001.
Subsequent to the closing of the new fixed rate financings, the Company plans to
sell a portion of its interest rate protection agreements.
The Company expects to use a portion of its unused line of credit, of which
$13.4 million was available at September 30, 1996, and $21.5 million was
available after the closing of the $77.0 million mortgage loan discussed above,
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.
19
<PAGE>
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.
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, 58,980 and 67,421 new shares were issued as of the January 31, 1996,
April 30, 1996 and July 31, 1996 dividend pay dates. Subsequent to the quarter
ended September 30, 1996, stockholders owning a total of 2,333,536 shares of
common stock reinvested their dividends on October 31, 1996, resulting in the
issue of 64,152 new shares at a discounted share price of $14.19 per share.
For the nine month period ended September 30, 1996, cash flow of
$21,373,000 was provided from operations, $3,833,000 was provided from
financings after debt repayments and $2,384,000 was provided by dividends
reinvested in the Company's dividend reinvestment program. Cash was required
primarily for distributions to common stockholders and holders of convertible
limited partnership units of $19,175,000, additions to real estate investments
(including the Clarendon Station acquisition) of $6,659,200, and construction
projects of $992,000.
20
<PAGE>
Borrowing Capacity
As of September 30, 1996, the Company had a $100.1 million secured
revolving credit facility with outstanding borrowings of $86.7 million.
Borrowings under this facility require monthly interest payments at 1.875
percent above LIBOR. The Company had $13.4 million available under the line of
credit as of September 30, 1996. The Company used net proceeds from the $77.0
million secured mortgage loan to refinance and paydown a portion of its line of
credit facility. Coincident with the closing of the new loan the secured
revolving credit facility was amended to reflect the release of five properties
which now secure the $77.0 million mortgage loan. As a result of this
financing, as of November 7, 1996, the amended line of credit commitment totaled
$44.0 million, and the available borrowings under this facility increased to
$21.5 million.
Management believes that the Company's current capital resources, together
with its 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 nine month periods ended September 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 September 30, 1996 Compared to Three Months Ended September
30, 1995
Base rent and expense recoveries were $12,579,000 and $2,413,000,
respectively, for the three month period ended September 30, 1996 (the "1996
Quarter"), compared to $11,879,000 and $2,309,000, respectively, for the
comparable quarter in 1995 (the "1995 Quarter"), representing a $700,000 (5.9
percent) increase in base rent and $104,000 (4.5 percent) increase 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 $745,000 in the 1996 Quarter, compared to $705,000 in
the 1995 Quarter, representing an increase of $40,000 (5.7 percent).
Other income, which is composed primarily of parking income, kiosk leasing,
temporary leases, and payments associated with early termination of leases, was
$394,000 in the 1996 Quarter, compared to $412,000 in the 1995 Quarter,
representing a decrease of $18,000 (4.4 percent).
21
<PAGE>
Operating expenses, composed primarily of repairs and maintenance,
utilities, payroll and insurance, increased $97,000 (5.0 percent) to $2,045,000
in the 1996 Quarter from $1,948,000 in the 1995 Quarter.
Real estate taxes increased $258,000 (20.8 percent) to $1,498,000 in the
1996 Quarter from $1,240,000 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 the shopping center's redevelopment.
The provisions for credit losses increased $15,000 (20.0 percent) to
$90,000 in the 1996 Quarter from $75,000 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 $4,683,000 for the 1996 Quarter represented an increase
of $178,000 (4.0 percent) over $4,505,000 reported for the 1995 Quarter. This
increase is primarily attributable to an approximately $13.0 million increase
in average loan balances outstanding. The additional borrowings were used
primarily to fund the Company's acquisition and development activities.
Amortization of deferred debt expense increased to $733,000 for the 1996
Quarter from $607,000 for the 1995 Quarter, representing an increase of
$126,000 (20.8 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 $722,000 for the 1996
Quarter, as compared to $705,000 for the 1995 Quarter, representing an increase
of $17,000 (2.4 percent).
Depreciation and amortization expense decreased $260,000 (10.4 percent)
from $2,505,000 in the 1995 Quarter to $2,245,000 in the 1996 Quarter.
