<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997
-------------
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------- ---------------
Commission file number: 1-12254
-------
SAUL CENTERS, INC.
------------------------------------------------------
(Exact name of Registrant as Specified in Its Charter)
Maryland 52-1833074
- ------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
8401 Connecticut Avenue
Chevy Chase, Maryland 20815
- --------------------------------------- ----------
(Address of Principal Executive Office) (Zip Code)
(301) 986-6000
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date: 12,316,637 shares of common
stock, $0.01 par value, outstanding as of August 1, 1997.
<PAGE>
SAUL CENTERS, INC.
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements (Unaudited)
--------------------------------
(a) Consolidated Balance Sheets as of June 30, 1997 and
December 31, 1996. 3
(b) Consolidated Statements of Operations for the three
months and six months ended June 30, 1997 and 1996. 4
(c) Consolidated Statements of Stockholders' Equity
as of June 30, 1997. 5
(d) Consolidated Statements of Cash Flows for the six months
ended June 30, 1997 and 1996. 6
(e) Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations
-------------------------
(a) Liquidity and Capital Resources 16
(b) Results of Operations
Three months ended June 30, 1997 compared to three months
ended June 30, 1996. 19
Six months ended June 30, 1997 compared to six months ended
June 30, 1996 20
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 22
--------------------------------
2
<PAGE>
SAUL CENTERS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
=========================================================================================================================
June 30, December 31,
(Dollars in thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Real estate investments
Land $ 65,630 $ 65,604
Buildings and equipment 269,543 264,060
----------- -----------
335,173 329,664
Accumulated depreciation (99,781) (94,965)
----------- -----------
235,392 234,699
Construction in progress 8,159 1,508
Cash 10 38
Accounts receivable and accrued income, net 4,785 7,446
Prepaid expenses 4,263 4,808
Deferred debt expense, net 10,284 11,287
Other assets 3,957 3,709
----------- -----------
Total assets $ 266,850 $ 263,495
=========== ===========
LIABILITIES
Notes payable $ 277,573 $ 273,261
Accounts payable, accrued expenses and other liabilities 16,225 15,154
Deferred income 2,295 1,441
----------- -----------
Total liabilities 296,093 289,856
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $0.01 par value, 30,000,000 shares
authorized, 12,253,346 and 12,125,705 shares issued and
outstanding, respectively 122 121
Additional paid-in capital 17,512 15,529
Accumulated deficit (46,877) (42,011)
----------- -----------
Total stockholders' equity (deficit) (29,243) (26,361)
----------- -----------
Total liabilities and stockholders' equity $ 266,850 $ 263,495
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
SAUL CENTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
==============================================================================================================
For the Three Months Ended For the Six Months Ended
(Dollars in thousands, June 30, June 30,
except per share amounts) 1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE
Base rent $ 12,857 $ 12,378 $ 25,458 $ 24,638
Expense recoveries 2,246 2,179 4,558 4,472
Percentage rent 678 709 1,437 1,425
Other 843 554 1,733 918
------------ ------------ ----------- -----------
Total revenue 16,624 15,820 33,186 31,453
------------ ------------ ----------- -----------
OPERATING EXPENSES
Property operating expenses 2,010 1,902 4,036 4,060
Provision for credit losses 131 106 174 161
Real estate taxes 1,456 1,514 2,970 2,943
Interest expense 4,834 4,607 9,654 9,033
Amortization of deferred debt expense 541 734 1,086 1,466
Depreciation and amortization 2,633 2,927 5,205 5,607
General and administrative 808 808 1,601 1,562
------------ ------------ ----------- -----------
Total operating expenses 12,413 12,598 24,726 24,832
------------ ------------ ----------- -----------
NET INCOME BEFORE EXTRAORDINARY
ITEM AND MINORITY INTERESTS 4,211 3,222 8,460 6,621
Extraordinary item
Early extinguishment of debt -- -- (369) --
------------ ------------ ----------- -----------
NET INCOME BEFORE MINORITY INTERESTS 4,211 3,222 8,091 6,621
------------ ------------ ----------- -----------
MINORITY INTERESTS
Minority share of income (1,096) (870) (2,144) (1,788)
Distributions in excess of earnings (617) (843) (1,282) (1,638)
------------ ------------ ----------- -----------
Total minority interests (1,713) (1,713) (3,426) (3,426)
------------ ------------ ----------- -----------
NET INCOME $ 2,498 $ 1,509 $ 4,665 $ 3,195
============= ============= =========== ===========
NET INCOME PER SHARE
Net income before extraordinary
item and minority interests $ 0.25 $ 0.20 $ 0.51 $ 0.41
Extraordinary item -- -- (0.02) --
------------- ------------- ----------- -----------
Net income before minority interests $ 0.25 $ 0.20 $ 0.49 $ 0.41
============= ============= =========== ===========
Net income $ 0.20 $ 0.13 $ 0.38 $ 0.27
============= ============= =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
SAUL CENTERS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
=========================================================================================================================
Additional
Common Paid-in Accumulated
(Dollars in thousands, except per share amounts) Stock Capital Deficit Total
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STOCKHOLDERS' EQUITY (DEFICIT):
Balance, December 31, 1995 $ 119 $ 12,243 $ (29,097) $ (16,735)
Issuance of 246,605 shares of common
stock through dividend reinvestment plan 2 3,286 -- 3,288
Net income -- -- 5,851 5,851
Distributions ($1.17 per share) -- -- (14,036) (14,036)
Distributions payable ($.39 per share) -- -- (4,729) (4,729)
------------ ------------ ----------- -----------
Balance, December 31, 1996 121 15,529 (42,011) (26,361)
Issuance of 58,728 shares of common
stock through dividend reinvestment plan 1 939 -- 940
Net income -- -- 2,167 2,167
Distributions payable ($.39 per share) -- -- (4,752) (4,752)
------------ ------------ ----------- -----------
Balance, March 31, 1997 122 16,468 (44,596) (28,006)
Issuance of 68,913 shares of common
stock through dividend reinvestment plan -- 1,044 -- 1,044
