<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 March 31, 1997
--------------
[ ] 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
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SAUL CENTERS, INC.
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(Exact name of Registrant as Specified in Its Charter)
Maryland 52-1833074
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
8401 Connecticut Avenue
Chevy Chase, Maryland 20815
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(Address of Principal Executive Office) (Zip Code)
(301) 986-6000
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(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: 12,253,344 shares of common
stock, $0.01 par value, outstanding as of May 1, 1997.
<PAGE>
SAUL CENTERS, INC.
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
--------------------------------
(a) Consolidated Balance Sheets as of March 31, 1997 and
December 31, 1996. 3
(b) Consolidated Statements of Operations for the three months ended
March 31, 1997 and 1996. 4
(c) Consolidated Statements of Stockholders' Equity as of
March 31, 1997. 5
(d) Consolidated Statements of Cash Flows for the three
months ended March 31, 1997 and 1996. 6
(e) Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
(a) Liquidity and Capital Resources 17
(b) Results of Operations
Three Months Ended March 31, 1997 compared to Three Months
Ended March 31, 1996. 20
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 22
---------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K 22
--------------------------------
</TABLE>
2
<PAGE>
SAUL CENTERS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
March 31, December 31,
(Dollars in thousands) 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Real estate investments
Land $ 65,604 $ 65,604
Buildings and equipment 265,211 264,060
------------- -----------
330,815 329,664
Accumulated depreciation (97,368) (94,965)
------------- -----------
233,447 234,699
Construction in progress 4,428 1,508
Cash 1,994 38
Accounts receivable and accrued income, net 6,203 7,446
Prepaid expenses 4,374 4,808
Deferred debt expense, net 10,818 11,287
Other assets 2,928 3,709
------------- -----------
Total assets $ 264,192 $ 263,495
============= ===========
LIABILITIES
Notes payable $ 273,161 $ 273,261
Accounts payable, accrued expenses and other liabilities 15,991 15,154
Deferred income 3,046 1,441
------------- -----------
Total liabilities 292,198 289,856
------------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $0.01 par value, 30,000,000 shares
authorized, 12,184,433 and 12,125,705 shares issued and
outstanding, respectively 122 121
Additional paid-in capital 16,468 15,529
Accumulated deficit (44,596) (42,011)
------------- -----------
Total stockholders' equity (deficit) (28,006) (26,361)
------------- -----------
Total liabilities and stockholders' equity $ 264,192 $ 263,495
============= ===========
</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 Three Months Ended
March 31,
(Dollars in thousands, except per share amounts) 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUE
Base rent $ 12,601 $ 12,260
Expense recoveries 2,312 2,293
Percentage rent 759 716
Other 890 364
----------- ----------
Total revenue 16,562 15,633
----------- ----------
OPERATING EXPENSES
Property operating expenses 2,026 2,158
Provision for credit losses 43 55
Real estate taxes 1,514 1,429
Interest expense 4,820 4,426
Amortization of deferred debt expense 545 732
Depreciation and amortization 2,572 2,680
General and administrative 793 754
----------- ----------
Total operating expenses 12,313 12,234
----------- ----------
NET INCOME BEFORE EXTRAORDINARY
ITEM AND MINORITY INTERESTS 4,249 3,399
Extraordinary item
Early extinguishment of debt (369) --
----------- ----------
Net income before minority interests 3,880 3,399
----------- ----------
Minority interests
Minority share of income (1,048) (918)
Distributions in excess of earnings (665) (795)
----------- ----------
Total minority interests (1,713) (1,713)
----------- ----------
NET INCOME $ 2,167 $ 1,686
=========== ==========
NET INCOME PER SHARE
Net income before extraordinary
item and minority interests $ 0.26 $ 0.21
Extraordinary item (0.03) --
----------- ----------
Net income before minority interests $ 0.23 $ 0.21
=========== ==========
Net income $ 0.18 $ 0.14
=========== ==========
</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
(Dollars in thousands, except per share amounts) Stock Capital Deficit Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STOCKHOLDERS' EQUITY (DEFICIT):
Balance, December 31, 1995 $ 119 $ 12,243 $ (29,097) $ (16,735)
Issuance of 246,605 shares of common
stock through dividend reinvestment plan 2 3,286 -- 3,288
Net income -- -- 5,851 5,851
Distributions ($1.17 per share) -- -- (14,036) (14,036)
Distributions payable ($.39 per share) -- -- (4,729) (4,729)
--------- ---------- ----------- -----------
Balance, December 31, 1996 121 15,529 (42,011) (26,361)
Issuance of 58,728 shares of common
stock through dividend reinvestment plan 1 939 -- 940
Net income -- -- 2,167 2,167
Distributions payable ($.39 per share) -- -- (4,752) (4,752)
--------- ---------- ----------- -----------
Balance, March 31, 1997 $ 122 $ 16,468 $ (44,596) $ (28,006)
========= ========== =========== ===========
</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 Three Months Ended
March 31,
(Dollars in thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,167 $ 1,686
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interests 1,713 1,713
Early extinguishment of debt 369 --
Depreciation and amortization 3,117 3,412
Provision for credit losses 43 55
Decrease in accounts receivable 1,200 399
Decrease in prepaid expenses 265 170
Decrease in other assets 781 170
Increase (decrease) in accounts payable and other liabilities 837 (75)
Increase (decrease) in deferred income 1,605 (5)
---------- ----------
Net cash provided by operating activities 12,097 7,525
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to real estate investments (1,151) (1,539)
Additions to construction in progress (2,920) (1,277)
---------- ----------
Net cash used in investing activities (4,071) (2,816)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 43,500 6,402
Repayments on notes payable (43,600) (5,156)
Fee paid on early extinguishment of debt (95) --
Additions to deferred debt expense (350) (14)
Proceeds from the reinvestment of dividends in
shares of common stock 940 739
Distributions to common stockholders and
holders of convertible limited partnership
units in the Operating Partnership (6,465) (6,367)
---------- ----------
Net cash used in financing activities (6,070) (4,396)
---------- ----------
Net increase in cash 1,956 313
Cash, beginning of period 38 674
---------- ----------
Cash, end of period $ 1,994 $ 987
========== ==========
</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
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 March
31, 1997, 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
7
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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").
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, 1996, which are
included in its Annual Report on Form 10-K. The results of operations for
interim periods are not necessarily indicative of results to be expected for the
year.
8
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company, which conducts all of its activities through its subsidiaries,
the Operating Partnership and Subsidiary Partnerships, engages in the ownership,
operation, management, leasing, acquisition, renovation, expansion, development
and financing of community and neighborhood shopping centers and, 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 March 1997, no single
Shopping Center accounted for more than 10.6 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, 1996 and only three Shopping Center tenants
individually accounted for more than 1.5 percent of total revenues for 1996.
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. These assets have generally appreciated in
value and accordingly the aggregate current value substantially exceeds their
aggregate net book value as reported in these financial statements. Management
believes the current value of the Current Portfolio Properties substantially
exceeds the value of the Company's liabilities. These financial statements are
prepared in conformity with generally accepted accounting principles, and
accordingly, do not report the current value of the Company's real estate
assets.
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.
9
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Interest expense capitalized during the three month periods ended March 31, 1997
and 1996, was $65,000 and $171,000, 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 $1,860,000 at March 31, 1997, 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 $474,000 at March 31, 1997.
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 $6,414,000 at March 31, 1997.
REVENUE RECOGNITION
Rental and interest income are accrued as earned, except, when doubt exists
as to 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 percentage rent, adjusted to
give effect to current sales data.
10
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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
16,558,020 and 16,309,630, for the quarters ended March 31, 1997 and 1996,
respectively. Per share data relating to net income after minority interests is
computed on the basis of the weighted average common shares outstanding during
the quarters ended March 31, 1997 and 1996, which were 12,164,857 and
11,916,467, respectively.
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 26.5 percent limited partnership
interest, as of March 31, 1997. 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 26.5 percent limited partnership interest in the Operating
Partnership is presented as minority interests in the accompanying financial
statements.
11
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 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 director's deferred fee
was earned. Shares authorized and registered for use under the plan total
70,000. As of March 31, 1997, 29,590 shares had been credited to the director's
deferred fee accounts.
NEW ACCOUNTING PRONOUNCEMENTS
During 1995, the Financial Accounting Standards Board ("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 was implemented in
1996 and, in the opinion of management, no such impairment loss reductions are
required.
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-based compensation using either the fair value method or the
intrinsic value method. The Company has adopted SFAS No. 123 utilizing the
method which provides for proforma disclosure of the impact of stock-based
compensation.
In February, 1997 the FASB issued SFAS No. 128 "Earnings Per Share" and
SFAS No. 129 "Disclosure of Information About Capital Structure," both of which
are required to be adopted for fiscal years beginning after December 15, 1997.
SFAS No. 128 establishes new standards for computing, presenting and disclosing
earnings per share, and will require restatement of prior year earnings per
share disclosures. SFAS No. 129 establishes new standards for disclosing
information about entities' capital structures. In the opinion of management,
these standards will not have a material impact on the Company's consolidated
results of operations and financial position.
12
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. CONSTRUCTION IN PROGRESS
Construction in progress represents the costs of the current phase of the
Seven Corners shopping center redevelopment, the Leesburg Pike expansion and
Thruway's facade and site renovation. These costs include direct construction
costs, indirect costs such as architectural, engineering and construction
management, and carrying costs such as interest, real estate taxes and
insurance.
<TABLE>
<CAPTION>
Construction In Progress
------------------------
(In thousands)
<S> <C>
Seven Corners............. $3,610
Leesburg Pike............. 759
Thruway................... 59
------
Total..................... $4,428
======
</TABLE>
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
$273.2 million at March 31, 1997, of which $126.2 million (46 percent) was fixed
rate debt and $147.0 million (54 percent) was floating rate debt. All of the
floating rate debt 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 repay 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.
13
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
During 1996, the Company repaid a total of $76.6 million of variable rate
mortgage notes, the majority of which were scheduled to mature during 1998, with
the net proceeds of a $77.0 million 15-year fixed rate mortgage note. The note
requires monthly payments of interest at a rate of 8.64 percent and principal
based upon a 20 year amortization schedule. The Company's revolving credit
facility commitment of $100.1 million was reduced to $44.0 million as a result
of the fixed rate financing.
During January 1997, the Company repaid a $38.0 million variable rate
mortgage note scheduled to mature in 1999, with the net proceeds of a $38.5
million 16-year fixed rate mortgage note. The note requires monthly payments
of interest at a rate of 7.88 percent and principal based upon a twenty-five
year amortization schedule.
As of March 31, 1997, the Company had a $44.0 million secured revolving
credit facility with outstanding borrowings of $19.0 million. The line requires
monthly interest payments of LIBOR plus 1.875 percent. At March 31, 1997, $25.0
million was available for borrowing on the line.
As of March 31, 1997, the scheduled maturities of all debt for years
ending December 31, were as follows:
<TABLE>
<CAPTION>
Debt Maturity Schedule
----------------------
(In thousands)
<S> <C>
April through December 31, 1997.. $ 2,018
1998............................. 22,149
1999............................. 3,380
2000............................. 3,631
2001............................. 131,803
2002............................. 3,254
Thereafter....................... 106,926
--------
Total $273,161
========
</TABLE>
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
14
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
percent for the ensuing four years ending in August 1998. Subsequent to the
Company's November 1996 closing of its $77 million fixed rate mortgage, which
refinanced a similar amount of floating rate debt, a total of $37.0 million of
the 5.25 percent interest rate protection agreements were sold on December 9,
1996, leaving protection agreements with a notional value of $162.8 million and
5.25 percent interest rate maturing in August 1998. When adding the Company's
current weighted average interest rate "spread" of approximately 1.00 percent
over LIBOR at March 31, 1997 to the 5.25 percent strike price, the result is a
maximum interest rate of approximately 6.25 percent for the Company's $147.0
million floating rate debt. The costs of these interest rate protection
agreements were paid at the time of the Offerings.
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.
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. Subsequent to the Company's $77 million fixed rate loan
closing in November 1996, this $50 million of interest rate protection was sold
on December 9, 1996. Additionally, in March 1995, 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. Also on December 9, 1996, the Company sold
$37.0 million of these interest rate protection agreements.
As a result of the purchased interest rate protection agreements, all of the
Company's current floating rate debt totaling $147.0 million is capped at LIBOR
strike prices of 5.25 percent through August 1998 and 7.5 percent through August
2000.
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 ended March 31, 1997 and 1996, was $108,000 and $192,000, respectively
and was reported as an offset to interest expense.
15
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
5. SHAREHOLDERS' EQUITY AND MINORITY INTERESTS
These financial statements are prepared in conformity with generally accepted
accounting principles and accordingly do not report the current value of the
Company's real estate assets. The Shareholders' Equity reported on the
Consolidated Balance Sheets does not reflect any increase in the value resulting
from the difference between the current value and the net book value of the
Company's assets. Therefore Shareholder's Equity reported on the Consolidated
Balance Sheets does not reflect the market value of stockholders' investment in
the Company.
The Consolidated Statement of Operations for the three months ended March 31,
1997 includes a charge for minority interests of $1,713,000, consisting of
$1,048,000 related to the predecessor company's share of the net income for the
quarter and $665,000 related to distributions to minority interests in excess of
allocated net income for the quarter. The charge for the three months ended
March 31, 1996 of $1,713,000 consists of $918,000 related to the predecessor
company's share of net income for the quarter and $795,000 related to
distributions to minority interests in excess of allocated net income for the
quarter.
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
- -------
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 of its
wholly owned subsidiaries is the sole general partner, the "Company") as of
March 31, 1997 and for the three month period ending March 31, 1997.
Liquidity and Capital Resources
- -------------------------------
The Company's principal demands for liquidity are expected to be
distributions to its stockholders, debt service and loan repayments, expansion
and renovation of the Current Portfolio Properties and selective acquisition and
development of additional properties. In order to qualify as a REIT for federal
income tax purposes, the Company must distribute to its stockholders at least 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, distributions, and required recurring capital expenditures. Balloon
principal repayments are expected to be funded by refinancings.
Management anticipates that during the current year the Company may: 1)
redevelop certain of the Shopping Centers, 2) develop additional freestanding
out parcels or expansions within certain of the Shopping Centers, 3) acquire
existing neighborhood and community shopping centers and 4) develop new shopping
center sites. Acquisition and development of properties are undertaken only
after careful analysis and review, and each such property is expected to provide
long-term earnings and cash flow growth. During the coming year, any
developments, expansions or acquisitions are expected to be funded with bank
borrowings from the Company's credit line or other external capital resources
available to the Company.
The Company expects to fulfill its long range requirements for capital
resources in a variety of ways, including 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 dividend
investment program. Borrowings may be at the Saul Centers, Operating
Partnership or Subsidiary Partnership level, and securities offerings may
include (subject to certain limitations) the issuance of additional limited
partnership interests in the Operating Partnership which can be converted into
shares of Saul Centers common stock.
