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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934
For the transition period from to
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Commission File number 1-12254
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 offices) (Zip Code)
Registrant's telephone number, including area code: (301) 986-6000
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on which
Title of each class registered
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COMMON STOCK, PAR VALUE $0.01 PER SHARE NEW YORK STOCK EXCHANGE
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Securities registered pursuant to Section 12(g) of the Act:
N/A
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(Title of class)
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Indicate by check mark whether 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 requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form
10-K. ______
The number of shares of Common Stock, $0.01 par value, outstanding as of
February 20, 1997 was 12,184,433.
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TABLE OF CONTENTS
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PART I Page Numbers
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Item 1. Business............................................. 3
Item 2. Properties........................................... 10
Item 3. Legal Proceedings.................................... 14
Item 4. Submission of Matters to a Vote of Security Holders.. 14
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters................................... 14
Item 6. Selected Financial Data............................... 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... 17
Item 8. Financial Statements and Supplementary Data........... 23
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................... 24
PART III
Item 10. Directors and Executive Officers of the Registrant.... 24
Item 11. Executive Compensation................................. 24
Item 12. Security Ownership of Certain Beneficial
Owners and Management.................................. 24
Item 13. Certain Relationships and Related Transactions......... 24
PART IV
Item 14. Exhibits, Financial Statement Schedule, and
Reports on Form 8-K.................................... 24
FINANCIAL STATEMENT SCHEDULE
Item III. Real Estate and Accumulated Depreciation...............F-24
2
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PART I
ITEM 1. BUSINESS
General
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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") is a Maryland
corporation which began operations in August 1993. On August 26, 1993, the B.F.
Saul Real Estate Investment Trust, Chevy Chase Bank, F.S.B., the B.F. Saul
Company and certain affiliated entities (collectively "The Saul Organization")
transferred to Saul Holdings 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 located predominantly in the Washington,
D.C./Baltimore metropolitan area and the Mid-Atlantic region of the United
States along with, the related management functions to the properties. At the
Company's formation, the general partner of the Operating Partnership and the
Subsidiary Partnerships (collectively the "Partnerships") was Saul Centers. B.
Francis Saul II serves as Chairman of the Board of Directors and Chief Executive
Officer of Saul Centers.
Owned and managed since its formation, the Company has purchased three
additional community and neighborhood shopping center properties, as well as a
land parcel, which it developed into a neighborhood shopping center. Therefore,
as of December 31, 1996, the Company collectively's properties (the "Current
Portfolio Properties") consisted of 30 operating shopping center properties (the
"Shopping Centers") and three predominantly office properties (the "Commercial
Properties").
In August 1993, Saul Centers sold 11,400,000 shares of common stock,
$0.01 par value per share, in an initial public offering and 479,050 shares of
common stock in a private offering to The Saul Organization (collectively the
"Common Stock" and the "Offerings"). After the Offerings, Saul Centers owned a
73.0 percent general partnership interest in the Operating Partnership and a 1.0
percent general partnership interest in each of the two Subsidiary Partnerships.
In July 1994, the Company established Saul QRS, Inc., 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 one of the Subsidiary
Partnerships in connection with a securitized financing. The Partnerships
collectively own 100 percent of the Current Portfolio Properties and Management
Functions, and through this structure, the Company controls the Current
Portfolio Properties and related Management Functions.
The Company's principal business activity is the ownership, management
and development of income-producing properties. The Company's long-term
objectives are to increase cash flow from operations and to maximize capital
appreciation of its real estate.
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Saul Centers has elected to be treated as a real estate investment
trust ("REIT") for Federal income tax purposes under Sections 856 through 860 of
the Internal Revenue Code of 1986, as amended (the "Code"), commencing with the
period ending December 31, 1993. It generally will not be subject to federal
income tax, provided it annually distributes at least 95 percent of its real
estate investment trust taxable income to its stockholders and meets certain
organizational and other requirements. Saul Centers has made and intends to
continue to make regular quarterly distributions to its stockholders.
Management of the Current Portfolio Properties
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The Partnerships manage the Current Portfolio Properties and will
manage any subsequently acquired properties. The Management of the properties
includes performing property management, leasing, design, renovation,
development and accounting duties for each property. The Partnerships provide
each property with a fully integrated property management capability, with
approximately 115 employees and with an extensive and mature network of
relationships with tenants and potential tenants as well as with members of the
brokerage and property owners' communities. The Company currently does not, and
does not intend to, retain third party managers or provide management services
to third parties.
The Company augments its property management capabilities by sharing
with The Saul Organization certain ancillary functions, at cost, such as
computer and payroll services, benefits administration and in-house legal
services. The company also shares insurance administration expenses on a pro
rata basis with The Saul Organization. The Saul Organization subleases office
space to the Company at its cost. Management believes that these arrangements
result in lower costs than could be obtained by contracting with third parties.
These arrangements permit the Company to capture greater economies of scale in
purchasing from third party vendors than would otherwise be available to the
Company alone and to capture internal economies of scale by avoiding payments
representing profits with respect to functions provided internally. The terms
of all sharing arrangements with The Saul Organization, including payments
related thereto, are reviewed periodically by the Company's Board of Directors.
Principal Offices
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The principal offices of the Company are located at 8401 Connecticut
Avenue, Chevy Chase, Maryland 20815, and the Company's telephone number is (301)
986-6000.
Operating Strategies
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The Company's primary operating strategy is to focus on its community
and neighborhood shopping center business and to operate its properties to
achieve both cash flow growth and capital appreciation. Community and
neighborhood shopping centers typically provide reliable cash flow and steady
long-term growth potential. Management intends to
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actively manage its property portfolio by engaging in strategic leasing
activities, tenant selection, lease negotiation and shopping center expansion
and reconfiguration. The Company seeks to optimize tenant mix by selecting
tenants for its shopping centers that provide a broad spectrum of goods and
services, consistent with the role of community and neighborhood shopping
centers as the source for day-to-day necessities. Management believes that such
a synergistic tenanting approach results in increased cash flow from existing
tenants by providing the Shopping Centers with consistent traffic and a
desirable mix of shoppers, resulting in increased sales and, therefore,
increased percentage rents.
Management believes there is substantial potential for growth in cash
flow as existing leases for space in the Shopping Centers expire and are
renewed, or newly available or vacant space is leased. The Company intends to
renegotiate leases aggressively and seek new tenants for available space in
order to exploit this potential for increased cash flow. As leases expire,
management expects to revise rental rates, lease terms and conditions, relocate
existing tenants, reconfigure tenant spaces and introduce new tenants to
increase cash flow. In those circumstances in which leases are not otherwise
expiring, management intends to attempt to increase cash flow through a variety
of means, including renegotiating rents in exchange for additional renewal
options or in connection with renovations or relocations, recapturing leases
with below market rents and re-leasing at market rates, as well as replacing
financially troubled tenants. When possible, management also will seek to
include scheduled increases in base rent, as well as percentage rental
provisions in its leases.
The Shopping Centers contain numerous undeveloped parcels within the
centers which are suitable for development as free-standing retail facilities,
such as restaurants, banks, auto centers or cinemas. Management intends
actively to continue to seek desirable tenants for facilities to be developed on
these sites and to develop and lease these sites in a manner that complements
the Shopping Centers in which they are located.
Management intends to renegotiate leases in the Commercial Properties
aggressively and to re-lease available space actively.
It is management's intention to hold properties for long-term
investment and to place strong emphasis on regular maintenance, periodic
renovation and capital improvement. Management believes that such
characteristics as cleanliness, lighting and security are particularly important
in community and neighborhood shopping centers, which are frequently visited by
shoppers during hours outside of the normal work day. Management believes that
the Shopping Centers generally are attractive and well maintained. The Shopping
Centers will undergo expansion, renovation, reconfiguration and modernization
from time to time when management believes that such action is warranted by
changes in the competitive environment of a Shopping Center. Several of the
Shopping Centers have been renovated recently, and a major expansion and
renovation is underway at the Company's largest retail property. The Company
will continue its practice of expanding existing properties by undertaking new
construction on outparcels suitable for development as free standing retail
facilities.
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Redevelopment, Renovations and Acquisitions
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The Company's acquisition and development objective is to selectively
and opportunistically acquire and develop high quality, well located properties,
primarily in the Mid-Atlantic region, having leases with below market rents or
other substantial potential for growth in cash flow, with strong, traffic-
generating anchor stores such as supermarkets and drug stores, as well as other
desirable local, regional and national tenants. The Company's strategy remains
focused on continuing the operating performance and internal growth of its
existing Shopping Centers, while enhancing this growth with selective retail
acquisitions and developments.
Management believes that attractive opportunities for investment in
existing and new shopping center properties will continue to be available.
Management also believes that the Company will be well situated to take
advantage of these opportunities because of its access to capital markets,
ability to acquire properties either for cash or securities (including Operating
Partnership interests in tax advantaged transactions) and because of
management's experience in seeking out, identifying and evaluating potential
acquisitions. In addition, management believes its shopping center expertise
should permit it to optimize the performance of shopping centers once they have
been acquired.
In evaluating a particular redevelopment, renovation, acquisition, or
development, management will consider a variety of factors, including (i) the
location and accessibility of the property; (ii) the geographic area (with an
emphasis on the Mid-Atlantic region) and demographic characteristics of the
community, as well as the local real estate market, including potential for
growth and potential regulatory impediments to development; (iii) the size of
the property; (iv) the purchase price; (v) the non-financial terms of the
proposed acquisition; (vi) the availability of funds or other consideration for
the proposed acquisition and the cost thereof; (vii) the "fit" of the property
with the Company's existing portfolio; (viii) the potential for, and current
extent of, any environmental problems; (ix) the current and historical occupancy
rates of the property or any comparable or competing properties in the same
market; (x) the quality of construction and design and the current physical
condition of the property; (xi) the financial and other characteristics of
existing tenants and the terms of existing leases; and (xii) the potential for
capital appreciation.
Although it is management's present intention to concentrate future
acquisition and development activities on community and neighborhood shopping
centers in the Mid-Atlantic region, the Company may, in the future, also acquire
other types of real estate in other regions of the country.
Capital Strategies
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As a general policy, the Company intends to maintain a ratio of its
total debt to total asset value of 50 percent or less and to actively manage the
Company's leverage and debt
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expense on an ongoing basis in order to maintain prudent coverage of fixed
charges. Asset value is the aggregate fair market value of the Current
Portfolio Properties and any subsequently acquired properties (collectively the
"Company Portfolio") as determined by the Board of Directors by reference to the
aggregate cash flow of the properties in the Company Portfolio. Given the
Company's current debt level, it is management's belief that the ratio of the
Company's total debt to asset value as of December 31, 1996 remains less than 50
percent.
The organizational documents of the Company do not limit the absolute
amount or percentage of indebtedness that it may incur. The Board of Directors
may, from time to time, reevaluate the Company's debt capitalization policy in
light of current economic conditions, relative costs of capital, market values
of the Company Portfolio, opportunities for acquisition, development or
expansion, and such other factors as the Board of Directors then deems relevant.
The Board of Directors may modify the Company's debt capitalization policy based
on such a reevaluation and consequently, may increase or decrease the Company's
debt ratio above or below 50 percent.
The Company selectively continues to refinance or renegotiate the
terms of its outstanding debt in order to achieve longer maturities, to lower
the "spread" between the London Interbank Offered Rate ("LIBOR"), the measure
upon which interest expense is calculated for the Company's variable rate debt,
and to continue pursuing refinancing of portions of the Company's variable rate
debt with long term fixed rate debt, whenever management determines the interest
rate environment is favorable. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources -
- -Borrowing Capacity." When capital market opportunities appeared attractive in
1996 due to favorable long-term interest rates, the Company obtained a $77
million loan which closed in November 1996. The loan has a term of 15 years and
its interest rate is fixed at 8.64%. The loan is secured by six of the
Company's retail and office properties. Subsequent to year end, in January
1997, the Company closed another loan in the amount of $38.5 million, for a 16
year term, at a fixed rate of 7.88%. The proceeds of these loans were used to
repay existing floating rate debt, including a portion of the Company's
revolving credit facility. The Company now has fixed interest rates on
approximately 46% of its total debt. The balance of the debt is tied to LIBOR
rates, and is all covered by interest rate protection agreements which cap LIBOR
at 5.25% through August 1998 and 7.5% through August 2000. The average
remaining loan term has been increased to over eight years and the weighted
average interest rate was approximately 7.2% as of February 1997.
