<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, 1999
-------------
COMMISSION FILE NUMBER 1-12254
-------
SAUL CENTERS, INC.
-----------------
(Exact name of registrant as specified in its charter)
Maryland 52-1833074
------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number
incorporation or organization)
8401 Connecticut Avenue, Chevy Chase, Maryland 20815
------------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (301) 986-6200
--------------
Number of shares outstanding of each of the registrant's
classes of common stock, as of August 10, 1999:
Common Stock par value $0.01 per share: 13,198,219
---------------------------------------------------
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
----- -----
<PAGE>
SAUL CENTERS, INC.
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
--------------------------------
(a) Consolidated Balance Sheets as of June 30, 1999 and
December 31, 1998......................................... 4
(b) Consolidated Statements of Operations for the three months
and six months ended June 30, 1999 and 1998............... 5
(c) Consolidated Statements of Stockholders' Equity as of
June 30, 1999 and December 31, 1998....................... 6
(d) Consolidated Statements of Cash Flows for the six months
ended June 30, 1999 and 1998.............................. 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........................... 17
(b) Results of Operations
Three months ended June 30, 1999 compared to three months
ended June 30, 1998....................................... 22
Six months ended June 30, 1999 compared to six months
ended June 30, 1998....................................... 23
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................... 26
--------------------------------
</TABLE>
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, 1998, 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.
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
(Dollars in thousands) 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Real estate investments
Land $ 63,795 $ 64,339
Buildings and equipment 288,779 283,722
----------- -----------
352,574 348,061
Accumulated depreciation (107,102) (101,910)
----------- -----------
245,472 246,151
Construction in progress 13,924 4,506
Cash and cash equivalents 2,001 2,395
Accounts receivable and accrued income, net 4,796 6,347
Prepaid expenses 6,410 6,873
Deferred debt costs, net 3,408 3,604
Other assets 3,200 1,158
----------- -----------
Total assets $ 279,211 $ 271,034
=========== ===========
Liabilities
Notes payable $ 294,211 $ 290,623
Accounts payable, accrued expenses and other liabilities 16,928 14,856
Deferred income 2,339 2,839
----------- -----------
Total liabilities 313,478 308,318
----------- -----------
Minority interests -- --
----------- -----------
Stockholders' equity (deficit)
Common stock, $0.01 par value, 30,000,000 shares
authorized, 13,074,829 and 12,836,378 shares issued and
outstanding, respectively 131 129
Additional paid-in capital 39,073 31,967
Accumulated deficit (73,471) (69,380)
----------- -----------
Total stockholders' equity (deficit) (34,267) (37,284)
----------- -----------
Total liabilities and stockholders' equity $ 279,211 $ 271,034
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
Saul Centers, Inc.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
(Dollars in thousands, except per share amounts) 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue
Base rent $ 14,467 $ 13,990 $ 28,800 $ 27,461
Expense recoveries 2,433 2,394 4,881 4,714
Percentage rent 250 423 1,030 1,407
Other 870 698 1,273 1,251
---------- ---------- ---------- ----------
Total revenue 18,020 17,505 35,984 34,833
---------- ---------- ---------- ----------
Operating expenses
Property operating expenses 1,899 1,915 3,835 3,886
Provision for credit losses 64 112 125 152
Real estate taxes 1,626 1,564 3,160 2,986
Interest expense 5,568 5,672 11,098 11,276
Amortization of deferred debt expense 105 108 208 209
Depreciation and amortization 2,892 2,923 5,789 5,648
General and administrative 935 885 1,797 1,687
---------- ---------- ---------- ----------
Total operating expenses 13,089 13,179 26,012 25,844
---------- ---------- ---------- ----------
Operating income 4,931 4,326 9,972 8,989
Non-operating item
Sales of interest rate protection agreements -- -- -- --
---------- ---------- ---------- ----------
Operating income 4,931 4,326 9,972 8,989
Cumulative effect of change in accounting method -- -- -- (771)
---------- ---------- ---------- ----------
Net income before minority interests 4,931 4,326 9,972 8,218
---------- ---------- ---------- ----------
Minority interests
Minority share of income (1,371) (1,149) (2,752) (2,161)
Distributions in excess of earnings (596) (678) (1,136) (1,379)
---------- ---------- ---------- ----------
Total minority interests (1,967) (1,827) (3,888) (3,540)
---------- ---------- ---------- ----------
Net income $ 2,964 $ 2,499 $ 6,084 $ 4,678
========== ========== ========== ==========
Net income per share (basic and dilutive)
Operating income $ 0.28 $ 0.27 $ 0.56 $ 0.27
Cumulative effect of change in accounting method -- -- -- --
---------- ---------- ---------- ----------
Net income before minority interests $ 0.28 $ 0.25 $ 0.56 $ 0.48
========== ========== ========== ==========
Net income $ 0.23 $ 0.20 $ 0.47 $ 0.37
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
Saul Centers, Inc.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
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, 1997 $ 124 $ 20,447 $ (58,625) $ (38,054)
