<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- -- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
------------------------------------------
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- -- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------------- ------------------------
Commission file number: 1-12254
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SAUL CENTERS, INC.
----------------------------------------------------------------------------
(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: 12,389,538 shares of common
stock, $0.01 par value, outstanding as of November 1, 1997.
<PAGE>
SAUL CENTERS, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
--------------------------------
(a) Consolidated Balance Sheets as of September 30, 1997 and
December 31, 1996. 3
(b) Consolidated Statements of Operations for the three months and
nine months ended September 30, 1997 and 1996. 4
(c) Consolidated Statements of Stockholders' Equity as of
September 30, 1997. 5
(d) Consolidated Statements of Cash Flows for the nine months ended
September 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 17
(b) Results of Operations
Three months ended September 30, 1997 compared to three
months ended September 30, 1996. 20
Nine months ended September 30, 1997 compared to nine
months ended September 30, 1996 22
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 24
--------------------------------
</TABLE>
2
<PAGE>
SAUL CENTERS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
September 30, December 31,
(Dollars in thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Real estate investments
Land $ 65,630 $ 65,604
Buildings and equipment 280,623 264,060
-------------- --------------
346,253 329,664
Accumulated depreciation (102,186) (94,965)
-------------- --------------
244,067 234,699
Construction in progress -- 1,508
Cash 997 38
Accounts receivable and accrued income, net 5,875 7,446
Prepaid expenses 4,347 4,808
Deferred debt expense, net 10,158 11,287
Other assets 3,805 3,709
-------------- --------------
Total assets $ 269,249 $ 263,495
============== ==============
LIABILITIES
Notes payable $ 283,370 $ 273,261
Accounts payable, accrued expenses and other liabilities 14,072 15,154
Deferred income 2,112 1,441
-------------- --------------
Total liabilities 299,554 289,856
-------------- --------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $0.01 par value, 30,000,000 shares
authorized, 12,316,637 and 12,125,705 shares issued and
outstanding, respectively 123 121
Additional paid-in capital 18,586 15,529
Accumulated deficit (49,014) (42,011)
-------------- --------------
Total stockholders' equity (deficit) (30,305) (26,361)
-------------- --------------
Total liabilities and stockholders' equity $ 269,249 $ 263,495
============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
SAUL CENTERS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
For the Three Months Ended For the Nine Months Ended
(Dollars in thousands, September 30, September 30,
except per share amounts) 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE
Base rent $ 13,102 $ 12,579 $ 38,560 $ 37,217
Expense recoveries 2,326 2,413 6,884 6,885
Percentage rent 765 745 2,202 2,170
Other 952 394 2,685 1,312
------------ ----------- ----------- ------------
Total revenue 17,145 16,131 50,331 47,584
------------ ----------- ----------- ------------
OPERATING EXPENSES
Property operating expenses 2,043 2,045 6,079 6,164
Provision for credit losses 163 90 337 251
Real estate taxes 1,595 1,498 4,565 4,382
Interest expense 4,957 4,683 14,611 13,716
Amortization of deferred debt expense 542 733 1,628 2,199
Depreciation and amortization 2,626 2,245 7,831 7,852
General and administrative 838 722 2,439 2,284
------------ ----------- ----------- ------------
Total operating expenses 12,764 12,016 37,490 36,848
------------ ----------- ----------- ------------
NET INCOME BEFORE EXTRAORDINARY
ITEM AND MINORITY INTERESTS 4,381 4,115 12,841 10,736
Extraordinary item
Early extinguishment of debt -- -- (369) --
------------ ----------- ----------- ------------
NET INCOME BEFORE MINORITY INTERESTS 4,381 4,115 12,472 10,736
------------ ----------- ----------- ------------
MINORITY INTERESTS
Minority share of income (1,149) (1,111) (3,293) (2,899)
Distributions in excess of earnings (566) (602) (1,848) (2,240)
------------ ----------- ----------- ------------
Total minority interests (1,715) (1,713) (5,141) (5,139)
------------ ----------- ----------- ------------
NET INCOME $ 2,666 $ 2,402 $ 7,331 $ 5,597
============ =========== =========== ============
NET INCOME PER SHARE
Net income before extraordinary
item and minority interests $ 0.26 $ 0.25 $ 0.77 $ 0.66
Extraordinary item -- -- (0.02) --
------------ ----------- ----------- ------------