The Company intends to finance future acquisitions and to make debt
repayments by utilizing the sources of capital then deemed to be most
advantageous. Such sources may include undistributed operating cash flow,
secured or unsecured bank and institutional borrowings, private and public
offerings of debt or equity securities, proceeds from the Company's Dividend
Reinvestment and Stock Purchase Plan, and proceeds from the sale of properties.
Borrowings may be at the Saul Centers, Operating Partnership or Subsidiary
Partnerships' level and securities offerings may include (subject to certain
limitations) the
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issuance of Operating Partnership interests convertible into Common Stock or
other equity securities.
Competition
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As an owner of, or investor in, commercial real estate properties, the
Company is subject to competition from a variety of other owners of similar
properties in connection with their sale, lease or other disposition and use.
Management believes that success in such competition is dependent in part upon
the geographic location of the property, the tenant mix, the performance of
property managers, the amount of new construction in the area and the
maintenance and appearance of the property. Additional competitive factors
impacting upon retail and commercial properties include the ease of access to
the properties, the adequacy of related facilities such as parking, and the
demographic characteristics in the markets in which the properties compete.
Overall economic circumstances and trends and new properties in the vicinity of
each of the properties in the Company Portfolio are also competitive factors.
Environmental Matters
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The properties in the Company Portfolio are subject to various laws
and regulations relating to environmental and pollution controls. The effect
upon the Company of the application of such laws and regulations either
prospectively or retrospectively is not expected to have a materially adverse
effect on the Company's property operations. As a matter of policy, the Company
requires an environmental study be performed with respect to a property that may
be subject to possible environmental hazards prior to its acquisition to
ascertain that there are no material environmental hazards associated with such
property.
Employees
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As of February 28, 1997, the Company employed approximately 115
persons, including seven full-time leasing officers. None of the Company's
employees are covered by collective bargaining agreements. Management believes
that its relationship with employees is good.
Current Developments
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A significant enhancement to our sustained historical internal growth
in shopping centers has been our continuing program of renovation and expansion
activities. These development activities serve to position our centers as
architecturally consistent with the times in terms of facade image, site
improvements and flexibility to accommodate tenant size requirements and
merchandising evolution. The Company continues to take advantage of
redevelopment and renovation opportunities within the portfolio, as demonstrated
by its present activities at Seven Corners, Leesburg Pike and Thruway shopping
centers. The Company also continues to evaluate land parcels for retail
development and to evaluate
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potential acquisitions of operating retail properties in order to enhance
operating income and cash flow growth.
The Company's most significant redevelopment project is the Seven
Corners shopping center, the Company's largest retail property, located in Falls
Church, Virginia. During 1995, the Company converted an enclosed mall of
approximately 400,000 leasable square feet of retail space to a large community
center of approximately 545,000 square feet. Tenants now operating in this
phase of redevelopment include Best Buy, Barnes & Noble, Ross Dress for Less,
and Bob's Stores. In early 1996, the Company entered into lease agreements with
Shoppers Club for a 69,000 square foot grocery store and with The Home Depot for
a 127,000 square foot home improvement store. Construction of these two anchor
stores commenced in August 1996 and will be completed in the summer of 1997.
Also during 1996, Pizzeria Uno and Wendy's opened restaurants on new pad sites
at Seven Corners.
In late 1996, the Company completed a renovation of the 185,000 square
foot Lumberton Plaza shopping center, located east of Philadelphia, in
Lumberton, New Jersey. The center is achored by a SuperFresh grocery store. New
tenant signage and a contemporary facade greatly enhance the aesthetics of this
center and have measurably increased rental revenues.
Two additional projects are set to begin construction during the
spring of 1997. At the 83,000 square foot Leesburg Pike shopping center, where
a facade renovation was completed in 1995, construction is scheduled to begin on
a 13,000 square foot expansion of in-line shop space for new retail uses. The
expansion is over 80% pre-leased and is projected to be completed in the summer
of this year.
Construction is also beginning in early spring on a facade renovation
of the 340,000 square foot Thruway shopping center located in Winston-Salem,
North Carolina. Thruway is anchored by Harris Teeter and Steinmart.
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.
Financial Information
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In 1996, the Company reported funds from operations of $25,122,000 on
a fully converted basis. This represents a 2.0% increase over 1995 funds from
operations of $24,636,000. For the quarter ended December 31, 1996, the Company
reported funds from operations of $6,534,000 on a fully converted basis, on
revenues of
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$16,439,000, compared to funds from operations of $6,186,000 for the quarter
ended December 31, 1995, on revenues of $15,789,000. Both funds from operations
per share and revenues for the fourth quarter of 1996 represent an increase of
more than 4% over the comparable quarter of 1995. The following table presents a
reconciliation from net income before minority interests to funds from
operations:
<TABLE>
<CAPTION>
Year Ended December 31, Quarter Ended December 31,
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1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Net income before minority interests...................... $ 12,703 $ 13,213 $ 1,967 $ 2,062
Depreciation and amortization of real property............ 10,860 10,425 3,008 3,126
Debt restructuring losses:
Disposition of interest rate protection agreements...... 972 -- 972 --
Write-off of unamortized loan costs..................... 587 998 587 998
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Funds from operations..................................... $ 25,122 $ 24,636 $ 6,534 $ 6,186
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Funds from operations, as defined by the National Association of Real
Estate Investment Trusts (NAREIT), represents net income excluding gains or
losses from debt restructuring, sales of property, plus depreciation and
amortization, and after adjustments for unconsolidated partnerships and joint
ventures. Funds from operations may not be comparable to similarly titled
measures employed by other REITs. Funds from operations does not represent cash
generated from operating activities in accordance with generally accepted
accounting principles and is not necessarily indicative of cash available to
fund cash needs, which is disclosed in the Consolidated Statements of Cash Flows
for the applicable periods. Funds from operations should not be considered as an
alternative to operating income or net income, determined in accordance with
generally accepted accounting principles, as an indicator of the Company's
operating performance or as an alternative to cash flows as a measure of
liquidity. Management considers funds from operations a supplemental measure of
operating performance and along with cash flow from operating activities,
financing activities and investing activities, it provides investors with an
indication of the ability of the Company to service debt, to make capital
expenditures and to fund other cash needs.
The following table presents cashflows provided by (used in)
operating, investing and financing activities:
<TABLE>
<CAPTION>
Year Ended December 31,
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1996 1995
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<S> <C> <C>
Operating activities.................... $ 30,670 $ 25,890
Investing activities.................... $ (8,875) $ (21,687)
Financing activities.................... $ (22,431) $ (4,556)
</TABLE>
The accompanying financial statements present the financial condition
and results of operations of the Company for the years ended December 31, 1996,
1995, and 1994. The financial statements of the Company have been presented on
a historical cost basis.
ITEM 2. PROPERTIES
Overview
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The Company is the owner and operator of a real estate portfolio of 33
properties totaling approximately 5.8 million square feet of gross leasable area
("GLA") located primarily in the Washington, D.C./Baltimore metropolitan area.
The portfolio is composed of 30 neighborhood and community Shopping Centers and
three Commercial Properties totaling approximately 5.1 and 0.7 million square
feet of GLA, respectively.
With the exception of four Shopping Center properties purchased or
developed during the past three years, the Company Portfolio consists of
seasoned properties that had been owned and managed by The Saul Organization for
15 years or more. The Company expects to hold its properties as long-term
investments, although it has no maximum period for retention of any investment.
It plans to selectively acquire additional income-producing properties and to
expand, renovate, and improve its properties when circumstances warrant. See
"Business--Operating Strategies" and "Business--Capital Strategies."
The Shopping Centers
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Community and neighborhood shopping centers typically are anchored by
one or more supermarkets, discount department stores or drug stores. These
anchors offer day-to-day necessities rather than apparel and luxury goods and,
therefore, generate consistent local traffic. By contrast, regional malls
generally are larger and typically are anchored by one or more full-service
department stores.
The Shopping Centers (typically) are seasoned community and
neighborhood shopping centers located in well established, highly developed,
densely populated, middle and upper income areas. Based upon census data, the
average estimated population within a three- and five-mile radius of the
Shopping Centers is approximately 112,000 and 270,000, respectively. The average
household income within a three and five-mile radius of the Shopping Centers is
$57,000 and $58,000, respectively, compared to a national average of $46,000.
Because the Shopping Centers generally are located in highly developed areas,
management believes that there is little likelihood that any significant numbers
of competing centers will be developed in the future.
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The Shopping Centers range in size from 4,900 to 545,800 square feet
of GLA, with six in excess of 300,000 square feet, and a weighted average of
approximately 171,000 square feet. 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 February 1997, no single Shopping Center accounted for more
than 11.0 percent of the total Shopping Center 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, Giant Food, Best Buy, and Chevy Chase Bank, F.S.B., individually
accounted for more than 1.5 percent of total revenues for this period.
The Commercial Properties
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The three Commercial Properties are all located in the Washington,
D.C. metropolitan area and contain an aggregate GLA of approximately 671,000
square feet, composed of 638,000 and 33,000 square feet of office and retail
space, respectively. The Commercial Properties represent three distinct styles
of facilities, are located in differing commercial environments with distinctive
demographic characteristics, and are geographically removed from one another.
As a consequence, management believes that the Commercial Properties compete for
tenants in different commercial and geographic sub-markets of the metropolitan
Washington, D.C. market and do not compete with one another.
601 Pennsylvania Ave. is a nine-story, Class A office building (with a
small amount of street level retail space) built in 1986 and located in a prime
downtown location. Van Ness Square is a six-story office/retail building
rebuilt in 1990. Van Ness Square is located in a highly developed commercial
area of Northwest Washington, D.C. which offers extensive retail and restaurant
amenities. Management believes that the Washington, D.C. office market is one
of the strongest and most stable leasing markets in the nation, with relatively
low vacancy rates in comparison to other major metropolitan areas. Despite
continuing announcements of government downsizing, management believes that the
long-term stability of this market is attributable to the status of Washington,
D.C. as the nation's capital and to the presence of the federal government,
international agencies, and an expanding private sector job market throughout
the metropolitan area.
Avenel Business Park is a research park located in a Maryland suburb
of Washington, D.C. and consists of eight one-story buildings built in three
phases in 1981, 1985 and 1989. Management believes that, due to its desirable
location, the high quality of the property and the relative scarcity of research
and development space in its immediate area, Avenel should continue to attract
and retain desirable tenants in the future.
The following table sets forth, at the dates indicated, certain
information regarding the Current Portfolio Properties:
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Saul Centers, Inc
Schedule of Current Portfolio Properties
December 31, 1996
<TABLE>
<CAPTION>
Leasable Year
Area Developed Land
(Square or Acquired Area Percentage Leased
Property Location Feet) (Renovated) (Acres) 12/31/96 12/31/95 Anchor / Significant Tenants
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<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 73% 94% Giant Food, Office Depot, Outback
Steakhouse, Marshalls
Belvedere Baltimore, MD 54,941 1972 4.8 100% 100% Giant Food, Rite Aid
Boulevard Fairfax, VA 56,578 1994 5.0 100% 100% Danker Furniture, Petco
Clarendon Arlington, VA 6,940 1973 0.5 100% 100%
Clarendon Station Arlington, VA 4,868 1996 0.1 100% (A)
Crosstown Tulsa, OK 197,135 1975 26.4 29% 30% C. R. Anthony
Flagship Center Rockville, MD 21,500 1972, 1989 0.5 100% 100% NationsBank, Chevy Chase Bank, F.S.B.