For the three months ended March 31, 1997, operating activities provided
net cash flow of $12,097,000, while financing activities provided proceeds of
$43,500,000 from a notes payable refinancing and $940,000 from the reinvestment
of dividends by operation of the Company's Dividend Reinvestment and Stock
Purchase Plan. During the same three month period investing activities used
cash of $4,071,000 and financing activities used cash primarily for the
17
<PAGE>
replacement of debt ($43,600,000), distributions ($6,465,000), shopping center
renovations and capital expenditures ($1,151,000), and construction and
redevelopment projects ($2,920,000).
Management believes that the Company's current capital resources, including
approximately $25,000,000 of the Company's credit line which was available for
borrowing as of March 31, 1997, will be sufficient to meet its liquidity needs
for the foreseeable future.
Capital Strategy and Financing Activity
- ---------------------------------------
The Company's capital strategy is to maintain a ratio of total debt to
total asset value of 50 percent or less, and to actively manage the Company's
leverage and debt expense in order to maintain prudent coverage of fixed
charges. Management believes that current total debt remains less than 50
percent of total asset value.
Recently, the Company closed two long-term fixed rate mortgages, which
management believes enhances its financial position. The first was a $77
million loan closed in November 1996, for a term of 15 years at a fixed interest
rate of 8.64 percent, and an average twenty-year principal amortization
schedule. A balloon payment of approximately $34 million will be due at
maturity in December 2011. The loan is secured by six of the Company's retail
and office properties. In January 1997, the Company closed a second loan in the
amount of $38.5 million, for a 16-year term, at a fixed rate of 7.88 percent,
and a twenty-five year principal amortization schedule. A balloon payment of
approximately $24.5 million will be due at maturity in January 2013. This loan
is secured by the 601 Pennsylvania Avenue office property. The proceeds of
these loans were used to repay existing floating rate debt, including a portion
of the revolving credit line, which had a weighted remaining term of less than 3
years and a weighted average interest rate of LIBOR plus 2.05 percent, or 7.58
percent assuming the three month LIBOR rate effective as of December 31, 1996.
The Company now has fixed interest rates on approximately 46 percent of its
total debt. The balance of the debt is tied to LIBOR rates and is covered by
interest rate protection agreements, which cap LIBOR at 5.25 percent through
August 1998 and 7.5 percent through August 2000.
Redevelopment, Renovations and Acquisitions
- -------------------------------------------
The Company has selectively engaged in redevelopment, renovation and
acquisition activities. It continues to evaluate land parcels for retail
development and potential acquisitions of operating retail properties for
opportunities to enhance operating income and cash flow growth. The Company also
continues to take advantage of retail redevelopment, renovation and expansion
opportunities within the portfolio, as demonstrated by its continuing
redevelopment activities at Seven Corners, a recently completed facade
renovation at Lumberton Plaza, and the recent undertaking of a renovation at
Thruway and an expansion of Leesburg Pike shopping centers.
18
<PAGE>
The first phase renovation and conversion of Seven Corners, the Company's
largest shopping center, from an enclosed mall to a large community retail
center, was finished 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. In addition to these new tenants, Seven Corners
also features a 26,000 square foot Ross Dress for Less, a 50,000 square foot
Best Buy and a renovated 23,000 square foot Woolworth's. These five anchor
tenants comprise more than 32 percent of the current leasable space in the
shopping center. Construction of a 16,000 square foot expansion of an outparcel
building was completed in June 1995. This space is fully leased to service-
oriented tenants, some of which relocated from the former enclosed mall.
Construction was also completed in 1996 on two free-standing restaurant pads
leased by Wendy's and Pizzeria Uno, which opened for business in May and
September 1996, respectively.
In February 1996, the Company entered into a twenty-year lease at Seven
Corners with Shoppers Club for their latest prototype 69,000 square foot grocery
store, and in May 1996, the Company entered into a thirty-year 127,000 square
foot lease with The Home Depot, which includes 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 new stores and associated
parking. Construction of this phase of development is projected to be
completed in late summer of 1997.
Lumberton is a 185,000 square foot, neighborhood shopping center anchored
by Super Fresh and Rite Aid, located east of Philadelphia in southern New
Jersey. The Company has renovated the shopping center's facade and upgraded
signage and lighting. This renovation was substantially completed in November
1996.
The Company has commenced construction on a facade renovation of its Harris
Teeter and Steinmart anchored, 340,000 square foot, Thruway shopping center
located in Winston-Salem, North Carolina. Construction will include a 40-foot
clock tower, a new tenant sign band, colonial style anchor tenant features, new
lighting and a complete facade upgrade. The renovation is projected to be
completed in the fall of 1997.
Leesburg Pike is a 83,000 square foot shopping center, where a facade
renovation was completed in 1995. Construction has begun on a 13,000 square
foot expansion of in-line shop space for new retail uses. The expansion is 100
percent pre-leased and is projected to be completed in the summer of this year.
Portfolio Leasing Status
- ------------------------
At March 31, 1997, the portfolio consisted of thirty Shopping Centers and
three 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
19
<PAGE>
District of Columbia, and one research park located in a Maryland suburb of
Washington, D.C.
At March 31, 1997, 89.1 percent of the Company's 5.8 million square feet of
leasable space was leased to tenants, as compared to 87.6 percent at March 31,
1996. The shopping center portfolio was 88.9 percent leased at March 31, 1997
versus 87.0 percent as of March 31, 1996. The Commercial Properties were 90.6
percent leased at March 31, 1997 compared to 92.6 percent as of March 31, 1996.
The overall improvement in the 1996 leasing percentage was primarily the result
of substantial leasing activity at the Company's Seven Corners redevelopment
project.
RESULTS OF OPERATIONS
The following discussion compares the results of the Company for the three
month periods ended March 31, 1997 and 1996. This information should be read in
conjunction with the accompanying consolidated 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 March 31, 1997 compared to Three Months Ended March 31, 1996
- -------------------------------------------------------------------------------
Base rent and expense recoveries were $12,601,000 and $2,312,000,
respectively, for the three month period ended March 31, 1997 (the "1997
Quarter"), compared to $12,260,000 and $2,293,000, respectively, for the
comparable quarter in 1996 (the "1996 Quarter"), representing a $341,000 (2.8
percent) increase in base rent and $19,000 (0.8 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 1997
Quarter but not present during the 1996 Quarter.
Percentage rent was $759,000 in the 1997 Quarter, compared to $716,000 in
the 1996 Quarter, representing an increase of $43,000 (6.0 percent).
Other income, which is comprised primarily of parking income, kiosk
leasing, temporary leases, and payments associated with early termination of
leases, was $890,000 in the 1997 Quarter, compared to $364,000 in the 1996
Quarter, representing an increase of $526,000 (144.5 percent). The increase in
other income resulted primarily from increased lease termination payments.
Operating expenses, comprised primarily of repairs and maintenance,
utilities, payroll and insurance, decreased $132,000 (6.1 percent) to $2,026,000
in the 1997 Quarter from $2,158,000 in the 1996 Quarter. The reduction in the
1997 period's operating expenses was largely attributable to reduced snow
removal expenses resulting from the relatively mild winter weather in the Mid-
Atlantic region.
20
<PAGE>
Real estate taxes increased $85,000 (5.9 percent) to $1,514,000 in the 1997
Quarter from $1,429,000 in the 1996 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 decreased $12,000 (21.8 percent) to
$43,000 in the 1997 Quarter from $55,000 in the 1996 Quarter.
Interest expense of $4,820,000 for the 1997 Quarter represented an increase
of $394,000 (8.9 percent) over $4,426,000 reported for the 1996 Quarter. This
increase is primarily attributable to increased interest expense resulting from
the Company's conversion of approximately $115.5 million of its mortgage debt
from floating rate loans to longer term, fixed rate loans.
Amortization of deferred debt expense decreased to $545,000 for the 1997
Quarter from $732,000 for the 1996 Quarter, representing a decrease of $187,000
(25.5 percent). The decrease in the 1997 Quarter resulted from the elimination
of amortization on interest rate protection agreements with a total notional
value of $87.0 million, sold during the fourth quarter of 1996, and reduced debt
amortization because new fixed rate debt has a longer term than the floating
rate debt it replaced.
Depreciation and amortization expense decreased $108,000 (4.0 percent) from
$2,680,000 in the 1996 Quarter to $2,572,000 in the 1997 Quarter.
General and administrative expense, which consists primarily of
administrative, payroll and other overhead expense, was $793,000 for the 1997
Quarter, as compared to $754,000 for the 1996 Quarter, representing an increase
of $39,000 (5.2 percent).
Extraordinary item, loss on early extinguishment of debt, was $369,000 for
the 1997 Quarter resulting from the write-off of unamortized loan costs when the
Company refinanced a portion of its loan portfolio. No loss on early
extinguishment of debt was recorded during the 1996 Quarter.
21
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 18, 1997, the Company held its Annual Meeting of Stockholders, at
which Messrs. Caraci, Grosvenor, and Jackson were reelected to the Board of
Directors, each receiving in excess of 91 percent of the votes of the
approximately 11 million shares represented at the meeting. The terms of
Messrs. Kelley, Longsworth, Noonan, Saul, Symington and Whitmore did not expire
as of the April 18, 1997 meeting and such individuals continue as directors of
the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
--------
3. (a) First Amended and Restated Articles of Incorporation of Saul
Centers, Inc. filed with the Maryland Department of Assessments
and Taxation on August 23, 1994 and filed as Exhibit 3.(a) of
the 1993 Annual Report of the Company on Form 10-K is hereby
incorporated by reference.
(b) Amended and Restated Bylaws of Saul Centers, Inc. as in
effect at and after August 24, 1993 and as of August 26, 1993
and filed as Exhibit 3 (b) of the 1993 Annual Report of the
Company on Form 10-K is hereby incorporated by reference.
10. (a) First Amended and Restated Agreement of Limited Partnership of
Saul Holdings Limited Partnership filed as Exhibit No. 10.1 to
Registration Statement No. 33-64562 is hereby incorporated by
reference. The First Amendment to the First Amended and
Restated Agreement of Limited Partnership of Saul Holdings
Limited Partnership, the Second Amendment to the First Amended
and Restated Agreement of Limited Partnership of Saul Holdings
Limited Partnership, and the Third Amendment to the First
Amended and Restated Agreement of Limited Partnership of Saul
Holdings Limited Partnership filed as Exhibit 10.(a) of the
1995 Annual Report of the Company on Form 10-K is hereby
incorporated by reference. The Fourth Amendment to the First
Amended and Restated Agreement of Limited Partnership of Saul
Holdings Limited Partnership is filed herewith.
(b) First Amended and Restated Agreement of Limited Partnership of
Saul Subsidiary I Limited Partnership and Amendment No. 1
thereto filed as Exhibit 10.2 to Registration Statement No. 33-
64562 are hereby incorporated by reference.
22
<PAGE>
(c) First Amended and Restated Agreement of Limited Partnership of
Saul II Subsidiary Partnership and Amendment No. 1 thereto
filed as Exhibit 10.3 to Registration Statement No. 33-64562
are hereby incorporated by reference.
(d) Property Conveyance Agreement filed as Exhibit 10.4 to
Registration Statement No. 33-64562 is hereby incorporated by
reference.
(e) Management Functions Conveyance Agreement filed as Exhibit 10.5
to Registration Statement No. 33-64562 is hereby incorporated
by reference.
(f) Registration Rights and Lock-Up Agreement filed as Exhibit 10.6
to Registration Statement No. 33-64562 is hereby incorporated
by reference.
(g) Exclusivity and Right of First Refusal Agreement filed as
Exhibit 10.7 to Registration Statement No. 33-64562 is hereby
incorporated by reference.
(h) Saul Centers, Inc. 1993 Stock Option Plan filed as Exhibit 10.8
to Registration Statement No. 33-64562 is hereby incorporated
by reference.
(i) Agreement of Assumption dated as of August 26, 1993 executed by
Saul Holdings Limited Partnership and filed as Exhibit 10. (I)
of the 1993 Annual Report of the Company on Form 10-K is hereby
incorporated by reference.
(j) First Amended and Restated Revolving Credit Agreement dated as
of November 2, 1995 among Saul Holdings Limited Partnership,
Saul Subsidiary II Limited Partnership and The First National
Bank of Chicago, First Bank National Association, BHF-Bank
Aktiengesellschaft, Crestar Bank, Bank of America Illinois and
The First National Bank of Chicago, as Agent and filed as
Exhibit 10.(k) of the 1995 Annual Report of the Company on Form
10-K is hereby incorporated by reference. First Amendment to
the First Amended and Restated Revolving Credit Agreement dated
as of November 7, 1996 among Saul Holdings Limited Partnership,
and The First National Bank of Chicago, First Bank National
Association, Crestar Bank, and The First National Bank of
Chicago, as Agent, is filed herewith.
23
<PAGE>
(k) Indenture dated as of August 1, 1994 among SC Finance
Corporation, as Issuer, Bankers Trust Company, as Master
Service and in certain other capacities, and Marine Midland
Bank, as Trustee, and filed as Exhibit 10.(o) of the 1994
Annual Report of the Company on Form 10-K is hereby
incorporated by reference.
(l) Master Servicing Agreement dated as of August 1, 1994 among SC
Finance Corporation, as Issuer, Marine Midland Bank, as
Trustee, and Bankers Trust Company, as Master Servicer, and
filed as Exhibit 10.(p) of the 1994 Annual Report of the
Company on Form 10-K is hereby incorporated by reference.
(m) Mortgage Loan Purchase Agreement dated as of August 1, 1994
between SC Finance Corporation, Purchaser, and Value Line
Mortgage Corporation, Originator, and filed as Exhibit 10.(q)
of the 1994 Annual Report of the Company on Form 10-K is hereby
incorporated by reference.
(n) Deed to Secure Debt, Deed of Trust, Mortgage, Security
Agreement and Assignment of Rent; Modification and
Consolidation Agreement dated as of July 31, 1994 among Saul
Subsidiary I Limited Partnership, Mortgagor, Value Line
Mortgage Corporation, Mortgagee, Stuart S. Levin and Kenneth
Kraus, District of Columbia Trustee, Kenneth Kraus, Maryland
Trustee, Kenneth Kraus, North Carolina Trustee, and Gerald R.
Perras and Leonard W. Harrington, Jr., Virginia Trustee, and
filed as Exhibit 10.(r) of the 1994 Annual Report of the
Company on Form 10-K is hereby incorporated by reference.
(o) Interest Rate and Currency Exchange Agreement dated as of July
27, 1994 between General Re Financial Products Corporation and
Saul Subsidiary I Limited Partnership, and filed as Exhibit
10.(s) of the 1994 Annual Report of the Company on Form 10-K is
hereby incorporated by reference.
(p) Saul Centers, Inc. 1995 Dividend Reinvestment and Stock
Purchase Plan filed with the Securities and Exchange Commission
as File No. 33-80291 is hereby incorporated by reference.
(q) Deferred Compensation Plan for Directors dated as of December
13, 1993 as filed as Exhibit 10.(r) of the 1995 Annual Report
of the Company on Form 10-K is hereby incorporated by
reference.
(r) Deed of Trust, Assignment of Rents, and Security Agreement
dated as of June 9, 1994 by and between Saul Holdings Limited
24
<PAGE>
Partnership and Ameribanc Savings Bank, FSB as filed as Exhibit
10.(t) of the 1995 Annual Report of the Company on Form 10-K is
hereby incorporated by reference.