Issuance of 408,233 shares of
common stock 5 6,629 -- 6,634
Issuance of 405,532 convertible
limited partnership units in the
Operating Partnership -- 4,891 -- 4,891
Net income -- -- 9,129 9,129
Distributions ($1.17 per share) -- -- (14,899) (14,899)
Distributions payable ($.39 per share) -- -- (4,985) (4,985)
--------- ---------- ----------- -----------
Balance, December 31, 1998 129 31,967 (69,380) (37,284)
Issuance of 121,090 shares of
common stock 1 1,702 -- 1,703
Issuance of 126,702 convertible
limited partnership units in the
Operating Partnership -- 1,782 -- 1,782
Net income -- -- 3,120 3,120
Distributions payable ($.39 per share) -- -- (5,075) (5,075)
--------- ---------- ----------- -----------
Balance, March 31, 1999 130 35,451 (71,335) (35,754)
Issuance of 117,361 shares of
common stock 1 1,791 -- 1,792
Issuance of 119,887 convertible
limited partnership units
Operating Partnership -- 1,831 -- 1,831
Net income -- -- 2,964 2,964
Distributions payable ($.39 per share) -- -- (5,100) (5,100)
--------- ---------- ----------- -----------
Balance, June 30, 1999 $ 131 $ 39,073 $ (73,471) $ (34,267)
========= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
Saul Centers, Inc.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months
Ended June 30,
(Dollars in thousands) 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,084 $ 4,678
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interests 3,888 3,540
Cumulative effect of change in
accounting method -- 771
Depreciation and amortization 5,997 5,857
Provision for credit losses 125 152
Decrease in accounts receivable 1,426 1,642
Increase in prepaid expenses (134) (382)
Increase in other assets (2,042) (1,443)
Increase in accounts payable and other liabilities 2,072 618
Decrease in deferred income (500) (221)
Other, net -- (37)
---------- ----------
Net cash provided by operating activities 16,916 15,175
---------- ----------
Cash flows from investing activities:
Additions to real estate investments (5,057) (2,246)
Additions to construction in progress (8,874) (2,065)
---------- ----------
Net cash used in investing activities (13,931) (4,311)
---------- ----------
Cash flows from financing activities:
Proceeds from notes payable 10,500 8,000
Repayments on notes payable (6,912) (8,909)
Additions to deferred debt expense (12) (141)
Proceeds from the issuance of common stock and
convertible limited partnership units in
the Operating Partnership 7,108 4,648
Distributions to common stockholders and holders
of convertible limited partnership units in
the Operating Partnership (14,063) (13,313)
---------- ----------
Net cash used in financing activities (3,379) (9,715)
---------- ----------
Net increase (decrease) in cash (394) 1,149
Cash, beginning of period 2,395 688
---------- ----------
Cash, end of period $ 2,001 $ 1,837
========== ==========
</TABLE>
The accompanying notes are an 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. As of June 30, 1999,
13,074,829 shares of common stock are issued and outstanding; no shares of
preferred stock have been issued. 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 and developed additional
properties. The Company is currently in the predevelopment and approval process
of converting an under-performing shopping center to an industrial / warehouse
use. Therefore, as of June 30, 1999, the Company's properties (the "Current
Portfolio Properties") consisted of 29 operating shopping center properties (the
"Shopping Centers"), a property planned to be converted to an industrial /
warehouse facility (the "Industrial Property") 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
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 29 Shopping Centers are anchored by a grocery store and offer
primarily day-to-day necessities and services. As of December 1998, no single
shopping center accounted for more than 11.4% of the total shopping center gross
leasable area. Only one retail tenant, Giant Food at 7.1%, accounted for more
than 1.7% of the Company's 1998 total revenues. No office tenant other than the
United States General Service Administration, at 10.4%, accounted for more than
1.8% of 1998 total revenues.
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
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
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. 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. Interest expense capitalized
during the six month periods ended June 30, 1999 and 1998, was $314,000 and
$83,000, respectively. Once construction is
9
<PAGE>
Saul Centers
Notes to Consolidated Financial Statements
(Unaudited)
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 incurred.
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,
1999 accounts receivable included $1,472,000, 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
established 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 $476,000 at June 30, 1999.
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 $797,000 at
June 30, 1999.
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, income is recognized on a straight-line basis in
accordance with generally accepted accounting principles. Expense recoveries
represent a portion of property operating expenses billed to the tenants,
including common area maintenance, real estate taxes and other recoverable
costs. Expense recoveries are recognized in the period when the expenses are
incurred. Rental income based on a tenant's revenues ("percentage rent") is
accrued when a tenant reports sales that exceed a specified breakpoint.