French Market Oklahoma City, OK 213,658 1974 (1984) 13.8 94% 98% Fleming Food, Treasury Drug,
Furr's Cafeteria
Germantown Germantown, MD 26,241 1992 2.7 93% 58%
Giant Baltimore, MD 70,040 1972 (1990) 5.0 100% 100% Giant Food
The Glen Lake Ridge, VA 112,639 1994 14.7 95% 100% Safeway Marketplace, CVS Pharmacy
Great Eastern District Heights, 255,448 1972 (1995) 23.9 90% 97% Giant Food, Caldor, Pep Boys
Hampshire Langle Langley Park, MD 137,659 1972 (1979) 9.9 100% 94% Safeway, McCrory, Rite Aid
Leesburg Pike Baileys Crossroad 82,719 1966 (1982/9 9.4 100% 100% Zany Brainy, CVS Pharmacy
Lexington Mall Lexington, KY 315,744 1974 30.0 95% 92% McAlpin's, Dawahares of Lexington, Rite Aid
Lumberton Lumberton, NJ 185,729 1975 (1992/9 23.3 82% 82% 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 83% 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>
12
<PAGE>
SAUL CENTERS, INC.
SCHEDULE OF CURRENT PORTFOLIO PROPERTIES
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Leasable Year
Area Developed Land
(Square or Acquired Area Percentage Leased
Property Location Feet) (Renovated) (Acres) 12/31/96 12/31/95 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 88% 61% Best Buy, Bob's Stores, Barnes &
Noble, Ross Dress For Less,
Woolworth, Shopper Club,
Home Depot (B)
Shops at Fairfax Fairfax, VA 64,580 1975 (1992-3) 6.7 54% 43% Office Depot
Southdale Glen Burnie, MD 470,744 1972 (1986) 39.6 98% 98% 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, G.
C. Murphy
Sunshine City Atlanta, GA 195,653 1976 14.6 98% 100% Bolton Furniture, McFrugals, Pep
Boys, The Emory Clinic
Thruway Winston-Salem, NC 339,564 1972 30.5 94% 89% Steinmart, Reading China & Glass,
Harris Teeter, Fresh Market,
Blockbuster, Piece Goods Shops
Village Center Centreville, VA 147,081 1990 17.2 84% 78% Giant Food
West Park Oklahoma City, OK 107,895 1975 11.2 69% 73% Homeland Stores, Treasury Drug
White Oak Silver Spring, MD 480,156 1972 (1993) 28.5 99% 100% Giant Food, Sears
--------- ------- ---------- --------
Total Shopping
Centers 5,135,099 442.9 90% 88%
--------- ------- ---------- --------
Commercial
Properties
- -----------
Avenel Gaithersburg, MD 284,557 1981/85/89 28.2 86% 99% Oncor, Quanta Systems, General
Services Administration
601 Pennsylvania 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 77% 86% United Mine Workers Pension Trust,
Office Depot, Pier 1
--------- ------- ---------- --------
Total Commercial Properties 670,768 30.4 89% 96%
--------- ------- ---------- --------
TOTAL PORTFOLIO 5,805,867 SF 473.3 90% 89%
========= ======= ========== ========
</TABLE>
(A) Contiguous retail space adjacent to Clarendon, acquired January 22, 1996.
(B) The Shoppers Club and Home Depot stores, totaling 196,000 SF, are currently
in development.
13
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
In the normal course of business, the Company is involved in
litigation, including litigation arising out of the collection of rents, the
enforcement or defense of the priority of its security interests, and the
continued development and marketing of certain of its real estate properties.
In the opinion of management, litigation that is currently pending should not
have a material adverse impact on the financial condition or future operations
of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
- ------------------
Saul Centers completed the Offerings on August 26, 1993. Shares of
Common Stock were sold at an initial offering price of $20 per share and the net
offering proceeds were used to acquire general partnership interests in the
Operating Partnership and Subsidiary Partnerships, which hold the Portfolio
Properties and the Management Functions. The shares are listed on the New York
Stock Exchange under the symbol "BFS". The high and low sales prices for the
Common Stock shares for each quarter of 1995 and 1996 were as follows:
<TABLE>
<CAPTION>
Period Share Price
------ ------------------
High Low
------- -------
<S> <C> <C>
January 1, 1995 -- March 31, 1995 $16 3/4 $14 3/4
April 1, 1995 -- June 30, 1995 $17 5/8 $15 1/8
July 1, 1995 -- September 30, 1995 $16 1/2 $15 3/8
October 1, 1995 -- December 31, 1995 $15 7/8 $13 1/2
January 1, 1996 -- March 31, 1996 $16 1/4 $13 7/8
April 1, 1996 -- June 30, 1996 $14 7/8 $13
July 1, 1996 -- September 30, 1996 $14 1/4 $12 5/8
October 1, 1996 -- December 31, 1996 $16 $13 1/2
</TABLE>
Holders
- -------
The approximate number of holders of record of the Common Stock was 510 as
of February 20, 1997.
14
<PAGE>
Dividends
- ---------
Saul Centers was formed on June 10, 1993 and from that time through August
27, 1993, distributions were not paid to stockholders. Subsequent to the
Offerings, the Company has declared and paid regular quarterly distributions to
its stockholders. The first distribution, in the amount of $0.15 per share for
the partial quarter ended September 30, 1993, was paid on October 29, 1993 to
stockholders of record as of October 15, 1993. This initial amount was based
upon a full quarterly distribution of $0.39 per share. The Company paid four
quarterly distributions in the amount of $0.39 per share, for each of the years
ended December 31, 1996, 1995 and 1994, totaling $1.56 per share for each of
these years, or an annual yield of 9.5 percent based on the closing price of the
Common Stock on the New York Stock Exchange as of February 28, 1997. The
Company has determined that 63.8 percent of the total $1.56 per share paid in
calendar year 1996 represents currently taxable dividend income to the
stockholders.
The Company's estimate of cash flow available for distributions is believed
to be based on reasonable assumptions and represents a reasonable basis for
setting distributions. However, the actual results of operations of the Company
will be affected by a variety of factors, including actual rental revenue,
operating expenses of the Company, interest expense, general economic
conditions, federal, state and local taxes (if any), unanticipated capital
expenditures, and the adequacy of reserves. While the Company intends to
continue paying regular quarterly distributions, any future payments will be
determined solely by the Board of Directors and will depend on a number of
factors, including cash flow of the Company, its financial condition and capital
requirements, the annual distribution requirements required to maintain its
status as a REIT under the Code, and such other factors as the Board of
Directors deems relevant.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data of the Company contained herein has been derived
from the consolidated and combined financial statements of the Company and The
Saul Organization. The data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements included elsewhere in this report. The
historical selected financial data have been derived from audited financial
statements for all periods.
15
<PAGE>
Saul Centers, Inc.
SELECTED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
Predecessor to Saul
Saul Centers, Inc. Centers, Inc.
------------------------------------------- ---------------------------
August 27 January 1
through through Year Ended
Years Ended December 31, December 31, August 26 December 31,
1996 1995 1994 1993 1993 1992
======== ======== ======== ============= ============ =============
<S> <C> <C> <C> <C> <C> <C>
Operating Data:
--------------
Total Revenue . . . . . . . . . . . $ 64,023 $ 61,469 $ 57,397 $ 18,519 $ 34,472 $ 51,893
-------- -------- -------- ------------- ------------ -------------
Operating expenses. . . . . . . . . 49,761 47,258 42,787 13,594 39,744 55,939
Operating Income. . . . . . . . . . 14,262 14,211 14,610 4,925 (5,272) (4,046)
Non-operating income
Sale of interest rate protection
agreements. . . . . . . . . . . (972) -- -- -- -- --
-------- -------- -------- ------------- ------------ -------------
Net income (loss) before
extraordinary item and minority
interests. . . . . . . . . . . . 13,290 14,211 14,610 4,925 (5,272) (4,046)
Extraordinary item:
Early extinguishment of debt . . (587) (998) (3,341) (3,519) -- --
-------- -------- -------- ------------- ------------ -------------
Net income (loss) before minority
interests . . . . . . . . . . . 12,703 13,213 11,269 1,406 (5,272) (4,046)
Minority Interests. . . . . . . . . (6,852) (6,852) (4,274) (380) -- --
-------- -------- -------- ------------- ------------ -------------
Net income (loss) . . . . . . . . . $ 5,851 $ 6,361 $ 6,995 $ 1,026 $ (5,272) $ (4,046)
======== ======== ======== ============= ============ =============
Per Share Data:
--------------
Net income (loss) before
extraordinary item and minority
interests . . . . . . . . . . . $ 0.81 $ 0.87 $ 0.90 $ 0.30 ---------------------------
Net income . . . . . . . . . . . . $ 0.49 $ 0.54 $ 0.59 $ 0.09
Weighted average shares outstanding:
Fully converted . . . . . . . . 16,497 16,272 16,272 16,272 No common shares
======== ======== ======== ============= outstanding
Common stock . . . . . . . . . . 12,104 11,879 11,879 11,879
======== ======== ======== =============
Dividends Paid:
--------------
Cash dividends to common
stockholders . . . . . . . . .(1) $ 18,669 $ 18,531 $ 18,531 $ 1,782(2)
======== ======== ======== =============
Cash dividends per share . . . . $ 1.56 $ 1.56 $ 1.56 $ 0.15
======== ======== ======== ============= ---------------------------
Balance Sheet Data:
------------------
Income-producing properties
(before accumulated
depreciation). . . . . . . . . . $329,664 $321,662 $300,404 $263,519 $254,566
Total assets . . . . . . . . . . . . 263,495 269,407 259,041 213,365 201,940
Total debt, including accrued
interest . . . . . . . . . . . . . 273,731 273,979 248,681 192,199 335,949
Other Data
----------
Funds from operations(3)
Net income before minority
interests. . . . . . . . . . . . $ 12,703 $ 13,213 $ 11,269
Depreciation and amortization of
real property. . . . . . . . . . 10,860 10,425 9,582
Debt restructuring losses:
Disposition of interest rate
protection agreements. . . . . 972 -- --
Write-off of unamortized loan
costs. . . . . . . . . . . . . 587 998 3,341
-------- -------- --------
Funds from operations . . . . . . . $ 25,122 $ 24,636 $ 24,192
======== ======== ========
Cash flow provided by (used in):
Operating activities. . . . . . . $ 30,670 $ 25,890 $ 23,811
Investing activities. . . . . . . $ (8,875) $(21,687) $(43,487)
Financing activities. . . . . . . $(22,431) $ (4,556) $ 17,948
===================================================================================================================
</TABLE>
(1) By operation of the Company's dividend reinvestment plan, $3,378 was
reinvested in newly issued common stock during 1996.
(2) Does not include dividend of $0.39 declared for the quarter ended
December 31, 1993, paid on January 31, 1994 to stockholders of record
on January 14, 1994.
(3) Funds from operations, as defined by the National Association of Real
Estate Investment Trusts (NAREIT), represents net income excluding gains
or losses from debt restructuring, sales of property, plus depreciation
and amortization, and after adjustments for unconsolidated partnerships
and joint ventures. Funds from operations may not be comparable to
similarly titled measures employed by other REITs. Funds from operations
does not represent cash generated from operating activities in accordance
with generally accepted accounting principles and is not necessarily
indicative of cash available to fund cash needs, which is disclosed in
the Consolidated Statements of Cash Flows for the applicable periods.
Funds from operations should not be considered as an alternative to
operating income or net income, determined in accordance with generally
accepted accounting principles, as an indicator of the Company's
operating performance or as an alternative to cash flows as a measure of
liquidity. Management considers funds from operations a supplemental
measure of operating performance and along with cash flow from operating
activities, financing activities and investing activities, it provides
investors with an indication of the ability of the Company to service
debt, to make capital expenditures and to fund other cash needs.
16
<PAGE>
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 the Company as of December 31, 1996 and for the year ended
December 31, 1996. Prior year data is based on the Company's consolidated
financial statements as of December 31, 1995 and 1994 and for the years ended
December 31, 1995 and 1994.
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 coming year the Company may: 1)
redevelop certain of the Shopping Centers, 2) develop additional freestanding
outparcels 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 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 sales of
properties. Borrowings may be at the Saul Centers, Operating Partnership or
Subsidiary Partnership level, and securities offerings may include (subject to
certain limitations) the issuance of additional limited partnership interests in
the Operating Partnership which can be converted into shares of Saul Centers
common stock.