Net income -- -- 2,498 2,498
Distributions payable ($.39 per share) -- -- (4,779) (4,779)
------------ ------------ ----------- -----------
Balance, June 30, 1997 $ 122 $ 17,512 $ (46,877) $ (29,243)
============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
SAUL CENTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
==========================================================================================================================
For the Six Months Ended
June 30,
(Dollars in thousands) 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,665 $ 3,195
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interests 3,426 3,426
Early extinguishment of debt 369 --
Depreciation and amortization 6,291 7,073
Provision for credit losses 174 161
Decrease in accounts receivable 2,487 2,005
Decrease in prepaid expenses 156 562
Increase in other assets (248) (2,533)
Increase in accounts payable and other liabilities 1,071 747
Increase in deferred income 854 685
----------- -----------
Net cash provided by operating activities 19,245 15,321
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to real estate investments (3,593) (3,956)
Additions to construction in progress (8,567) (2,880)
----------- -----------
Net cash used in investing activities (12,160) (6,836)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 49,500 12,437
Repayments on notes payable (45,188) (9,012)
Fee paid on early extinguishment of debt (95) --
Additions to deferred debt expense (357) (51)
Proceeds from the reinvestment of dividends in
shares of common stock 1,984 1,534
Distributions to common stockholders and
holders of convertible limited partnership
units in the Operating Partnership (12,957) (12,758)
----------- -----------
Net cash used in financing activities (7,113) (7,850)
----------- -----------
Net increase (decrease) in cash (28) 635
Cash, beginning of period 38 674
----------- -----------
Cash, end of period $ 10 $ 1,309
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION, FORMATION, STRUCTURE AND BASIS OF PRESENTATION
ORGANIZATION
Saul Centers, Inc. ("Saul Centers") was incorporated under the Maryland
General Corporation Law on June 10, 1993. The authorized capital stock of Saul
Centers consists of 30,000,000 shares of common stock, having a par value of
$0.01 per share, and 1,000,000 shares of preferred stock. Each holder of common
stock is entitled to one vote for each share held. In conjunction with the
organization of Saul Centers, 50 shares of common stock were issued to The Saul
Organization (as defined below). Saul Centers, together with its wholly owned
subsidiaries and the limited partnerships of which Saul Centers or one of its
subsidiaries is the sole general partner are referred to collectively as the
"Company".
FORMATION AND STRUCTURE OF COMPANY
Saul Centers was formed to continue and expand the shopping center
businesses previously owned and conducted by the B.F. Saul Real Estate
Investment Trust, the B.F. Saul Company, Chevy Chase Bank, F.S.B. and certain
other affiliated entities (collectively, "The Saul Organization"). On August
26, 1993, The Saul Organization transferred to Saul Holdings Limited
Partnership, a newly formed Maryland limited partnership (the "Operating
Partnership"), and two newly formed subsidiary limited partnerships (the
"Subsidiary Partnerships") 26 shopping center properties, one office property,
one research park and one office/retail property and the management functions
related to the transferred properties. These properties and related management
functions collectively represent the "Saul Centers Portfolio Properties." Since
its formation, the Company has purchased three additional community and
neighborhood shopping center properties, and purchased a land parcel which the
Company developed into a neighborhood shopping center. Therefore, as of June
30, 1997, the Company's properties (the "Current Portfolio Properties")
consisted of 30 operating shopping center properties (the "Shopping Centers"),
and three predominantly office properties (the "Commercial Properties"). Saul
Centers completed its initial stock offerings on August 26, 1993, with the sale
of 11,400,000 shares of common stock at $20 per share in an initial public
offering and 479,050 shares of common stock at $20 per share in a private
offering to The Saul Organization (collectively, the "Offerings"). Subsequent
to the Offerings, there were 11,879,100 shares of common stock and no shares of
preferred stock outstanding. Net proceeds of the Offerings (after expenses of
approximately $18.2 million), and net proceeds of new bank borrowings were
primarily used to curtail existing indebtedness related to the Saul Centers
Portfolio Properties. After consummation of the Offerings, Saul Centers owned a
73.0% general partnership interest in the Operating Partnership and a 1.0%
general partnership interest in each of the two Subsidiary Partnerships, which
were formed for tax
7
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
planning purposes and to facilitate future financing by the Company. Saul
Centers made an election to be treated as a real estate investment trust under
the Internal Revenue Code of 1986, as amended (a "REIT").
In July 1994, the Company established Saul QRS, Inc. and SC Finance
Corporation, each of which is a wholly owned subsidiary of Saul Centers. Saul
QRS, Inc. was established to succeed to the interest of Saul Centers as the sole
general partner of Saul Subsidiary I Limited Partnership, one of the Subsidiary
Partnerships, and SC Finance Corporation was established for the purpose of
issuing $128 million of collateralized floating rate mortgage notes (the
"Mortgage Notes"). In connection with these transactions, the Operating
Partnership transferred ten Shopping Centers previously owned by it to Saul
Subsidiary I Limited Partnership as an additional capital contribution and Saul
Subsidiary II Limited Partnership transferred one Shopping Center previously
owned by it to Saul Subsidiary I Limited Partnership as an initial capital
contribution in return for a limited partnership interest in Saul Subsidiary I
Limited Partnership. As a consequence of these transfers, Saul Subsidiary I
Limited Partnership currently owns a total of 17 Shopping Centers (the
"Mortgaged Properties"). The Mortgaged Properties, which continue to be managed
by the Operating Partnership, secure the mortgage purchased with proceeds of
issuance of the Mortgage Notes.