Net income before minority interests $ 0.26 $ 0.25 $ 0.75 $ 0.66
============ =========== =========== ============
Net income $ 0.22 $ 0.20 $ 0.60 $ 0.47
============ =========== =========== ============
</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)
Issuance of 63,291 shares of common
stock through dividend reinvestment plan 1 1,074 -- 1,075
Net income -- -- 2,666 2,666
Distributions payable ($.39 per share) -- -- (4,803) (4,803)
------------ ------------ ------------- -------------
Balance, September 30, 1997 $ 123 $ 18,586 $ (49,014) $ (30,305)
============ ============ ============= =============
</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 Nine Months Ended
September 30,
(Dollars in thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,331 $ 5,597
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interests 5,141 5,139
Early extinguishment of debt 369 --
Depreciation and amortization 9,459 10,051
Provision for credit losses 337 251
Decrease in accounts receivable 1,234 1,485
Decrease in prepaid expenses (149) (10)
Increase in other assets (96) (3,664)
Increase (decrease) in accounts payable and other liabilities (1,082) 1,269
Increase in deferred income 671 1,255
---------- ------------
Net cash provided by operating activities 23,215 21,373
---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to real estate investments (4,655) (6,659)
Additions to construction in progress (10,426) (992)
---------- ------------
Net cash used in investing activities (15,081) (7,651)
---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 56,600 18,302
Repayments on notes payable (46,491) (14,404)
Fee paid on early extinguishment of debt (95) --
Additions to deferred debt expense (773) (65)
Proceeds from the reinvestment of dividends in
shares of common stock 3,059 2,384
Distributions to common stockholders and
holders of convertible limited partnership
units in the Operating Partnership (19,475) (19,175)
---------- ------------
Net cash used in financing activities (7,175) (12,958)
---------- ------------
Net increase in cash 959 764
Cash, beginning of period 38 674
========== ============
Cash, end of period $ 997 $ 1,438
========== ============
</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
September 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 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 from the
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/A. 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 September 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 fair value less cost to sell. 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
9
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 operations as incurred.
Interest expense capitalized during the three month periods ended September 30,
1997 and 1996, was $85,000 and $101,000, respectively. Interest expense
capitalized during the nine month periods ended September 30, 1997 and 1996, was
$280,000 and $419,000, respectively.
In the initial rental operations of development projects, a project is
considered substantially complete and available for occupancy upon completion of
tenant improvements, but no later than one year from the cessation of major
construction activity. Substantially completed portions of a project are
accounted for as separate projects. Depreciation is calculated using the
straight-line method and estimated useful lives of 33 to 50 years for buildings
and up to 20 years for certain other improvements. Leasehold improvements are
amortized over the lives of the related leases using the straight-line method.
ACCOUNTS RECEIVABLE AND ACCRUED INCOME
Accounts receivable primarily represent amounts currently due from tenants
in accordance with the terms of the respective leases. In addition, accounts
receivable include $1,735,000 at September 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 $692,000 at September 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 $7,497,000 at September 30, 1997.
10
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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.
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,
demand deposits with financial institutions and short-term investments.
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
16,688,703 and 16,432,240, for the quarters ended September 30, 1997 and 1996,
respectively, and shares of 16,623,420 and 16,369,834, for the nine month
periods ended September 30, 1997 and 1996, respectively. Per share data for net
income after minority interests is computed using weighted average common shares
outstanding of 12,295,540 and 12,039,077 for the quarters ended September 30,
1997 and 1996, respectively, and 12,230,257 and 11,976,671 for the nine month
periods ended September 30, 1997 and 1996, respectively.
