<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JUNE 30, 1998
-------------
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 Identification Number
incorporation or organization)
8401 Connecticut Avenue, Chevy Chase, Maryland 20815
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (301) 986-6000
--------------
Number of shares outstanding of each of the registrant's
classes of common stock, as of August 12, 1998:
Common Stock par value $0.01 per share: 12,723,662
---------------------------------------------------
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
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<PAGE>
SAUL CENTERS, INC.
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements (Unaudited)
--------------------------------
(a) Consolidated Balance Sheets as of June 30, 1998 and
December 31, 1997 .............................................. 4
(b) Consolidated Statements of Operations for the three months and
six months ended June 30, 1998 and 1997 ........................ 5
(c) Consolidated Statements of Stockholders' Equity as of
June 30, 1998 and December 31, 1997 ............................ 6
(d) Consolidated Statements of Cash Flows for the three months and
six months ended June 30, 1998 and 1997 ........................ 7
(e) Notes to Consolidated Financial Statements ..................... 8
Item 2. Management's Discussion and Analysis of Financial Condition and
----------------------------------------------------------------
Results of Operations
---------------------
(a) Liquidity and Capital Resources ............................... 15
(b) Results of Operations
Three months ended June 30, 1998 compared to three months
ended June 30, 1997 ........................................... 20
Six months ended June 30, 1998 compared to six months
ended June 30, 1997 ........................................... 21
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .............................. 24
--------------------------------
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BASIS OF PRESENTATION
In the opinion of management, the accompanying consolidated financial
statements reflect all adjustments necessary for fair presentation of the
financial position and results of operations of Saul Centers, Inc. 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, Inc. for the year
ended December 31, 1997, 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.
3
<PAGE>
SAUL CENTERS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
June 30, December 31,
(Dollars in thousands) 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Real estate investments
Land $ 65,817 $ 65,630
Buildings and equipment 275,268 269,638
------------- ------------
341,085 335,268
Accumulated depreciation (97,760) (92,615)
------------- ------------
243,325 242,653
Construction in progress 3,039 974
Cash and cash equivalents 1,837 688
Accounts receivable and accrued income, net 3,625 6,190
Prepaid expenses 5,302 5,423
Deferred debt costs, net 3,785 3,853
Other assets 2,604 1,161
------------- ------------
Total assets $ 263,517 $ 260,942
============= ============
LIABILITIES
Notes payable $ 287,221 $ 284,473
Accounts payable, accrued expenses and other liabilities 13,711 13,093
Deferred income 1,209 1,430
------------- ------------
Total liabilities 302,141 298,996
------------- ------------
MINORITY INTERESTS -- --
------------- ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $0.01 par value, 30,000,000 shares
authorized, 12,620,799 and 12,428,145 shares issued and
outstanding, respectively 126 124
Additional paid-in capital 24,970 20,447
Accumulated deficit (63,720) (58,625)
------------- ------------
Total stockholders' equity (deficit) (38,624) (38,054)
------------- ------------
Total liabilities and stockholders' equity $ 263,517 $ 260,942
============= ============
</TABLE>
The accompanying notes are integral part of these statements.
4
<PAGE>
SAUL CENTERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
For the Three Months For the Six Months
Ended June 30, Ended June 30,
(Dollars in thousands, except -----------------------------------------------------------------------------
per share amounts) 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE
Base rent $ 13,990 $ 12,857 $ 27,461 $ 25,458
Expense recoveries 2,394 2,246 4,714 4,558
Percentage rent 423 678 1,407 1,437
Other 698 843 1,251 1,733
------------------ ------------------ ------------------- ------------------
Total revenue 17,505 16,624 34,833 33,186
------------------ ------------------ ------------------- ------------------
OPERATING EXPENSES
Property operating expenses 1,915 2,010 3,886 4,036
Provision for credit losses 112 131 152 174
Real estate taxes 1,564 1,456 2,986 2,970
Interest expense 5,672 4,834 11,276 9,654
Amortization of deferred debt expense 108 541 209 1,086
Depreciation and amortization 2,923 2,633 5,648 5,205
General and administrative 885 808 1,687 1,601
------------------ ------------------ ------------------- ------------------
Total operating expenses 13,179 12,413 25,844 24,726
------------------ ------------------ ------------------- ------------------
NET INCOME BEFORE EXTRAORDINARY ITEM,
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
METHOD AND MINORITY INTERESTS 4,326 4,211 8,989 8,460
Extraordinary item
Early extinguishment of debt -- -- -- (369)
Cumulative effect of change
in accounting method -- -- (771) --
------------------ ------------------ ------------------- ------------------
NET INCOME BEFORE MINORITY INTERESTS 4,326 4,211 8,218 8,091
------------------ ------------------ ------------------- ------------------
MINORITY INTERESTS
Minority share of income (1,149) (1,096) (2,161) (2,144)
Distributions in excess of earnings (678) (617) (1,379) (1,282)
------------------ ------------------ ------------------- ------------------
Total minority interests (1,827) (1,713) (3,540) (3,426)
------------------ ------------------ ------------------- ------------------
NET INCOME $ 2,499 $ 2,498 $ 4,678 $ 4,665
================== ================== =================== ==================
NET INCOME PER SHARE (BASIC AND DILUTIVE)
Net income before extraordinary item,
cumulative effect of change in
accounting method and minority
interests $ 0.25 $ 0.25 $ 0.53 $ 0.51
Extraordinary item -- -- -- (0.02)
Cumulative effect of change
in accounting method -- -- (0.05) --
------------------ ------------------ ------------------- ------------------
Net income before minority interests $ 0.25 $ 0.25 $ 0.48 $ 0.49
================== ================== =================== ==================
Net income $ 0.20 $ 0.20 $ 0.37 $ 0.38
================== ================== =================== ==================
</TABLE>
The accompanying notes are integral part of these statements.