(s) Deed of Trust Note dated as of January 22, 1996 by and between
Saul Holdings Limited Partnership and Clarendon Station Limited
Partnership is filed herewith.
(t) Loan Agreement dated as of November 7, 1996 by and among Saul
Holdings Limited Partnership, Saul Subsidiary II Limited
Partnership and PFL Life Insurance Company, c/o AEGON USA
Realty Advisors, Inc. is filed herewith.
(u) Interest Rate Agreements dated as of March 16, 1995 between
Saul Holdings Limited Partnership and Wells Fargo Bank National
Association as filed as Exhibit 10.(u) of the 1995 Annual
report of the Company on Form 10-K is hereby incorporated by
reference. First Amendment to Interest Rate Agreement dated as
of December 9, 1996 between Saul Holdings Limited Partnership
and Wells Fargo Bank National Association is filed herewith.
(v) Interest Rate Agreement Termination dated as of December 9,
1996 between Saul Holdings Limited Partnership and Wells Fargo
Bank, National Association is filed herewith.
(w) Letter Agreement dated December 9, 1996 between Saul Holdings
Limited Partnership and Wells Fargo Bank, National Association
confirming the sale of interest rate cap with $37,000,000
notional value is filed herewith.
(x) Amendment to amended interest rate cap agreement, notional
value $34,780,000, dated December 17, 1996 between Saul
Holdings Limited Partnership and The First National Bank of
Chicago, is filed herewith.
(y) Letter Agreement dated December 10, 1996 between Saul Holdings
Limited Partnership and The First National Bank of Chicago
confirming the sale of interest rate cap agreements with
notional values of $50,000,000 and $37,000,000, is filed
herewith.
(z) Promissory Note dated as of January 10, 1997 by and between
Saul Subsidiary II Limited Partnership and The Northwestern
Mutual Life Insurance Company, is filed herewith.
23 Consent of Certified Public Accountants
25
<PAGE>
99 Schedule of Portfolio Properties
Financial Data Schedule
Reports on Form 8-K.
--------------------
None.
26
<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: May 13, 1997 /s/ Philip D. Caraci
-------------- ---------------------------------------
Philip D. Caraci, President
Date: May 13, 1997 /s/ Scott V. Schneider
-------------- ---------------------------------------
Scott V. Schneider
Vice President, Chief Financial Officer
27
<PAGE>
FOURTH AMENDMENT TO THE
FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
SAUL HOLDINGS LIMITED PARTNERSHIP
THIS FOURTH AMENDMENT TO THE FIRST AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF SAUL HOLDINGS LIMITED PARTNERSHIP (this "Fourth
Amendment"), dated as of Dec. 1, 1996, is entered into by the undersigned
------
parties.
W I T N E S S E T H
WHEREAS, Saul Holdings Limited Partnership (the "Partnership") was formed
as a Maryland limited partnership pursuant to that certain Certificate of
Limited Partnership dated June 16, 1993 and filed on June 16, 1993 among the
partnership records of the Maryland State Department of Assessments and
Taxation, and that certain Agreement of Limited Partnership dated June 16, 1993
(the "Original Agreement");
WHEREAS, the Original Agreement was amended and restated in its entirety by
that certain First Amended and Restated Agreement of Limited Partnership of the
Partnership dated August 26, 1993, which was further amended by that certain
First Amendment dated August 26, 1993, by that certain Second Amendment dated
March 31, 1994, and by that certain Third Amendment dated July 21, 1994 (as
amended, the "Agreement");
WHEREAS, the General Partner of the Partnership has established its
Dividend Reinvestment and Stock Purchase Plan (the "Plan"), which provides,
among other things, that the limited partners of the Partnership can elect to
invest some or all of their cash distributions received from the Partnership in
REIT Shares and that the General Partner will invest all funds received under
the Plan in the Partnership as an additional capital contribution;
WHEREAS, the undersigned parties, constituting all of the Partners of the
Partnership, desire to amend the Agreement (i) to appropriately reflect the
additional capital contributions that the General Partner will be making to the
Partnership pursuant to the Plan, and (ii) to provide Limited Partners with the
option of making capital contributions to the Partnership of cash distributions
that the might otherwise be invested in REIT Shares pursuant to the Plan.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto,
intending legally to be bound, hereby agree as follows:
-1-
<PAGE>
1. The definition of "Value" in Article I is amended by inserting the following
at the end of the first sentence thereof:
; provided, however, that with respect to REIT Shares issued pursuant to a
dividend reinvestment plan as set forth in Section 4.7 and with respect to
Section 4.8, "Value" as of any date means the closing price of the REIT
Shares as of such date.
2. The following Sections 4.7 and 4.8 are hereby inserted after Section 4.6:
Section 4.7 Dividend Reinvestment Plan
--------------------------
If the General Partner establishes a dividend reinvestment plan, and cash
dividends or other cash distributions are invested in REIT Shares pursuant
to such plan:
(1) the General Partner shall, as soon as practicable after receiving such
distributions, contribute to the capital of the Partnership an amount
equal to the cash dividends or other cash distributions received for
the REIT Shares; and
(2) the General Partner shall, as of the date on which the REIT Shares are
issued pursuant to such plan, be deemed to have contributed to the
Partnership as Contributed Funds pursuant to Section 4.2.A(2) hereof
an amount equal to the Value (computed as of the date on which such
distributions are invested in REIT Shares pursuant to such plan) of
the REIT Shares delivered by the General Partner pursuant to such
plan; and
(3) the General Partner's Partnership Interest and the Partnership
Interests of the Limited Partners shall be adjusted as set forth in
Section 4.2
Section 4.8 Optional Investment of Cash Distributions
-----------------------------------------
If the General Partner establishes a dividend reinvestment plan pursuant to
which Limited Partners may invest cash distributions in additional REIT
Shares, and for so long as such plan remains in effect:
(1) the Limited Partners may make additional Capital Contributions to the
Partnership of the cash distributions from the Partnership;
(2) any Limited Partner who elects to make such an additional Capital
Contribution shall receive additional Partnership Units
-2-
<PAGE>
equal to the number of REIT Shares such Limited Partner would have
received had it invested such cash distribution in REIT Shares
pursuant to such plan;
(3) the Limited Partner shall, as of the date on which such cash
distribution, if any, is invested in the Partnership, be deemed to
have contributed to the Partnership as an additional Capital
Contribution an amount equal to the Value (computed as of the date on
which such distributions are invested in the Partnership) of the REIT
Shares that would have been delivered to such Limited Partner by the
General Partner had such cash distribution been invested pursuant to
such plan; and
(4) the General Partner shall be authorized on behalf of each of the
Partners to amend this Agreement to reflect the increase in the
Partnership Interest of each Limited Partner who elects to invest cash
distributions in the Partnership pursuant to this Section 4.8, and the
General Partner shall promptly after each such investment deliver a
copy of such amendment to each Limited Partner.
3. Except as the context may otherwise require, any terms used in this Fourth
Amendment that are defined in the Agreement shall have the same meaning for
purposes of this Fourth Amendment as in the Agreement.
4. Except as herein amended, the Agreement is hereby ratified, confirmed and
reaffirmed for all purposes and in all respects.
5. This Fourth Amendment may be executed in counterparts, all of which
together shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Fourth Amendment
immediately upon affixing its signature hereto.
-3 -
<PAGE>
IN WITNESS WHEREOF, the undersigned parties have executed this Fourth Amendment
as of the date first written above.
GENERAL PARTNER
---------------
SAUL CENTERS, INC.
a Maryland corporation
By: /s/ Philip D. Caraci
Name: Philip Caraci
Title: President
LIMITED PARTNERS
----------------
B. F. SAUL REAL ESTATE INVESTMENT TRUST, a
Maryland unincorporated business trust
By: /s/ Philip D. Caraci
Name: Philip D. Caraci
Title: Senior Vice President
Attest: /s/ Jeannell L. Christian
Name: Jeannell L. Christian
Title: Assistant Secretary
WESTMINSTER INVESTING CORPORATION, a
New York corporation
By: /s/ B. Francis Saul III
Name: B. Francis Saul III
Title: Executive Vice President
-4-
<PAGE>
VAN NESS SQUARE CORPORATION, a
Maryland corporation
By: /s/ B. Francis Saul III
Name: B. Francis Saul III
Title: President
DEARBORN CORPORATION, a
Delaware corporation
By: /s/ Philip D. Caraci
Name: Philip D. Caraci
Title: President
FRANKLIN PROPERTY COMPANY, a
Maryland corporation
By: /s/ Philip D. Caraci
Name: Philip Caraci
Title: President
AVENEL EXECUTIVE PARK PHASE II, INC., a
Maryland corporation
By: /s/ Philip D. Caraci
Name: Philip Caraci
Title: President
-5-
<PAGE>
FIRST AMENDMENT TO
FIRST AMENDED AND RESTATED REVOLVING
CREDIT AGREEMENT AND OTHER LOAN DOCUMENTS
This First Amendment to First Amended and Restated Revolving Credit
Agreement and other Loan Documents (the "First Amendment") is entered into as of
November 7, 1996 , by and among Saul Holdings Limited Partnership ("Holdings"),
Saul Subsidiary II Limited Partnership ("Saul D.C."), Saul Centers, Inc. ("Saul
Centers"), The First National Bank of Chicago ("First Chicago"), First Bank
National Association ("First Bank.), BHF Bank-Aktiengesellschaft ("BHF"),
Crestar Bank ("Crestar"), Bank of America Illinois ("Bank of America")
(collectively, First Chicago, First Bank, BHF, Crestar and Bank of America are
the "Lenders") and First Chicago, as Agent.
RECITALS
--------
A. The parties hereto (other than Saul Centers) are parties to a certain
First Amended and Restated Revolving Credit Agreement, dated as of November 2,
1995 (the "Agreement").
B. Holdings and Saul D.C. (collectively, the "Borrower") have requested,
and the Lenders have agreed, that seven of the Properties shall be released from
serving as Collateral for the Facility and Saul D.C. will be released as a
borrower under the Agreement, in exchange for a reduction in the maximum
aggregate amount available under the Facility to the Borrower, all upon the
terms and conditions contained herein.
C. Upon the execution of this First Amendment, Bank of America and BHF
will no longer be Lenders and the Commitments of First Bank, First Chicago and
Crestar will be as set forth on the signature page to this First Amendment.
D. The parties hereto agree to amend the Agreement as provided herein.
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
I. Capitalized Terms. The capitalized terms used herein shall have the
-----------------
meanings set forth in the Agreement, unless otherwise provided herein. All
references in this First Amendment to Articles and Sections are to Articles and
Sections, respectively, of the Agreement, unless otherwise provided herein.
II. Definitions.
-----------
A. The following definitions in Section 1.1 shall be deleted:
1. Advance Percentage Reduction Date.
---------------------------------
2. Excess Usage Period.
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<PAGE>
B. The following definitions in Section 1.1 shall be amended as follows:
1. Advance Percentage. The definition of Advance Percentage shall be
------------------
deleted in its entirety and replaced with the following:
"Advance Percentage" means fifty percent (50%).
------------------
2. Aggregate Commitment. The definition of Aggregate Commitment
--------------------
shall be deleted in its entirety and replaced with the following:
"Aggregate Commitment" means, as of any date, the sum of all of
--------------------
the Lenders' then- current Commitments. As of the date of the
First Amendment, the Aggregate Commitment is $44,000,000.
3. Borrower. The definition of Borrower shall be deleted in its
--------
entirety and replaced with the following:
"Borrower" means Saul Holdings Limited Partnership, a Maryland
--------
limited partnership, along with its permitted successors and
assigns.
The last sentence of Recital F which also contained a definition of "Borrower"
is also hereby deleted.
4. Borrowing Base. The definition of Borrowing Base shall be deleted
--------------
in its entirety and replaced with the following:
"Borrowing Base" means, as of any date, the sum of the as
--------------
completed value of Seven Corners determined by an Appraisal
multiplied by the Seven Corners Advance Percentage and the as-is
value of all other Properties determined by Appraisals multiplied
by the Advance Percentage.
5. CBR Added Percentage. The definition of CBR Added Percentage
--------------------
shall be deleted in its entirety and replaced with the following:
"CBR Added Percentage" means three-eighths of one percent
--------------------
(0.375%).
6. LIBOR Added Percentage. The definition of LIBOR Added Percentage
----------------------
shall be deleted in its entirety and replaced with the following:
"LIBOR Added Percentage" means one and seven-eighths of one
----------------------
percent (1.875%).
2
<PAGE>
C. The following definitions shall be added to Section 1.1 in
alphabetical order:
"First Amendment" means the First Amendment to First Amended and
---------------
Restated Revolving Credit Agreement and other Loan Documents, dated
as of November 7, 1996, by and among the Holdings, Saul Centers,
Inc., Saul D.C. and the Lenders.
"Released Properties" shall mean Avenel I, Avenel II,
-------------------
Avenel III, Leesburg Pike, Van Ness, Village Center at Sully Station
and Lumberton.
"Seven Corners Advance Percentage" means sixty percent (60%).
--------------------------------
III. Deletions, Amendments and Additions to Existing Sections of Agreement.
---------------------------------------------------------------------
A. Section 2.1 The Facility. The second sentence of Section 2.1 is
------------------------
hereby deleted in its entirety.
B. Section 6.3 Compliance with Borrowing Base and Imputed Cash Flow
----------------------------------------------------------------
Ratio. SECTION 6.3 shall be deleted in its entirety and replaced with the
- -----
following:
6.3 Compliance with Borrowing Base and Imputed Cash Flow Ratio.
---------------------------------------------------------------
(a) The Borrowing Base shall be calculated on the first day of each
quarter and shall be subject to the conditions contained in subsection
(b) below. If the amount of Advances outstanding under the Facility at
the time the Borrowing Base is calculated exceeds the Borrowing Base
for any reason, the Borrower shall, within ninety (90) days of such
date, take either or both of the following actions, at the option of
the Borrower: (i) repay the amount of Advances outstanding under the
Facili excess of the Borrowing Base or (ii) provide Additional
Collateral in accordance with Section 2.17 to Lenders in an amount so
that after the inclusion of such Additional Collateral in the
Borrowing Base, the amount of Advances outstanding under the Facility
will be equal to or less than the Borrowing Base.
(b) If the Imputed Cash Flow Ratio, calculated on the last day of
each fiscal quarter, for the immediately preceding four (4)
fiscal quarters, is:
(i) less than 1.35 to 1, until the earlier of the first fiscal
quarter during which (A) Shoppers Food Warehouse at Seven Corners
begins to pay rent or (B) the date that is 18 months after the
date of the First Amendment or
(ii) less than 1.5 to 1, thereafter,
3
<PAGE>
then within ten (10) Business Days after a demand for compliance by the
Agent, the Borrower shall cause the Imputed Cash Flow Ratio to be equal to
or greater than the ratio required in this Section 6.3(b) by taking either
or both of the following actions, at the option of the Borrower:
(x) delivering a written agreement permanently reducing the Aggregate
Commitment and repaying such portion of the outstanding Advances as is
necessary to reduce the outstanding Advances to an amount less than the
reduced Aggregate Commitment or
(y) commencing and continuing to diligently pursue designating Additional
Collateral satisfactory to the Lenders and delivering such agreements or
other documentation necessary to create a perfected, first priority lien
in favor of Lenders in such Additional Collateral, all in accordance with
Section 2.17, provided that the delivery and documentation of such
Additional Collateral shall be completed not later than thirty (30) days
following the original demand for compliance by the Agent.