11
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 26.3% limited partnership interest,
as of September 30, 1997. These Convertible Limited Partnership Units are
convertible into shares of Saul Centers' common stock on a one-for-one basis,
provided that the Saul Organization may not exercise the rights at any time that
it owns, directly or indirectly, in the aggregate more than 24.9% of the
outstanding equity securities of Saul Centers. The Saul Organization's 26.3%
limited partnership interest in the Operating Partnership is presented as
minority interests in the accompanying financial statements.
DIRECTORS DEFERRED COMPENSATION PLAN
A Deferred Compensation Plan was established by Saul Centers, effective
January 1, 1994, for the benefit of its directors and their beneficiaries.
Before the beginning of any calendar year, a director may elect to defer all or
part of his or her director's fees to be earned in that year and the following
years. A director has the option to have deferred fees credited to a cash or
common stock account. If the director elects to have the deferred fees credited
to a stock account, the number of shares allocated to the director is determined
based on the closing price of the common stock on the day the director deferred
fee was earned. Shares authorized and registered for use under the plan total
70,000. As of September 30, 1997, 35,289 shares had been credited to the
directors' deferred stock accounts. There were no deferred cash accounts as of
September 30, 1997.
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.
12
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. CONSTRUCTION IN PROGRESS
Construction in progress 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. As of
September 30, 1997, the Company had no construction in progress.
4. NOTES PAYABLE
Notes payable totaled $283.4 million at September 30, 1997, of which $124.8
million (44%) was fixed rate debt and $158.6 million (56%) 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. On October 1, 1997, the Company repaid the Mortgage Notes in
full, using proceeds from a new $147 million, 15 year fixed rate loan. (see
"Notes Payable - Recent Financing Activities").
During 1996, the Company repaid a total of $76.6 million of floating 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 million floating 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.
13
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
As of September 30, 1997, the Company had a $44 million secured revolving
credit facility with outstanding borrowings of $30.6 million. The line required
monthly interest payments at a rate of LIBOR plus 1.875%. At September 30,
1997, $13.4 million was available for borrowing on the line. On October 1,
1997, the Company terminated the $44 million secured revolving credit agreement
using a portion of the proceeds from both a new $147 million, 15 year fixed rate
loan and proceeds from a new $60 million, 3 year, unsecured revolving credit
line. (see "Notes Payable -Recent Financing Activity").
As of September 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>
October 1, through December 31, 1997.. $ 667
1998.................................. 33,749
1999.................................. 3,380
2000.................................. 3,631
2001.................................. 131,803
2002.................................. 3,254
Thereafter............................ 106,886
--------
Total $283,370
========
</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 1.06% over LIBOR at September 30, 1997
to the 5.25% strike price, the result is a maximum interest rate of
approximately 6.31% on the Company's $158.6 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 issuance 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.
14
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company is exposed to interest rate risk and to risk of credit loss to
the extent the counter party to the interest rate protection agreement is unable
to perform. The interest rate risk refers to the Company's continuing
obligation related to the stated interest rates in the existing debt agreements.
Risk of credit loss is limited to the cost of replacing the interest rate
protection agreements at current rates and not the notional principal amount,
which is the amount upon which interest rates are applied to determine payment
streams under the agreements. The Company does not anticipate non-performance
by the counter parties of which there are three separate institutions. Income
earned by the operation of the interest rate protection agreements for the three
months ended September 30, 1997 and 1996, was $225,000 and $131,000,
respectively, and for the nine months periods ended September 30, 1997 and 1996,
was $499,000 and $383,000, respectively, and was reported as an offset to
interest expense.
On October 1, 1997, the Company sold all of its remaining interest rate
protection agreements following the close of a new $147 million, 15-year, fixed
rate loan (see "Notes Payable - Recent Financing Activity").