Nine months Ended September 30, 1996 Compared to Nine months Ended September 30,
1995
Base rent and expense recoveries were $37,217,000 and $6,885,000,
respectively, for the nine months ended September 30, 1996 (the "1996 Period"),
compared to $35,244,000 and $6,702,000, respectively, for the comparable period
in 1995 (the "1995 Period"), representing a $1,973,000 (5.6 percent) increase in
base rent and $183,000 (2.7 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 $2,170,000 in the 1996 Period, compared to $2,064,000
in the 1995
22
<PAGE>
Period, representing an increase of $106,000 (5.1 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 $1,312,000 in the 1996
Period, compared to $1,670,000 in the 1995 Period, representing a decrease of
$358,000 (21.4 percent). The decrease resulted primarily from lower lease
termination payments in the 1996 period compared to amounts received during the
1995 Period.
Operating expenses, consisting mainly of repairs and maintenance,
utilities, payroll and insurance, increased $128,000 (2.1 percent) to $6,164,000
in the 1996 Period from $6,036,000 in the 1995 Period.
Real estate taxes increased 475,000 (12.2 percent) to $4,382,000 in the
1996 Period from $3,907,000 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 the shopping center's redevelopment.
The provision for credit losses increased $62,000 (32.8 percent) to
$251,000 in the 1996 Period from $189,000 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 $13,716,000 for the 1996 Period represented an increase
of $561,000 (4.3 percent) from $13,155,000 in the 1995 Period. The increase is
primarily attributable to an approximately $18.3 million increase in average
outstanding loan balances. The additional borrowings were used primarily to
fund the Company's acquisition and development activities.
Amortization of deferred debt expense increased to $2,199,000 for the 1996
Period from $1,746,000 for the 1995 Period, representing a increase of $453,000
(25.9 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 $2,284,000 for the 1996
Period, as compared to $2,197,000 for the 1995 Period, representing an increase
of $87,000 (4.0 percent).
Depreciation and amortization expense increased $553,000 (7.6 percent) from
$7,299,000 in the 1995 period to $7,852,000 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.
(b) Reports on Form 8-K
None
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: November 14, 1996 /s/ Philip D. Caraci
---------------------- ----------------------------
Philip D. Caraci, President
Date: November 14, 1996 /s/ Scott V. Schneider
---------------------- ----------------------------
Scott V. Schneider
Vice President, Chief Financial Officer
25
<PAGE>
SAUL CENTERS, INC
SCHEDULE OF CURRENT PORTFOLIO PROPERTIES
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Leasable Year
Area Developed Land Percentage Leased
(Square or Acquired Area
Property Location Feet) (Renovated) (Acres) 09/30/96 09/30/95 Anchor/Significant Tenants
- ----------------- -------------- -------- ----------- ------- -------- -------- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SHOPPING CENTERS
Ashburn Village Ashburn, VA 108,204 1994 12.7 100% 99% Giant Food, Blockbuster
Beacon Mall Alexandria, VA 290,845 1972
(1993) 32.3 73% 94% Giant Food, Office Depot,
Outback Steakhouse, Marshalls
Belvedere Baltimore, MD 54,941 1972 4.8 100% 100% Giant Food, Rite Aid
Boulevard Fairfax, VA 56,578 1994 5.0 100% 100% Magruders, Danker Furniture
Clarendon Arlington, VA 6,940 1974 0.5 100% 100%
Clarendon Station Arlington, VA 4,868 1996 0.1 100% (A)
Crosstown Tulsa, OK 197,135 1975 26.4 37% 28% C. R. Anthony
Flagship Center Rockville, MD 21,500 1972,
1989 0.5 100% 100% NationsBank, Chevy Chase
Bank, F.S.B.