(c) For purposes of determining the Imputed Cash Flow Ratio, for both the
lease for Shoppers Food Warehouse and Home Depot at Seven Corners, once the
tenant thereunder has begun making rent payments, the Imputed Cash Flow
Ratio shall be calculated as if the tenant had been making such rent
payments for the preceding four quarters.
C. Section 7.1(h) Maintenance of Consolidated Cash Flow Ratio. SECTION
----------------------------------------------------------
7.1(h) shall be deleted in its entirety and replaced with the following:
(h) Maintenance of Consolidated Cash Flow Ratio. Permit the Consolidate
-------------------------------------------
Operating Partnership to maintain a Consolidated Cash Flow Ratio of less
than 1.9 to 1 as of the end of any fiscal quarter, based on the results for
the previous four fiscal quarters.
IV. Amendment to Notes and Deeds of Trust. The Notes for BHF, Bank of
-------------------------------------
America, and First Chicago will be amended and restated into two notes, for each
Lender, substantially in the form of their existing Notes but with different
principal amounts which together will equal the principal amount of their
current Note. Agent shall enter into such amendments to the Deeds of Trust as
may be required in connection with reflecting the amendment and restatement of
certain Notes and the assignment of certain of the Deeds of Trust. Upon the
effective date of this First Amendment, Holdings and each Lender that is
remaining in the Facility whose Note is not being amended and restated agrees to
execute and attach to its note an Allonge in the form attached hereto as EXHIBIT
A.
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<PAGE>
V. Amendment to Environmental Indemnity Agreement and other Loan Documents.
-----------------------------------------------------------------------
The Amended and Restated Environmental Indemnity dated as of November 2,
1995 from Holdings and Saul D.C. and Saul Centers in favor of The First National
Bank of Chicago, as Agent, is hereby amended by deleting Saul D.C. as an Obligor
thereunder for all obligations accruing after the effective date of this
Amendment. In addition, Saul D.C. is hereby released as Borrower, debtor, and
obligor under each of the other Loan Documents.
VI. Additional Provisions.
---------------------
A. Conditions to Closing of First Amendment. When the following terms and
----------------------------------------
conditions have been satisfied, the Released Properties shall be released from
serving as Collateral, Saul D.C. shall be released as a Borrower under the
Facility and Bank of America and BHF shall no longer be Lenders under the
Facility (and shall have no further rights or obligations relating thereto or to
the Loan Documents or the Intercreditor Agreement dated as November 2, 1995
among Agent and the Lenders), a First Amendment and the other amendment
documents listed below shall become effective:
1. The Borrower repays amounts borrowed under the Facility sufficient to
cause the aggregate outstanding principal amount to be less than or equal to the
Borrowing Base, as set forth in Section 6.3 of the Agreement, as amended by this
First Amendment. All amounts repaid shall be applied first to repay amounts due
to Bank of America and BHF who will no longer be Lenders after the effective
date of this First Amendment. Any remaining amounts paid shall be applied to
amounts due to the ot Lenders on a pro rata basis. Notwithstanding anything to
the contrary herein or in the Loan Documents, Bank of America and BHF shall be
entitled to all rights of Lenders with respect to matters accruing prior to the
effective date of this First Amendment.
2. This First Amendment, each of the Allonges referred to in Paragraph IV
hereof, and all of the amended and restated promissory notes, amendments to
deeds of trust and assignments of deeds of trust delivered pursuant to this
First Amendment have been duly executed by all parties thereto.
3. Copies of appropriate resolutions of the General Partner, authorizing
the execution of this First Amendment and the other amendment documents executed
in connection therewith, have been delivered to Agent.
4. An incumbency certificate which shall identify by name and title and
bear the signature of the officer or officers of the Borrower authorized to sign
the First Amendment and to request Advances under the Facility has been
delivered to Agent.
5. A written opinion of Shaw Pittman Potts & Trowbridge, in form
satisfactory to Agent and its counsel, has been delivered to Agent.
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<PAGE>
6. The Borrower has made payment of an amendment fee to each Lender
remaining in the Facility after the execution of this First Amendment equal to
.03% of the then-current Commitment of each Lender.
7. The Borrower has made payment of all reasonable expenses of Agent and
its counsel in connection with the preparation and execution of this First
Amendment and the other amendment documents executed in connection therewith.
8. Date-down title endorsements for Seven Corners, Clarendon, Boulevard,
Shops at Fairfax, Germantown and Flagship have been received by Agent.
9. Such other documents as the Lenders may reasonably request have been
executed and received by Agent.
B. Closing Certificate. By execution of this First Amendment, the General
-------------------
Partner on behalf of the Borrower hereby certifies that on the date hereof (i)
the representations and warranties contained in the Agreement, as amended by
this First Amendment, are correct on and as of the date hereof except as
disclosed on Exhibit C attached hereto; (ii) there has been no Material Adverse
Financial Change since December 31, 1995; (iii) no Default or Event of Default
has occurred and is continuing; and (iv) the Borrower has no defenses or offsets
to the enforcement of the Loan Documents, as amended.
C. Borrower Base Calculation. A calculation of the Borrowing Base as of the
-------------------------
effective date of this Amendment is attached hereto as Exhibit B.
D. Effect on Agreement. Except as specifically provided herein, the
-------------------
Agreement and all other Loan Documents remain in full force and effect and are
hereby ratified and confirmed in their entirety by the Borrower. All references
in any of the Loan Documents to the Agreement shall refer to the Agreement as
amended hereby.
E. Consent of Guarantor. Saul Centers hereby consents to the terms of this
--------------------
First Amendment and reaffirms its obligations under the terms of that certain
Amended and Restated Guaranty dated as of November 2, 1995.
6
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this First Amendment to
First Amended and Restated Revolving Credit Agreement and other Loan Documents
as of the date first written above.
BORROWER: SAUL HOLDINGS LIMITED PARTNERSHIP
By: Saul Centers, Inc., its general partner
/s/ Philip D. Caraci
-------------------------------------------
Name: Philip D. Caraci
Title: President
SAUL SUBSIDIARY II LIMITED PARTNERSHIP
By: Saul Centers, Inc., its general partner
/s/ Philip D. Caraci
-------------------------------------------
Name: Philip D. Caraci
Title: President
GUARANTOR: SAUL CENTERS, INC.
By: /s/ Philip D. Caraci
-------------------------------------------
Name: Philip D. Caraci
Title: President
LENDERS: THE FIRST NATIONAL BANK OF CHICAGO
/s/ James D. Benko
-------------------------------------------
Name: James D. Benko
Title: Assistant Vice President
Commitment: $19,500,000
Percentage: 44.31818181818%
7
<PAGE>
FIRST BANK NATIONAL ASSOCIATION
/s/ James P. Hoopes
-------------------------------------------
Name: James P. Hoopes
Title: Assistant Vice President
Commitment: $19,500,000
Percentage: 44.31818181818%
CRESTAR BANK
/s/ Michael E. Forry
-------------------------------------------
Name: Michael E. Forry
Title: Vice President
Commitment: $5,000,000
Percentage: 11.11363636364%
AGENT: THE FIRST NATIONAL BANK OF CHICAGO
/s/ James D. Benko
-------------------------------------------
Name: James D. Benko
Title: Assistant Vice President
8
<PAGE>
The undersigned Lenders are executing this Amendment for the sole purpose of
confirming that from and after the effective date of this Amendment, they will
no longer be Lenders provided that all sums due to them have been paid.
BHF-BANK AKIIENGESELLSCHAFT
/s/ Catherine
-------------------------------------------
Name: C. H.
Title: Vice President
/s/ Robert Svehnhof
-------------------------------------------
Name: Robert Svehnhof
Title: Senior Vice President
BANK OF AMERICA ILLINOIS
/s/ Robert P. McKenny
-------------------------------------------
Name: Robert P. McKenny
Title: Vice President
9
<PAGE>
EXHIBIT A
FORM OF ALLONGE
The undersigned hereby confirm that Saul Subsidiary II Limited Partnership
has been released as an obligor under the foregoing Amended and Restated
Promissory Note dated November2, 1995, payable to __________________________,
pursuant to the terms of that certain First Amendment to First Amended and
Restated Revolving Credit Agreement and other Loan Documents among Saul Holdings
Limited Partnership, Saul Subsidiary II Limited Partnership, The First National
Bank of Chicago, as agent, and the Lenders name therein, dated as of , 1996, and
that all references in the foregoing Note to the "Agreement" shall refer to the
Agreement as amended from time to time.
[SIGNATURE BLOCK OF
APPLICABLE LENDER]
SAUL HOLDINGS LIMITED PARTNERSHIP
By: Saul Centers, Inc., its general partner
By:
-----------------------------------
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<PAGE>
EXHIBIT B
BORROWING BASE CALCULATION
<TABLE>
<CAPTION>
Property Appraised Value Margin Borrowing Base
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Seven Corners $ 58,000,000 60% $ 34,800,000
Germantown 4,000,000 50% 2,000,000
Shops at Fairfax 5,800,000 50% 2,900,000
Clarendon 1,800,000 50% 900,000
Boulevard 4,800,000 50% 2,400,000
Flagship 2,000,000 50% 1,000,000
--------------
Total Borrowing Base $ 44,000,000
</TABLE>
11
<PAGE>
EXHIBIT C
EXCEPTIONS TO REAFFIRMATION OF
REPRESENTATIONS AND WARRANTIES
Attached hereto are supplemental Schedules 5.10 and 5.22 to the Credit
Agreement, reflecting litigation and lease defaults, respectively, as of the
date hereof.
12
<PAGE>
Schedule 5.10
Litigation
----------
SEVEN CORNERS
PETSTUFF: Petstuff has not paid rent for the months of March
through May, 1996, and the months of July through October 1996.
Tenant maintains that its actions of non- payment of rent should
have forced the Landlord to choose between terminating the lease
or reentering/mitigating damage by releasing the space. The
lease does not support Tenant's claim and Landlord is suing to
enforce all of its rights to collect rent under the Lease and at
law. Furthermore, Landlord maintains that the lease remains in
effect, although in default, and further that any obligation to
mitigate damages has not been triggered because of the following
language in the lease:
However, Landlord shall not be obligated to offer the
Demised Premises to a prospective tenant when other
premises in the Shopping Center suitable for that
prospective tenant's use are (or soon will be) available.
Thus, any duty of Saul Centers to mitigate its damages by
reletting the premises once occupied by Petstuff is not
triggered unless and until the landlord enters upon and takes
possession of the premises and no other space in the shopping
center that would be acceptable to a prospective tenant is
available. Saul Centers has not entered and taken possession of
the premises. Moreover, since the date that Petstuff defaulted,
the space once occupied by F&M has also been available. Thus,
any dut of Saul Centers to mitigate has not yet been triggered.
Subsequent to these events, on November 1, 1996, Tenant called a meeting
with Landlord and proposed to bring lease current and requested that Landlord
approve a sub-lease which they claim to have procured for the space. Landlord is
currently considering Tenant's proposal.
13
<PAGE>
Schedule 5.22
Leases in Default
Tenant Delinquencies over 30 Days
---------------------------------
PROPERTY TENANT AMOUNT
------------------------------------------------------
Germantown Wings To Go $ 9,202.94
Clarendon Red, Hot & Blue $ 1,261.01
Seven Corners Petstuff $169,073.76
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<PAGE>
DEED OF TRUST NOTE
$401,750.00 January 22, 1996
FOR VALUE RECEIVED, SAUL HOLDINGS LIMITED PARTNERSHIP, a Maryland limited
partnership, (the "Maker"), promises to pay to the order of CLARENDON STATION,
L.P., a Virginia limited partnership, c/o Paul V. Cali, The Running Iron Ranch,
20 Hunter Creek Road, Cody, Wyoming 82414, (or at such other address and/or to
the attention of such other person as the holder from time to time may designate
by written notice given to the Maker), the principal sum of Four Hundred One
Thousand Seven Hundred Fifty and No/Dollars ($401,750.00), together with
interest commencing from the date hereof on the unpaid principal balance of this
Note at the rate of eight percent (8%) per annum, upon the terms and provisions
set forth herein.
1. Payment of Interest. Interest shall be calculated on the unpaid
--------------------
principal balance hereof and shall be payable monthly.
2. Payment of Principal. Maker shall be obligated to make four (4)
---------------------
consecutive annual principal curtailments of $100,437.50 each with the first
such payment being due one (1 ) year from the date of this Note.
3. Prepayment Privilege: Application. This Note, may be prepaid in whole or
----------------------------------
from time to time in part without premium or penalty. In the event of any
prepayment, such prepayment shall be applied first to the payment of any fees or
charges other than interest or principal then owing hereunder, and, second, to
accrued but unpaid interest, and any balance remaining after such application
shall be applied in reduction of principal. Any partial prepayments (to the
extent applicable to principal)shall be applied against principal payments
scheduled to become due in the order designated by the Maker and shall not
relieve the Maker of the obligation to pay installments of principal and/or
interest hereunder as and when they would otherwise fall due.
4. Security. This Note is secured by the lien of a Deed of Trust (the "Deed
---------
of Trust") dated of even date herewith, from the Maker (as Grantor) and
conveying to Michael V. Paulson and William L. Stauffer, Jr., as Trustees,
certain improved real property located in Arlington County, Virginia, commonly
known as 3016-3020 Wilson Blvd and 3021 Clarendon Blvd, as more particularly
described therein (the "Property").
5. Late Charge. In the event any payment is not received by the holder of
------------
this Note within fifteen (15) days from the date when the same is due, then a
"late charge" in
<PAGE>
an amount equal to four (4%) percent of such payment shall be due and payable
hereunder.
6. Costs. The Maker hereby agrees to pay, on demand, to the holder of this
------
Note all costs and expenses including, without limitation, all attorneys' fees
and expenses and court costs, incurred in connection with the collection and
enforcement of this Note and/or the protection or realization of the collateral
secured by the lien of the Deed of Trust, whether or not suit on this Note or
any foreclosure or sale action is instituted or filed under the Deed of Trust.
7. Default. In the event the Maker shall default in the payment of any
--------
principal and/or interest when due under this Note and shall fail to cure such
default within fifteen (15) days after written notice of such default shall have
been given (in a manner provided for in the Deed of Trust) to the Maker and
delivered or refused, or default in or breach of any other of its obligations,
representations, covenants, warranties or agreements contained in this Note or
the Deed of Trust and the Maker shall fail to cure any such default or breach
within thirty (30) days after written notice thereof shall have been given to
the Maker, or if there shall occur any other "Event of Default" (as defined in
the Deed of Trust), then and in any such event, at the option of the holder of
this Note, this Note (including the entire then outstanding principal balance
hereof, all accrued and unpaid interest hereon and all other applicable unpaid
fees, costs, late charge and other charges, if any) shall become immediately due
and payable, and the holder of this Note thereupon shall have the right to
exercise any and ail rights and/or remedies available to the holder of this Note
under this Note and/or the Deed of Trust and/or applicable law. Failure on the
part of the holder hereof to exercise any right or remedy hereunder or under the
Deed of Trust, whether before or after the happening of a default, shall not
constitute a waiver thereof, and no waiver of any past default shall constitute
waiver of any future default or of any other default. No failure to accelerate
the debt evidenced hereby by reason of default hereunder, or indulgence granted
from time to time shall be construed to be a waiver of the right to insist upon
prompt payment thereafter or shall be deemed to be a novation of this Note or a
reinstatement of the debt evidenced hereby or a waiver of such right of
acceleration or any other right, or be construed so as to preclude the exercise
of any right which the holder of this Note may have, whether by the laws of the
state governing this Note, by agreement or otherwise, and Maker hereby expressly
waives the benefit of any statute, rule of law or equity which would produce a
result contrary to or in conflict with the foregoing.