RECENT FINANCING ACTIVITY
On October 1, 1997, the Company closed a new $147 million secured mortgage
loan. The loan term is 15 years, and requires payments based upon a fixed rate
of 7.67% and 25 year principal amortization. The loan is secured by nine of the
Company's shopping centers. The Company also closed a new three-year $60
million unsecured revolving credit line, which replaces the previous secured
credit line. The interest rate floats at 1.375% to 1.625% over LIBOR, depending
on certain covenant tests. As of October 1, 1997 outstanding borrowings totaled
$15 million, leaving $45 million of uncommitted credit availability. The
proceeds of the new loans were used to repay the Mortgage Notes and the previous
secured credit line. As of October 1, 1997, the Company has fixed interest
rates on approximately 95% of its total debt outstanding, which has a weighted
remaining term of over 14 years. In connection with the refinancing, the
Company sold all of its remaining interest rate protection agreements.
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.
15
<PAGE>
SAUL CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Consolidated Statement of Operations for the three months and nine months
ended September 30, 1997 includes a charge for minority interests of $1,715,000
and $5,141,000, consisting of $1,149,000 and $3,293,000 related to the
Saul Organization's share of the net income for the 1997 quarter and nine
month period, respectively, and $566,000 and $1,848,000, related to
distributions to minority interests in excess of allocated net income for the
1997 quarter and nine month period, respectively. The charge for the three
month and nine month periods ended September 30, 1996 of $1,713,000 and
$5,139,000 consists of $1,111,000 and $2,899,000 related to the Saul
Organization's share of net income for the 1996 quarter and nine month period,
respectively, and $602,000 and $2,240,000 related to distributions to minority
interests in excess of allocated net income for the 1996 quarter and nine month
period, respectively.
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
- -------
The following discussion is based primarily on the consolidated financial
statements of Saul Centers, Inc. ("Saul Centers" and, together with its wholly
owned subsidiaries and the limited partnerships of which it or one of its
wholly owned subsidiaries is the sole general partner, the "Company") as of
September 30, 1997 and for the three month and nine month periods ended
September 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 nine months ended September 30, 1997, operating activities provided
net cash flow of $23,215,000, while financing activities provided net proceeds
of $9,241,000 from a notes payable refinancing and line of credit borrowings and
$3,059,000 from the reinvestment of dividends by operation of the Company's
Dividend Reinvestment and Stock Purchase Plan.
17
<PAGE>
During the same nine month period investing and financing activities used cash
primarily for distributions ($19,475,000), shopping center renovations and
capital expenditures ($4,655,000), and construction and redevelopment projects
($10,426,000).
Management believes that the Company's current capital resources, including
the uncommited credit availability on the Company's credit line, will be
sufficient to meet its liquidity needs for the foreseeable future. (see "Recent
Financing Activity" below).
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.
During the past twelve months, 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 nine of the Company's shopping center
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.
As of September 30, 1997, the Company had fixed interest rates on
approximately 44% of its total debt. The balance of the debt was tied to LIBOR
rates and was covered by interest rate protection agreements, which capped LIBOR
at 5.25% through August 1998 and 7.5% through August 2000.
Recent Financing Activity
- -------------------------
On October 1, 1997, the Company closed a new $147 million secured mortgage
loan. The loan term is 15 years, and requires payments based upon a fixed rate
of 7.67% and 25 year principal amortization. The loan is secured by nine of the
Company's shopping center properties. The Company also closed a new three-year
$60 million unsecured revolving credit line, which replaces the previous secured
credit line. The interest rate floats at 1.375% to 1.625% over LIBOR, depending
on certain covenant tests. As of October 1, 1997 outstanding borrowings totaled
$15 million, leaving $45 million of uncommitted credit availability. The
proceeds of the new loans were used to repay the Mortgage Notes and the previous
secured credit line. As
18
<PAGE>
of October 1, 1997, the Company has fixed interest rates on approximately 95% of
its total debt outstanding, which has a weighted remaining term of over 14
years. In connection with the refinancing, the Company sold all of its remaining
interest rate protection agreements.