For the year ended December 31, 1996, operating activities provided net cash
flow of $30,670,000, while investing activities used cash of $8,875,000 and
financing activities, including distributions to stockholders, and proceeds from
the reinvestment of dividends, used net cash of $22,431,000. Cash was required
primarily for repayment of debt ($98,442,000), distributions to stockholders
(25,617,000), shopping center acquisitions, renovations and capital
expenditures ($6,133,000), and construction and redevelopment projects
($2,742,000).
17
<PAGE>
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 December 31, 1996, 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 on an ongoing basis 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 enhance the balance sheet. 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 another loan in the amount of $38.5 million,
for a 16-year term, at a fixed rate of 7.88 percent, and a twenty-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 all 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 been selectively involved 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, recently completed facade renovation
at Lumberton Plaza, and the planned early 1997 commencement of a renovation at
Thruway and an expansion of Leesburg Pike shopping centers.
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
18
<PAGE>
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 store. 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. The signing of these two anchor leases
substantially completes the retail leasing for the redevelopment of the
Company's 545,000 square foot Seven Corners shopping center. The former F&M
Distributors drug store space, totaling approximately 32,000 square feet, is the
remaining major retail space to lease.
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.
On January 22, 1996, the Company acquired Clarendon Station, which consists
of 4,868 square feet of retail shop space next to the Company's Clarendon
property. The properties are located adjacent to a Metro subway station entrance
in Arlington, Virginia. The newly acquired property is 100 percent leased to
four retail service tenants. The purchase price was $833,500, of which $431,750
was paid in cash and $401,750 was paid in the form of a four-year mortgage note
at a fixed interest rate of 8.0 percent. The property is zoned for higher
density retail and office uses. There is considerable development activity in
the neighborhood surrounding the Clarendon property.
Portfolio Leasing Status
- ------------------------
At December 31, 1996, 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 December 31, 1996, 89.6 percent of the Company's 5.8 million square feet
of leasable space was leased to tenants, as compared to 88.6 percent at December
31, 1995. The shopping center portfolio was 89.8 percent leased at December 31,
1996 versus 87.6 percent as of December 31, 1995. The Commercial Properties
were 88.5 percent leased at December 31, 1996 compared to 95.8 percent as of
December 31, 1995. 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 year
ended December 31, 1996 with the year ended December 31, 1995, and compares the
year ended December 31, 1995 with the year ended December 31, 1994. This
information should be read in conjunction with the accompanying consolidated
financial statements and the notes related thereto.
Years Ended December 31, 1996 and 1995
- --------------------------------------
Base rent increased to $49,814,000 in 1996 from $47,673,000 in 1995,
representing a $2,141,000 (4.5 percent) increase. The increase in base rent
resulted primarily from increased rents received at the redeveloped Seven
Corners and Great Eastern shopping centers, and to a lesser extent, increased
shopping center minimum rents at several properties due to improved leasing and
generally higher rents on lease renewals.
Expense recoveries increased to $9,301,000 in 1996 from $8,770,000 in 1995,
representing an increase of $531,000 (6.1 percent). The increase in expense
recoveries resulted primarily from improved leasing levels at the recently
redeveloped Seven Corners, Great Eastern and Leesburg Pike shopping centers.
Percentage rent was $2,924,000 in 1996, compared to $2,782,000 in 1995,
representing an increase of $142,000 (5.1%). This increase resulted from
generally improved reported sales throughout the portfolio.
Other income, which consists primarily of parking income at two of the
Commercial Properties, kiosk leasing, temporary leases and payments associated
with early termination of leases, was $1,984,000 in 1996, compared to $2,244,000
in 1995, representing a decrease of $260,000 (11.6%). The decline in other
income resulted largely from a decline in lease termination payments.
As a consequence of the foregoing the 1996 total revenues of $64,023,000
represented
20
<PAGE>
an increase of $2,554,000 (4.2 percent) over total revenues of $61,469,000 in
1995.
Operating expenses, which consist mainly of repairs and maintenance,
utilities, payroll and insurance expense, decreased $71,000 (0.9 percent) to
$8,069,000 in 1996 from $8,140,000 in 1995.
The provision for credit losses was $457,000 in 1996 compared to $404,000 in
1995, representing an increase of $53,000 (13.1 percent) . The increase
resulted primarily from the provision required for a shopping center tenant
which vacated its space prior to lease expiration.
Real estates taxes were $5,914,000 in 1996 compared to $5,427,000 in 1995,
representing an increase of $487,000 (9.0 percent). This was largely
attributable to the increased tax assessment resulting from the redevelopment
work put in place by the Company during the past two years.
Interest expense was $18,509,000 in 1996 compared to $17,639,000 in 1995,
representing an increase of $870,000 (4.9 percent). This increase is primarily
attributed to an approximately $14.6 million increase in average loan balances
resulting largely from the Company's acquisition and redevelopment activities.
Amortization of deferred debt expense increased $389,000 (15.8 percent) to
$2,857,000 in 1996 from $2,468,000 in 1995. This increase was primarily due to
an increased level of amortization arising from the November 1995 restructuring
of the Company's revolving credit agreement.
Depreciation and amortization expense increased $435,000 (4.2 percent) from
$10,425,000 in 1995 to $10,860,000 in 1996. This increase was due to the
redevelopment of the Seven Corners and Leesburg Pike shopping centers.
General and administrative expense, which consists primarily of
administrative payroll and other overhead expenses, was $3,095,000 in 1996
compared to $2,984,000 in 1995, representing an increase of $111,000 (3.7
percent).
Non-operating item, sales of interest rate protection agreements, resulted
in a loss of $972,000 in 1996 due to the write-off of unamortized costs in
excess of sale proceeds received when the Company sold a portion of its interest
rate protection agreements. The agreements sold had a notional value of $87.0
million, and were sold subsequent to the November 1996 closing of a $77.0
million fixed rate mortgage. No sale occurred in 1995.
Extraordinary item, early extinguishment of debt, decreased from a loss of
$998,000 in 1995 to a loss of $587,000 in 1996. The losses in each period
resulted from the write-off of unamortized loan costs when the Company
refinanced a portion of its loan portfolio.
21
<PAGE>
Years Ended December 31, 1995 and 1994
- --------------------------------------
Base rent increased to $47,673,000 in 1995 from $43,582,000 in 1994,
representing a $4,091,000 (9.4 percent) increase. The increase in base rent
resulted primarily from the acquisition of the Boulevard and The Glen shopping
centers during the second quarter of 1994, the development of the Ashburn
Village Center completed during the fourth quarter of 1994, the continued
improvement in leasing at the redeveloped Seven Corners shopping center and, to
a lesser extent, increased shopping center minimum rents at several properties
due to improved leasing and generally higher rents on lease renewals.
Expense recoveries increased to $8,770,000 in 1995 from $8,565,000 in 1994,
representing a $205,000 (2.4 percent) increase. The two acquisition properties,
Boulevard and The Glen, and the Ashburn Village development property, accounted
for $292,000 of the expense recovery increases. Expense recoveries decreased by
$211,000 at the Seven Corners shopping center largely due to reduced operating
expenses associated with the redevelopment. The balance of the Shopping Centers
had overall increases in expense recoveries primarily because of improved
leasing and higher recoverable expenses at several properties.
Percentage rent was $2,782,000 in 1995, compared to $2,377,000 in 1994,
representing an increase of $405,000 (17.0 percent). This increase resulted
from higher sales reported by several of the core portfolio properties' anchor
tenants and the addition of three restaurant tenants that paid percentage rent
during the 1995 period.
Other income, which consists primarily of parking income at two of the
Commercial Properties, kiosk leasing, temporary leases and payments associated
with early termination of leases, was $2,244,000 in 1995, compared to $2,873,000
in 1994, representing a decrease of $629,000 (21.9 percent). The decline in
other income resulted largely from a decline in lease termination payments.
As a consequence of the foregoing the 1995 total revenues of $61,469,000
represented an increase of $4,072,000 (7.1 percent) over total revenues of
$57,397,000 in 1994.
Operating expenses, which consist mainly of repairs and maintenance,
utilities, payroll and insurance expense, decreased $961,000 (10.8 percent) to
$7,911,000 in 1995 from $8,872,000 in 1994. This reduction was primarily due to
reduced operating expenses at Seven Corners due to the renovation and lower snow
removal expenses.
The provision for credit losses was $404,000 in 1995 compared to $262,000 in
1994, representing an increase of $142,000 (54.2 percent). This variance was
largely due to one tenant. Partially offsetting this current writeoff were
collections of rents previously written off.
Real estates taxes were $5,427,000 in 1995 compared to $5,210,000 in 1994,
representing an increase of $217,000 (4.2 percent). This was largely
22
<PAGE>
attributable to the acquisition of the Glen and Boulevard shopping centers
during the second quarter of 1994, and the development of the Ashburn Village
center completed during the fourth quarter of 1994.
Interest expense was $17,639,000 in 1995 compared to $13,712,000 in 1994,
representing an increase of $3,927,000 (28.6 percent). This increase is
primarily attributed to a rise in the average LIBOR rate in 1995. Also
contributing to the increase in interest expense was an approximately $43.6
million increase in average loan balances resulting largely from the Company's
acquisition and development activities. Due to the Company's success in
restructuring its debt during the latter part of 1994, the interest expense
increases resulting from LIBOR rate increases and higher borrowing levels during
1995 were partially offset by a decrease in the loan portfolio's rate spread
over the LIBOR base.
Amortization of deferred debt expense increased $170,000 (7.4 percent) to
$2,468,000 in 1995 from $2,298,000 in 1994. This increase was largely due to an
increased level of amortization arising from the November 1995 restructuring of
the Company's revolving credit facility.
Depreciation and amortization expense increased $843,000 (8.8 percent) to
$10,425,000 in 1995 from $9,582,000 in 1994. This increase was due to the
acquisition of Boulevard and The Glen shopping centers, the development of
Ashburn Village and the redevelopment of the Seven Corners shopping center.
General and administrative expense, which consists primarily of
administrative payroll and other overhead expenses, was $2,984,000 in 1995
compared to $2,851,000 in 1994, representing an increase of $133,000 (4.7
percent). Contributing to this increase were higher loan administration,
accounting and other miscellaneous partnership expenses that were partially
offset by reduced insurance expense.
Extraordinary item, early extinguishment of debt, decreased to a loss of
$998,000 in 1995 from a loss of $3,341,000 in 1994. The losses in each period
resulted from the write-off of unamortized loan costs when the Company
refinanced a portion of its loan portfolio.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company and its consolidated subsidiaries
are included in this report on the pages indicated, and are incorporated herein
by reference:
Page
- ----
F-1 (a) Report of Independent Public Accountants
F-2 (b) Consolidated Balance Sheets - December 31, 1996 and 1995
F-3 (c) Consolidated Statements of Operations - Years ended December 31,
1996, 1995 and 1994.
23
<PAGE>
F-4 (d) Consolidated Statements of Stockholders' Equity - Years ended
December 31, 1996, 1995 and 1994.
F-5 (e) Consolidated Statements of Cash Flows - Years ended December 31,
1996, 1995 and 1994.
F-6 (f) Notes to Consolidated Financial Statements
The selected quarterly financial data included in Note 15 of The Notes
to Consolidated Financial Statements referred to above are incorporated herein
by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The information required under Items 10, 11, 12, and 13 is contained
in pages 3 through 14, inclusive, of the Company's Proxy Statement for the
Annual Meeting of Stockholders to be held April 18, 1997, and is hereby
incorporated herein by reference. The Company's Proxy Statement was filed
within 120 days after the close of the Company's fiscal year in accordance with
General Instruction G(3) of Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORMS 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
--------------------
The following financial statements of the Company and their
consolidated subsidiaries are incorporated by reference in Part II, Item 8.