8. Usury. In no event shall the amount of interest due and payable
------
hereunder exceed the maximum rate of interest allowed under applicable law. In
the event that any such payment exceeds such maximum lawful rate of interest,
then such excess shall be credited as a prepayment of principal hereunder. Maker
expressly acknowledges that the
2
<PAGE>
proceeds of this Note shall be used for business, commercial, investment or
other similar purposes and no portion of this Note shall be used for personal,
family or household use.
9. Waiver. Except as may be expressly provided otherwise under this Note,
-------
Maker hereby waives presentment, protest and notice of protest, demand,
diligence, notice of dishonor and of nonpayment, notice of default, notice of
intent to accelerate and notice of acceleration of the maturity of this Note
and, to the extent permitted by applicable law, waives and renounces all rights
to the benefits of any moratorium, appraisement, exemption and homestead rights
or protections now provided or which may hereafter be provided by any federal or
state statute against the enforcement and collection of the obligations
evidenced by this Note, and any and all extensions, renewals and modifications
hereof.
10. Full Recourse. This Note is intended to be the full recourse obligation
--------------
of the Maker.
11. Governing Law. This Note shall be governed by and construed under the
--------------
laws of the Commonwealth of Virginia.
12. Time Is Of The Essence. Time is of the essence under this Note.
-----------------------
13. Modifications. This Note may not be changed orally, but only by an
--------------
agreement in writing signed by the party against whom enforcement is sought to
be enforced.
MAKER:
SAUL HOLDINGS LIMITED PARTNERSHIP,
a Maryland limited partnership
By: Saul Centers, Inc.,
a Maryland corporation, Sole General Partner
By: /s/ B. Francis Saul II
Name: B. Francis Saul II
Title: Chairman
3
<PAGE>
This is to certify that this Note is secured by the lien of a Deed of
Trust to Michael V. Paulson and William L. Stauffer, Jr., Trustees, on certain
improved real property located in Arlington County, Virginia.
Notary Public /s/ Dawn D. Young
My commission expires: Dawn D. Young, Notary Public
Montgomery County, State of Maryland
[Notarial Seal] My Commission Expires Feb. 3, 1999
ENDORSEMENT
-----------
For Value Received, pay to the order of Central Fidelity National Bank.
CLARENDON STATION, L.P.
By: /s/ Paul V. Cali
Paul V. Cali, General Partner
4
<PAGE>
THIS LOAN AGREEMENT (this "Loan Agreement") is made and entered into as of
the 7th day of November, 1996 by and among SAUL HOLDINGS LIMITED PARTNERSHIP, a
Maryland limited partnership having its principal place of business at 8401
Connecticut Avenue, Chevy Chase, Maryland 20815 ("Borrower"), SAUL SUBSIDIARY II
LIMITED PARTNERSHIP, a Maryland limited partnership having its principal place
of business at 8401 Connecticut Avenue, Chevy Chase, Maryland 20815
("CoBorrower"), and PFL LIFE INSURANCE COMPANY, an lowa corporation whose
address is c/o AEGON USA Realty Advisors, Inc., 4333 Edgewood Road, NE, Cedar
Rapids, lowa 52499-5223 ("Lender").
R E C I T A L S
- ---------------
A. Borrower has applied to Lender for a loan (the "Loan") and Lender has
agreed to make the Loan in the principal amount of up to $77,000,000.00, as
evidenced by Lender's Third Revised Mortgage Loan Application and Commitment
dated May 30, 1996, accepted by the Borrower and effective as of June 21, 1996
(the "Loan Commitment"). The principal amount of the Loan will be allocated
among six separate promissory notes, secured by mortgages or deeds of trust on
the Real Properties (hereinafter defined).
B. Borrower, CoBorrower and Lender have entered into this Loan Agreement
to set forth certain of the terms and conditions of the Loan, including certain
terms related to the cross-default and cross-collateralization of the notes and
mortgages and deeds of trust.
NOW, THEREFORE, in consideration of the premises and the mutual covenants and
agreements of the parties hereinafter set forth, it is hereby mutually agreed as
follows:
1. DEFINITIONS.
The following terms as used in this Loan Agreement shall have the meanings
set forth below:
"Ashburn Village Shopping Center" means the Real Property described on
Exhibit A-1 hereto and the improvements thereon consisting of a multi-tenant
retail facility of approximately 108,204 net rentable square feet and
approximately 603 parking spaces, having an address of 4410 Ashburn Village
Boulevard, Loudoun County, Virginia 22070.
"Avenel Business Park" means the Real Property described on Exhibit A-5
hereto and the improvements thereon consisting of a multi-tenant office facility
of approximately 284,557 net rentable square feet and approximately 1,087
parking spaces, having an address of 200-213 Perry Parkway, Gaithersburg,
Montgomery County, Maryland 20877.
<PAGE>
2
"Indebtedness" shall mean all sums that are owed or become due pursuant to
the Notes or the Mortgages or Deeds of Trust or any of the other Loan Documents,
including scheduled principal and interest payments, default interest, late
charges, prepayment premiums, accelerated or matured principal balances,
advances, collection costs (including attorneys' fees and expenses),
receivership costs, fees and costs of the Trustees under the Deeds of Trust, and
all other financial obligations of the Borrower and CoBorrower incurred in
connection with the Loan transaction.
"Leesburg Pike Shopping Center" means the Real Property described on EXHIBIT
A-4 hereto and the improvements thereon consisting of a multi-tenant retail
- ---
facility of approximately 82,719 net rentable square feet and approximately 590
parking spaces, having an address of 3600 South Jefferson Street, Fairfax
County, Virginia 22041.
"Lumberton Plaza" means the Real Property described on EXHIBIT A-2 hereto and
-----------
the improvements thereon consisting of a multi-tenant retail facility of
approximately 187,394 net rentable square feet and approximately 889 parking
spaces, having an address of 1638 Route 36, Mt. Holly, Burlington County, New
Jersey.
"Loan Documents" shall mean the Notes, Deeds of Trust or Mortgages,
Assignments of Leases and Rents, Indemnification Agreements, Environmental
Indemnities, UCC financing statements, certificates and other instruments and
agreements identified on EXHIBITS B-1 though B-6 attached hereto, and all other
------------ ---
instruments and agreements now or hereafter evidencing, securing or pertaining
to the Loan.
"Mortgages" shall mean the mortgages and deeds of trust encumbering the
Secured Properties as security for the Loan and more particularly described on
Exhibits B-1 through B-6 attached hereto.
- --------
"Real Property" or "Real Properties" shall mean the parcels of real estate
more particularly described IN EXHIBITS A-1 through A-5 attached hereto owned
------------ ---
by Borrower and the parcel of real estate more particularly described in EXHIBIT
-------
A-6 attached hereto owned by CoBorrower, each together with all rights,
- ---
privileges, easements and other appurtenances thereto and all improvements now
or hereafter located thereon.
"Secured Properties" shall mean the aggregate of all of the real and personal
property defined in the Mortgages as the "Secured Property" thereunder.
"Van Ness Square" means the Real Property described on EXHIBIT A-6 hereto and
-----------
the improvements thereon consisting of a multi-tenant office and retail facility
of approximately 161,058 net rentable square feet and approximately 122 parking
spaces, having an address of 4455 Connecticut Avenue, N.W., Washington, D.C.
20008.
<PAGE>
3
"Village Center" means the Real Property described on EXHIBIT A-3 hereto and
-----------
the improvements thereon consisting of a multi-tenant retail facility of
approximately 142,577 net rentable square feet and approximately 500 parking
spaces, having an address of 5600 Stone Road, Fairfax County, Virginia 22020.
2. AGREEMENT TO BORROW.
Borrower and CoBorrower agree to borrow the proceeds of the Loan in
accordance with the terms of this Loan Agreement, the Loan Commitment and the
other Loan Documents.
3. LOAN ALLOCATION.
3.1 Lender and Borrower and CoBorrower agree that the principal amount of the
Loan shall be $77,000,000.00, which sum shall be evidenced by six separate
promissory notes (each, a "Note" and together, the "Notes"), primarily allocated
among the Real Properties as follows:
$12,600,000.00 Consolidated, Amended and Restated Promissory Note of Borrower
(the "Ashburn Village Shopping Center Note") primarily allocated to Ashburn
Village Shopping Center;
$9,100,000.00 Note of Borrower (the "Lumberton Plaza Note") primarily
allocated to Lumberton Plaza;
$10,150,000.00 Amended and Restated Promissory Note of Borrower (the "Village
Center Note") primarily allocated to Village Cent -;
$12,900,000.00 Amended and Restated Promissory Note of Borrower (the
"Leesburg Pike Shopping Center Note") primarily allocated to Leesburg Pike
Shopping Center;
$21,750,000.00 Amended and Restated Promissory Note of Borrower (the "Avenel
Business Park Note") primarily allocated to Avenel Business Park; and
$10,500,000.00 Note of Borrower and CoBorrower, jointly and severally (the
"Van Ness Square Note") primarily allocated to Van Ness Square.
3.2 Borrower and CoBorrower have accepted and concur with this allocation of
the principal amount of the Loan among the Real Properties and waive any and all
<PAGE>
4
objections to such allocation.
4. PAYMENT OF MONTHLY INSTALLMENTS OF PRINCIPAL AND INTEREST.
4.1 The Loan shall bear interest and be repayable on the terms and conditions
specified in the Notes. The monthly installments of principal and interest
becoming due and payable under the Notes shall be paid to Lender in one single
monthly installment in the amount of $706,166.25 for the first sixty (60)
installments and in the amount of $638,374.08 for the remaining installments due
during the term of the Loan, unless and until Lender directs otherwise. In the
event Borrower or CoBorrower elects to prepay any Note or Notes in full pursuant
to Section 7 below, the aggregate monthly installments due under this section
shall be reduced by the amount of the monthly installments attributable to the
Note or Notes that have been fully prepaid. No partial prepayments of any Note
or Notes, whether voluntarily or through application of casualty or condemnation
proceeds or otherwise, shall reduce the amount or defer the due date of any
scheduled installment of principal and interest due under the Notes and this
Loan Agreement.
4.2 Provided that amounts received by Lender pursuant to Section 4.1 are
sufficient, such amounts shall be applied toward payment of monthly installments
of principal and interest then due and payable under the Notes. If amounts
received by Lender pursuant to Section 4.1 are insufficient for payment of all
principal and interest then due and payable under the Notes or, if there then is
a Default, Lender may apply amounts received pursuant to Section 4.1 or
otherwise from Borrower or CoBorrower toward payment of any Indebtedness due to
Lender under the Loan Documents as determined by Lender in its sole discretion.
4.3 Lender shall have the right at any time and from time to time to notify
Borrower and CoBorrower in writing that the Loan Documents specified by Lender
in such writing no longer shall be cross-defaulted with this Loan Agreement, in
which case, a Default hereunder would no longer constitute Default under such
specified Loan Documents, and Default under such specified Loan Documents would
no longer constitute Default hereunder.
5. MONTHLY ESCROW PAYMENTS.
5.1 The Mortgages require Borrower and CoBorrower to make monthly payments to
Lender (the "Monthly Escrow Deposits") for Impositions and Insurance Premiums,
as each of the terms are defined in the Mortgages, in such amounts and at such
times determined pursuant to the provisions of the Mortgages.
5.2 The Monthly Escrow Deposits pertaining to the Mortgages which are
cross-defaulted with this Loan Agreement shall be paid to Lender in one single
monthly
<PAGE>
5
installment unless and until Lender directs otherwise. The Monthly Escrow
Deposits shall be and constitute additional security for repayment of the Loan,
and Lender shall be entitled to apply such funds in partial payment of the
indebtedness evidenced by the Notes or in satisfaction of any other obligations
of Borrower and CoBorrower to Lender at any time a Default exists.
6. SECURITY INSTRUMENTS.
6.1 The Notes shall be secured by first priority mortgage or deed of trust
liens and security interests in and to the Secured Properties. The aggregate
principal balance of the Loan has been allocated to the Notes and to the
Mortgages in proportion to the appraised values of the Secured Properties as of
the date of this Agreement. This allocation is made solely for the purpose of
determining the recordation, transfer or mortgage taxes ("Mortgage Taxes") to be
paid upon recordation of the Mortgages in each of the jurisdictions in which the
Secured Properties lie and is not intended to limit in any manner the extent or
priority of the lien or security interest attaching to any of the Secured
Properties.
6.2 If, after the date of this Agreement, the statutes or regulations of any
jurisdiction in which the Mortgages are recorded are changed or interpreted such
that the extent, enforceablilty or priority of the lien and security interest in
any Secured Property would be limited by the extent to which Mortgage Taxes
based on the principal amount of the Loan allocated to such Secured Property
have been paid, Borrower and CoBorrower shall immediately pay the full amount of
any additional Mortgage Taxes to ensure that the full outstanding principal
amount of the Loan is at all times secured at least to the extent of the full
value of each Secured Property.
7. PREPAYMENTS OF THE LOAN AND RELEASES OF SECURED PROPERTY.
7.1 Borrower or CoBorrower, as applicable, may prepay any Note in full or in
part and, in the case of a full prepayment of any Note, obtain a release of the
Mortgage and other Loan Documents from the Secured Property to which such Note
has been primarily allocated, upon satisfaction of the following conditions:
(a) No Default shall then exist under any of the Loan Documents;
(b) Lender shall be given not less than thirty (30) days' prior written
notice of Borrower's or CoBorrower's intention to prepay any Note;
(c) At the time of any prepayment, Borrower or CoBorrower shall pay all
accrued interest on the principal balance of the Note being prepaid and all
other sums due to Lender under the Loan Documents (except the principal and
current
<PAGE>
6
month's accrued interest on the Notes not being prepaid);
(d) Borrower or CoBorrower, as applicable, shall pay, in addition to all
amounts due in prepayment of the Note, an amount equal to ten percent (10%) of
the then-outstanding principal balance of the prepaid Note, which amount Lender
will apply to reduce the principal balance or balances of one or more of the
remaining Note or Notes as Lender determines in its sole discretion;
(e) If the prepayment occurs during the first twelve (12) years of the
term of the Loan, Borrower or CoBorrower, as applicable, shall pay a prepayment
premium equal to the greater of (1 ) one percent of the principal amount of the
prepayment, or (2) an amount that the parties agree will compensate the Lender
for the loss of its bargained-for investment (the "Yield Protection Amount").