The Company expects to report a non-operating charge in its fourth quarter
income statement of approximately $4.4 million on the disposition of the
interest rate protection agreements. The Company additionally expects to report
an extraordinary charge, early extinguishment of debt, of approximately $2.8
million for the write off of unamortized loan costs of the Mortgage Notes and
former credit line.
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 recently completed
redevelopment activities at Seven Corners, a renovation at Thruway and an
expansion of Leesburg Pike shopping center.
The newly constructed 125,000 square foot Home Depot and 72,000 square foot
Shoppers Club stores at Seven Corners shopping center, the Company's 545,000
square foot community shopping center in Falls Church, Virginia, opened 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. These two new anchor tenant spaces are under
construction, and are expected to open their stores by the first quarter of
1998. Seven Corners is now over 93% leased.
In August, the Company substantially completed 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.
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.
19
<PAGE>
Portfolio Leasing Status
- ------------------------
At September 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 September 30, 1997, 89.8% of the Company's 5.8 million square feet of
leasable space was leased to tenants, as compared to 90.5% at September 30,
1996. The shopping center portfolio was 89.3% leased at September 30, 1997
versus 90.2% as of September 30, 1996. The Commercial Properties were 93.6%
leased at September 30, 1997 compared to 92.6% as of September 30, 1996.
RESULTS OF OPERATIONS
The following discussion compares the results of the Company for the three
and nine month periods ended September 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 September 30, 1997 compared to Three Months Ended September
- ------------------------------------------------------------------------------
30, 1996
- --------
Base rent and expense recoveries were $13,102,000 and $2,326,000,
respectively, for the three month period ended September 30, 1997 (the "1997
Quarter"), compared to $12,579,000 and $2,413,000, respectively, for the
comparable quarter in 1996 (the "1996 Quarter"), representing a $523,000 (4.2%)
increase in base rent and $87,000 (3.6%) decrease in expense recoveries. The
increase in base rent resulted primarily from new leases placed in service at
Seven Corners, Leesburg Pike and Van Ness Square for the 1997 Quarter that were
not present during the 1996 Quarter. Base rent also increased at Thruway where
tenants pay contractual rent increases as a result of the Company's recent
facade renovation. Expense recoveries were less than those reported for the
prior year's quarter due to a retroactive one-time accrual of additional common
area maintenance recovery income during the 1996 quarter and reduced recoverable
expenses during the 1997 quarter.
Percentage rent was $765,000 in the 1997 Quarter, compared to $745,000 in
the 1996 Quarter, representing an increase of $20,000 (2.7%).
Other income, which is comprised primarily of parking income, kiosk
leasing, temporary leases, and payments associated with early termination of
leases, was $952,000 in the 1997 Quarter, compared to $394,000 in the 1996
Quarter, representing an increase of
20
<PAGE>
$558,000 (141.6%). The increase in other income resulted primarily from
increased lease termination payments collected at Seven Corners, Beacon Center
and Lexington Mall.
Operating expenses, comprised primarily of repairs and maintenance,
utilities, payroll and insurance, decreased $2,000 (0.1%) to $2,043,000 in the
1997 Quarter from $2,045,000 in the 1996 Quarter.
The provision for credit losses increased $73,000 (81.1%) to $163,000 in
the 1997 Quarter from $90,000 in the 1996 Quarter. The increase resulted
primarily from the write-off of a receivable from a former tenant deemed
uncollectible.
Real estate taxes increased $97,000 (6.5%) to $1,595,000 in the 1997
Quarter from $1,498,000 in the 1996 Quarter. The majority of the increase,
approximately $70,000, resulted from an increase in the assessed value of Seven
Corners due to the recently completed renovation.