(a) Report of Independent Public Accountants
(b) Consolidated Balance Sheets - December 31, 1996 and 1995
(c) Consolidated Statements of Operations - Years ended December 31,
1996, 1995 and 1994
(d) Consolidated Statements of Stockholders' Equity - Years ended
December 31, 1996, 1995 and 1994
24
<PAGE>
(e) Consolidated Statements of Cash Flows - Years ended December 31,
1996, 1995 and 1994
(f) Notes to Consolidated Financial Statements
2. Financial Statement Schedule and Supplementary Data
---------------------------------------------------
(a) Selected Quarterly Financial Data for the Company are incorporated
by reference in Part II, Item 8
(b) Report of Independent Public Accountants on the Schedule
(included in Report of Independent Public Accountants on the
Financial Statements)
(c) Schedule of the Company:
Schedule III - Real Estate and Accumulated Depreciation
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
3. 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)
25
<PAGE>
of the 1995 Annual report of the Company on Form 10-K is hereby
incorporated by reference.
(b) First Amended and Restated Agreement of Limited Partnership of
Saul Subsidiary I Limited Partnership and Amendment No. 1
thereto filed as Exhibit 10.2 to Registration Statement No. 33-
64562 are hereby incorporated by reference.
(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) Loan Agreement dated as of August 26, 1993 by and between Wells
Fargo Realty Advisors Funding, Incorporated and Saul Subsidiary
II Limited Partnership and filed as Exhibit 10. (j) of the 1993
Annual report of the Company on Form 10-K is hereby
incorporated by
26
<PAGE>
reference, and the First Amendment to Loan Agreement dated
December 20, 1994 is hereby incorporated by reference.
(k) 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.
(l) 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.
(m) 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.
(n) 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.
(o) 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.
27
<PAGE>
(p) 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.
(q) 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.
(r) 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.
(s) Deed of Trust, Assignment of Rents, and Security Agreement
dated as of June 9, 1994 by and between Saul Holdings Limited
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.
(b) Reports on Form 8-K.
None.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 27, 1997 /s/ B. Francis Saul II
----------------------------------------
B. Francis Saul II
Chairman of the Board of Directors
& Chief Executive Officer
(Principal Executive Officer)
Date: March 27, 1997 /s/ Philip D. Caraci
-----------------------------------------
Philip D. Caraci, President and Director
Date: March 27, 1997 /s/ Scott V. Schneider
-----------------------------------------
Scott V. Schneider, Vice President and
Secretary (Principal Financial and Accounting
Officer)
Date: March 27, 1997 /s/ Gilbert M. Grosvenor
-----------------------------------------
Gilbert M. Grosvenor, Director
Date: March 27, 1997 /s/ General Paul X. Kelley
-----------------------------------------
General Paul X. Kelley, Director
Date: March 27, 1997 /s/ Charles R. Longsworth
-----------------------------------------
Charles R. Longsworth, Director
Date: March 27, 1997 /s/ Patrick F. Noonan, Director
-----------------------------------------
Patrick F. Noonan, Director
Date: March 27, 1997 /s/ James W. Symington
-----------------------------------------
James W. Symington, Director
Date: March 27, 1997 /s/ John R. Whitmore
-----------------------------------------
John R. Whitmore, Director
29
<PAGE>
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Saul Centers, Inc.:
We have audited the accompanying consolidated balance sheets of Saul
Centers, Inc., a Maryland corporation, and subsidiaries as of December 31, 1996
and 1995 and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Saul Centers, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years ended December 31,
1996 in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule III "Real Estate and
Accumulated Depreciation", appearing on pages F-24 and F-25, is presented for
the purpose of complying with the Securities and Exchange Commission's rules and
is not a required part of the basic financial statements. The schedule has been
subjected to the auditing procedures applied in our audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Washington, D.C.
February 7, 1997
F-1
<PAGE>
Saul Centers, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
December 31,
(Dollars in thousands) 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Real estate investments
Land $ 65,604 $ 64,258
Buildings and equipment 264,060 257,404
------------------- ----------------
329,664 321,662
Accumulated depreciation (94,965) (92,237)
------------------- ----------------
234,699 229,425
Construction in progress 1,508 6,986
Cash 38 674
Accounts receivable and accrued income, net 7,446 9,522
Prepaid expenses 4,808 4,629
Deferred debt expense, net 11,287 15,423
Other assets 3,709 2,748
------------------- ----------------
Total assets $ 263,495 $ 269,407
=================== ================
LIABILITIES
Notes payable $ 273,261 $ 273,083
Accounts payable, accrued expenses and other liabilities 15,154 11,982
Deferred income 1,441 1,077
------------------- ----------------
Total liabilities 289,856 286,142
------------------- ----------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $0.01 par value, 30,000,000 shares
authorized, 12,125,705 and 11,879,100 shares issued and
outstanding, respectively 121 119
Additional paid-in capital 15,529 12,243
Accumulated deficit (42,011) (29,097)
------------------- ----------------
Total stockholders' equity (deficit) (26,361) (16,735)
------------------- ----------------
Total liabilities and stockholders' equity $ 263,495 $ 269,407
=================== ================
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
Saul Centers, Inc.
Consolidated Statements Of Operations
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
For the Years Ended December 31,
(Dollars in thousands, except per share amounts) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE
Base rent $ 49,814 $ 47,673 $ 43,582
Expense recoveries 9,301 8,770 8,565
Percentage rent 2,924 2,782 2,377
Other 1,984 2,244 2,873
---------------- ------------------- ----------------
Total revenue 64,023 61,469 57,397
---------------- ------------------- ----------------
OPERATING EXPENSES
Property operating expenses 8,069 7,911 8,872
Provision for credit losses 457 404 262
Real estate taxes 5,914 5,427 5,210
Interest expense 18,509 17,639 13,712
Amortization of deferred debt expense 2,857 2,468 2,298
Depreciation and amortization 10,860 10,425 9,582
General and administrative 3,095 2,984 2,851
---------------- ------------------- ----------------
Total operating expenses 49,761 47,258 42,787
---------------- ------------------- ----------------
OPERATING INCOME 14,262 14,211 14,610
Non-operating item
Sales of interest rate protection agreements (972) -- --
---------------- ------------------- ----------------
NET INCOME BEFORE EXTRAORDINARY
ITEM AND MINORITY INTERESTS 13,290 14,211 14,610
Extraordinary item
Early extinguishment of debt (587) (998) (3,341)
---------------- ------------------- ----------------
NET INCOME BEFORE MINORITY INTERESTS 12,703 13,213 11,269
---------------- ------------------- ----------------
MINORITY INTERESTS
Minority share of income (3,430) (3,568) (3,042)
Distributions in excess of earnings (3,422) (3,284) (1,232)
---------------- ------------------- ----------------
Total minority interests (6,852) (6,852) (4,274)
---------------- ------------------- ----------------
NET INCOME $ 5,851 $ 6,361 $ 6,995
================ =================== ================
NET INCOME PER SHARE
Net income before extraordinary
item and minority interests $ 0.81 $ 0.87 $ 0.90
Extraordinary item (0.04) (0.06) (0.21)
---------------- ------------------- ----------------
Net income before minority interests $ 0.77 $ 0.81 $ 0.69
================ =================== ================
Net income $ 0.49 $ 0.54 $ 0.59
================ =================== ================
The accompanying notes are an integral part of these statements.
</TABLE>
F-3
<PAGE>
Saul Centers, Inc.
Consolidated Statements Of Stockholders' Equity
<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, 1993 $ 119 $ 11,911 $ (5,389) $ 6,641
Adjustment - formation -- 332 -- 332
Net income -- -- 6,995 6,995
Distributions ($1.17 per share) -- -- (13,899) (13,899)
Distributions payable ($.39 per share) -- -- (4,633) (4,633)
-------------- ---------------- ------------------- ----------------
Balance, December 31, 1994 119 12,243 (16,926) (4,564)
Net income -- -- 6,361 6,361
Distributions ($1.17 per share) -- -- (13,899) (13,899)
Distributions payable ($.39 per share) -- -- (4,633) (4,633)
-------------- ---------------- ------------------- ----------------
Balance, December 31, 1995 119 12,243 (29,097) (16,735)
Issuance of 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)
============== ================ =================== ================
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
Saul Centers, Inc.
Consolidated Statements Of Cash Flows
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
For the Years Ended December 31,
(Dollars in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,851 $ 6,361 $ 6,995
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interests 6,852 6,852 4,274
Sales of interest rate protection agreements 972 -- --
Early extinguishment of debt 587 998 3,341
Depreciation and amortization 13,717 12,893 11,880
Provision for credit losses 457 404 262
Decrease (increase) in accounts receivable 795 736 (5,310)
Increase in prepaid expenses (1,136) (2,273) (881)
Decrease (increase) in other assets (961) 1,250 (212)
Increase (decrease) in accounts payable and
other liabilities 3,172 (605) 2,395
Increase (decrease) in deferred income 364 (726) 1,067
---------------- ------------------- ----------------
Net cash provided by operating activities 30,670 25,890 23,811
---------------- ------------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to real estate investments (6,133) (5,750) (37,816)
Additions to construction in progress (2,742) (15,937) (5,671)
---------------- ------------------- ----------------
Net cash used in investing activities (8,875) (21,687) (43,487)
---------------- ------------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 98,620 114,000 172,466
Repayments on notes payable (98,442) (89,568) (115,878)
Proceeds from sale of interest rate protection agreements 681 -- --
Additions to deferred debt expense (961) (3,604) (9,979)
Increase in other assets - financing escrows -- -- (3,277)
Proceeds from the reinvestment of dividends in
shares of common stock 3,288 -- --
Distributions to common stockholders and
holders of convertible limited partnership
units in the Operating Partnership (25,617) (25,384) (25,384)
---------------- ------------------- ----------------
Net cash provided by (used in) financing activities (22,431) (4,556) 17,948
---------------- ------------------- ----------------
Net decrease in cash (636) (353) (1,728)
Cash, beginning of year 674 1,027 2,755
================ =================== ================
Cash, end of year $ 38 $ 674 $ 1,027
================ =================== ================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest net of amount capitalized $ 18,829 $ 17,465 $ 13,682
The accompanying notes are an integral part of these statements.
</TABLE>
F-5
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION, FORMATION, AND BASIS OF PRESENTATION
ORGANIZATION
Saul Centers, Inc. ("Saul Centers") was incorporated under the Maryland
General Corporation Law on June 10, 1993. The authorized capital stock of Saul
Centers consists of 30,000,000 shares of common stock, having a par value of
$0.01 per share, and 1,000,000 shares of preferred stock. Each holder of common
stock is entitled to one vote for each share held. In conjunction with the
organization of Saul Centers, 50 shares of common stock were issued to The Saul
Organization (as defined below). Saul Centers, together with its wholly owned
subsidiaries and the limited partnerships of which Saul Centers or one of its
subsidiaries is the sole general partner, are referred to collectively as the
"Company".
FORMATION AND STRUCTURE OF COMPANY
Saul Centers was formed to continue and expand the shopping center business
previously owned and conducted by the B.F. Saul Real Estate Investment Trust,
the B.F. Saul Company, Chevy Chase Bank, F.S.B. and certain other affiliated
entities (collectively, "The Saul Organization"). On August 26, 1993, The Saul
Organization transferred to Saul Holdings Limited Partnership, a newly formed
Maryland limited partnership (the "Operating Partnership"), and two newly formed
subsidiary limited partnerships (the "Subsidiary Partnerships") 26 shopping
center properties, one office property, one research park and one office/retail
property and the management functions related to the transferred properties.
These properties and related management functions collectively represent the
"Saul Centers Portfolio Properties." Since its formation, the Company has
purchased three additional community and neighborhood shopping center
properties, and purchased a land parcel which it developed into a community
shopping center. Therefore, as of December 31, 1996, the Company's properties
(the "Current Portfolio Properties") consisted of 30 operating shopping center
properties (the "Shopping Centers") and three predominantly office properties
(the "Commercial Properties").