The Lender shall calculate the Yield Protection Amount as follows::
(i) First, the Lender shall determine the annual percentage yield on U.S.
Treasury securities maturing at the end of the term of the loan evidenced by
this Note (the "Annual Treasury Instrument Yield"). The Annual Treasury
Instrument Yield shall be determined as of ten (10) business days before the
effective date of the prepayment. The Lender shall base its determination of the
Annual Treasury Instrument Yield on the yield on U.S. Treasury instruments, as
published in The Wall Street Journal (or, if The Wall Street Journal is not then
----------------------- -----------------------
being published or if no such reports are then being published in The Wall
--------
Street Journal, as reported in another public source of information nationally
- --------------
recognized for accuracy in the reporting of the trading of governmental
securities). If no such instruments mature on the exact maturity date of the
Note, the Lender shall interpolate the Annual Treasury Instrument Yield on a
straight-line basis using the yield on the instrument whose maturity date most
closely precedes that of the Note, and the yield on the instrument whose
maturity date most closely succeeds that of the Note.
(ii) Second, the Lender shall determine the hypothetical monthly
interest-only payment (based on a 360-day year and 30-day months) which would be
payable on a promissory note having a principal balance equal to the prepaid
amount and bearing interest at the "bond equivalent" rate equal to the Annual
Treasury Instrument Yield (the "Monthly Reinvestment Payment").
(iii) Third, the Lender shall determine the hypothetical monthly
interest-only payment (based on a 360-day year and 30-day months) which would be
payable on a promissory note having a principal balance equal to the prepaid
amount and bearing interest at the Note Rate (the "Monthly Coupon Rate
Payment").
<PAGE>
7
(iv) Fourth, the Lender shall determine the present value of a series of
monthly payments, each equal in amount to the amount by which the Monthly Coupon
Rate Payment exceeds the Monthly Reinvestment Payment, received on the first day
of each calendar month from and including the first day of the first full
calendar month immediately following the effective date of prepayment to and
including the Maturity Date, using the Annual Treasury Instrument Yield as the
discount rate.
(v) The present value of that series of payments is the "Yield Protection
Amount."
(f) If the prepayment occurs during the thirteenth year of the term of
the Loan, Borrower or CoBorrower, as applicable, shall pay a prepayment premium
equal to three percent of the principal amount of the prepayment. If the
prepayment occurs during the fourteenth year of the term of the Loan, Borrower
or CoBorrower, as applicable, shall pay a prepayment premium equal to two
percent of the principal amount of the prepayment. If the prepayment occurs
during the fifteenth and final year of the term of the Loan, Borrower or
CoBorrower, as applicable, shall pay a prepayment premium equal to one percent
of the principal amount prepayment, except that Borrower or CoBorrower, as
applicable, shall not be required to pay any prepayment premium with respect to
any full prepayment of the Loan that occurs during the 90-day period preceding
the Maturity Date. The prepayment premium shall not apply to prepayments of the
Loan occasioned by application of the additional principal payment required
under Section 7.1 (d) nor to any mandatory prepayment under Section 21 below.
(g) If Borrower or CoBorrower, as applicable, do not have the right to
use casualty or condemnation proceeds under the terms of the Loan Documents for
the purposes of repair or reconstruction or to remedy the effect of condemnation
and Lender elects to apply those proceeds toward prepayment of the related Note,
no prepayment premium will be due on the partial prepayment of the Note made
through application of the casualty or condemnation proceeds or on the
prepayment of any remaining balance of the related Note made during the ninety
days following Lender's election. If Borrower or CoBorrower, as applicable has
the right to use casualty or condemnation proceeds under the terms of the Loan
Documents and elects not to use those proceeds for the purposes of repair or
reconstruction or to remedy the effect of condemnation, the applicable
prepayment premium shall be due on the full amount of any prepayment resulting
from application of the casualty or condemnation proceeds or upon prepayment of
the remaining balance of the related Note as if the prepayment were voluntary.
<PAGE>
8
8. DEFAULT AND CROSS DEFAULT.
8.1 There shall be default ("Default") hereunder if there exists a Default
under and as defined in any Note, Mortgage or other Loan Document now or at any
time hereafter evidencing or securing the Loan.
8.2 Borrower and CoBorrower agree that (i) Default under any one or more of
the Loan Documents shall constitute a Default under each and every other Loan
Document, and (ii) Lender unilaterally may release or waive any Default as it
relates to any one or more of the Loan Documents at any time, provided that such
waiver or release must be in writing and shall be effective only as to the Loan
Documents specifically so designated.
9. REMEDIES.
Upon the occurrence of Default, Lender may declare the entire Indebtedness
under the Notes, this Agreement and the other Loan Documents to be immediately
due and payable without notice and may exercise any and all rights and remedies
provided in any Mortgage (or all of them, at Lender's option) or in any of the
other Loan Documents, or provided at law or in equity, including the right to
obtain the appointment of a receiver for any one or more of the Secured
Properties, foreclosure AGAINST ANY ONE or more of the Secured Properties, all
in such order and manner as Lender may elect.
10. WAIVERS.
To the maximum extent permitted by law, Borrower and CoBorrower irrevocably
and unconditionally waive and release any present or future rights (a) of
redemption, (b) that may exempt any of the Secured Properties from any civil
process, (c) to appraisal or valuation of any of the Secured Properties, (d) to
extension of time for payment, (e) that may subject Lender's exercise of its
remedies to the administration of any decedent's estate or to any partition or
liquidation action, (f) to any homestead exemption, (g) to require marshaling of
assets, and (h) that in any way would delay or defeat Lender's right to sell or
cause any trustee to sell one or more of the Secured Properties for the purpose
of satisfying the Indebtedness. Borrower and CoBorrower each waive any right
either may have to contest, object to, except to or otherwise to dispute any
lawful foreclosure sale or sales of the Secured Properties, whether all or any
part of the Secured Property is bid in by Lender or by a third party, and
whether the purchase price obtained at any such sale is paid through
cancellation of all or a portion of the Indebtedness or in cash.
<PAGE>
9
11. COSTS OF COLLECTION.
Borrower and CoBorrower agree that if a Default occurs, Borrower and
CoBorrower shall pay Lender's reasonable legal fees and expenses in connection
with the foreclosure and other litigation or enforcement or collection actions
(whether or not suit is instituted) resulting from such Default.
12. LOAN DOCUMENTS.
For the purpose of evidencing the Loan and securing to Lender the repayment
of the Loan, with interest thereon and all other amounts at any time due from
Borrower or CoBorrower to Lender, and for the purpose of securing the
performance by Borrower and CoBorrower of all of the covenants and undertakings
set forth herein and in the Loan Documents, Borrower and CoBorrower, as
appropriate, shall execute and deliver, or cause to be executed and delivered,
as the case may be, each of the instruments and documents listed on Exhibits B-1
------------
though B-6 attached, each in form and substance satisfactory to Lender and its
counsel.
13. GOVERNING LAW.
This Loan Agreement shall be construed and enforced according to, and
governed by, the laws of the State of Maryland without reference to conflicts of
laws provisions which, but for this provision, would require the application of
the law of any other jurisdiction. Lender's remedies against the Real Properties
under the Mortgages shall be governed by the laws of the respective
jurisdictions in which the Real Properties are situated as provided in the
Mortgages.
14. INCORPORATION OF LOAN COMMITMENT.
All terms of the Commitment are incorporated in this Loan Agreement by
reference, and shall survive the execution of this Loan Agreement and the other
Loan Documents, although, in the event of a conflict, the terms of the Loan
Documents shall prevail.
15. NOTICES
All notices, demands, consents, approvals and other communications given
pursuant to this Loan Agreement must be in writing and must be sent by hand, or
by telecopy (with a duplicate copy sent by ordinary mail, postage prepaid), or
by postage prepaid, certified or registered mail, return receipt requested, or
by reputable overnight courier service, postage prepaid, addressed to the party
to be notified as set forth below.
<PAGE>
10
If to Lender:
PFL LIFE INSURANCE COMPANY
c/o AEGON USA Realty Advisors, Inc.
4333 Edgewood Road, N.E.
Cedar Rapids, lowa 52499-5223
Attn: Mortgage Loan Department
Fax: (319) 369-2303
If to Borrower:
c/o Saul Centers, Inc.
8401 Connecticut Avenue
Chevy Chase, Maryland 20815
(301) 986-6023
Attn: Vice President and Chief Financial Officer
If to CoBorrower:
c/o Saul Centers, Inc.
8401 Connecticut Avenue
Chevy Chase, Maryland 20815
(301) 986-6023
Attn: Vice President and Chief Financial Officer
Notices will be deemed given when delivered to Lender or to Borrower or
CoBorrower, as applicable (regardless of whether delivered to the persons stated
above to receive copies), by hand or when a legible copy is received by
telecopier (provided receipt is verified by telephone confirmation or one of the
other permitted means of giving Notices under this Subsection), or if mailed,
three (3) days after mailing (or on the date of delivery for overnight courier
service), with failure to accept delivery constituting delivery for this
purpose. The parties agree to use reasonable efforts to provide the copies of
Notices required above, but delivery of such copies shall not be required for
effective delivery of Notice. Actual notice, however and from whomever given or
received, will always be effective Notice when received. Lender may change its
address for Notices set forth above by giving at least ten (10) days' prior
Notice of such change in writing to Borrower and CoBorrower. Borrower or
CoBorrower may change the addresses for Notices set forth above by giving at
least thirty (30) days' prior Notice of such change in writing to Lender.
<PAGE>
11
16. RECOURSE TO BORROWER AND COBORROWER.
Lender agrees that it shall not seek to enforce any monetary judgment against
Borrower or CoBorrower except through recourse to the Secured Properties unless
the obligation from which the judgment arises is a Recourse Obligation. Recourse
Obligations include Lender's costs, expenses (including reasonable attorneys'
fees), losses and damages caused by, or incurred in connection with, (i) waste,
not including ordinary wear and tear, unless Borrower or CoBorrower fail to
maintain the Real Properties with ordinary care; (ii) fraud or written material
misrepresentation made by Borrower or CoBorrower; (iii) failure to pay taxes,
assessments, ground rent or any other lienable impositions with respect to the
Secured Properties as required under the Loan Documents; (iv) misapplication of
tenant security deposits, insurance proceeds or condemnation proceeds related to
the Real Properties, or the unavailability to the Lender of condemnation
proceeds because a lease of any Real Property grants a tenant the right to a
portion of the owner's award (unless that portion is specifically allocated to
the tenant's interest by the condemning authority); (v) failure while in
monetary Default to pay to Lender all rents, income and profits of each Secured
Property, net of reasonable and customary operating expenses of the respective
Secured Property; (vi) failure to perform under the environmental covenants or
indemnifications set forth in the Loan Documents; (vii) destruction or removal
from any Real Property of fixtures or personal property securing the Loan,
unless replaced by items of equal value; (viii) terminating, amending or
entering into a lease of any Real Property in violation of the Loan Documents;
or (ix) willful or grossly negligent violation of applicable law. In addition,
Borrower and CoBorrower shall each have personal liability for the entire
Indebtedness if Borrower or CoBorrower voluntarily transfers or encumbers any of
the Secured Properties in contravention of the Loan Documents.
17. SEVERABILITY.
In the event that any one or more of the provisions of this Loan Agreement
shall for any reason beheld to be invalid, illegal or unenforceable, in whole or
in part, or in any respect, or in the event that any one or more of the
provisions of this Loan Agreement shall operate, or would prospectively operate,
to invalidate this Loan Agreement, then, and in any such event, such provision
or provisions only shall be deemed to be null and void and of no force or effect
and shall not affect any other provision of this Loan Agreement, and the
remaining provisions of this Loan Agreement shall remain operative and in full
force and effect and shall in no way be affected, prejudiced or disturbed
thereby.
18. VARIATION IN PRONOUNS.
All the terms and words used in this Loan Agreement, regardless of the number
<PAGE>
12
and gender in which they are used, shall be deemed and construed to include any
other number, singular or plural, and any other gender, masculine, feminine, or
neuter, as the context or sense of this loan Agreement or any paragraph or
clause herein may require, the same as if such word had been fully and properly
written in the correct number and gender.
19. CAPTIONS.
The section titles or captions contained in this Loan Agreement are provided
for convenience only and shall not be deemed to define, limit or otherwise
modify the scope or intent of this Loan Agreement.
20. COUNTERPARTS.
This Loan Agreement may be executed in multiple counterparts, all of which
taken together shall constitute one and the same Loan Agreement and the
signature page of any counterpart may be removed therefrom and attached to any
other counterpart.
21. MANDATORY PREPAYMENTS UNDER THE LEESBURG PIKE SHOPPING CENTER NOTE.
21.1 Pursuant the appraisal review conducted by Lender under Section 4.2.1 of
the Commitment, Lender approved funding the Loan in the principal amount of
$75,000,000, representing aggregate loan-to-value ratio of 75%. At Borrower's
request, Lender agreed to fund an additional $2,000,000 under the Loan as
additional principal of the Leesburg Pike Shopping Center Note, based upon
Borrower's representations to Lender that proposed improvements to the Leesburg
Pike Shopping Center, currently in the preconstruction phase, and the new leases
for the resulting expansion space will, upon completion of such work, support
the additional principal balance of the Loan at the 75% loan-to-value ratio
required by the Commitment. Lender agreed to fund the additional $2,000,000 upon
the condition that an updated appraisal of the property to be performed after
the completion of the improvements and occupancy of the expansion space by the
new tenants, will demonstrate that the 75% loan-to-value ratio is met.
21.2 Lender shall commission an updated appraisal of the Leesburg Pike
Shopping Center (the "Leesburg Updated Appraisal") to be delivered to Lender
upon completion of construction but in no event later than twelve months from
the date of this Agreement. The appraisal shall be paid for by the Borrower and
shall include the opinion of the appraisal firm, in a form satisfactory to
Lender, as to the additional value added by the expansion space. The Leesburg
Updated Appraisal is subject to the terms and procedures contained in Section
4.2.1 of the Commitment. If the review appraiser's opinion of the updated value
of the Leesburg Pike Shopping Center is less
<PAGE>
13
than $17,667,000 (which is the current value determined pursuant to the
procedures contained in Section 4.2.1 of the Commitment plus the amount which
would support the $2,000,000 funding increase at a loan-to-value ratio of 75%),
then Borrower shall make a principal prepayment under the Leesburg Pike Shopping
Center Note sufficient to reduce the aggregate outstanding principal balance of
the Loan to the amount that is $1,000,000 less than the aggregate principal
balance that would produce an aggregate loan-to-value ratio of 75%, using as a
total value, the review appraiser's conclusions as to value obtained from the
Leesburg Updated Appraisal plus the aggregate values ,of the remaining Real
Properties as determined by the appraisal process conducted pursuant to the
Commitment at the time of funding. In no event shall the prepayment required
under this section exceed $2,000,000. Any such principal prepayment shall be due
and payable by Borrower in full, without prepayment premium, within thirty (30)
days of Lender's notification of the amount of the prepayment determined to be
due. The prepayment of principal under this section is unconditionally and
irrevocably guaranteed by Saul Centers, Inc. under the Indemnification Agreement
executed and delivered by Saul Centers, Inc. with respect to the Leesburg Pike
Shopping Center Note.