As a consequence of the transactions constituting the formation of the
Company and the later transactions described above undertaken in connection with
the Mortgage Note financing, Saul Centers serves as the sole general partner of
Saul Subsidiary II Limited Partnership, one of the Subsidiary Partnerships, and
Saul QRS, Inc., its wholly owned subsidiary, serves as the sole general partner
of Saul Subsidiary I Limited Partnership, in each case holding a 1% general
partnership interest. The remaining 99% interest in Saul Subsidiary II Limited
Partnership is held by the Operating Partnership as the sole limited partner.
The remaining 99% interest in Saul Subsidiary I Limited Partnership is held in
the form of 96.53% and 2.47% limited partnership interests by the Operating
Partnership and Saul Subsidiary II Limited Partnership, respectively. Through
this structure, the Company owns 100% of the Current Portfolio Properties.
BASIS OF PRESENTATION
In the opinion of management, the consolidated financial statements reflect
all adjustments necessary for fair presentation of the financial position and
results of operations of Saul Centers. All such adjustments are of a normal
recurring nature. These consolidated financial statements and the accompanying
notes should be read in conjunction with the audited consolidated financial
statements of Saul Centers for the year ended December 31, 1996, which are
included in its Annual Report on Form 10-K. The results of operations for
interim periods are not necessarily indicative of results to be expected for the
year.
8
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company, which conducts all of its activities through its subsidiaries,
the Operating Partnership and Subsidiary Partnerships, engages in the ownership,
operation, management, leasing, acquisition, renovation, expansion, development
and financing of community and neighborhood shopping centers and, to a limited
extent, other commercial properties, primarily in the Mid-Atlantic region.
A majority of the Shopping Centers are anchored by several major tenants.
Eighteen of the 30 Shopping Centers are anchored by a grocery store and offer
primarily day-to-day necessities and services. As of June 30, 1997, no single
Shopping Center accounted for more than 10.6% of the total Shopping Center gross
leasable area ("GLA"). Only one Shopping Center tenant, Giant Food, accounted
for more than 2.0% 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% of total revenues for 1996.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements of the Company include
the accounts of Saul Centers and the Operating Partnership and Subsidiary
Partnerships which are majority owned by Saul Centers. All significant
intercompany balances and transactions have been eliminated in consolidation.
REAL ESTATE INVESTMENT PROPERTIES
Real estate investment properties are stated at the lower of depreciated
cost or net realizable value. Management believes that these assets have
generally appreciated in value and accordingly the aggregate current value
exceeds their aggregate net book value and also exceeds the value of the
Company's liabilities as reported in these financial statements. These financial
statements are prepared in conformity with generally accepted accounting
principles, and accordingly, do not report the current value of the Company's
real estate assets.
Real estate investment properties are reviewed for potential impairment
losses whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. If the sum of an individual
property's undiscounted expected future cash flows is less than its carrying
amount, the Company's policy is to recognize an impairment loss measured by the
amount the depreciated cost of the property exceeds its fair value. Fair value
is calculated as the present value of expected future cash flows.
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
9
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
operations as incurred. Interest expense capitalized during the three month
periods ended June 30, 1997 and 1996, was $130,000 and $83,000, respectively.
Interest expense capitalized during the six month periods ended June 30, 1997
and 1996, was $195,000 and $254,000, respectively.
In the initial rental operations of development projects, a project is
considered substantially complete and available for occupancy upon completion of
tenant improvements, but no later than one year from the cessation of major
construction activity. Substantially completed portions of a project are
accounted for as separate projects. Depreciation is calculated using the
straight-line method and estimated useful lives of 33 to 50 years for buildings
and up to 20 years for certain other improvements. Leasehold improvements are
amortized over the lives of the related leases using the straight-line method.
ACCOUNTS RECEIVABLE AND ACCRUED INCOME
Accounts receivable primarily represent amounts currently due from tenants
in accordance with the terms of the respective leases. In addition, accounts
receivable include $1,794,000 at June 30, 1997, representing minimum rental
income accrued on a straight-line basis to be paid by tenants over the term of
the respective leases. Receivables are reviewed monthly and reserves are charged
to current period operations when, in the opinion of management, collection of
the receivable is doubtful. Accounts receivable in the accompanying financial
statements are shown net of an allowance for doubtful accounts of $532,000 at
June 30, 1997.
DEFERRED DEBT EXPENSE
Deferred debt expense consists of financing fees and costs incurred to
obtain long-term financing and interest rate protection agreements. These fees
and costs are being amortized over the terms of the respective loans or
agreements. Deferred debt expense in the accompanying financial statements is
shown net of accumulated amortization of $6,955,000 at June 30, 1997.
REVENUE RECOGNITION
Rental and interest income are accrued as earned, except, when doubt exists
as to collectibility, accrual is discontinued. Expense recoveries represent
property operating expenses billed to tenants, including common area
maintenance, real estate taxes and other recoverable costs. Expense recoveries
are recognized in the period in which the expenses are accrued. Generally,
additional rental income based on a tenant's gross revenue ("percentage rent")
is accrued on the basis of the tenant's prior year percentage rent, adjusted to
give effect to current sales data.
10
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
INCOME TAXES
Saul Centers made an election to be treated, and intends to continue
operating so as to qualify, as a REIT under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended, commencing with its taxable year
ended December 31, 1993. A REIT generally will not be subject to federal income
taxation on that portion of its income that qualifies as REIT taxable income to
the extent that it distributes to stockholders at least 95% of its REIT taxable
income and complies with certain other requirements. Saul Centers continues to
qualify as a REIT and, therefore, no provision has been made for federal income
taxes in the accompanying financial statements.
STATEMENT OF CASH FLOWS
For purposes of reporting cash flows, cash includes balances on hand and
demand deposits with financial institutions.