Saul Centers completed its initial stock offerings on August 26, 1993, with
the sale of 11,400,000 shares of common stock at $20 per share in an initial
public offering and 479,050 shares of common stock at $20 per share in a private
offering to The Saul Organization (collectively, the "Offerings"). Subsequent
to the Offerings, there were 11,879,100 shares of common stock and no shares of
preferred stock outstanding. Net proceeds of the Offerings (after expenses of
approximately $18.2 million), and net proceeds of new bank borrowings were
primarily used to curtail existing indebtedness related to the Saul Centers
Portfolio Properties. After consummation of the Offerings, Saul Centers owned a
73.0 percent general partnership interest in the Operating Partnership and a
1.0 percent general partnership interest in each of the two Subsidiary
Partnerships, which were formed for tax planning purposes and
F-6
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION, FORMATION, AND BASIS OF PRESENTATION (CONTINUED)
to facilitate a 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 to Saul Subsidiary I Limited
Partnership as an additional capital contribution and Saul Subsidiary II Limited
Partnership transferred one shopping center 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"), which are located in
Georgia, Kentucky, Maryland, North Carolina, Oklahoma, Virginia, and Washington,
D.C. 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
The accompanying financial statements of the Company have been presented on
the historical cost basis of The Saul Organization because of affiliated
ownership and common
F-7
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
BASIS OF PRESENTATION (CONTINUED)
management and because the assets and liabilities were the subject of a business
combination with the Operating Partnership, the Subsidiary Partnerships and Saul
Centers, all newly formed entities with no prior operations.
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 December 1996, 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 this
period.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements of the Company include the
accounts of Saul Centers, its subsidiaries, 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.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-8
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REAL ESTATE INVESTMENT PROPERTIES
Real estate investment properties are stated at the lower of depreciated cost
or fair value less cost to sell, based on management's intent to hold such
properties on a long-term basis.
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.
Repairs and maintenance expense totaled $2,730,000, $2,600,000, and $2,952,000
for calendar years 1996, 1995 and 1994, respectively, and is included in
operating expenses in the accompanying financial statements. Interest expense
capitalized totaled $384,000, $525,000, and $171,000 for calendar years 1996,
1995 and 1994, 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 included $1,913,000, $2,158,000, and $2,757,000 at December 31, 1996,
1995 and 1994, respectively, 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 established with a
charge to current period operations when, in the opinion of management,
collection of the receivable is doubtful. Accounts receivable in the
accompanying financial statements are shown net of an allowance for doubtful
accounts of $427,000, $169,000, and $280,000, at December 31, 1996, 1995 and
1994, respectively.
F-9
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
An analysis of the allowance for doubtful accounts is as follows:
<TABLE>
<CAPTION>
For the Years
(In thousands) Ended December 31
- --------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Beginning Balance $ 169 $ 280 $ 204
Provision for Credit Losses 457 404 262
Charge-offs (199) (515) (186)
----- ----- -----
Ending Balance $ 427 $ 169 $ 280
===== ===== =====
</TABLE>
DEFERRED DEBT EXPENSE
Deferred debt expense consists of 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 $6,240,000 and $5,000,000, at December 31, 1996,
and 1995, respectively.
REVENUE RECOGNITION
Rental and interest income is accrued as earned except when doubt exists as to
collectibility, in which the case accrual is discontinued. When rental payments
due under leases vary from a straight-line basis, because of free rent periods
or stepped increases, (excluding those increases which approximate inflationary
increases), income is recognized on a straight-line basis in accordance with
generally accepted accounting principles. Expense recoveries represent property
operating expenses billed to the tenants, including common area maintenance,
real estate taxes and other recoverable costs. Expense recoveries are
recognized in the period the expenses are incurred. Generally, additional
rental income based on tenant's revenues ("percentage rent") is accrued on the
basis of the prior year's percentage rent, adjusted to give effect to current
sales data.
INCOME TAXES
The Company 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 ending
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 at least 95 percent of its REIT taxable income to
F-10
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
stockholders and complies with certain other requirements. Therefore, no
provision has been made for federal income taxes in the accompanying financial
statements. As of December 31, 1996, the total tax basis of the assets and
liabilities of the company was $276,975,000 and $288,938,000, respectively.
DIRECTORS DEFERRED COMPENSATION PLAN
A Deferred Compensation Plan was established by Saul Centers, effective
January 1, 1994, for the benefit of its directors and their beneficiaries.
Before the beginning of any calendar year, a director may elect to defer all or
part of his or her director's fees to be earned in that year and the following
years. A director has the option to have deferred director's fees paid in cash,
in shares of common stock or in a combination of cash and shares of common
stock. If the director elects to have the deferred fees paid in stock, the
number of shares distributed to the director is determined based on the market
value of the common stock on the day the deferred director's fee was earned.
Deferred compensation of $118,950, $120,950 and $122,200 has been reported in
the Consolidated Statements of Operations for the years ended December 31, 1996,
1995 and 1994, respectively. The Company has registered 70,000 shares for use
under the plan, of which 40,000 were authorized at December 31, 1996. As of
December 31, 1996, 27,066 shares had been credited to the directors' deferred
fee accounts.
NEW ACCOUNTING PRONOUNCEMENTS
During 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of
Long Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS 121
required that an impairment loss be recognized when the carrying amount of an
asset exceeds the sum of the estimated future cash flows (undiscounted) of the
asset. 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 pro-forma disclosure of the impact of stock-based
compensation.
F-11
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSTRUCTION IN PROGRESS
Construction in progress includes the costs of redeveloping Seven Corners
shopping center and the Leesburg Pike expansion. Development costs include
direct construction costs and indirect costs such as architectural, engineering,
construction management and carrying costs consisting of interest, real estate
taxes and insurance. Construction in progress balances as of December 31, 1996
are as follows:
In thousands
------------
Seven Corners Center $1,305
Leesburg Pike 203
------
$1,508
======
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
16,401,747 for the year ended December 31, 1996, and 16,272,263 shares for the
years ended December 31, 1995 and December 31, 1994. Per share data relating to
net income after minority interests is computed on the basis of 12,008,584
weighted average common shares for the year ended December 31, 1996, and
11,879,100 common shares outstanding during the years ended December 31, 1995
and December 31, 1994.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation. The reclassifications
have no impact on operating results previously reported.
3. MINORITY INTERESTS - HOLDERS OF CONVERTIBLE LIMITED PARTNER UNITS IN THE
OPERATING PARTNERSHIP
The Saul Organization has a 26.6 percent limited partnership interest,
represented by 4,393,163 convertible limited partnership units, in the Operating
Partnership, as of December 31, 1996. These Convertible Limited Partnership
Units are convertible into shares of Saul
F-12
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. MINORITY INTERESTS - HOLDERS OF CONVERTIBLE LIMITED PARTNER UNITS IN THE
OPERATING PARTNERSHIP (CONTINUED)
Centers' common stock on a one-for-one basis, provided the rights may not be
exercised 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 impact of the Saul Organization's 26.6 percent limited
partnership interest in the Operating Partnership is reflected as minority
interests in the accompanying financial statements.
4. NOTES PAYABLE
DECEMBER 31, 1996
During 1996, the Company repaid a total of $76.6 million of variable rate
mortgage notes which were outstanding at December 31, 1995, with the net
proceeds of a $77.0 million 15-year fixed rate mortgage note. The revolving
credit facility in the amount of $100.1 million at December 31, 1995 was reduced
to $44.0 million during 1996, as a result of this fixed rate financing. Notes
payable totaled $273.3 million at December 31, 1996, as follows:
<TABLE>
<CAPTION>
At
December 31, 1996
------------------------
Principal Interest Stated Scheduled
(In thousands) Outstanding Rates (a) Interest Rate Maturity
------------------ ------------- ---------- ---------------------- ---------
<S> <C> <C> <C> <C>
Mortgage Notes
Payable: 128,00 (b) 6.39% 30 Day LIBOR + 0.86% 8/2001
37,979 (c) 7.78% 30 Day LIBOR + 2.25% 12/1999
10,880 (d) 6.75% 6.75% 5/2004
77,000 (e) 8.64% 8.64% 12/2011
402 8.00% 8.00% 1/2000
--------
Subtotal: 254,261
Revolving Credit
Facility: 19,000 (f) 7.41% 30 Day LIBOR + 1.875% 11/1998
--------
Total Notes Payable $273,261
========
</TABLE>
F-13
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. NOTES PAYABLE (CONTINUED)
(a) Interest rates on variable rate notes are based on a 30 Day LIBOR of 5.5313
percent at December 31, 1996.
(b) On August 1, 1994, SC Finance Corporation, a wholly owned subsidiary of
Saul Centers, issued $128 million of seven-year mortgage notes, consisting
of $91 million of Class A Collateralized Floating Rate Commercial Mortgage
Notes bearing interest at a rate equal to 0.65 percent over 30-day LIBOR,
$13 million of Class B Collateralized Floating Rate Commercial Mortgage
Notes bearing interest at a rate of 1.05 percent over 30-day LIBOR and $24
million of Class C Collateralized Floating Rate Commercial Mortgage Notes
bearing interest at a rate of 1.55 percent over 30-day LIBOR. Fitch
Investors Service, Inc. maintains a rating of "AA" on the Class A Notes, a
rating of "A" on the Class B Notes and a rating of "BBB" on the Class C
Notes. These ratings were reaffirmed by Fitch Investors Service, Inc. as of
March 1996. The interest rate above is a weighted average blended rate for
all three classes of notes. The notes are collateralized by seventeen
shopping centers.
(c) The scheduled maturity can be extended by two one-year renewal options,
each exercisable with payment of a 0.125 percent fee and subject to certain
financial covenants. The loan is collateralized by 601 Pennsylvania Avenue.
(d) The stated interest rate of 6.75 percent increases by 0.25 percent per year
for the next two years beginning in June 1997. For the final five years of
the term of the loan, beginning in June 1999, the interest rate is fixed at
the then current 5-year Treasury Securities rate plus 2.00 percent. The
loan is collateralized by The Glen shopping center.
(e) The loan is collateralized by Avenel Business Park, Van Ness Square and
four shopping centers - Ashburn Village, Leesburg Pike, Lumberton Plaza and
Village Center.
(f) The facility is a revolving credit facility totaling $44.0 million and is
collateralized by six shopping centers.
The mortgages outstanding at December 31, 1996 have a weighted average
remaining term of 7.2 years, and a weighted average interest rate of 7.26
percent as of December 31, 1996. A total of $185.0 million is variable rate
(67.7 percent of the total notes payable) and $88.3 million is fixed rate (32.3
percent of the total notes payable). Notes payable of $115.0 million at
December 31, 1996 require monthly installments of principal and interest, with
principal amortization on schedules averaging approximately 20 years. The $10.9
million note requires monthly installments of interest only through June 1997,
with monthly principal and interest thereafter. The remaining notes payable
totaling $147.4 million at December 31, 1996, require monthly installments of
interest only. Notes payable at December 31, 1996 totaling $195.9 million are
guaranteed by members of The Saul Organization.
F-14
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. NOTES PAYABLE (CONTINUED)
As of December 31, 1996, the scheduled maturities of all debt for years ended
December 31, are as follows:
Debt Maturity Schedule
(In thousands)
------------------------------------
1997 $ 2,837
1998 22,225
1999 39,518
2000 2,989
2001 131,109
Thereafter 74,583
--------
$273,261
========
Based on borrowing rates currently available to the Company for financing on
similar terms, the fair value of the notes payable approximates their carrying
value at December 31, 1996.
DECEMBER 31, 1995
During 1995, the Company repaid a total of $34.5 million of mortgage notes
payable which were outstanding at December 31, 1994, with the net proceeds of an
expanded revolving credit facility. The revolving credit facility in the amount
of $50 million at December 31, 1994 was expanded to $100.1 million during 1995.
The Company also renegotiated a mortgage note payable with a December 31, 1994
outstanding balance of $10.5 million, to increase the mortgage to $13 million
after completion of construction of a shopping center. Notes payable totaled
$273.1 million at December 31, 1995. The mortgages outstanding were scheduled
to mature at various dates through 2004 and consisted of $262.2 million variable
rate notes ranging from 0.86 percent to 2.25 percent above LIBOR, and $10.9
million of fixed rate debt at a rate of 6.5 percent.