Interest expense of $4,957,000 for the 1997 Quarter represented an increase
of $274,000 (5.9%) over $4,683,000 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.
Amortization of deferred debt expense decreased to $542,000 for the 1997
Quarter from $733,000 for the 1996 Quarter, representing a decrease of $191,000
(26.1%). 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 loan cost
amortization because new fixed rate debt costs are being amortized over a longer
term than the floating rate debt costs they replaced.
Depreciation and amortization expense increased $381,000 (17.0%) from
$2,245,000 in the 1996 Quarter to $2,626,000 in the 1997 Quarter, primarily as a
result of depreciation attributable to the Company's recently completed
redevelopments and renovations.
General and administrative expense, which consists of administrative,
payroll and other overhead expense, was $838,000 for the 1997 Quarter, an
increase of $116,000 (16.1%) over the 1996 Quarter, due primarily to increased
payroll and related employment expenses.
21
<PAGE>
Nine Months Ended September 30, 1997 compared to Nine Months Ended September 30,
- --------------------------------------------------------------------------------
1996
- ----
Base rent and expense recoveries were $38,560,000 and $6,884,000,
respectively, for the nine month period ended September 30, 1997 (the "1997
Period"), compared to $37,217,000 and $6,885,000, respectively, for the
comparable period in 1996 (the "1996 Period"), representing a $1,343,000 (3.6%)
increase in base rent and $1,000 (0.0%) decrease in expense recoveries. The
increase in base rent resulted primarily from new leases placed in service at
Seven Corners, Leesburg Pike and Great Eastern for the 1997 Period that were not
present during the 1996 Period. Base rent also increased at Thruway where
tenants pay contractual rent increases as a result of the Company's recent
facade renovation.
Percentage rent was $2,202,000 in the 1997 Period, compared to $2,170,000
in the 1996 Period, representing an increase of $32,000 (1.5%).
Other income, which is comprised primarily of parking income, kiosk
leasing, temporary leases, and payments associated with early termination of
leases, was $2,685,000 in the 1997 Period, compared to $1,312,000 in the 1996
Period, representing an increase of $1,373,000 (104.6%). The increase in other
income resulted primarily from increased lease termination payments collected at
Seven Corners, Beacon Center and Lexington Mall.
Operating expenses, comprised primarily of repairs and maintenance,
utilities, payroll and insurance, decreased $85,000 (1.4%) to $6,079,000 in the
1997 Period from $6,164,000 in the 1996 Period.
The provision for credit losses increased $86,000 (34.3%) to $337,000 in
the 1997 Period from $251,000 in the 1996 Period. The increase resulted
primarily from the write-off of a receivable from a former tenant.
Real estate taxes increased $183,000 (4.2%) to $4,565,000 in the 1997
Period from $4,382,000 in the 1996 Period.
Interest expense of $14,611,000 for the 1997 Period represented an increase
of $895,000 (6.5%) over $13,716,000 reported for the 1996 Period. 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.
Amortization of deferred debt expense decreased to $1,628,000 for the 1997
Period from $2,199,000 for the 1996 Period, representing a decrease of $571,000
(26.0%). 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 loan cost
amortization because new fixed rate debt costs are being amortized over a longer
term than the floating rate debt costs they replaced.
22
<PAGE>
Depreciation and amortization expense decreased $21,000 (0.3%) from
$7,852,000 in the 1996 Period to $7,831,000 in the 1997 Period.
General and administrative expense, which consists primarily of
administrative, payroll and other overhead expense, was $2,439,000 for the 1997
Period as compared to $2,284,000 for the 1996 Period, representing an increase
of $155,000 (6.8%) due primarily to increased payroll and related employment
expenses.
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.
23
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Financial Data Schedule
Schedule of Portfolio Properties
Reports on Form 8-K
-------------------
None.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SAUL CENTERS, INC.