PER SHARE DATA
Per share data for net income before minority interests is presented on a
fully converted basis and is computed using weighted average shares of
16,623,538 and 16,367,633, for the quarters ended June 30, 1997 and 1996,
respectively, and shares of 16,590,779 and 16,338,631, for the six month periods
ended June 30, 1997 and 1996, respectively. Per share data for net income after
minority interests is computed using weighted average common shares outstanding
of 12,230,375 and 11,974,470 for the quarters ended June 30, 1997 and 1996,
respectively, and 12,197,616 and 11,945,468 for the six month periods ended June
30, 1997 and 1996, respectively.
MINORITY INTERESTS - HOLDERS OF CONVERTIBLE LIMITED PARTNER UNITS IN THE
OPERATING PARTNERSHIP
The Saul Organization holds 4,393,163 Convertible Limited Partnership Units
of the Operating Partnership, representing a 26.4% limited partnership interest,
as of June 30, 1997. These Convertible Limited Partnership Units are convertible
into shares of Saul Centers' common stock on a one-for-one basis, provided that
it may not exercise the rights at any time that The Saul Organization owns,
directly or indirectly, in the aggregate more than 24.9% of the outstanding
equity securities of Saul Centers. The Saul Organization's 26.4% limited
partnership interest in the Operating Partnership is presented as minority
interests in the accompanying financial statements.
11
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DIRECTORS DEFERRED COMPENSATION PLAN
A Deferred Compensation Plan was established by Saul Centers, effective
January 1, 1994, for the benefit of its directors and their beneficiaries.
Before the beginning of any calendar year, a director may elect to defer all or
part of his or her director's fees to be earned in that year and the following
years. A director has the option to have deferred fees paid in cash or in
shares of common stock. If the director elects to have the deferred fees paid
in stock, the number of shares distributed to the director is determined based
on the market value of the common stock on the day the director's deferred fee
was earned. Shares authorized and registered for use under the plan total
70,000. As of June 30, 1997, 32,557 shares had been credited to the director's
deferred fee accounts.
NEW ACCOUNTING PRONOUNCEMENTS
In February, 1997 the FASB issued SFAS No. 128 "Earnings Per Share" and
SFAS No. 129 "Disclosure of Information About Capital Structure," both of which
are required to be adopted for fiscal years beginning after December 15, 1997.
SFAS No. 128 establishes new standards for computing, presenting and disclosing
earnings per share, and will require restatement of prior year earnings per
share disclosures. SFAS No. 129 establishes new standards for disclosing
information about entities' capital structures. In June 1997 the FASB issued
SFAS 130 "Reporting Comprehensive Income" which is also required to be adopted
for fiscal years beginning after December 15, 1997. SFAS 130 establishes
standards for the reporting and display of comprehensive income in the Company's
financial statements. In the opinion of management, these standards will not
have a material impact on the Company's consolidated results of operations and
financial position.
3. CONSTRUCTION IN PROGRESS
Construction in progress represents the costs of the current phase of the
Seven Corners shopping center redevelopment and Thruway's facade and site
renovation. These costs include direct construction costs, indirect costs such
as architectural, engineering and construction management, and carrying costs
such as interest, real estate taxes and insurance.
<TABLE>
<CAPTION>
Construction In Progress
------------------------
(In thousands)
<S> <C>
Seven Corners............. $7,653
Thruway................... 506
------
Total..................... $8,159
======
</TABLE>
12
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. NOTES PAYABLE
Notes payable totaled $277.6 million at June 30, 1997, of which $125.6
million (45%) was fixed rate debt and $152.0 million (55%) was floating rate
debt. All of the floating rate debt was capped by interest rate protection
agreements (see "Notes Payable - Interest Rate Protection Agreements").
On August 1, 1994, SC Finance Corporation, a wholly owned subsidiary of
Saul Centers, issued $128 million of Fitch Investors Services, Inc. rated seven-
year Mortgage Notes, consisting of $91 million of Class A Collateralized
Floating Rate Commercial Mortgage Notes, rated "AA", bearing interest at a rate
equal to 0.65% above LIBOR, $13 million of Class B Collateralized Floating Rate
Commercial Mortgage Notes, rated "A", bearing interest at a rate equal to 1.05%
above LIBOR and $24 million of Class C Collateralized Floating Rate Commercial
Mortgage Notes, rated "BBB", bearing interest at a rate equal to 1.55% above
LIBOR. Proceeds from the issuance of these Mortgage Notes were used to repay
debt of approximately $118 million, which was scheduled to mature primarily in
1996 and 1997.
The ratings of the Company's $128 million of Mortgage Notes were affirmed
by Fitch Investors Service, Inc. as of March 1996. Fitch noted that the
affirmation of ratings reflected financial performance consistent with the
initial underwriting of these Mortgage Notes.
During 1996, the Company repaid a total of $76.6 million of variable rate
mortgage notes, the majority of which were scheduled to mature during 1998, with
the net proceeds of a $77.0 million 15-year fixed rate mortgage note. The note
requires monthly payments of interest at a rate of 8.64% and principal based
upon a 20 year amortization schedule. The Company's revolving credit facility
commitment of $100.1 million was reduced to $44.0 million as a result of the
fixed rate financing.
During January 1997, the Company repaid a $38.0 million variable rate
mortgage note scheduled to mature in 1999, with the net proceeds of a $38.5
million 16-year fixed rate mortgage note. The note requires monthly payments
of interest at a rate of 7.88% and principal based upon a twenty-five year
amortization schedule.
As of June 30, 1997, the Company had a $44.0 million secured revolving
credit facility with outstanding borrowings of $24.0 million. The line requires
monthly interest payments at a rate of LIBOR plus 1.875%. At June 30, 1997,
$20.0 million was available for borrowing on the line.