French Market Oklahoma
City, OK 213,658 1974
(1984) 13.8 94% 98% Fleming Food, Treasury Drug,
Furr's Cafeteria
Germantown Germantown, MD 26,241 1992 2.7 75% 58%
Giant Baltimore, MD 70,040 1972
(1990) 5.0 100% 100% Giant Food
The Glen Lake Ridge, VA 112,639 1994 14.7 100% 97% Safeway Marketplace,
CVS Pharmacy
Great Eastern District
Heights, MD 255,448 1972
(1995) 23.9 90% 97% Giant Food, Caldor, Pep Boys
Hampshire Langley Langley Park, MD 137,669 1972
(1979) 9.9 96% 99% Safeway, McCrory, Rite Aid
Leesburg Pike Baileys
Crossroads, VA 80,854 1966
(1982/95) 9.4 100% 94% Zany Brainy, CVS Pharmacy
Lexington Mall Lexington, KY 315,772 1974 30.0 98% 94% McAlpin's, Dawahares of
Lexington, Rite Aid
Lumberton Lumberton, NJ 182,229 1975
(1992/6) 23.3 80% 84% Super Fresh, Rite Aid,
Blockbuster, Mandee
North Washington Alexandria, VA 41,500 1974 2.0 100% 100% Mastercraft Interiors
Olney Olney, MD 53,765 1975
(1990) 3.7 86% 93%
Park Road Center Washington, DC 106,650 1974
(1993) 1.7 100% 100% Woolworth
Ravenwood Baltimore, MD 87,750 1972 8.0 100% 100% Giant Food
Shops at Fairfax Fairfax, VA 64,580 1975
(1992/3) 6.7 43% 43% Office Depot
Southdale Glen Burnie, MD 470,744 1972
(1986) 39.6 99% 99% Circuit City, Giant Food,
Hechinger, Kids R Us, Michaels,
Marshalls, Petsmart, Value
City Furniture
Southside Plaza Richmond, VA 345,330 1972 32.8 95% 95% CVS Pharmacy, Nick's
Supermarket, G. C. Murphy
Sunshine City Atlanta, GA 195,653 1976 14.6 98% 100% Bolton Furniture, McFrugals,
Pep Boys, The Emory Clinic
</TABLE>
Exhibit
<PAGE>
SAUL CENTERS, INC
SCHEDULE OF CURRENT PORTFOLIO PROPERTIES
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Leasable Year
Area Developed Land Percentage Leased
(Square or Acquired Area
Property Location Feet) (Renovated) (Acres) 09/30/96 09/30/95 Anchor/Significant Tenants
- ---------------- --------------- -------- ----------- ------- -------- -------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SHOPPING CENTERS
(CONTINUED)
Thruway Winston-Salem, NC 339,564 1972 30.5 96% 93% Steinmart, Reading China & Glass,
Harris Teeter, Fresh Market,
Blockbuster, Piece Goods Shop
Village Center Centreville, VA 147,081 1990 17.2 84% 83% Giant Food
West Park Oklahoma
City, OK 107,895 1975 11.2 76% 73% Homeland Stores, Treasury Drug
White Oak Silver Spring, MD 480,556 1972 (1993) 28.5 99% 100% Giant Food, Sears
------- ---- -- ---
"Total Shopping
Centers 4,576,629 411.3 90% 91%
--------- ----- -- ---
COMMERCIAL PROPERTIES
Avenel Gaithersburg, MD 284,557 1981
/85/89 28.2 98% 99% Oncor, Quanta Systems,
General Services
Administration
601 Pennsylvania
Ave Washington, DC 225,153 1974
(1986) 1.0 99% 100% General Services Administration,
Capital Grille
Van Ness Square Washington, DC 161,058 1974 (1990) 1.2 74% 91% United Mine Workers Pension
--------- ---- --- Trust, Office Depot, Pier 1
"Total
Commercial
Properties 670,768 30.4 93% 97%
========= ==== == ===
"Total Shopping Center and Commercial
Properties 5,247,397 SF 441.7 91% 92%
========= ===== == ==
SHOPPING CENTER REDEVELOPMENT PROPERTY
Seven Corners Falls Church, VA 570,726 1974
--------- (1994-7) 31.6 88% 92% Best Buy, Bob's Stores, Barnes
---- -- -- & Noble, Ross Dress For Less,
Woolworth, Shoppers Club, Home
Depot (B)
"Total
Development
Properties 570,726 31.6 88% 92%
=========
"Total Portfolio 5,818,123 SF
=========
</TABLE>
(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.
Exhibit
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS, SCHEDULES AND OTHER DISCLOSURES CONTAINED IN FORM 10-Q FOR THE
PERIOD ENDED SEPTEMBER 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
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