<PAGE>
14
IN WITNESS WHEREOF, Borrower, CoBorrower and Lender have caused this Loan
Agreement to be duly executed as of the day and year first above written.
SAUL HOLDINGS LIMITED PARTNERSHIP, a Maryland limited partnership
By: Saul Centers, Inc., a Maryland corporation,
General Partner
By: B. Francis Saul II
Chairman
SAUL SUBSIDIARY 11 LIMITED PARTNERSHIP, a
Maryland limited partnership
By: Saul Centers, Inc., a Maryland corporation,
General Partner
By: B. Francis Saul 11
Chairman
PFL LIFE INSURANCE COMPANY, an lowa corporation
By:
--------------------------------
Name:
Its:
<PAGE>
15
EXHIBIT B-1
-----------
Ashburn Village
Shopping Center
$12,600,000 Consolidated, Amended and Restated Promissory Note from Saul
Holdings Limited Partnership to the order of Lender
Consolidated, Amended and Restated Deed of Trust and Security Agreement from
Saul Holdings Limited Partnership to William F. Roeder, Jr. securing the Ashburn
Village Shopping Center Note and the obligations of Borrower and CoBorrower
under the Loan Agreement
Assignment of Leases and Rents
Indemnification Agreement from Saul Centers, Inc.
Environmental Indemnity Agreement
Agreement Regarding Leasing
Financing statements made by Borrower, as Debtor, in favor of Lender, as Secured
Party
Closing Certificate of Borrower and CoBorrower
<PAGE>
16
EXHIBIT B-2
-----------
Lumberton Plaza
$9,100,000 Secured Promissory Note from Saul Holdings Limited Partnership to the
order of Lender
Mortgage and Security Agreement from Borrower to Lender securing the Lumberton
Plaza Note and the obligations of Borrower and CoBorrower under the Loan
Agreement
Assignment of Leases and Rents
Indemnification Agreement from Saul Centers, Inc.
Environmental Indemnity Agreement
Agreement Regarding Leasing
Financing statements made by Borrower, as Debtor, in favor of Lender,as Secured
Party;
Closing Certificate of Borrower and CoBorrower
<PAGE>
17
EXHIBIT B-3
-----------
Village Center
$10,150,000 Amended and Restated Promissory Note from Saul Holdings Limited
Partnership to the order of Lender
Amended and Restated Deed of Trust and Security Agreement from Saul Holdings
Limited Partnership to William F. Roeder, Jr. securing the Village Center Note
and the obligations of Borrower and CoBorrower under the Loan Agreement
Assignment of Leases and Rents
Indemnity Agreement from Saul Centers, Inc.
Environmental Indemnity Agreement
Agreement Regarding Leasing
Financing statements made by Borrower, as Debtor, in favor of Lender, as Secured
Party;
Closing Certificate of Borrower and CoBorrower
<PAGE>
18
EXHIBIT B-4
-----------
Leesburg Pike Shopping Center
$12,900,000 Amended and Restated Promissory Note from Saul Holdings Limited
Partnership to the order of Lender
Amended and Restated Deed of Trust and Security Agreement from Saul Holdings
Limited Partnership to William F. Roeder, Jr. securing the Leesburg Pike
Shopping Center Note and the obligations of Borrower and CoBorrower under the
Loan Agreement
Assignment of Leases and Rents
Indemnification Agreement from Saul Centers, Inc.
Environmental Indemnity Agreement
Agreement Regarding Leasing
Financing statements made by Borrower, as Debtor, in favor of Lender, as Secured
Party
Closing Certificate of Borrower and CoBorrower
<PAGE>
19
EXHIBIT B-5
-----------
Avenel Business Park
$21,750,000 Amended and Restated Deed of Trust Note from Saul Holdings Limited
Partnership to the order of Lender
Consolidated, Amended and Restated Deed of Trust and Security Agreement from
Saul Holdings Limited Partnership to Tamara S. Rickman securing the Avenel
Business Park Note and the obligations of Borrower and CoBorrower under the Loan
Agreement
Assignment of Leases and Rents
Indemnification Agreement from Saul Centers, Inc.
Environmental Indemnity Agreement
Agreement Regarding Leasing
Financing statements made by Borrower, as Debtor, in favor of Lender,
as Secured Party
Closing Certificate of Borrower and CoBorrower
<PAGE>
20
EXHIBIT B-6
-----------
Van Ness Square
$10,500,000 Secured Promissory Note from Saul Holdings Limited Partnership and
Saul Subsidiary II Limited Partnership to the order of Lender.
Deed of Trust and Security Agreement from Saul Subsidiary II Limited Partnership
to Tamara S. Rickman securing the Van Ness Square Note and the obligations of
Borrower and CoBorrower under the Loan Agreement
Assignment of Leases and Rents
Indemnification Agreement from Saul Centers, Inc.
Environmental Indemnity Agreement
Agreement Regarding Leasing
Financing statements made by CoBorrower, as Debtor, in favor of Lender,
as Secured Party
Closing Certificate of Borrower and CoBorrower
<PAGE>
FIRST AMENDMENT TO INTEREST RATE AGREEMENT
THIS FIRST AMENDMENT to Interest Rate Agreement, dated as of December 9, 1996,
between SAUL HOLDINGS LIMITED PARTNERSHIP, a Maryland limited partnership
("Customer"), and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking
association ("Bank") constitutes an amendment to that certain Interest Rate
Agreement ("Agreement") entered into between the parties, dated as of March 16,
1995 and specifying a Capped Amount of $71,780,000.00.
WHEREAS, Customer desires to reduce Capped Amount of that Agreement by
$37,000,000.00 as of December 11, 1996;
THEREFORE, in consideration of the mutual covenants and promises of Bank
and Customer, the parties hereto agree as follows:
1. "Capped Amount" shall mean an amount equal to THIRTY-FOUR-MILLION
SEVEN-HUNDRED-EIGHTY-THOUSAND DOLLARS ($34,780,000.00).
2. Terms and phrases used in this Amendment shall have the same meaning
ascribed thereto in the Agreement.
3. This Amendment may be executed in counterparts which shall, in the
aggregate, be signed by both parties; each counterpart shall be deemed an
original instrument as against any party who has signed it.
4. The Agreement, as amended by this Amendment, is hereby confirmed.
5. Customer and Bank hereby agree that this voluntary change in the
"Capped Amount" will result in no termination fee paid by Bank to Customer.
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment
to be duly executed as of the date first above written.
Bank: Customer:
WELLS FARGO BANK, N.A., SAUL HOLDINGS LIMITED PARTNERSHIP,
a national banking association a Maryland limited partnership
BY:/s/ Nicholas J. Ivanoff BY: SAUL CENTERS, INC.,
Nicholas J. Ivanoff a Maryland Corporation
Its: Vice President Its: General Partner
By: /s/ Scott Schneider
Scott Schneider
Its:Vice President and CFO
<PAGE>
TERMINATION AGREEMENT
---------------------
THIS AGREEMENT ("Agreement") is entered into as of the 9th day of
December, 1996, by and between SAUL HOLDINGS LIMITED PARTNERSHIP, a Maryland
limited partnership ("Customer"), and WELLS FARGO BANK, NATIONAL ASSOCIATION, a
national banking association ("Bank").
WHEREAS, Customer and Bank have entered into that certain Interest Rate
Agreement dated as of March 16, 1995 and specifying a Capped Amount of
$50,000,000.00; and
WHEREAS, Customer and Bank desire to terminate that certain Interest
Rate Agreement as of December 11, 1996;
THEREFORE, in consideration of the mutual covenants and promises of Bank
and Customer, the parties hereto agree as follows:
1. Customer hereby confirms its consent to such termination.
2. Bank hereby confirms its consent to such termination.
3. Customer and Bank hereby agree that this voluntary termination prior
to the scheduled termination will result in no termination fee to be paid by
Bank to Customer.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
Bank: Customer:
WELLS FARGO BANK, N.A., SAUL HOLDINGS LIMITED PARTNERSHIP,
a national banking association a Maryland limited partnership
BY: /s/ Nicholas J. Ivanoff BY: SAUL CENTERS, INC.,
Nicholas J. Ivanoff a Maryland Corporation
Its: Vice President
Its: General Partner
BY: /s/ Scott Schneider
Scott Schneider
Its: Vice President and CFO
<PAGE>
WELLS FARGO BANK
NICHOLAS J. IVANOFF 420 Montgomery Street
Vice President Sixth Floor
Rate Risk Management San Francisco,, CA 94163
Scott Schneider
Saul Holdings Limited Partnership
8401 Connecticut Avenue
Chevy Chase, MD 20815 December 9,1996
Via Fax: (301) 986-6023
Dear Mr. Schneider,
This letter agreement is to confirm the assignment of the interest Rate Cap
transaction described below from Saul Holdings Limited Partnership ("Saul
Holdings") to Wells Fargo Bank National Association ("Wells Fargo"). In
consideration of the assignment, Wells Fargo shall pay Saul Holdings $340,600 on
December 11, 1996.
Type: Interest Rate Cap
Effective Date: November 19, 1996
Termination Date: August 19, 1998
Notional Amount: $37,000,000
Cap Rate: 5.25%
Floating Rate Option: USD-LIBOR-BBA
Designated Maturity: 3 months
Please confirm that the foregoing correctly sets forth the terms of our
agreement by executing this letter and returning it via telecopier to (415)
956-9581.
Yours sincerely,
WELLS FARGO BANK, NATIONAL ASSOCIATION
By: /s/ Nicholas J. Ivanoff
Name: Nicholas J. Ivanoff
Title: Vice President
Acknowledged and Agreed:
SAUL HOLDINGS LIMITED PARTNERSHIP
BY: ITS GENERAL PARTNER
By: /s/ Scott V. Schneider
Name: Scott V. Schneider
Title: Vice President and CFO
<PAGE>
Trading Products Documentation Unit
One First National Plaza
Suite 0107; 1-8
Chicago IL 60670
FIRST CHICAGO
The First National Bank of Chicago
AMENDED
December 17, 1996
Scott Schneider
Saul Holdings Limited Partnership
8401 Connecticut Avenue
Chevy Chase, MD 20815
Dear Mr. Schneider:
Reference is hereby made to The interest rate cap transaction evidenced
by the letter agreement between the undersigned parties dated as of August 18,
1993 with an original Notional Amount of $154,780.000, as amended by the
Assignment Agreement dated as of August 1, 1994 between the parties and Saul
Subsidiary I Limited Partnership, resulting in a Notional Amount of $71,780,000
(collectively, the "Transaction"). For mutual consideration the receipt of which
is hereby acknowledged, the parties agree that, e ffective as of November 19,
1996 the Transaction is amended as follows: the Notional Amount of the
Transaction is hereby amended to $34,780,000.
Very truly yours,
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Katherine DePauw Graham
-------------------------------
Name: Katherine DePauw Graham
Title: Vice President
Acknowledged and Agreed:
SAUL HOLDINGS LIMITED PARTNERSHIP
BY: Saul Centers, Inc., its General
Partner
By: /s/ Scott V. Schneider
Name Scott V. Schneider
Title: Vice President and CFO
Fst Chgo Deal #96345.A.1000.S.C.3L
<PAGE>
Trading Products Documentation Unit
One First National Plaza
Suite 0107; 1-8
Chicago, IL 60670
FIRST CHICAGO
The First National Bank of Chicago
December 10, 1996
Scott Schneider
Saul Holdings Limited Partnership
8401 Connecticut Avenue
Chevy Chase, MD 20815
Dear Mr. Schneider:
I. In consideration of the assignment of the interest rate cap transaction
described below from Saul Holdings Limited Partnership ("Saul Holdings") to The
First National Bank of Chicago ("First Chicago"), First Chicago shall pay Saul
Holdings $85,000 on December 11, 1996 .
Type of Transaction: Interest Rate Cap
Termination Date: March 20, 1999
Notional Amount: $50,000.000
Cap Rate: 7.5%
Floating Rate Option: USD-LIBOR-BBA
Designated Maturity: 3 months
II. In consideration of the assignment of the interest rate cap transaction
described below from Saul Holdings to First Chicago, First Chicago shall pay
Saul Holdings $261,000 on December 11, 1996.
Type of Transaction: Interest Rate Cap
Termination Date: August 19, 2000
Notional Amount: $37,000,000
Cap Rate: 7.5 %
Floating Rate Option; USD-LIBOR-BBA
Designated Maturity: 3 months
<PAGE>
Trading Products Documentation Unit
One First National Plaza
Suite 0107; 1-8
Chicago, IL 60670
Please confirm that the foregoing correctly sets forth the terms of our
agreement by executing this letter and returning it via facsimile to First
Chicago's Documentation Unit at facsimile no. (312) 732-4172.
Very truly yours,
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Katherine DePauw Graham
Name: Katherine DePauw Graham
Title: First Vice President
Acknowledged and Agreed:
SAUL HOLDINGS LIMITED PARTNERSHIP
BY: Saul Centers, Inc., its General Partner
By: /s/ Scott V. Schneider
Name: Scott V. Schneider
Title: Vice President and CFO
First Chicago Deal #96345.1.1623 &
#96345.1.1624
<PAGE>
Loan No. C-332003 Washington, D.C.
PROMISSORY NOTE
---------------
$38,500,000.00 Dated as of January 10, 1997
For value received, the undersigned, herein called "Borrower," promises
to pay to the order of THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a
Wisconsin corporation, who, together with any subsequent holder of this note, is
hereinafter referred to as "Lender", at 720 E. Wisconsin Avenue Milwaukee, WI
53202 or at such other place as Lender shall designate in writing, in coin or
currency which, at the time or times of payment, is legal tender for public and
private debts in the United States, the principal sum of THIRTY-EIGHT MILLION
FIVE HUNDRED THOUSAND DOLLARS or so much thereof as shall have been advanced
from time to time plus interest on the outstanding principal balance at the rate
and payable as follows:
Interest shall accrue from the date of advance until maturity at the
rate of seven and eighty-eight hundredths percent (7.88%) per annum (the
"Interest Rate"). Accrued interest only on the amount advanced shall be paid on
the first day of the month following the date of advance ("Amortization Period
Commencement Date"). On the first day of the following month and on the first
day of each month thereafter until maturity, installments of principal and
interest shall be paid in the amount of $294,095.24. All installments shall be
applied first in payment of interest, calculated monthly on the unpaid principal
balance, and the remainder of each installment shall be applied in payment of
principal. The entire unpaid principal balance plus accrued interest thereon
shall be due and payable on January 2, 2013 (the "Maturity Date").
Borrower shall have the right, upon thirty (30) days advance written
notice, beginning January 1, 2002 of paying this note in full with a prepayment
fee. This fee represents consideration to Lender for loss of yield and
reinvestment costs. The fee shall be the greater of Yield Maintenance or 1% of
the outstanding principal balance of this note.