13
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
As of June 30, 1997, the scheduled maturities of all debt for years ending
December 31, were as follows:
<TABLE>
<CAPTION>
Debt Maturity Schedule
----------------------
(In thousands)
<S> <C>
July through December 31, 1997.. $ 1,430
1998............................ 27,149
1999............................ 3,380
2000............................ 3,631
2001............................ 131,803
2002............................ 3,254
Thereafter...................... 106,926
--------
Total $277,573
========
</TABLE>
INTEREST RATE PROTECTION AGREEMENTS
The Company has entered into interest rate protection agreements (interest
rate caps) to limit the Company's exposure to increases in interest rates on
$162.8 million of its floating rate debt above a LIBOR strike price of 5.25%
through August 1998. When adding the Company's current weighted average
interest rate "spread" of approximately 1.02% over LIBOR at June 30, 1997 to the
5.25% strike price, the result is a maximum interest rate of approximately 6.27%
on the Company's $152.0 million floating rate debt. The Company has additional
interest rate caps with a strike price of 7.5% and notional values of $162.8
million for the period September 1998 through August 2000 and $128.0 million for
the period September 2000 through August 2001. The cost of these interest rate
protection agreements was paid at the time of the Offerings and the issue of the
Mortgage Notes.
As a result of these interest rate protection agreements, all of the
Company's current floating rate debt totaling $152.0 million is capped at LIBOR
strike prices of 5.25% through August 1998 and 7.5% through August 2000.
The Company is exposed to interest rate risk and to risk of credit loss to
the extent the counter party to the interest rate protection agreement is unable
to perform. The interest rate risk refers to the Company's continuing
obligation related to the stated interest rates in the existing debt agreements.
Risk of credit loss is limited to the cost of replacing the interest rate
protection agreements at current rates and not the notional principal amount,
which is the amount upon which interest rates are applied to determine payment
streams under the agreements. The Company does not anticipate non-performance
by the counter parties of
14
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
which there are three separate institutions. Income earned by the operation of
the interest rate protection agreements for the three months ended June 30, 1997
and 1996, was $166,000 and $60,000, respectively and for the six months periods
ended June 30, 1997 and 1996 was $274,000 and $252,000, respectively and was
reported as an offset to interest expense.
5. SHAREHOLDERS' EQUITY AND MINORITY INTERESTS
These financial statements are prepared in conformity with generally
accepted accounting principles and accordingly do not report the current value
of the Company's real estate assets. The Shareholders' Equity reported on the
Consolidated Balance Sheets does not reflect any increase in the value resulting
from the difference between the current value and the net book value of the
Company's assets. Therefore Shareholder's Equity reported on the Consolidated
Balance Sheets does not reflect the market value of stockholders' investment in
the Company.
The Consolidated Statement of Operations for the three months and six
months ended June 30, 1997 includes a charge for minority interests of
$1,713,000 and $3,246,000, consisting of $1,096,000 and $2,144,000 related to
the predecessor company's share of the net income for the 1997 quarter and six
month period, respectively, and $617,000 and $1,282,000, related to
distributions to minority interests in excess of allocated net income for the
1997 quarter and six month period, respectively. The charge for the three month
and six month periods ended June 30, 1996 of $1,713,000 and $3,426,000 consists
of $870,000 and $1,788,000 related to the predecessor company's share of net
income for the 1996 quarter and six month period, respectively, and $843,000 and
$1,638,000 related to distributions to minority interests in excess of allocated
net income for the 1996 quarter and six month period, respectively.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
- -------
The following discussion is based primarily on the consolidated financial
statements of Saul Centers, Inc. ("Saul Centers" and, together with its wholly
owned subsidiaries and the limited partnerships of which it or one of its
wholly owned subsidiaries is the sole general partner, the "Company") as of June
30, 1997 and for the three month and six month periods ended June 30, 1997.
Liquidity and Capital Resources
- -------------------------------
The Company's principal demands for liquidity are expected to be
distributions to its stockholders, debt service and loan repayments, expansion
and renovation of the Current Portfolio Properties and selective acquisition and
development of additional properties. In order to qualify as a REIT for federal
income tax purposes, the Company must distribute to its stockholders at least
95% of its "real estate investment trust taxable income," as defined in the
Internal Revenue Code of 1986, as amended. The Company anticipates that
operating revenues will provide the funds necessary for operations, debt
service, distributions, and required recurring capital expenditures. Balloon
principal repayments are expected to be funded by refinancings.
Management anticipates that during the current year the Company may: 1)
redevelop certain of the Shopping Centers, 2) develop additional freestanding
out parcels or expansions within certain of the Shopping Centers, 3) acquire
existing neighborhood and community shopping centers and 4) develop new shopping
center sites. Acquisition and development of properties are undertaken only
after careful analysis and review, and each such property is expected to provide
long-term earnings and cash flow growth. During the coming year, any
developments, expansions or acquisitions are expected to be funded with bank
borrowings from the Company's credit line or other external capital resources
available to the Company.
The Company expects to fulfill its long range requirements for capital
resources in a variety of ways, including undistributed cash flow from
operations, secured or unsecured bank and institutional borrowings, private or
public offerings of debt or equity securities and proceeds from the dividend
investment program. Borrowings may be at the Saul Centers, Operating
Partnership or Subsidiary Partnership level, and securities offerings may
include (subject to certain limitations) the issuance of additional limited
partnership interests in the Operating Partnership which can be converted into
shares of Saul Centers common stock.
For the six months ended June 30, 1997, operating activities provided net
cash flow of $19,245,000, while financing activities provided net proceeds of
$3,860,000 from a notes payable refinancing and line of credit borrowings and
$1,984,000 from the reinvestment of dividends by operation of the Company's
Dividend Reinvestment and Stock Purchase Plan.