5
<PAGE>
SAUL CENTERS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------
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, 1996 $ 121 $ 15,950 $ (42,011) $ (25,940)
Issuance of 275,374 shares of
common stock 3 4,497 -- 4,500
Net income -- -- 2,552 2,552
Distributions ($1.17 per share) -- -- (14,334) (14,334)
Distributions payable ($.39 per share) -- -- (4,832) (4,832)
------------------ ------------------ ------------------- ------------------
Balance, December 31, 1997 124 20,447 (58,625) (38,054)
Issuance of 97,878 shares of
common stock 1 1,590 -- 1,591
Net income -- -- 2,179 2,179
Distributions payable ($.39 per share) -- -- (4,869) (4,869)
------------------ ------------------ ------------------- ------------------
Balance, March 31, 1998 125 22,037 (61,315) (39,153)
Issuance of 94,776 shares of
common stock 1 1,651 -- 1,652
Issuance of 186,655 convertible
limited partnership units in the
Operating Partnership -- 1,282 -- 1,282
Net income -- -- 2,499 2,499
Distributions payable ($.39 per share) -- -- (4,904) (4,904)
------------------ ------------------ ------------------- ------------------
Balance, June 30, 1998 $ 126 $ 24,970 $ (63,720) $ (38,624)
================== ================== =================== ==================
</TABLE>
The accompanying notes are integral part of these statements.
6
<PAGE>
SAUL CENTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------
For the Six Months
Ended June 30,
--------------------------------------
(Dollars in thousands) 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,678 $ 4,665
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interests 3,540 3,426
Cumulative effect of change
in accounting method 771 --
Loss on early extinguishment of debt -- 369
Depreciation and amortization 5,857 6,291
Provision for credit losses 152 174
Decrease in accounts receivable 1,642 2,487
Decrease (increase) in prepaid expenses (382) 156
Increase in other assets (1,443) (248)
Increase in accounts payable and other liabilities 618 1,071
Increase (decrease) in deferred income (221) 854
Other, net (37) --
------------------- ------------------
Net cash provided by operating activities 15,175 19,245
------------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to real estate investments (2,246) (3,593)
Additions to construction in progress (2,065) (8,567)
------------------- ------------------
Net cash used in investing activities (4,311) (12,160)
------------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 8,000 49,500
Repayments on notes payable (8,909) (45,188)
Note prepayment fees -- (95)
Additions to deferred debt expense (141) (357)
Proceeds from the issuance of common stock
and convertible limited partnership units
in the Operating Partnership 4,648 1,984
Distributions to common stockholders and
holders of convertible limited partnership
units in the Operating Partnership (13,313) (12,957)
------------------- ------------------
Net cash used in financing activities (9,715) (7,113)
------------------- ------------------
Net increase (decrease) in cash 1,149 (28)
Cash, beginning of period 688 38
=================== ==================
Cash, end of period $ 1,837 $ 10
=================== ==================
</TABLE>
The accompanying notes are integral part of these statements.
7
<PAGE>
SAUL CENTERS, INC.
Notes To Consolidated Financial Statements
(Unaudited)
1. ORGANIZATION, FORMATION AND STRUCTURE
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. 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". Saul Centers operates as a real estate
investment trust under the Internal Revenue Code of 1986, as amended (a "REIT").
FORMATION AND STRUCTURE OF COMPANY
Saul Centers was formed to continue and expand the shopping center business
previously owned and conducted by the B.F. Saul Real Estate Investment Trust,
the B.F. Saul Company, Chevy Chase Bank, F.S.B. and certain other affiliated
entities (collectively, "The Saul Organization"). On August 26, 1993, The Saul
Organization transferred to Saul Holdings Limited Partnership, a newly formed
Maryland limited partnership (the "Operating Partnership"), and two newly formed
subsidiary limited partnerships (the "Subsidiary Partnerships") 26 shopping
center properties, one office property, one research park and one office/retail
property and the management functions related to the transferred properties.
Since its formation, the Company has purchased three additional community and
neighborhood shopping center properties, an office property and purchased a land
parcel which it developed into a community shopping center. Therefore, as of
June 30, 1998, the Company's properties (the "Current Portfolio Properties")
consisted of 30 operating shopping center properties (the "Shopping Centers")
and four predominantly office properties (the "Office Properties"). To
facilitate the placement of collateralized mortgage debt, 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.
As a consequence of the transactions constituting the formation of the
Company, Saul Centers serves as the sole general partner of the Operating
Partnership and of Saul Subsidiary II Limited Partnership, while Saul QRS, Inc.,
Saul Centers' wholly owned subsidiary, serves as the sole general partner of
Saul Subsidiary I Limited Partnership. The remaining limited partnership
interests in Saul Subsidiary I Limited Partnership and Saul Subsidiary II
Limited Partnership are held by the Operating Partnership as the sole limited
partner. Through this structure, the Company owns 100% of the Current Portfolio
Properties.
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 office
properties, primarily in the Mid-Atlantic region.
A majority of the Shopping Centers are anchored by several major tenants.
Eighteen of the 30 Shopping Centers are anchored by a grocery store and offer
primarily day-to-day necessities and services. As of December 1997, no single
shopping center accounted for more than 10.6% of the total shopping center gross
leasable area. Only one retail tenant, Giant Food at 6.5%, accounted for more
than 2.0% of total Company revenues. No other retail tenants represented more
than 2.0% of total revenues for the year.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements of the Company include
the accounts of Saul Centers, its subsidiaries, and the Operating Partnership
and Subsidiary Partnerships which are majority owned by Saul Centers. All
significant intercompany balances and transactions have been eliminated in
consolidation.
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 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 development and construction. Once construction is substantially
completed and the assets are placed in service, their rental income, direct
operating expenses and depreciation are included in current operations.
Expenditures for repairs and maintenance are charged to operations as
9
<PAGE>
SAUL CENTERS, INC.
Notes To Consolidated Financial Statements
(Unaudited)
incurred. Interest expense capitalized during the three month periods ended June
30, 1998 and 1997, was $49,000 and $130,000, respectively.
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, at June 30,
1998 accounts receivable included $1,685,000, representing minimum rental income
accrued on a straight-line basis to be paid by tenants over the terms of the
respective leases. Receivables are reviewed monthly and reserves are created or
set up 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 $562,000 at June 30, 1998.
DEFERRED DEBT COSTS
Deferred debt costs consist of financing fees and costs incurred to obtain
long-term financing. These fees and costs are being amortized over the terms of
the respective loans or agreements. Deferred debt costs in the accompanying
financial statements are shown net of accumulated amortization of $340,000 at
June 30, 1998.
REVENUE RECOGNITION
Rental and interest income is accrued as earned except when doubt exists as
to collectibility, in which case the accrual is discontinued. When rental
payments due under leases vary from a straight-line basis, because of free rent
periods or stepped increases (excluding those increases which approximate
inflationary increases), income is recognized on a straight-line basis in
accordance with generally accepted accounting principles. Expense recoveries
represent property operating expenses to be billed to tenants, including common
area maintenance, real estate taxes and other recoverable costs. Expense
recoveries are recognized in the period the expenses are incurred. Percentage
rental income is recognized in accordance with EITF 98-9, in the quarterly
periods in which a tenant's year-to-date sales exceed an annual sales target.