INTEREST RATE PROTECTION
Simultaneously with the completion of the Offerings, the Company (i) entered
into interest rate protection agreements (interest rate caps) to limit the
Company's exposure to increases in interest rates on $199.8 million of its
floating rate debt above a LIBOR strike price of 4.25 percent for a period of
one year ending in August 1994 and (ii) entered into additional interest rate
protection agreements for $199.8 million with a LIBOR strike price of 5.25
percent for the ensuing four years ending in August 1998. Subsequent to the
Company's November 1996
F-15
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. NOTES PAYABLE (CONTINUED)
closing of its $77 million fixed rate mortgage, which refinanced a similar
amount of floating rate debt, a total of $37.0 million of those 5.25 percent
interest rate protection agreements were sold on December 9, 1996 for cash
proceeds of $335,000. This left $162.8 million of 5.25 percent interest rate
protection agreements with a maturity of August 1998. When adding the Company's
current weighted average interest rate "spread" of 1.25 percent over LIBOR at
December 31, 1996 to the 5.25 percent strike price, the result is a maximum
interest rate, through August, 1998, of approximately 6.50 percent related to
$162.8 million of the Company's variable 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 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 for cash proceeds of $85,000. 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 for cash
proceeds of $261,000.
The Company is exposed to interest rate risk on any floating rate debt in
excess of $162.8 million, totaling approximately $22.2 million at December 31,
1996, and risk of credit loss to the extent the counter parties to the interest
rate protection agreements are unable to perform. The interest rate risk relates
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. The Company
does not anticipate non-performance by the counter parties. Income earned by the
operation of the interest rate protection agreements for the years ended
December 31, 1996, 1995 and 1994 was $516,000, $1,637,000 and $380,000,
respectively, and was reported as an offset to interest expense. The estimated
market value of the Company's interest rate protection agreements as of December
31, 1996 was $3,514,000.
F-16
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LEASE AGREEMENTS
Lease income includes primarily base rent arising from noncancellable
commercial leases. Base rent for the years ended December 31, 1996, 1995, and
1994 amounted to $49,814,000, $47,673,000, and $43,582,000, respectively.
Future base rentals under noncancellable leases for years ended December 31, are
as follows:
<TABLE>
<CAPTION>
(In thousands)
--------------
<S> <C>
1997............. $ 47,553
1998............. 43,308
1999............. 38,533
2000............. 33,483
2001............. 28,246
Thereafter....... 192,156
--------
$383,279
========
</TABLE>
The majority of the leases also provide for rental increases and expense
recoveries based on increases in the Consumer Price Index or increases in
operating expenses, or both. These increases generally are payable in equal
installments throughout the year based on estimates, with adjustments made in
the succeeding year. Expense recoveries for the years ended December 31, 1996,
1995 and 1994 amounted to $9,301,000, $8,770,000 and $8,565,000, respectively.
In addition, certain retail leases provide for percentage rent based on sales in
excess of the minimum specified in the tenant's lease. Percentage rent amounted
to $2,924,000, $2,782,000 and $2,377,000 for the years ended December 31, 1996,
1995 and 1994, respectively.
6. LONG-TERM LEASE OBLIGATIONS
Certain properties are subject to noncancellable long-term leases which
apply principally to land underlying the Shopping Centers. Certain of the
leases provide for periodic adjustments of the basic annual rent and require the
payment of real estate taxes on the underlying land. The leases will expire
between 2058 and 2068.
Reflected in the accompanying financial statements is minimum ground rent
expense of $152,000, $152,000, and $203,000, for the years ended December 31,
1996, 1995, and 1994, respectively. Ground rent expense decreased in 1995 and
for half of 1994 because the Company purchased the land previously subject to a
ground lease underlying a portion of Thruway shopping center in July 1994. The
minimum future rental commitments under these ground leases are as follows:
F-17
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Annual Total
1997-2001 Thereafter
---------- ----------
(In thousands)
Beacon Mall..... $47 $3,559
Olney........... 45 4,737
Southdale....... 60 3,485
---------- -------
$152 $11,781
========== =======
The Company's Flagship Center consists of two developed outparcels that are
part of a larger adjacent community shopping center formerly owned by the
predecessor and sold to an affiliate of a tenant in 1991. The Company has a 90-
year ground leasehold interest which commenced in September 1991 with a minimum
rent of one dollar per year.
7. SHAREHOLDERS' EQUITY AND MINORITY INTERESTS
The Consolidated Statement of Operations for the year ended December 31,
1996 includes a charge for minority interests of $6,852,000, consisting of
$3,430,000 related to the predecessor Company's share of the net income for the
year and $3,422,000 related to distributions to minority interests in excess of
allocated net income for the year. The charge for the year ended December 31,
1995 of $6,852,000, consists of $3,568,000 related to the predecessor Company's
share of net income for the year and $3,284,000 related to distributions to
minority interests in excess of allocated net income for the year. The charge
for the year ended December 31, 1994 of $4,274,000 consists of $3,042,000
related to the predecessor's share of the net income for the year and $1,232,000
related to distributions to minority interests in excess of allocated net income
and beginning balance since inception.
8. RELATED-PARTY TRANSACTIONS
Chevy Chase Bank, F.S.B. leases space in several of the Shopping Centers.
Total rental income from Chevy Chase Bank, F.S.B. amounted to $1,063,000,
$964,000, and $838,000, for the years ended December 31, 1996, 1995, and 1994,
respectively.
The Chairman and Chief Executive Officer as well as the President of the
Company remain officers of The Saul Organization and devote a substantial amount
of time to the management of the Company. The annual compensation for these
officers is fixed by the Compensation Committee of the Board of Directors for
each year.
The Company shares with The Saul Organization certain ancillary functions such
as computer and payroll services and insurance expense pro rata based on
management's estimate of usage or time incurred, as applicable. Also, The Saul
Organization subleases office space
F-18
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
to the Company. The terms of all such arrangements with The Saul Organization,
including payments related thereto, are periodically reviewed by the independent
directors of the Company and the Audit Committee of the Board of Directors.
Included in general and administrative expense for the years ended December
31, 1996, 1995, and 1994 are charges totaling $1,229,000 , $1,112,000, and
$984,000 related to shared services, of which $1,073,000, $975,000, and $908,000
was paid prior to December 31, 1996, 1995 and 1994, respectively.
9. STOCK OPTION PLAN
The Company has established a stock option plan (the "Plan") for the purpose
of attracting and retaining executive officers and other key personnel. The
Plan provides for grants of options to purchase a specified number of shares of
common stock. A total of 400,000 shares are available under the Plan. The Plan
authorizes the Compensation Committee of the Board of Directors to grant options
at an exercise price which may not be less than the market value of the common
stock on the date the option is granted.
On September 23, 1993, the Compensation Committee granted options to purchase
a total of 187,500 shares (97,500 shares from incentive stock options and 90,000
shares from nonqualified stock options) to five Company officers. The options
vest 25 percent per year over four years, have an exercise price of $20 per
share and a term of ten years, subject to earlier expiration upon termination of
employment. As of December 23, 1994, 17,500 of the options expired due to the
resignation of a Company officer. A total of 42,500 annually of the remaining
granted options became vested during each of the years 1996, 1995 and 1994,
respectively. No compensation expense has been recognized as a result of these
grants.
On September 24, 1994, the Compensation Committee granted options to purchase
30,000 shares, all incentive options, to a total of two Company officers. These
options were vested 25 percent at the time of the grant, and vest 25 percent per
year over three years, have an exercise price of $20 per share and a term of ten
years, subject to earlier expiration upon termination of employment. As of June
30, 1995, 20,000 of the options expired due to the resignation of a Company
officer. A total of 2,500 annually of the remaining granted options became
vested during each of the years 1996, 1995 and 1994, respectively. No
compensation expense has been recognized as a result of these grants.
As of December 31, 1996 a total of 180,000 options remain granted, with
135,000 options vested.
Since all of the Company's stock options were awarded prior to December 31,
1994, as of December 31, 1996 there exists no financial statement impact related
to SFAS No. 123.
F-19
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. NON-OPERATING ITEM - SALES OF INTEREST RATE PROTECTION AGREEMENTS
Subsequent to the Company's November 1996 closing of a $77.0 million fixed
rate mortgage, the Company sold a portion of its interest rate protection
agreements with a notional value of $87 million. The sale resulted in the
$972,000 write-off of the unamortized costs in excess of the proceeds received.
11. EXTRAORDINARY ITEM - EARLY EXTINGUISHMENT OF DEBT
The consolidated statements of operations for the years ending December 31,
1996, 1995 and 1994 include $587,000, $998,000 and $3,341,000, respectively,
related to the repayment of debt associated with mortgage refinancings. These
amounts consist of the write-off of associated deferred financing costs.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments," requires disclosure about fair value for all
financial instruments. The carrying values of cash, accounts receivable,
accounts payable and accrued expenses are reasonable estimates of their fair
value. Based on interest rates currently available to the Company, the carrying
value of the variable rate mortgage notes payable is a reasonable estimation of
fair value, because the debt bears interest based on short-term interest rates.
In addition, all of the notes payable were either originated or refinanced
during 1994, 1995, and 1996. The Company's carrying value of its fixed rate
notes payable is a reasonable estimation
12. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
of fair value because the stated interest rates approximate market rates. The
estimated market value of the Company's interest rate protection agreements of
December 31, 1996 was $3,514,000.
13. COMMITMENTS AND CONTINGENCIES
The Company signed a lease with Shoppers Club for a new anchor tenant location
of 69,000 square feet in February 1996, and a lease with The Home Depot for a
new anchor tenant location of 127,000 square feet in May 1996, both at the Seven
Corners shopping center in Falls Church, Virginia. The net construction and
development costs associated with these commitments are expected to total
approximately $7.0 million. The Company will use a
F-20
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. DISTRIBUTIONS (CONTINUED)
portion of its unused line of credit to fund these commitments. The
construction of these stores is expected to be completed during 1997.
Neither the Company nor the Current Portfolio Properties currently are subject
to any material litigation, nor, to management's knowledge, is any material
litigation currently threatened against the Company, other than routine
litigation and administrative proceedings arising in the ordinary course of
business. Management believes that these items, individually or in aggregate,
will not have a material adverse impact on the Company or the Current Portfolio
Properties.
In December 1995, the Company established a Dividend Reinvestment and Stock
Purchase Plan (the "Plan"), to allow its stockholders and holders of limited
partnership interests an opportunity to buy additional shares of Common Stock by
reinvesting all or a portion of their dividends or distributions. The Plan
provides for investing in newly issued shares of Common Stock at a 3 percent
discount from market price without payment of any brokerage commission, service
charges or other expenses. All expenses of the Plan will be paid for by the
Company. The January 31, 1996 dividend was the initial dividend payment date
under which the Company's stockholders could participate in the Plan.
Of the distributions paid during 1996, $1.00 per share represented ordinary
dividend income and $0.56 per share represented return of capital to the
stockholders. The following summarizes distributions paid during the year
ending December 31, 1996, including activity in the Plan:
<TABLE>
<CAPTION>
Discounted Distribution to Distribution to
New Share Price Common Limit Partner
Shares of Newly Stockholders Unitholders
Distribution Date Issued Issued Shares (in thousands) (in thousands)
- ------------------- ---------- ------------- --------------- ---------------
<S> <C> <C> <C> <C>
January 31 56,050 $14.19 $4,633 $1,713
April 30 58,980 13.94 4,654 1,713
July 31 67,421 12.61 4,678 1,713
October 31 64,154 14.19 4,704 1,713
------- ------
$18,669 $6,852
</TABLE>
F-21
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. DISTRIBUTIONS (CONTINUED)
For the year ending December 31, 1995, the Company paid quarterly
distributions totaling $6,346,000 ($0.39 per share) per quarter consisting of
$4,633,000 and $1,713,000 related to common stockholders and limited partnership
unitholders, respectively. For the year ending December 31, 1995, a total of
$25,384,000 ($1.56 per share) was paid, consisting of $18,532,000 and $6,852,000
related to common stockholders and limited partnership unitholders,
respectively. Of this amount, $1.12 per share represented ordinary dividend
income and $0.44 per share represented return of capital to the stockholders.