(Registrant)
Date: November 13, 1997 /s/ Philip D. Caraci
------------------ ---------------------------------------
Philip D. Caraci, President
Date: November 13, 1997 /s/ Scott V. Schneider
------------------ ---------------------------------------
Scott V. Schneider
Vice President, Chief Financial Officer
25
<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 SEPTEMBER 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 997
<SECURITIES> 0
<RECEIVABLES> 5,875
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 346,253
<DEPRECIATION> 102,186
<TOTAL-ASSETS> 269,249
<CURRENT-LIABILITIES> 0
<BONDS> 283,370
0
0
<COMMON> 123
<OTHER-SE> (30,428)
<TOTAL-LIABILITY-AND-EQUITY> 269,249
<SALES> 0
<TOTAL-REVENUES> 50,331
<CGS> 0
<TOTAL-COSTS> 13,910
<OTHER-EXPENSES> 4,565
<LOSS-PROVISION> 337
<INTEREST-EXPENSE> 16,239
<INCOME-PRETAX> 7,331
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,331
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,331
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.60
</TABLE>
<PAGE>
EXHIBIT 99
SAUL CENTERS, INC.
SCHEDULE OF CURRENT PORTFOLIO PROPERTIES
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Leasable Year
Area Developed Land
(Square or Acquired Area Percentage Leased
Property Location Feet) (Renovated) (Acres) Sep-1997 Sep-1996 Anchor/Significant Tenants
- ------------------ ------------------ --------- ----------- ------- -------- -------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SHOPPING CENTERS
- ----------------
Ashburn Village Asburn, VA 108,204 1994 12.7 95% 100% Giant Food, Blockbuster
Beacon Center 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 91% 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 21% 37%
Flagship Center Rockville, MD 21,500 1972, 1989 0.5 100% 100%
French Market Oklahoma City, OK 213,658 1974(1984) 13.8 88% 94% 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 89% 90% Giant Food, Caldor, Pep Boys
Hampshire Langley Langley Park, MD 134,425 1972(1979) 9.9 100% 96% Safeway, McCrory
Leesburg Pike Baileys Crossroads, VA 97,888 1966(1982/95) 9.4 100% 100% Zany Brainy, CVS Pharmacy,
Hollywood Video
Lexington Mall Lexington, KY 315,551 1974 30.0 89% 98% McAlpin's, Dawahares of
Lexington, Rite Aid
Lumberton Lumberton, NJ 189,729 1975(1992/96) 23.3 88% 80% 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 95% 86%
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>
EXHIBIT 99
SAUL CENTERS, INC.
SCHEDULE OF CURRENT PORTFOLIO PROPERTIES
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Leasable Year
Area Developed Land
(Square or Acquired Area Percentage Leased
Property Location Feet) (Renovated) (Acres) Sep-1997 Sep-1996 Anchor/Significant Tenants
- ------------------ ------------------ --------- ----------- ------- -------- -------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SHOPPING CENTERS (CONTINUED)
- ----------------------------
Seven Corners Falls Church, VA 545,061 1973(1994-7) 31.6 94% 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) 39.6 100% 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, Piece
Goods Shop, Bocock-Stroud,
Houlihan's
Village Center Centreville, VA 142,881 1990 17.2 86% 84% Giant Food
West Park Oklahoma City, OK 107,895 1975 11.2 71% 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 5,149,700 442.9 89% 90%
--------- ----- ----- -----
<CAPTION>
COMMERCIAL PROPERTIES
- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Avenel Gaithersburg, MD 284,557 1981/85/89 28.2 94% 98% ONCOR, Inc.,
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% 74% United Mine Workers Pension
Trust, Office Depot, Pier 1
--------- ------ ----- -----
Total Commercial Properties 670,768 30.4 94% 93%
--------- ------ ----- -----
TOTAL PORTFOLIO 5,820,468 SF 473.3 90% 90%
========= ===== ===== =====
</TABLE>