For periods prior to January 1, 1998, the Company recognized percentage rent
monthly on an accrual basis using estimates of tenants' annual sales based upon
prior year's sales results adjusted to give effect to current sales data.
10
<PAGE>
SAUL CENTERS, INC.
Notes To Consolidated Financial Statements
(Unaudited)
INCOME TAXES
The Company made an election to be treated, and intends to continue
operating so as to qualify as a REIT under sections 856 through 860 of the
Internal Revenue Code of 1986, as amended, commencing with its taxable year
ending December 31, 1993. A REIT generally will not be subject to federal income
taxation on that portion of its income that qualifies as REIT taxable income to
the extent that it distributes at least 95% of its REIT taxable income to
stockholders and complies with certain other requirements. Therefore, no
provision has been made for federal income taxes in the accompanying financial
statements.
PER SHARE DATA
Per share data is calculated in accordance with SFAS No. 128, "Earnings Per
Share." The Company has no dilutive securities, therefore, basic and diluted
earnings per share are identical. Net income before minority interests is
presented on a fully converted basis, that is, assuming the limited partners
exercise their right to convert their partnership ownership into shares of Saul
Centers, and is computed using weighted average shares of 17,142,000 and
16,655,000, for the quarters and 17,015,000 and 16,621,000, for the six months
ended June 30, 1998 and 1997, respectively. Per share data relating to net
income after minority interests is computed using weighted average shares of
12,589,000 and 12,262,000, for the quarters and 12,542,000 and 12,228,000, for
the six months ended June 30, 1998 and 1997, respectively.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial
statements to conform to the current year presentation. The reclassifications
have no impact on operating results previously reported.
MINORITY INTERESTS - HOLDERS OF CONVERTIBLE LIMITED PARTNER UNITS IN THE
OPERATING PARTNERSHIP
The Saul Organization has a 26.6% limited partnership interest, represented
by 4,580,000 convertible limited partnership units, in the Operating
Partnership, as of June 30, 1998. These Convertible Limited Partnership Units
are convertible into shares of Saul Centers' common stock on a one-for-one
basis, provided the rights may not be exercised at any time that The Saul
Organization owns, directly or indirectly, in the aggregate more than 24.9% of
the outstanding equity securities of Saul Centers. The impact of The Saul
Organization's 26.6% limited partnership interest in the Operating Partnership
is reflected 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. A
director may elect to defer all or part of his or her director's fees to be
earned subsequent to the election. A director has the option to have deferred
director's fees paid in cash, in shares of common stock or in a combination of
cash and shares of common stock. If the director elects to have the deferred
fees paid in stock, the number of shares allocated to the director is determined
based on the market value of the common stock on the day the deferred director's
fee was earned. The Company has registered 70,000 shares for use under the
plan, all of which were authorized at June 30, 1998. As of June 30, 1998,
46,000 shares had been credited to the directors' deferred fee accounts.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income"
which establishes standards for the reporting and display of comprehensive
income in the Company's financial statements. The Company adopted this standard
in the first quarter of 1998. The Company had no comprehensive income.
In June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" which establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also established standards for related disclosures about
products and services, geographic areas, and major customers. Adoption of the
new standard is required for the December 1998 financial statements. Because
SFAS 131 addresses only disclosure-related issues, its adoption will not have an
impact on the Company's financial condition or its results of operations.
CHANGE IN ACCOUNTING METHOD
On May 21, 1998, the Emerging Issues Task Force (EITF) discussed Issue 98-9
"Accounting for Contingent Rent In Interim Financial Periods" and reached a
consensus that lessors should defer the accounting recognition of contingent
rent, such as percentage rent, until the specific tenant sales breakpoint target
is achieved. The Company's prior accounting method, which was permitted under
generally accepted accounting principles, recognized percentage rent when a
tenant's achievement of its sales breakpoint was considered probable. This EITF
consensus is being implemented retroactively to January 1, 1998, as a change in
accounting method. Excluding a one-time cumulative catch-up adjustment, the new
accounting method is not expected to materially affect the amount of percentage
rent income reported on an annual basis but may have a larger impact on the
recognition of percentage rent income reported on an interim quarterly basis.
The change in accounting method has no impact on the Company's cash
12
<PAGE>
SAUL CENTERS, INC.
Notes To Consolidated Financial Statements
(Unaudited)
flows. The comparative three month and six month period financial statements
ending June 30, 1997 have not been restated. Had the accounting method been
retroactively applied, net income for the quarter ended March 31, 1998 would
have been $2,950,000, and net income for the three month and six month periods
ended June 30, 1997, would have been $2,146,000 and $4,546,000, respectively.
3. CONSTRUCTION IN PROGRESS
Construction in progress includes the costs of redeveloping the French
Market shopping center and other predevelopment project costs. Development costs
include direct construction costs and indirect costs such as architectural,
engineering, construction management and carrying costs consisting of interest,
real estate taxes and insurance. Construction in progress balances as of June
30, 1998 and December 31, 1997 are as follows:
Construction in Progress
------------------------
(In thousands) June 30, 1998 December 31, 1997
------------- -----------------
French Market $2,139 $807
Beacon Center 785 153
Other 115 14
------ ----
Total $3,039 $974
====== ====
4. NOTES PAYABLE
Notes payable totaled $287.2 million at June 30, 1998, of which $268.6
million (93.5%) was fixed rate debt and $18.7 million (6.5%) was floating rate
debt.
As of June 30, 1998, the Company had a $60 million unsecured revolving
credit facility with outstanding borrowings of $15.0 million and additional
borrowing availability of $45.0 million. The line requires monthly interest
payments at a rate of LIBOR plus 1.5%.
As of June 30, 1998, the scheduled maturities of all debt for years ending
December 31, were as follows:
13
<PAGE>
Debt Maturity Schedule
----------------------
(In thousands)
July 1 through December 31, 1998 $ 2,363
1999 5,163
2000 24,204
2001 5,949
2002 5,607
2003 6,079
Thereafter 237,856
--------
Total $287,221
========
5. SHAREHOLDERS' EQUITY AND MINORITY INTERESTS
These financial statements are prepared in conformity with generally
accepted accounting principles and accordingly do not report the current value
of the Company's real estate assets. The Shareholders' Equity reported on the
Consolidated Balance Sheets does not reflect any increase in the value resulting
from the difference between the current value and the net book value of the
Company's assets. Therefore Shareholder's Equity reported on the Consolidated
Balance Sheets does not reflect the market value of stockholders' investment in
the Company.