For the year ending December 31, 1994, the Company paid quarterly
distributions totaling $6,346,000 ($0.39 per share) per quarter consisting of
$4,633,000 and $1,713,000 related to common stockholders and limited partnership
unitholders, respectively. For the year ending December 31, 1994, a total of
$25,384,000 ($1.56 per share) was paid, consisting of $18,532,000 and $6,852,000
related to common stockholders and limited partnership unitholders,
respectively. Of this amount, $0.80 per share represented ordinary dividend
income and $0.76 per share represented return of capital to the stockholders.
On December 13, 1996, 1995, and 1994, the Board of Directors of the Company
authorized a distribution of $0.39 per common share payable on January 31, 1997,
1996, and 1995 to holders of record on January 17, 1997, January 17, 1996 and
January 17, 1995, respectively. As a result, $4,704,000 was paid to common
shareholders on January 31, 1997, and $4,633,000 was paid to common shareholders
on both January 31, 1996 and 1995 and $1,713,000 was paid to limited partnership
unitholders on January 31, 1997, January 31, 1996 and February 15, 1995 ($0.39
per Operating Partnership unit), respectively. These amounts are reflected as a
reduction of stockholders' equity and are included in accounts payable in the
accompanying financial statements.
F-22
<PAGE>
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements (Continued)
15. INTERIM RESULTS (UNAUDITED)
The following summary represents the results of operations of the
Company for the interim periods from January 1, 1995 through
December 31, 1996.
<TABLE>
<CAPTION>
(In thousands, except Three Months Ended
per share amounts) --------------------------------------------
12/31/96 9/30/96 6/30/96 3/31/96
========== ========== ========== ===========
<S> <C> <C> <C> <C>
Revenues $ 16,439 $ 16,131 $ 15,820 $ 15,633
---------- ---------- ---------- -----------
Net income before extraordinary item
and minority interests 2,554 4,115 3,223 3,399
Extraordinary item :
Early extinguishment of debt (587) -- -- --
Minority interests (1,713) (1,713) (1,713) (1,713)
---------- ---------- ---------- -----------
Net income $ 254 $ 2,402 $ 1,510 $ 1,686
========== ========== ========== ===========
Per Share Data :
Net income before extraordinary item
and minority interests $ 0.15 $ 0.25 $ 0.20 $ 0.21
Net income $ 0.02 $ 0.20 $ 0.13 $ 0.14
<CAPTION>
(In thousands, except Three Months Ended
per share amounts) --------------------------------------------
12/31/95 9/30/95 6/30/95 3/31/95
========== ========== ========== ===========
Revenues $ 15,789 $ 15,305 $ 15,194 $ 15,181
---------- ---------- ---------- -----------
Net income before extraordinary item
and minority interests 3,060 3,720 3,787 3,644
Extraordinary item :
Early extinguishment of debt (998) -- -- --
Minority interests (1,713) (1,713) (1,713) (1,713)
---------- ---------- ---------- -----------
Net income $ 349 $ 2,007 $ 2,074 $ 1,931
========== ========== ========== ===========
Per Share Data :
Net income before extraordinary item
and minority interests $ 0.19 $ 0.23 $ 0.23 $ 0.22
Net income $ 0.03 $ 0.17 $ 0.17 $ 0.16
</TABLE>
F-23
<PAGE>
<TABLE>
<CAPTION>
Schedule III
SAUL CENTERS, INC.
Real Estate and Accumulated Depreciation
December 31, 1996
(Dollars in Thousands)
Costs Basis at Close of Period
Capitalized -------------------------------------------------------------
Subsequent Buildings
Initial to and Leasehold
Basis Acquisition Land Improvements Interests Total
-------------- --------------------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
SHOPPING CENTERS
Ashburn Village, Ashburn, VA $ 11,431 $ 387 $ 3,738 $ 8,080 $ -- $ 11,818
Beacon Mall, Alexandria, VA 1,493 10,059 -- 10,458 1,094 11,552
Belvedere, Baltimore, MD 932 449 263 1,118 -- 1,381
Boulevard, Fairfax, VA 4,883 19 3,687 1,215 -- 4,902
Clarendon, Arlington, VA 385 909 635 659 -- 1,294
Clarendon Station, Arlington, VA 834 16 425 425 -- 850
Crosstown, Tulsa, OK 3,454 424 604 3,274 -- 3,878
Flagship Center, Rockville, MD 160 9 169 -- -- 169
French Market, Oklahoma City, OK 5,781 758 1,118 5,421 -- 6,539
Germantown, Germantown, MD 3,576 157 2,034 1,699 -- 3,733
Giant, Baltimore, MD 998 262 422 838 -- 1,260
The Glen, Lake Ridge, VA 12,918 206 5,300 7,824 -- 13,124
Great Eastern, District Heights., MD 3,472 8,012 2,264 9,220 -- 11,484
Hampshire Langley, Langley Park, MD 3,159 1,307 1,856 2,610 -- 4,466
Leesburg Pike, Baileys Crossroads, VA 2,418 2,575 1,132 3,861 -- 4,993
Lexington Mall, Lexington, KY 4,868 5,435 2,111 8,192 -- 10,303
Lumberton Plaza, Lumberton, NJ 4,400 6,944 950 10,394 -- 11,344
North Washington, Alexandria, VA 2,034 (223) 544 1,267 -- 1,811
Olney, Olney, MD 1,884 693 -- 2,577 -- 2,577
Park Rd., Washington, DC 942 432 1,011 363 -- 1,374
Ravenwood, Baltimore, MD 1,245 412 703 954 -- 1,657
Seven Corners, Falls Church, VA 4,848 37,260 4,887 37,221 -- 42,108
Shops at Fairfax, Fairfax, VA 2,708 3,294 992 5,010 -- 6,002
Southdale, Glen Burnie, MD 3,650 14,509 -- 17,537 622 18,159
Southside Plaza, Richmond, VA 6,728 2,208 1,878 7,058 -- 8,936
Sunshine City, Atlanta, GA 2,474 1,750 703 3,521 -- 4,224
Thruway, Winston-Salem, NC 4,778 6,624 5,464 5,833 105 11,402
Village Center, Centreville, VA 16,502 503 7,851 9,154 -- 17,005
West Park, Oklahoma City, OK 1,883 467 485 1,865 -- 2,350
White Oak, Silver Spring, MD 6,277 3,217 4,787 4,707 -- 9,494
-------------- --------------------------------------------- ------------------------------
Total Shopping Centers 121,115 109,074 56,013 172,355 1,821 230,189
-------------- --------------------------------------------- -----------------------------
COMMERCIAL PROPERTIES
Avenel Business Park, Gaithersburg, MD 21,459 3,309 3,093 21,675 -- 24,768
601 Pennsylvania Ave., Washington DC 5,479 43,344 5,667 43,156 -- 48,823
Van Ness Square, Washington, DC 812 25,072 831 25,053 -- 25,884
-------------- --------------------------------------------- ------------------------------
Total Commercial Properties 27,750 71,725 9,591 89,884 -- 99,475
-------------- --------------------------------------------- ------------------------------
Total $148,865 $180,799 $ 65,604 $262,239 $ 1,821 $329,664
============== ============================================= ==============================
</TABLE>
<TABLE>
<CAPTION>
Schedule III (Continued)
SAUL CENTERS, INC.
Real Estate and Accumulated Depreciation
December 31, 1996
(Dollars in Thousands)
Buildings
and
Improvements
Accumulated Related Date of Date Depreciable
Depreciation Debt Construction Acquired Lives in Years
--------------- --------------------------------------------- ---------------
<S> <C> <C> <C> <C> <C>
SHOPPING CENTERS
Ashburn Village, Ashburn, VA $ 505 $ 12,600 1994 3/94 40
Beacon Mall, Alexandria, VA 4,569 17,979 1960 & 1974 1/72 40 & 50
Belvedere, Baltimore, MD 582 1,826 1958 1/72 40
Boulevard, Fairfax, VA 82 1,036 1969 4/94 40
Clarendon, Arlington, VA 589 388 1949 7/73 33
Clarendon Station, Arlington, VA 10 402 1949 1/96 40
Crosstown, Tulsa, OK 1,706 -- 1974 10/75 40
Flagship Center, Rockville, MD -- 432 -- 1/72 --
French Market, Oklahoma City, OK 2,512 2,602 1972 3/74 50
Germantown, Germantown, MD 177 864 1990 8/93 40
Giant, Baltimore, MD 499 1,946 1959 1/72 40
The Glen, Lake Ridge, VA 510 10,880 1993 6/94 40
Great Eastern, District Heights., MD 1,525 5,382 1958 & 1960 1/72 40
Hampshire Langley, Langley Park, MD 1,327 8,800 1960 1/72 40
Leesburg Pike, Baileys Crossroads, VA 1,782 12,900 1965 2/66 40
Lexington Mall, Lexington, KY 3,771 15,318 1971 & 1974 3/74 50
Lumberton Plaza, Lumberton, NJ 4,261 9,100 1975 12/75 40
North Washington, Alexandria, VA 1,104 1,869 1952 7/73 33
Olney, Olney, MD 1,290 5,027 1972 11/75 40
Park Rd., Washington, DC 238 1,774 1950 7/73 30
Ravenwood, Baltimore, MD 494 5,027 1959 1/72 40
Seven Corners, Falls Church, VA 15,363 15,027 1956 7/73 33
Shops at Fairfax, Fairfax, VA 1,586 1,252 1975 6/75 50
Southdale, Glen Burnie, MD 7,777 13,403 1962 & 1987 1/72 40
Southside Plaza, Richmond, VA 4,179 8,200 1958 1/72 40
Sunshine City, Atlanta, GA 1,741 4,022 1970 2/76 40
Thruway, Winston-Salem, NC 2,928 15,613 1955 & 1965 5/72 40
Village Center, Centreville, VA 826 10,150 1990 8/93 40
West Park, Oklahoma City, OK 807 287 1974 9/75 50
White Oak, Silver Spring, MD 2,058 18,925 1958 & 1967 1/72 40
--------------- ---------------
Total Shopping Centers 64,798 203,031
--------------- ---------------
COMMERCIAL PROPERTIES
Avenel Business Park, Gaithersburg, MD 7,989 21,750 1984, 1986 12/84, 8/85 35 & 40
& 1990 & 2/86
601 Pennsylvania Ave., Washington DC 14,034 37,980 1986 7/73 35
Van Ness Square, Washington, DC 8,144 10,500 1990 7/73 35
--------------- ---------------
Total Commercial Properties 30,167 70,230
--------------- ---------------
Total $ 94,965 $273,261
=============== ===============
</TABLE>
F-24
<PAGE>
Schedule III (Continued)
SAUL CENTERS, INC.
Real Estate and Accumulated Depreciation
December 31, 1996
Depreciation and amortization related to the real estate investments
reflected in the statements of operations is calculated over the estimated
useful lives of the assets as follows:
Base building 33 - 50 years
Building components 20 years
Tenant improvements The lesser of the term of the lease or
the useful life of the improvements
The aggregate remaining net basis of the real estate investments for
federal income tax purposes was approximately $252,807,000 at December 31, 1996.
Depreciation and amortization are provided on the declining balance and
straight-line methods over the estimated useful lives of the assets.
The changes in total real estate investments and related accumulated
depreciation for each of the years in the three year period ended December 31,
1996 are summarized as follows.
(In thousands) 1996 1995 1994
- --------------------------------------- ------------ ------------ ------------
Total real estate investments:
Balance, beginning of year $ 321,662 $ 300,404 $ 263,519
Additions:
Improvements 15,177 21,762 19,884
Purchases -- -- 17,801
Deductions:
Retirements 7,175 504 800
------------ ------------ ------------
Balance, end of year $ 329,664 $ 321,662 $ 300,404
============ ============ ============
Total accumulated depreciation:
Balance, beginning of year $ 92,237 $ 83,044 $ 75,029
Depreciation expense 10,860 9,583 8,731
Retirements 8,132 390 716
------------ ------------ ------------
Balance, end of year $ 94,965 $ 92,237 $ 83,044
============ ============ ============
- ------------------------------------------------------------------------------
F-25