As used herein, "Yield Maintenance" means the amount, if any, by which
(i) the present value of the Then Remaining Payments (as hereinafter
defined) calculated using a periodic discount rate (corresponding to the payment
frequency under this note) which, when compounded for such number of payment
periods in a year, equals the sum of 0.5% and the per annum effective yield of
the Most Recently Auctioned United States Treasury Obligation having a maturity
date equal to the Maturity Date (or, if there is no such equal maturity date,
then the linearly interpolated per annum effective yield of the
<PAGE>
two Most Recently Auctioned United States Treasury Obligations having maturity
dates most nearly equivalent to the Maturity Date) as reported by The Wall
Street Journal five business days prior to the date of prepayment; exceeds
(ii) the outstanding principal balance of this note (exclusive of all accrued
interest).
If such United States Treasury obligation yields shall not be reported as of
such time or the yields reported as of such time shall not be ascertainable,
then the periodic discount rate shall be equal to the sum of 0.5% and the
Treasury Constant Maturity Series yields reported, for the latest day for which
such yields shall have been so reported, as of five business days preceding the
prepayment date, in Federal Reserve Statistical Release H. 15 (519) (or any
comparable successor publication) for actively traded United States Treasury
obligations having a constant maturity most nearly equivalent to the Maturity
Date.
As used herein, "Then Remaining Payments" means payments in such amounts and at
such times as would have been payable subsequent to the date of such prepayment
in accordance with the terms of this note.
As used herein, "Most Recently Auctioned United States Treasury Obligations"
means the U.S. Treasury bonds, notes and bills with maturities of 30 years, 10
years, 5 years, 3 years, 2 years and I year which, as of the date the prepayment
fee is calculated, were most recently auctioned by the United States Treasury.
Upon the occurrence of an Event of Default (as defined in the Lien Instrument)
followed by the acceleration of the whole indebtedness evidenced by this note,
or a condemnation or sale under threat of condemnation of all or substantially
all of the Property, the payment of such indebtedness will constitute an evasion
of the prepayment terms hereunder and be deemed to be a voluntary prepayment
hereof and such payment will, therefore, to the extent not prohibited by law,
include the prepayment fee required under the prepayment in full privilege
recited above or, if such prepayment occurs prior to January 1, 2002-and results
from an Event of Default followed by an acceleration of the whole indebtedness,
then such payment will, to the extent not prohibited by law, include a
prepayment fee equal to the greater of Yield Maintenance or 2% of the
outstanding principal balance of this note. If such prepayment occurs prior to
January 1, 2002 and results from a condemnation or sale under threat of
condemnation of all or substantially all of the Property, the prepayment fee
shall be the greater of Yield Maintenance or 1% of the outstanding principal
balance of this note.
Notwithstanding the above and provided Borrower is not in default under any
provision contained in the Loan Documents (as defined in the Lien Instrument),
this note may be prepaid in full at any time, without a prepayment fee, during
the last 90 days of the term of this note.
2
<PAGE>
Borrower acknowledges and agrees that the Interest Rate hereunder shall
be increased if certain financial statements and other reports are not furnished
to Lender, all as described in more detail in the provision of the Lien
Instrument entitled "Financial Statements".
----------------------
This note is secured by certain property (the "Property") in the
District of Columbia described in a Deed of Trust and Security Agreement (the
"Lien Instrument") of even date herewith executed by SAUL SUBSIDIARY II LIMITED
PARTNERSHIP, a Maryland limited partnership, to WILLIAM H. NORTON, as Trustee
for THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY.
Upon the occurrence of an Event of Default (as defined in the Lien
Instrument), the whole unpaid principal hereof and accrued interest shall, at
the option of Lender, to be exercised at any time thereafter until such Event of
Default shall be cured, become due and payable at once without notice, notice of
the exercise of, and the intent to exercise, such option being hereby expressly
waived.
All parties at any time liable, whether primarily or secondarily, for
payment of indebtedness evidenced hereby, for themselves, their heirs, legal
representatives, successors and assigns, respectively, expressly waive
presentment for payment, notice of dishonor, protest, notice of protest, and
diligence in collection; consent to the extension by Lender of the time of said
payments or any part thereof; further consent that the real or collateral
security or any part thereof may be released by Lender, without in any way
modifying, altering, releasing, affecting, or limiting their respective
liability or the lien of the Lien Instrument; and agree to pay reasonable
attorneys' fees and expenses of collection in case this note is placed in the
hands of an attorney for collection or suit is brought hereon and any attorneys'
fees and expenses incurred by Lender to enforce or preserve its rights under any
of the Loan Documents in any bankruptcy or insolvency proceeding.
Any principal, interest or other amounts payable under any of the Loan
Documents (as defined in the Lien Instrument), not paid when due (without regard
to any notice and/or cure provisions contained in any of the Loan Documents),
including principal becoming due by reason of acceleration by Lender of the
entire unpaid balance of this note, shall bear interest from the due date
thereof until paid at the Default Rate. As used herein, "Default Rate" means the
lower of a rate equal to the interest rate in effect at the time of the default
as herein provided plus 5% per annum or the maximum rate permitted by law.
No provision of this note shall require the payment or permit the
collection of interest, including any fees paid which are construed under
applicable law to be interest, in excess of the maximum permitted by law. If any
such excess interest is collected or herein provided for, or shall be
adjudicated to have been collected or be so provided for herein, the provisions
of this paragraph shall govern, and Borrower shall not be obligated to pay the
amount of such interest to the extent that it is in excess of the amount
permitted by law. Any such excess collected shall, at the option of Lender,
unless otherwise required by applicable law, be
3
<PAGE>
immediately refunded to Borrower or credited on the principal of this note
immediately upon Lender's awareness of the collection of such excess.
Notwithstanding any provision contained herein or in the Lien Instrument
to the contrary, if Lender shall take action to enforce the collection of the
indebtedness evidenced hereby or secured by the Lien Instrument (collectively,
the "Indebtedness"), its recourse shall, except as provided below, be limited to
the Property or the proceeds from the sale of the Property and the proceeds
realized by Lender in exercising its rights and remedies (i) under the Absolute
Assignment (as defined in the Lien Instrument), (ii) under the Additional
Guarantee of even date herewith executed by Saul Holdings Limited Partnership
("Saul Holdings"), the Guarantee of even date herewith executed by Saul Holdings
for the benefit of Lender, under the Guarantee of Recourse Obligations of even
date herewith executed by Saul Holdings for the benefit of Lender and under
other separate guarantees, if any, (iii) under any of the other Loan Documents
(as defined in the Lien Instrument) and (iv) in any other collateral securing
the Indebtedness. If such proceeds are insufficient to pay the Indebtedness,
Lender will never institute any action, suit, claim or demand in law or in
equity against Borrower for or on account of such deficiency; provided, however,
that the provisions contained in this paragraph
(i) shall not in any way affect or impair the validity or enforceability of
the Indebtedness or the Lien Instrument;
(ii) shall not prevent Lender from seeking and obtaining a judgment against
Borrower, and Borrower shall be personally liable, for the Recourse Obligations;
and
(iii) shall not be applicable in the event of a violation of any of the
provisions of the Lien Instrument following the caption entitled "Due on Sale"
(i.e., Borrower shall be personally liable for all of the Indebtedness in the
event of such violation).
As used herein, the term "Recourse Obligations" means, to the extent any of the
Indebtedness remains unpaid,
(a) rents and other income from the Property from and after the date of any
default under the Loan Documents remaining uncured on the date of the
foreclosure sale of the Property pursuant to the Lien Instrument or the
conveyance of the Property to Lender in lieu of foreclosure, which rents and
other income have not been applied to the payment of principal and interest on
this note or to reasonable operating expenses of the Property,
(b) amounts incurred by Lender to repair any damage to the Property caused by
the intentional wrongful acts or omissions of Borrower or its agents,
4
<PAGE>
(c) insurance loss and condemnation award proceeds released to Borrower but not
applied in accordance with any agreement between Borrower and Lender as to their
application,
(d) amounts necessary to pay costs incurred by Lender in the investigation and
clean-up of hazardous materials and toxic substances on or affecting the
Property,
(e) damages suffered by Lender as a result of fraud or knowing misrepresentation
in connection with the Indebtedness by Borrower or any other person or entity
acting on behalf of Borrower, and
(f) amounts necessary to pay real estate taxes, special assessments and
insurance premiums with respect to the Property (to the extent not previously
deposited with Lender by Borrower pursuant to the provisions of the Lien
Instrument following the caption entitled "Deposits by Grantor") either paid by
Lender and not reimbursed prior to, or remaining due or delinquent on, either
(i) the later of (A) the date on which title vests in the purchaser at the
foreclosure sale of the Property pursuant to the Lien Instrument or (B) the date
on which Borrower's statutory right of redemption shall expire or be waived or
(ii) the date of the conveyance of the Property to Lender in lieu of
foreclosure.
This note, the interpretation and the rights, obligations, duties and
liabilities hereunder shall be governed and controlled by the laws of the
District of Columbia.
SAUL SUBSIDIARY II LIMITED PARTNERSHIP, a Maryland limited partnership
By: Saul Centers, Inc., a Maryland corporation, general partner
By:
-----------------------
B. Francis Saul II
Chairman
Attest:
-------------------
(corporate seal)
5
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports included in the Company's December 31, 1996 Form 10-K, filed with
the Securities and Exchange Commission on March 31, 1997, into the previously
filed Registration Statement File No. 33-80291
Arthur Andersen LLP
Washington, D.C.
May 13, 1997
<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 March 31, 1997 of Saul Centers, Inc. and is qualified in its entirety by
reference to such financial statements, schedules and other disclosure.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,994
<SECURITIES> 0
<RECEIVABLES> 6,203
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 330,815
<DEPRECIATION> 97,368
<TOTAL-ASSETS> 264,192
<CURRENT-LIABILITIES> 0
<BONDS> 273,161
0
0
<COMMON> 122
<OTHER-SE> (28,128)
<TOTAL-LIABILITY-AND-EQUITY> 264,192
<SALES> 0
<TOTAL-REVENUES> 16,562
<CGS> 0
<TOTAL-COSTS> 4,598
<OTHER-EXPENSES> 1,514
<LOSS-PROVISION> 43
<INTEREST-EXPENSE> 5,365
<INCOME-PRETAX> 2,167
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,167
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,167
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
<PAGE>
EXHIBIT 99
SAUL CENTERS, INC
SCHEDULE OF CURRENT PORTFOLIO PROPERTIES
MARCH 31, 1997
<TABLE>
<CAPTION>
Leasable Year
Area Developed Land
(Square or Acquired Area Percentage Leased
Property Location Feet) (Renovated) (Acres) 03/31/97 03/31/96 Anchor / Significant Tenants
- ------------------ ---------------------- -------- -------------- ------- -------- -------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SHOPPING CENTERS
- ------------------
Ashburn Village Ashburn, VA 108,204 1994 12.7 100% 100% Giant Food, Blockbuster
Beacon Mall Alexandria, VA 290,845 1972 (1993) 32.3 69% 74% 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% Danker Furniture, Petco
Clarendon Arlington, VA 6,940 1973 0.5 100% 100%
Clarendon Station Arlington, VA 4,868 1996 0.1 100% 100%
Crosstown Tulsa, OK 197,135 1975 26.4 27% 36% 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 92% 97% Fleming Food, Treasury Drug,
Furr's Cafeteria
Germantown Germantown, MD 26,241 1992 2.7 97% 78%
Giant Baltimore, MD 70,040 1972 (1990) 5.0 100% 100% Giant Food
The Glen Lake Ridge, VA 112,639 1994 14.7 100% 100% Safeway Marketplace, CVS Pharmacy
Great Eastern District Heights, MD 255,448 1972 (1995) 23.9 90% 90% Giant Food, Caldor, Pep Boys
Hampshire Langley Langley Park, MD 137,945 1972 (1979) 9.9 94% 87% Safeway, McCrory, Rite Aid
Leesburg Pike Baileys Crossroads, VA 82,719 1966 (1982/95) 9.4 100% 100% Zany Brainy, CVS Pharmacy
Lexington Mall Lexington, KY 315,551 1974 30.0 97% 97% McAlpin's, Dawahares of Lexington,
Rite Aid
Lumberton Lumberton, NJ 189,729 1975 (1992/96) 23.3 83% 84% Super Fresh, Rite Aid, Blockbuster,
Mandee
North Washington Alexandria, VA 41,500 1973 2.0 100% 100% Mastercraft Interiors
Olney Olney, MD 53,765 1975 (1990) 3.7 82% 95%
Park Road Center Washington, DC 106,650 1973 (1993) 1.7 100% 100% Woolworth
Ravenwood Baltimore, MD 87,750 1972 8.0 100% 100% Giant Food
</TABLE>
<PAGE>
SAUL CENTERS, INC
SCHEDULE OF CURRENT PORTFOLIO PROPERTIES
MARCH 31, 1997
<TABLE>
<CAPTION>
Leasable Year
Area Developed Land
(Square or Acquired Area Percentage Leased
Property Location Feet) (Renovated) (Acres) 03/31/97 03/31/96 Anchor / Significant Tenants
- ------------------ ------------------- --------- -------------- ------- -------- -------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SHOPPING CENTERS
- ------------------
(continued)
- ------------------
Seven Corners Falls Church, VA 545,843 1973 (1994-7) 31.6 84% 63% Best Buy, Bob's Stores, Barnes & Noble,
Ross Dress For Less, Woolworth,
Shoppers Club, Home Depot (A)
Shops at Fairfax Fairfax, VA 64,580 1975 (1992-3) 6.7 54% 41% Office Depot, Hollywood Video
Southdale Glen Burnie, MD 475,099 1972 (1986) 39.6 98% 99% Circuit City, Giant Food, Hechinger,
Kids R Us, Michaels, Marshalls,
Petsmart, Value City Furniture
Southside Plaza Richmond, VA 353,030 1972 32.8 97% 94% CVS Pharmacy, Nick's Supermarket
Sunshine City Atlanta, GA 195,653 1976 14.6 89% 98% Bolton Furniture, McFrugals, Pep Boys,
The Emory Clinic
Thruway Winston-Salem, NC 339,564 1972 30.5 95% 94% Steinmart, Reading China & Glass,
Harris Teeter, Fresh Market,
Blockbuster, Piece Goods Shop
Village Center Centreville, VA 147,081 1990 17.2 84% 76% Giant Food
West Park Oklahoma City, OK 107,895 1975 11.2 69% 72% Homeland Stores, Treasury Drug
White Oak Silver Spring, MD 480,156 1972 (1993) 28.5 100% 99% Giant Food, Sears
--------- ------- -------- --------
Total Shopping Centers 5,143,547 442.9 89% 87%
--------- ------- -------- --------
COMMERCIAL PROPERTIES
- ---------------------
Avenel Gaithersburg, MD 284,557 1981/85/89 28.2 88% 98% Oncor, Quanta Systems,
General Services Administration
601 Pennsylvania Ave Washington, DC 225,153 1973 (1986) 1.0 100% 99% General Services Administration,
Capital Grille
Van Ness Square Washington, DC 161,058 1973 (1990) 1.2 82% 74% United Mine Workers Pension Trust,
Office Depot, Pier 1
--------- ------- -------- --------
Total Commercial Properties 670,768 30.4 91% 93%
--------- ------- -------- --------
TOTAL PORTFOLIO 5,814,315 SF 473.3 89% 88%
========= ======= ======== ========
</TABLE>
(A) The Shoppers Club and Home Depot stores, totaling 196,000 SF, are currently
in development.