The Consolidated Statement of Operations for the three months ended June
30, 1998 includes a charge for minority interests of $1,827,000 consisting of
$1,149,000 related to The Saul Organization's share of the net income for the
1998 quarter and $678,000 related to distributions to minority interests in
excess of allocated net income for the 1998 quarter. The charge for the three
month period ended June 30, 1997 of $1,713,000 consists of $1,096,000 related to
The Saul Organization's share of net income for the 1997 quarter, and $617,000
related to distributions to minority interests in excess of allocated net income
for the 1997 quarter.
14
<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, 1998 and for the three month and six month periods ended June 30, 1998.
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,
renovation, and redevelopment 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
outparcels or expansions within certain of the Shopping Centers, 3) acquire
existing neighborhood and community shopping centers and/or office properties
and 4) develop new shopping center sites. Acquisition and development of
properties are undertaken only after careful analysis and review, and
management's determination that such property is expected to provide long-term
earnings and cash flow growth. During the current year, any developments,
redevelopments, expansions or acquisitions are expected to be funded with bank
borrowings from the Company's credit line or other external capital resources
available to the Company.
The Company expects to fulfill its long range requirements for capital
resources in a variety of ways, including undistributed cash flow from
operations, secured or unsecured bank and institutional borrowings, private or
public offerings of debt or equity securities and proceeds from the sales of
properties. Borrowings may be at the Saul Centers, Operating Partnership or
Subsidiary Partnership level, and securities offerings may include (subject to
certain limitations) the issuance of additional limited partnership interests in
the Operating Partnership which can be converted into shares of Saul Centers
common stock.
15
<PAGE>
Management believes that the Company's current capital resources, which
includes the Company's credit line of which $45,000,000 was available for
borrowing as of June 30, 1998, will be sufficient to meet its liquidity needs
for the foreseeable future.
Financial Information
- ---------------------
For the second quarter of 1998, the Company reported Funds From Operations
(FFO) of $7,249,000. This represents an 11.7% increase over the comparable 1997
period's FFO of $6,492,000. FFO is presented on a fully converted basis and as
the most widely accepted measure of operating performance for REITs is defined
as net income before extraordinary and nonrecurring items and before real estate
depreciation and amortization. The following table represents a reconciliation
from net income before minority interests to FFO:
<TABLE>
<CAPTION>
Funds From Operations Schedule For the Quarters Ended June 30,
------------------------------ -------------------------------
(In thousands) 1998 1997
------ ------
<S> <C> <C>
Net income before minority interests $4,326 $4,211
Add:
Depreciation and amortization of real property 2,923 2,633
Retroactive impact of change in accounting method(1) - -352
------ ------
Funds From Operations $7,249 $6,492
====== ======
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
1998 1997
------- -------
<S> <C> <C>
Net income before minority interests $ 8,218 $ 8,091
Add:
Depreciation and amortization of real property 5,648 5,205
Nonrecurring item:
Change in accounting method 771 -
Debt restructuring losses:
Write-off unamortized loan costs 369
Retroactive impact of change in accounting method(1) - -119
------ - ------
Funds From Operations $14,637 $13,546
======= =======
Cash Flow provided by (used in):
Operating activities $15,175 $19,245
Investing activities -4,311 -12,160
Financing activities -9,715 -7,113
</TABLE>
16
<PAGE>
(1) Retroactive to January 1, 1998, the Company began recognition of percentage
rental income in accordance with a new accounting pronouncement. The
1997 second quarter and six month period FFO amounts previously reported
have been reduced $352,000 or $.02 per share and $119,000 or $.01 per
share, respectively, to provide comparability.
FFO does not represent cash generated from operating activities in accordance
with generally accepted accounting principles and is not necessarily indicative
of cash available to fund cash needs, which is disclosed in the Consolidated
Statements of Cash Flows for the applicable periods. There are no material
legal or functional restrictions on the use of FFO. FFO should not be
considered as an alternative to net income, as an indicator of the Company's
operating performance, or as an alternative to cash flows as a measure of
liquidity. Management considers FFO a supplemental measure of operating
performance and along with cash flow from operating activities, financing
activities and investing activities, it provides investors with an indication of
the ability of the Company to incur and service debt, to make capital
expenditures and to fund other cash needs. FFO may not be comparable to
similarly titled measures employed by other REITs. FFO, as defined by the
National Association of Real Estate Investment Trusts, is calculated as net
income excluding gains or losses from debt restructuring and sales of property,
plus depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures.
17
<PAGE>
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 on an ongoing basis in order to maintain prudent coverage of fixed
charges. Management believes that current total debt remains less than 50% of
total asset value.
During 1997, the Company closed two long-term fixed rate mortgages, which
management believes enhance the balance sheet. The Company's total notes payable
as of June 30, 1998 was $287.2 million and have a weighted average maturity of
13.0 years and a weighted average interest rate of 7.88%. Approximately $268.6
million or 93.5% of total notes payable is fixed rate debt. As of June 30,
1998, outstanding borrowings under the Company's $60 million unsecured line of
credit totaled $15.0 million, leaving $45.0 million of uncommitted credit
availability. This availability provides the Company with capital to pursue new
redevelopment, renovation, and expansion opportunities within its portfolio.
Redevelopment, Renovations and Acquisitions
- -------------------------------------------
The Company has been selectively involved in redevelopment, renovation and
acquisition activities. It continues to evaluate land parcels for development
and potential acquisitions of operating properties for opportunities to enhance
operating income and cash flow growth. The Company also continues to take
advantage of redevelopment, renovation and expansion opportunities within the
portfolio, as demonstrated by its redevelopment activities at French Market,
Beacon Center and Shops at Fairfax.