16
<PAGE>
During the same six month period investing and financing activities used cash
primarily for distributions ($12,957,000), shopping center renovations and
capital expenditures ($3,593,000), and construction and redevelopment projects
($8,567,000).
Management believes that the Company's current capital resources, including
approximately $20,000,000 of the Company's credit line which was available for
borrowing as of June 30, 1997, will be sufficient to meet its liquidity needs
for the foreseeable future.
Capital Strategy and Financing Activity
- ---------------------------------------
The Company's capital strategy is to maintain a ratio of total debt to
total asset value of 50% or less, and to actively manage the Company's leverage
and debt expense in order to maintain prudent coverage of fixed charges.
Management believes that current total debt remains less than 50% of total asset
value.
Recently, the Company closed two long-term fixed rate mortgages, which
management believes enhances its financial position. The first was a $77
million loan closed in November 1996, for a term of 15 years at a fixed interest
rate of 8.64%, and an average twenty-year principal amortization schedule. A
balloon payment of approximately $34 million will be due at maturity in December
2011. The loan is secured by six of the Company's retail and office properties.
In January 1997, the Company closed a second loan in the amount of $38.5
million, for a 16-year term, at a fixed rate of 7.88%, and a twenty-five year
principal amortization schedule. A balloon payment of approximately $24.5
million will be due at maturity in January 2013. This loan is secured by the
601 Pennsylvania Avenue office property. The proceeds of these loans were used
to repay existing floating rate debt, including a portion of the revolving
credit line, which had a weighted remaining term of less than 3 years and a
weighted average interest rate of LIBOR plus 2.05%, or 7.58% assuming the three
month LIBOR rate effective as of December 31, 1996.
The Company now has fixed interest rates on approximately 45% of its total
debt. The balance of the debt is tied to LIBOR rates and is covered by interest
rate protection agreements, which cap LIBOR at 5.25% through August 1998 and
7.5% through August 2000.
Redevelopment, Renovations and Acquisitions
- -------------------------------------------
The Company has selectively engaged in redevelopment, renovation and
acquisition activities. It continues to evaluate land parcels for retail
development and potential acquisitions of operating retail properties for
opportunities to enhance operating income and cash flow growth. The Company also
continues to take advantage of retail redevelopment, renovation and expansion
opportunities within the portfolio, as demonstrated by its continuing
redevelopment activities at Seven Corners, the recent undertaking of a
renovation at Thruway and an expansion of Leesburg Pike shopping center.
17
<PAGE>
The newly constructed 127,000 square foot Home Depot and 69,000 square foot
Shoppers Club stores at Seven Corners shopping center, the Company's 545,000
square foot community shopping center in Falls Church, Virginia, are scheduled
to open during the third quarter of 1997. The opening of Home Depot and
Shoppers Club substantially completes the Company's redevelopment of Seven
Corners from an enclosed mall to an updated community strip center. The
redevelopment effort added over 145,000 square feet of new retail area.
During the second quarter, Centex Life Solutions executed a lease for a
31,000 square foot health concepts superstore and Michael Stores signed a lease
for a 21,000 square foot arts and crafts store at Seven Corners. Saul Centers
had recently recaptured the space leased by Michael and received a termination
fee from Petstuff, which had closed their Seven Corners store subsequent to
merging with PetSmart. Seven Corners is now over 93% leased.
The Company is nearing completion of construction on a facade renovation of
its Harris Teeter and Steinmart anchored, 340,000 square foot, Thruway shopping
center located in Winston-Salem, North Carolina. Construction includes a 40-
foot clock tower, a new tenant sign band, colonial style anchor tenant features,
new lighting and a complete facade upgrade. The renovation is projected to be
completed by the end of August 1997.
Leesburg Pike is a 83,000 square foot shopping center, where a facade
renovation was completed in 1995. Construction was substantially completed as
of June 30, 1997 on a 13,000 square foot expansion of in-line shop space for new
retail uses. The expansion is 100% leased, and Hollywood Video and Men's
Wearhouse opened their new stores in July.
Portfolio Leasing Status
- ------------------------
At June 30, 1997, the portfolio consisted of thirty Shopping Centers and
three Commercial Properties located in seven states and the District of
Columbia. The Commercial Properties consist of one office property and one
office/retail property, both located in the District of Columbia, and one
research park located in a Maryland suburb of Washington, D.C.
At June 30, 1997, 90.1% of the Company's 5.8 million square feet of
leasable space was leased to tenants, as compared to 90.2% at June 30, 1996.
The shopping center portfolio was 89.8% leased at June 30, 1997 versus 90.0% as
of June 30, 1996. The Commercial Properties were 92.1% leased at June 30, 1997
compared to 91.5% as of June 30, 1996.
18
<PAGE>
RESULTS OF OPERATIONS
The following discussion compares the results of the Company for the three
and six month periods ended June 30, 1997 and 1996, respectively. This
information should be read in conjunction with the accompanying consolidated
financial statements and the notes related thereto. These financial statements
include all adjustments (consisting solely of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair presentation of
the interim periods presented.
Three Months Ended June 30, 1997 compared to Three Months Ended June 30, 1996
- -----------------------------------------------------------------------------
Base rent and expense recoveries were $12,857,000 and $2,246,000,
respectively, for the three month period ended June 30, 1997 (the "1997
Quarter"), compared to $12,378,000 and $2,179,000, respectively, for the
comparable quarter in 1996 (the "1996 Quarter"), representing a $479,000 (3.9%)
increase in base rent and $67,000 (3.1%) increase in expense recoveries. The
increase in base rent resulted primarily from new leases placed in service at
Seven Corners and Leesburg Pike for the 1997 Quarter but not present during the
1996 Quarter.
Percentage rent was $678,000 in the 1997 Quarter, compared to $709,000 in
the 1996 Quarter, representing a decrease of $31,000 (4.4%).