In February 1998, the Company commenced construction on a facade renovation
and retenanting of a 103,000 square foot anchor space at the 213,000 square foot
French Market center in Oklahoma City, Oklahoma. The Company successfully
negotiated the termination of a below market lease in the fourth quarter of
1997. Construction of the first two new tenant spaces, a 40,000 square foot
Bed, Bath and Beyond and an 8,000 square foot Lakeshore Learning, a children's
educational toy store, was completed in May 1998, with these stores now open for
business. Another 8,300 square feet has been leased and is under construction,
with the remaining 46,000 square feet under active leasing negotiations. The
redevelopment included a complete facade renovation of the 103,000 square foot
building which incorporates new anchor tenant architectural features, new
storefronts, tenant signage and decorative awnings.
The Company has signed a lease with Lowe's Companies for a new 148,000 square
foot home improvement superstore and garden center at the Beacon Center in
Alexandria, Virginia. The lease has an initial term of twenty years. The area
leased by Lowe's consists of approximately 100,000 square feet of existing space
and 48,000 square feet of new building area. The enclosed mall area will be
demolished, and the Lowe's store will be a newly constructed
18
<PAGE>
building, scheduled for opening in mid-1999. The center's other anchor tenants
include Giant, Marshalls and Office Depot, with a complement of small shop space
and restaurants. With Lowe's, the 350,000 square feet Beacon Center is now over
99% leased. In addition to the new home improvement store, 8,000 square feet of
new small shop space will be constructed adjacent to Lowe's and Giant.
Demolition of the enclosed mall and construction of the shop space has begun,
with scheduled completion in the fall of 1998.
The Company commenced another significant redevelopment when it signed a lease
with SuperFresh for a new 53,000 square foot grocery store at the Shops at
Fairfax, located in Fairfax, Virginia. A portion of the shopping center which
includes a small enclosed mall will be demolished. The SuperFresh store will be
a new building, with construction projected to be completed in the fall of 1999.
An additional 7,500 square feet of shop space will be constructed adjacent to
the supermarket. This redevelopment will provide more efficient parking and new
landscaping and will reposition the property, in management's opinion, as a
desirable neighborhood grocery anchored shopping center for the future. Subject
to final governmental approvals, construction is projected to commence in the
fall of 1998.
On April 1, 1998, the Company purchased, through its operating partnership, a
newly constructed, 100% leased office/flex building adjacent to its Avenel
Business Park in Gaithersburg, Maryland. The building contains 46,227 square
feet of net leasable area, which has increased the Company's Avenel Business
Park by 16%, to 332,000 square feet. An independent appraisal determined the
purchase price of $5,600,000. Payment consisted of $3,657,000 in debt
assumption, with the balance paid through the issuance of 105,922 new units in
Saul Centers' operating partnership. The seller is a member of The Saul
Organization and is an existing limited partner in the operating partnership.
In July 1998, the Company began construction of approximately 27,000 square
feet of additional office / flex space at Avenel Business Park on excess land
that it owns. Completion of this phase of the project is scheduled for December
1998. The Company has entered into a $2.7 million commitment for permanent
financing for this development at an interest rate of 7.09% and a loan term of
13 years. This financing is scheduled to be completed in September 1998.
Excluding this new development, Avenel Business Park is currently over 97%
leased.
Portfolio Leasing Status
- ------------------------
At June 30, 1998, the portfolio consisted of thirty Shopping Centers and four
Office Properties located in seven states and the District of Columbia. At June
30, 1998, the core shopping center portfolio, excluding the Crosstown conversion
property, was 91.5% leased compared to 92.3% leased at June 30, 1997. The
Office Properties were 96.7% leased at June 30, 1998 compared to 92.1% leased as
of June 30, 1997. In total, the Company's 5.9 million square feet of leasable
space was 89.3% leased to tenants at June 30, 1998, as compared to 90.1% at June
30, 1997.
19
<PAGE>
RESULTS OF OPERATIONS
The following discussion compares the results of the Company for the three
month and six month periods ended June 30, 1998 and 1997, 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, 1998 Compared to Three Months Ended June 30, 1997
- -----------------------------------------------------------------------------
Revenues for the three month period ended June 30, 1998 (the "1998 Quarter"),
totaled $17,505,000 compared to $16,624,000 for the comparable quarter in 1997
(the "1997 Quarter"), representing an increase of $881,000 (5.3%). Had the
Company retroactively applied the change in accounting method required by EITF
98-9, total revenues for the 1997 Quarter would have been $16,272,000. The 1998
Quarter's increase would have been $1,233,000 (7.6%).
Base rent was $13,990,000 for the 1998 Quarter, compared to $12,857,000 for
the 1997 Quarter, representing an increase of $1,133,000 (8.8%). The increase
in base rent resulted primarily from new leases placed in service at Seven
Corners and Ravenwood for the 1998 Quarter that were not present during the 1997
Quarter.
Expense recoveries were $2,394,000 for the 1998 Quarter compared to $2,246,000
for the comparable 1997 Quarter, representing an increase of $148,000 (6.6%).
Percentage rent was $423,000 in the 1998 Quarter, compared to $678,000 in the
1997 Quarter, representing a decrease of $255,000 (37.6%). Had the Company
retroactively applied the change in accounting method required by EITF 98-9,
percentage rent for the 1997 Quarter would have been $326,000. The 1998
Quarter's increase would have been $97,000 (29.8%).
Other income, which primarily consists of parking income, kiosk and temporary
leasing, and fees associated with early termination of leases, was $698,000 in
the 1998 Quarter, compared to $843,000 in the 1997 Quarter, representing a
decrease of $145,000 (17.2%). The decrease in other income resulted primarily
from lease termination payments collected at Seven Corners and Beacon Center
during the 1997 Quarter.
Operating expenses, consisting primarily of repairs and maintenance,
utilities, payroll, insurance and other property related expenses decreased
$95,000 (4.7%) to $1,915,000 in the 1998 Quarter from $2,010,000 in the 1997
Quarter. The expense decrease resulted primarily from higher legal expenses
associated with collections of several tenant receivables during the 1997
quarter.
The provision for credit losses decreased $19,000 (14.5%) to $112,000 in the
1998 Quarter from $131,000 in the 1997 Quarter.
20
<PAGE>
Real estate taxes increased $108,000 (7.4%) to $1,564,000 in the 1998 Quarter
from $1,456,000 in the 1997 Quarter. The expense increase resulted from
property tax assessment increases at two of the Company's redevelopment
properties.
Interest expense of $5,672,000 for the 1998 Quarter represented an increase of
$838,000 (17.3 %) over $4,834,000 reported for the 1997 Quarter. This increase
is primarily attributable to higher interest rates resulting from the Company's
October 1, 1997 refinancing and conversion of approximately $147.0 million of
its mortgage debt from interest rate capped floating rate loans to longer term,
fixed rate loans. New debt associated with the acquisition of Avenel IV on
April 1, 1998 also added approximately $70,000 to interest expense in the 1998
Quarter.
Amortization of deferred debt expense decreased $433,000 (80.0%) to
$108,000 in the 1998 Quarter from $541,000 in the 1997 Quarter. The decrease in
the 1998 Quarter's expense resulted from the elimination of amortization on
interest rate protection agreements with notional values of $162.8 million sold
during the fourth quarter of 1997, and reduced loan cost amortization because
new debt costs related to the October 1, 1997 refinancings are being amortized
over a longer term than the debt costs they replaced.
Depreciation and amortization expense increased $290,000 (11.0%) from
$2,633,000 in the 1997 Quarter to $2,923,000 in the 1998 Quarter, primarily as a
result of depreciation attributable to recently completed redevelopments and
renovations.
General and administrative expense, which consists of payroll,
administrative and other overhead expense, was $885,000 for the 1998 Quarter, an
increase of $77,000 (9.5%) over the 1997 Quarter.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
- -------------------------------------------------------------------------
Revenues for the six month period ended June 30, 1998 (the "1998 Period"),
totaled $34,833,000 compared to $33,186,000 for the comparable period in 1997
(the "1997 Period"), representing an increase of $1,647,000 (5.0%). Had the
Company retroactively applied the change in accounting method required by EITF
98-9, total revenues for the 1997 Period would have been $33,067,000. The 1998
Quarter's increase would have been $1,766,000 (5.3%).
Base rent was $27,461,000 for the 1998 Period, compared to $25,458,000 for the
1997 Period, representing an increase of $2,003,000 (7.9%). The increase in base
rent resulted primarily from new leases placed in service at Seven Corners and
Ravenwood for the 1998 Period that were not present during the 1997 Period.
Expense recoveries were $4,714,000 for the 1998 Period compared to $4,558,000
for the comparable 1997 Period, representing an increase of $156,000 (3.4%).
21
<PAGE>
Percentage rent was $1,407,000 in the 1998 Period, compared to $1,437,000 in
the 1997 Period, representing a decrease of $30,000 (2.1%). Had the Company
retroactively applied the change in accounting method required by EITF 98-9,
percentage rent for the 1997 Period would have been $1,318,000. The 1998
Period's increase would have been $89,000 (6.8%).
Other income, which primarily consists of parking income, kiosk and temporary
leasing, and fees associated with early termination of leases, was $1,251,000 in
the 1998 Period, compared to $1,733,000 in the 1997 Period, representing a
decrease of $482,000 (27.8%). The decrease in other income resulted primarily
from lease termination payments collected at Seven Corners and Beacon Center
during the 1997 Period.
Operating expenses, consisting primarily of repairs and maintenance,
utilities, payroll, insurance and other property related expenses decreased
$150,000 (3.7%) to $3,886,000 in the 1998 Period from $4,036,000 in the 1997
Period. The expense decrease resulted primarily from higher legal expenses
associated with collections of several tenant receivables during the 1997
Period.
The provision for credit losses decreased $22,000 (12.6%) to $152,000 in the
1998 Period from $174,000 in the 1997 Period.
Real estate taxes increased $16,000 (0.5%) to $2,986,000 in the 1998 Period
from $2,970,000 in the 1997 Period. The expense decrease resulted from tax
credits received upon the successful appeal of prior year property tax
assessments primarily at two of the Company's redevelopment properties.
Interest expense of $11,276,000 for the 1998 Period represented an increase of
$1,622,000 (16.8 %) over $9,654,000 reported for the 1997 Period. This increase
is primarily attributable to higher interest rates resulting from the Company's
October 1, 1997 refinancing and conversion of approximately $147.0 million of
its mortgage debt from interest rate capped floating rate loans to longer term,
fixed rate loans. New debt associated with the acquisition of Avenel IV on
April 1, 1998 also added approximately $70,000 to interest expense in the 1998
Period.
Amortization of deferred debt expense decreased $877,000 (80.8%) to
$209,000 in the 1998 Period from $1,086,000 in the 1997 Period. The decrease in
the 1998 Period's expense resulted from the elimination of amortization on
interest rate protection agreements with notional values of $162.8 million sold
during the fourth quarter of 1997, and reduced loan cost amortization because
new debt costs related to the October 1, 1997 refinancings are being amortized
over a longer term than the debt costs they replaced.
Depreciation and amortization expense increased $443,000 (8.5%) from
$5,205,000 in the 1997 Period to $5,648,000 in the 1998 Period, primarily as a
result of depreciation attributable to recently completed redevelopments and
renovations.
22
<PAGE>
General and administrative expense, which consists of payroll,
administrative and other overhead expense, was $1,687,000 for the 1998 Period,
an increase of $86,000 (5.4%) over the 1997 Period.
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 in January 1997. No such
item occurred during the 1998 Period.
Cumulative effect from change in accounting method was $771,000 for the 1998
Period, resulting from the implementation of Emerging Issues Task Force Issue
98-9 "Accounting for Contingent Rent" retroactive to January 1, 1998. No such
item occurred during the 1997 Period.
Other
- -----
The Company has evaluated its information technology systems to ensure
compliance with the requirements to process transactions in the year 2000. The
Company's primary internal information systems are fully compliant new systems.
In the event that any of the Company's significant tenants or suppliers do not
successfully and timely achieve Year 2000 compliance, the Company's operations
may be affected. The Company does not anticipate any material impact on its
results from operations or its financial condition as a result of any Year 2000
compliance issues.
23
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
--------
3. (a) First Amended and Restated Articles of Incorporation of Saul
Centers, Inc. filed with the Maryland Department of Assessments
and Taxation on August 23, 1994 and filed as Exhibit 3.(a) of the
1993 Annual Report of the Company on Form 10-K is hereby
incorporated by reference.
(b) Amended and Restated Bylaws of Saul Centers, Inc. as in effect at
and after August 24, 1993 and as of August 26, 1993 and filed as
Exhibit 3 (b) of the 1993 Annual Report of the Company on Form
10-K is hereby incorporated by reference. The First Amendment
to the First Amended and Restated Agreement of Limited
Partnership of Saul Subsidiary I Limited Partnership, the
Partnership of Saul Subsidiary I Limited Partnership, the Third
Amendment to the First Amended and Restated Agreement of Limited
Partnership of Saul Subsidiary I Limited Partnership and the
Fourth Amendment to the First Amended and Restated Agreement of
Limited Partnership of Saul Subsidiary I Limited Partnership as
filed as Exhibit 3.(b) of the 1997 Annual Report of the Company
on Form 10-K is hereby incorporated by reference.