Other income, which is comprised primarily of parking income, kiosk
leasing, temporary leases, and payments associated with early termination of
leases, was $843,000 in the 1997 Quarter, compared to $554,000 in the 1996
Quarter, representing an increase of $289,000 (52.2%). The increase in other
income resulted primarily from increased lease termination payments.
Operating expenses, comprised primarily of repairs and maintenance,
utilities, payroll and insurance, increased $108,000 (5.7%) to $2,010,000 in the
1997 Quarter from $1,902,000 in the 1996 Quarter.
The provision for credit losses increased $25,000 (23.6%) to $131,000 in
the 1997 Quarter from $106,000 in the 1996 Quarter.
Real estate taxes decreased $58,000 (3.8%) to $1,456,000 in the 1997
Quarter from $1,514,000 in the 1996 Quarter.
Interest expense of $4,834,000 for the 1997 Quarter represented an increase
of $227,000 (4.9%) over $4,607,000 reported for the 1996 Quarter. This increase
is primarily attributable to higher interest rates resulting from the Company's
conversion of approximately $115.5 million of its mortgage debt from floating
rate loans to longer term, fixed rate loans.
19
<PAGE>
Amortization of deferred debt expense decreased to $541,000 for the 1997
Quarter from $734,000 for the 1996 Quarter, representing a decrease of $193,000
(26.3%). The decrease in the 1997 Quarter resulted from the elimination of
amortization on interest rate protection agreements with a total notional value
of $87.0 million, sold during the fourth quarter of 1996, and reduced debt
amortization because new fixed rate debt has a longer term than the floating
rate debt it replaced.
Depreciation and amortization expense decreased $294,000 (10.0%) from
$2,927,000 in the 1996 Quarter to $2,633,000 in the 1997 Quarter.
General and administrative expense, which consists primarily of
administrative, payroll and other overhead expense, was $808,000 for both the
1997 and 1996 Quarters.
Six Months Ended June 30, 1997 compared to Six Months Ended June 30, 1996
- -------------------------------------------------------------------------
Base rent and expense recoveries were $25,458,000 and $4,558,000,
respectively, for the six month period ended June 30, 1997 (the "1997 Period"),
compared to $24,638,000 and $4,472,000, respectively, for the comparable period
in 1996 (the "1996 Period"), representing a $820,000 (3.3%) increase in base
rent and $86,000 (1.9%) increase in expense recoveries. The increase in base
rent resulted primarily from new leases placed in service at Seven Corners and
Leesburg Pike for the 1997 Period but not present during the 1996 Period.
Percentage rent was $1,437,000 in the 1997 Period, compared to $1,425,000
in the 1996 Period, representing an increase of $12,000 (0.8%).
Other income, which is comprised primarily of parking income, kiosk
leasing, temporary leases, and payments associated with early termination of
leases, was $1,733,000 in the 1997 Period, compared to $918,000 in the 1996
Period, representing an increase of $815,000 (88.8%). The increase in other
income resulted primarily from increased lease termination payments.
Operating expenses, comprised primarily of repairs and maintenance,
utilities, payroll and insurance, decreased $24,000 (0.6%) to $4,036,000 in the
1997 Period from $4,060,000 in the 1996 Period.
The provision for credit losses increased $13,000 (8.1%) to $174,000 in the
1997 Period from $161,000 in the 1996 Period.
Real estate taxes increased $27,000 (0.9%) to $2,970,000 in the 1997 Period
from $2,943,000 in the 1996 Period.
Interest expense of $9,654,000 for the 1997 Period represented an increase
of $621,000 (6.9%) over $9,033,000 reported for the 1996 Period. This increase
is primarily attributable
20
<PAGE>
to higher interest rates resulting from the Company's conversion of
approximately $115.5 million of its mortgage debt from floating rate loans to
longer term, fixed rate loans.
Amortization of deferred debt expense decreased to $1,086,000 for the 1997
Period from $1,466,000 for the 1996 Period, representing a decrease of $380,000
(25.9%). The decrease in the 1997 Period resulted from the elimination of
amortization on interest rate protection agreements with a total notional value
of $87.0 million, sold during the fourth quarter of 1996, and reduced debt
amortization because new fixed rate debt has a longer term than the floating
rate debt it replaced.
Depreciation and amortization expense decreased $402,000 (7.2%) from
$5,607,000 in the 1996 Period to $5,205,000 in the 1997 Period.
General and administrative expense, which consists primarily of
administrative, payroll and other overhead expense, was $1,601,000 for the 1997
Period as compared to $1,562,000 for the 1996 Period, representing and increase
of $39,000 (2.5%).
Extraordinary item, loss on early extinguishment of debt, was $369,000 for
the 1997 Period, resulting from the write-off of unamortized loan costs when the
Company refinanced a portion of its loan portfolio. No loss on early
extinguishment of debt was recorded during the 1996 Period.
21
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Schedule of Portfolio Properties
Financial Data Schedule
Reports on Form 8-K
-------------------
None.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SAUL CENTERS, INC.
(Registrant)
Date: August 14, 1997 /s/ Philip D. Caraci
--------------- ---------------------------------------
Philip D. Caraci, President
Date: August 14, 1997 /s/ Scott V. Schneider
--------------- ---------------------------------------
Scott V. Schneider
Vice President, Chief Financial Officer
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from financial
statements, schedules and other disclosure contained in Form 10-Q for the period
ended June 30, 1997 of Saul Centers, Inc. and is qualified in its entirety by
reference to such financial statements, schedules and other disclosure.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 10
<SECURITIES> 0
<RECEIVABLES> 4,785
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 335,173
<DEPRECIATION> 99,781
<TOTAL-ASSETS> 266,850
<CURRENT-LIABILITIES> 0
<BONDS> 277,573
0
0
<COMMON> 122
<OTHER-SE> (29,365)
<TOTAL-LIABILITY-AND-EQUITY> 266,850
<SALES> 0
<TOTAL-REVENUES> 33,186
<CGS> 0
<TOTAL-COSTS> 9,241
<OTHER-EXPENSES> 2,970
<LOSS-PROVISION> 174
<INTEREST-EXPENSE> 10,740
<INCOME-PRETAX> 4,665
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,665
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,665
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.38
</TABLE>
<PAGE>
SAUL CENTERS, INC.