10. (a) First Amended and Restated Agreement of Limited Partnership
of Saul Holdings Limited Partnership filed as Exhibit No. 10.1 to
Registration Statement No. 33-64562 is hereby incorporated by
reference. The First Amendment to the First Amended and Restated
Agreement of Limited Partnership of Saul Holdings Limited
Partnership, the Second Amendment to the First Amended and
Restated Agreement of Limited Partnership of Saul Holdings
Limited Partnership, and the Third Amendment to the First Amended
and Restated Agreement of Limited Partnership of Saul Holdings
Limited Partnership filed as Exhibit 10.(a) of the 1995 Annual
Report of the Company on Form 10-K is hereby incorporated by
reference. The Fourth Amendment to the First Amended and
Restated Agreement of Limited Partnership of Saul Holdings
Limited Partnership filed as Exhibit 10.(a) of the March 31, 1997
Quarterly Report of the Company is hereby incorporated by
reference.
(b) First Amended and Restated Agreement of Limited Partnership of
Saul Subsidiary I Limited Partnership and Amendment No. 1 thereto
filed as Exhibit 10.2 to Registration Statement No. 33-64562 are
hereby incorporated by reference. The Second Amendment to the
First Amended and Restated Agreement of Limited Partnership of
Saul Subsidiary I Limited Partnership, the Third Amendment to the
First Amended and Restated Agreement of Limited Partnership of
Saul Subsidiary I Limited Partnership and the Fourth Amendment to
the First Amended and Restated Agreement of Limited Partnership
of Saul Subsidiary I Limited Partnership as filed as Exhibit
10.(b) of the 1997 Annual Report of the Company on Form 10-K is
hereby incorporated by reference.
(c) First Amended and Restated Agreement of Limited Partnership of
Saul II Subsidiary Partnership and Amendment No. 1 thereto filed
as Exhibit 10.3 to Registration Statement No. 33-64562 are hereby
incorporated by reference.
(d) Property Conveyance Agreement filed as Exhibit 10.4 to
Registration Statement No. 33-64562 is hereby incorporated by
reference.
(e) Management Functions Conveyance Agreement filed as Exhibit 10.5
to Registration Statement No. 33-64562 is hereby incorporated by
reference.
(f) Registration Rights and Lock-Up Agreement filed as Exhibit 10.6
to Registration Statement No. 33-64562 is hereby incorporated by
reference.
(g) Exclusivity and Right of First Refusal Agreement filed as Exhibit
10.7 to Registration Statement No. 33-64562 is hereby
incorporated by reference.
(h) Saul Centers, Inc. 1993 Stock Option Plan filed as Exhibit 10.8
to Registration Statement No. 33-64562 is hereby incorporated by
reference.
(i) Agreement of Assumption dated as of August 26, 1993 executed by
Saul Holdings Limited Partnership and filed as Exhibit 10. (I) of
the 1993 Annual Report of the Company on Form 10-K is hereby
incorporated by reference.
(j) Saul Centers, Inc. 1995 Dividend Reinvestment and Stock Purchase
Plan as filed with the Securities and Exchange Commission as File
No. 33-80291 is hereby incorporated by reference.
(k) Deferred Compensation Plan for Directors dated as of December 13,
1993 as filed as Exhibit 10.(r) of the 1995 Annual Report of the
Company on Form 10-K is hereby incorporated by reference.
(l) Deed of Trust, Assignment of Rents, and Security Agreement dated
as of June 9, 1994 by and between Saul Holdings Limited
Partnership and Ameribanc Savings Bank, FSB as filed as Exhibit
10.(t) of the 1995 Annual Report of the Company on Form 10-K is
hereby incorporated by reference.
(m) Deed of Trust Note dated as of January 22, 1996 by and between
Saul Holdings Limited Partnership and Clarendon Station Limited
Partnership, filed as Exhibit 10.(s) of the March 31, 1997
Quarterly Report of the Company, is hereby incorporated by
reference.
(n) Loan Agreement dated as of November 7, 1996 by and among Saul
Holdings Limited Partnership, Saul Subsidiary II Limited
Partnership and PFL Life Insurance Company, c/o AEGON USA Realty
Advisors, Inc., filed as Exhibit 10.(t) of the March 31, 1997
Quarterly Report of the Company, is hereby incorporated by
reference.
(o) Promissory Note dated as of January 10, 1997 by and between Saul
Subsidiary II Limited Partnership and The Northwestern Mutual
Life Insurance Company, filed as Exhibit 10.(z) of the March 31,
1997 Quarterly Report of the Company, is hereby incorporated by
reference.
(p) Loan Agreement dated as of October 1, 1997 between Saul
Subsidiary I Limited Partnership, as Borrower and Nomura Asset
Capital Corporation, as Lender, is as filed as Exhibit 10.(p) of
the 1997 Annual Report of the Company on Form 10-K is hereby
incorporated by reference.
(q) Revolving Credit Agreement dated as of October 1, 1997 by and
between Saul Holdings Limited Partnership and Saul Subsidiary II
Limited Partnership, as Borrower and U.S. Bank National
Association, as agent, is as filed as Exhibit 10.(q) of the 1997
Annual Report of the Company on Form 10-K is hereby incorporated
by reference.
27. Financial Data Schedule
99. 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: August 14, 1998 /s/ Philip D. Caraci
---------------- --------------------------------------
Philip D. Caraci, President
Date: August 14, 1998 /s/ Scott V. Schneider
---------------- --------------------------------------
Scott V. Schneider
Senior Vice President, Chief Financial Officer
<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, 1998 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-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,837
<SECURITIES> 0
<RECEIVABLES> 3,625
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 341,085
<DEPRECIATION> 97,760
<TOTAL-ASSETS> 263,517
<CURRENT-LIABILITIES> 0
<BONDS> 287,221
0
0
<COMMON> 126
<OTHER-SE> (38,750)
<TOTAL-LIABILITY-AND-EQUITY> 263,517
<SALES> 0
<TOTAL-REVENUES> 34,833
<CGS> 0
<TOTAL-COSTS> 9,534
<OTHER-EXPENSES> 2,986
<LOSS-PROVISION> 152
<INTEREST-EXPENSE> 11,485
<INCOME-PRETAX> 8,989
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,989
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (771)
<NET-INCOME> 4,678
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.37
</TABLE>
<PAGE>
EXHIBIT 99
SAUL CENTERS, INC
SCHEDULE OF CURRENT PORTFOLIO PROPERTIES
JUNE 30, 1998
<TABLE>
<CAPTION>
LEASABLE YEAR
AREA DEVELOPED LAND
(SQUARE OR ACQUIRED AREA PERCENTAGE LEASED
PROPERTY LOCATION FEET) (RENOVATED) (ACRES) JUN-1998 JUN-1997 ANCHOR/SIGNIFICANT TENANTS
- ------------------ ---------------------- --------- -------------- ------- -------- -------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ashburn Village Ashburn, VA 108,204 1994 12.7 98% 95% Giant Food, Blockbuster
Beacon Center (a) Alexandria, VA 353,911 1972 (1993) 32.3 98% 69% Lowe's, Giant Food, Office Depot,
Outback Steakhouse, Marshalls,
Sneaker Stadium, Hollywood Video,
Minnesota Fabrics
Belvedere Baltimore, MD 54,941 1972 4.8 97% 100% Food King, Rite Aid
Boulevard Fairfax, VA 56,578 1994 5.0 100% 100% Danker Furniture, Petco
Clarendon Arlington, CA 6,940 1973 0.5 100% 100%
Clarendon Station Arlington, CA 4,868 1996 0.1 78% 100%
Flagship Center Rockville, MD 21,500 1972, 1989 0.5 100% 100%
French Market Oklahoma City, OK 213,668 1974(1984/98) 13.8 62% 88% Bed Bath & Beyond, Lakeshore
Learning Center, Fleming Food,
Furr's Cafeteria, BridesMart
Germantown Germantown, MD 26,241 1992 2.7 100% 92%
Giant Baltimore, MD 70,040 1972 (1990) 5.0 100% 100% Giant Food
The Glen Lake Ridge, VA 112,639 1994 14.7 97% 100% Safeway Marketplace, CVS Pharmacy
Great Eastern District Heights, MD 255,448 1972 (1995) 23.9 52% 90% Giant Food, Pep Boys, Big Lots
Hampshire Langley Langley Park, MD 134,425 1972 (1979) 9.9 96% 100% 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 315,639 1974 30.0 92% 97% McAlpin's, Dawahares of Lexington,
Fashion Shops, Rite Aid
Lumberton Lumberton, NJ 189,898 1975 (1992/96) 23.3 87% 88% 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 94% 77% Rite Aid
Park Road Center Washington, DC 106,650 1973 (1993) 1.7 100% 100%
Ravenwood Baltimore, MD 87,750 1972 8.0 100% 100% Giant Food
Seven Corners Falls Church, VA 567,994 1973 (1994-97) 31.6 98% 93% Home Depot, Shoppers Club, Best Buy,
Michaels, Barnes & Noble, Ross Dress
For Less, Centex Life Solutions, G
Street Fabrics
Shops at
Fairfax (a) Fairfax, VA 64,580 1975 (1992-93) 6.7 92% 65% SuperFresh
</TABLE>
<PAGE>
SAUL CENTERS, INC
SCHEDULE OF CURRENT PORTFOLIO PROPERTIES
JUNE 30, 1998
<TABLE>
<CAPTION>
LEASABLE YEAR
AREA DEVELOPED LAND
(SQUARE OR ACQUIRED AREA PERCENTAGE LEASED
PROPERTY LOCATION FEET) (RENOVATED) (ACRES) JUN-1998 JUN-1997 ANCHOR/SIGNIFICANT TENANTS
- -------------------- ---------------------- --------- -------------- ------- -------- -------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SHOPPING CENTERS (CONTINUED)
Southdale Glen Burnie, MD 476,349 1972 (1986) 39.6 100% 98% Giant Food, Hechinger, Circuit
City, Kids R Us, Michaels,
Marshalls, PetSmart, Value City
Furniture
Southside Plaza Richmond, VA 352,964 1972 32.8 84% 91% CVS Pharmacy, Nick's Supermarket,
Maxway
Sunshine City Atlanta, GA 177,643 1976 14.6 97% 88% Bolton Furniture, MacFrugals, Pep
Boys, The Emory Clinic
Thruway Winston-Salem, NC 339,564 1972 (1997) 30.5 86% 96% Stein Mart, Reading China & Glass,
Harris Teeter, Fresh Market, Eckerd
Drugs, Zany Brainy, Blockbuster,
Bocock-Stroud, Houlihan's
Village Center Centreville, VA 142,881 1990 17.2 87% 85% Giant Food
West Part Oklahoma City, OK 77,810 1975 11.2 92% 69% Homeland Stores
White Oak Silver Spring, MD 480,156 1972 (1993) 28.5 100% 100% Giant Food, Sears, Rite Aid,
Blockbuster
--------- ----- ---- ----
Total Shopping Centers 4,992,434 416.5 91% 92%
--------- ----- ---- ----
OFFICE PROPERTIES
- -----------------
Avenel I-III Gaithersburg, MD 285,218 1981/85/89 28.2 97% 90% Oncor, Inc., Quanta Systems, General
Services Administration
Avenel IV Gaithersburg, MD 46,227 1998 3.2 100% - Boston Biomedica, MicroAge
601 Pennsylvania Ave Washington, DC 225,153 1973 (1986) 1.0 100% 100% General Services Administration,
Capital Grill
Van Ness Square Washington, DC 157,697 1973 (1990) 1.2 90% 84% United Mine Workers Pension Trust,
Office Depot, Pier 1
--------- ----- ---- ----
Total Commercial
Properties 714,295 33.6 97% 92%
--------- ----- ---- ----
INDUSTRIAL PROPERTY
- -------------------
--------- ----- ---- ----
Crosstown /(b)/ Tulsa, OK 197,135 1975 21.5 7% 27%
--------- ----- ---- ----
TOTAL PORTFOLIO 5,903,864 /SF/ 471.6 89% 90%
========= ====== ==== ====
</TABLE>
/(a)/ Property is being redeveloped. Leasable area and percentage leased
includes space leased and under development.
/(b)/ Shopping center conversion - currently in approval and pre-development
phase.