SCHEDULE OF CURRENT PORTFOLIO PROPERTIES
JUNE 30, 1997
<TABLE>
<CAPTION>
Leasable Year
Area Developed Land
(Square or Acquired Area Percentage Leased
Property Location Feet) (Renovated) (Acres) Jun-1997 Jun-1996 Anchor/Significant Tenants
- ------------------- ------------------- ---------- ------------- ------- -------- -------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SHOPPING CENTERS
- ----------------
Ashburn Village Ashburn, VA 108,204 1994 12.7 95% 100% Giant Food, Blockbuster
Beacon Mall Alexandria, VA 290,845 1972 (1993) 32.3 69% 73% Giant Food, Office Depot, Outback
Steakhouse, Marshalls, Sneaker
Stadium, Hollywood Video
Belvedere Baltimore, MD 54,941 1972 4.8 100% 100% Giant Food, Rite Aid
Boulevard Fairfax, VA 56,578 1994 5.0 100% 100% Danker Furniture, Petco
Clarendon Arlington, VA 6,940 1973 0.5 100% 100%
Clarendon Station Arlington, VA 4,868 1996 0.1 100% 100%
Crosstown Tulsa, OK 197,135 1975 26.4 27% 36% C.R. Anthony
Flagship Center Rockville, MD 21,500 1972, 1989 0.5 100% 100% NationsBank, Chevy Chase Bank,
F.S.B.
French Market Oklahoma City, OK 213,658 1974 (1984) 13.8 88% 96% Fleming Food, Furr's Cafeteria
Germantown Germantown, MD 26,241 1992 2.7 92% 75%
Giant Baltimore, MD 70,040 1972 (1990) 5.0 100% 100% Giant Food
The Glen Lake Ridge, VA 112,639 1994 14.7 100% 100% Safeway Marketplace, CVS Pharmacy
Great Eastern District Heights, MD 255,448 1972 (1995) 23.9 90% 90% Giant Food, Caldor, Pep Boys
Hampshire Langley Langley Park, MD 134,425 1972 (1979) 9.9 100% 91% Safeway, McCrory
Leesburg Pike Baileys Crossroads, VA 97,888 1966 (1982/95) 9.4 100% 97% Zany Brainy, CVS Pharmacy,
Hollywood Video
Lexington Mall Lexington, KY 315,551 1974 30.0 97% 97% McAlpin's, Dawahares of
Lexington, Rite Aid
Lumberton Lumberton, NJ 189,729 1975 (1992/96) 23.3 88% 83% 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 77% 87%
Park Road Center Washington, DC 106,650 1973 (1993) 1.7 100% 100% Woolworth
Ravenwood Baltimore, MD 87,750 1972 8.0 100% 100% Giant Food
</TABLE>
<PAGE>
SAUL CENTERS, INC.
SCHEDULE OF CURRENT PORTFOLIO PROPERTIES
JUNE 30, 1997
<TABLE>
<CAPTION>
Leasable Year
Area Developed Land
(Square or Acquired Area Percentage Leased
Property Location Feet) (Renovated) (Acres) Jun-1997 Jun-1996 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 93% 88% Home Depot, Shoppers Club, Best
Buy, Michaels, Barnes & Noble,
Ross Dress For Less, Centex Life
Solutions
Shops at Fairfax Fairfax, VA 64,580 1975(1992-3) 6.7 65% 43% Office Depot, Hollywood Video
Southdale Glen Burnie, MD 475,099 1972(1986) 39.6 98% 99% Giant Food, Hechinger, Circuit
City, Kids R Us, Michaels,
Marshalls, Petsmart,
Value City, Furniture
Southside Plaza Richmond, VA 352,516 1972 32.8 91% 95% CVS Pharmacy, Nick's Supermarket
Sunshine City Atlanta, GA 195,653 1976 14.6 88% 98% Bolton Furniture, MacFrugals, Pep
Boys, The Emory Clinic
Thruway Winston-Salem, NC 339,564 1972 30.5 96% 96% Steinmart, Reading China & Glass,
Harris Teeter, Fresh Market,
Blockbuster, Pierce Goods Shop,
Bocock-Stroud, Houlihan's
Village Center Centerville, VA 142,881 1990 17.2 85% 79% Giant Food
West Park Oklahoma City, OK 107,895 1975 11.2 69% 76% Homeland Stores, Treasury Drug
White Oak Silver Spring, MD 480,156 1972(1993) 28.5 100% 99% Giant Food, Sears, Rite Aid,
Blockbuster
--------- ------- ------- -------
Total Shopping Centers 5,150,482 442.9 90% 90%
--------- ------- ------- -------
COMMERCIAL PROPERTIES
- ----------------------
Avenel Gaithersburg, MD 284,557 1981/85/89 28.2 90% 98% Oncor, Quanta Systems, General
Services Administration
601 Pennsylvania Ave Washington, DC 225,153 1973(1986) 1.0 100% 99% General Services Administration,
Capital Grille
Van Ness Square Washington, DC 161,058 1973(1990) 1.2 84% 69% United Mine Workers Pension Trust,
Office Depot, Pier 1
--------- ------- ------- -------
Total Commercial Properties 670,768 30.4 92% 91%
--------- ------- ------- -------
TOTAL PORTFOLIO 5,821,250 SF 473.3 90% 90%
========= ======= ======= =======
</TABLE>
EXHIBIT 99