10
<PAGE>
Saul Centers
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, as if the limited partners had exercised
their right to convert their partnership ownership into shares of Saul Centers,
and is computed using weighted average shares of 18,042,000 and 17,142,000, for
the quarters and 17,921,000 and 17,015,000 for the six month periods ended
June 30, 1999 and 1998, respectively. Per share data relating to net income
after minority interests is computed using weighted average shares of 13,036,000
and 12,589,000, for the quarters and 12,977,000 and 12,542,000 for the six month
periods ended June 30, 1999 and 1998, 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 27.8% limited partnership interest, represented
by 5,045,000 convertible limited partnership units in the Operating Partnership,
as of June 30, 1999. These Convertible Limited Partnership Units are
convertible into shares of Saul Centers' common stock on a one-for-one basis,
although the right to convert 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 27.8% limited partnership interest in the Operating Partnership
is reflected as minority interests in the accompanying financial statements.
11
<PAGE>
Saul Centers
Notes to Consolidated Financial Statements
(Unaudited)
Deferred Compensation and Stock Plan for Directors
Saul Centers has established a Deferred Compensation and Stock Plan for
Directors (the "Plan"), 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 and has the option to have the fees paid in cash, in shares of
common stock or in a combination of cash and shares of common stock upon
termination from the Board. If the director elects to have fees paid in stock,
the number of shares allocated to the director is determined by the market price
of the common stock on the day the fee is earned. As of June 30, 1999,
120,000 shares were authorized and registered for use under the Plan, and
63,000 shares had been credited to the directors' deferred fee accounts.
Beginning in 1999, 100 shares of the Company's common stock is awarded
annually as additional compensation to each director serving on the Board of
Directors as of the record date for the Annual Meeting of Stockholders. The
shares are issued on the date of the Annual Meeting, their issuance may not be
deferred and transfer of the shares is restricted for a period of twelve months
following the date of issue.
New Accounting Pronouncements
In September 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("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 during the six month period ended June 30, 1999.
In September 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. Disclosures
required by this new standard are presented in Note 6.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires that
an entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. SFAS 133 is effective
for fiscal years beginning after June 15, 1999. The Company doesn't own
derivative instruments nor does it engage in hedging activities, and therefore
expects that SFAS 133 will not have an impact on the Company's financial
condition or its results of operations.
12
<PAGE>
Saul Centers
Notes to Consolidated Financial Statements
(Unaudited)
Change In Accounting Method
On May 21, 1998, the 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 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 was implemented
retroactively to January 1, 1998, as a change in accounting method. The new
accounting method is not expected to materially affect the amount of percentage
rent income reported on an annual basis, but is expected to have an impact on
the recognition of percentage rent income reported on a quarterly basis by
increasing revenues the Company reports in the first and fourth quarters and
decreasing revenues reported in the second and third quarters. The change in
accounting method has no impact on the Company's cash flows.
3. Construction In Progress
Construction in progress includes the costs of active development projects
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, 1999 and
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Construction in Progress June 30, 1999 December 31, 1998
------------------------ ------------- -----------------
(In thousands)
<S> <C> <C>
Avenel Business Park V.... $ 3,600 $2,800
North Washington St....... 4,753 -
Shops at Fairfax.......... 3,796 702
French Market............. 1,582 949
Other..................... 193 55
------- ------
Total..................... $13,924 $4,506
======= ======
</TABLE>
4. Notes Payable
Notes payable totaled $294.2 million at June 30, 1999, of which $269.7
million (91.7%) was fixed rate debt and $24.5 million (8.3%) was floating rate
debt. At June 30, 1999, the Company had a $60 million unsecured revolving
credit facility with outstanding borrowings of $21.5 million and additional
borrowing availability of $38.5 million. The facility requires monthly interest
payments at a rate of LIBOR plus 1.5%.
13
<PAGE>
Saul Centers
Notes to Consolidated Financial Statements
(Unaudited)
At June 30, 1999, the Company had borrowed $3.0 million of a $38.0 million
construction loan secured by the new North Washington Street development in
Alexandria, Virginia. The facility requires monthly interest payments at a rate
of LIBOR plus 1.9%.
At June 30, 1999, the scheduled maturities of all debt for years ending
December 31, were as follows:
<TABLE>
<CAPTION>
Debt Maturity Schedule
----------------------
(In thousands)
<S> <C>
July 1 through December 31, 1999............ $ 2,353
2000........................................ 27,165
2001........................................ 6,074
2002........................................ 8,752
2003........................................ 6,232
2004........................................ 15,999
Thereafter.................................. 227,636
--------
Total....................................... $294,211
========
</TABLE>
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, Shareholders' 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 six months ended June 30,
1999 includes a charge for minority interests of $3,888,000 consisting of
$2,752,000 related to The Saul Organization's share of the net income for the
1999 quarter and $1,136,000 related to distributions to minority interests in
excess of allocated net income for the 1999 quarter. The charge for the six
month period ended June 30, 1998 of $3,540,000 consists of $2,161,000 related to
The Saul Organization's share of net income for the 1998 quarter, and $1,379,000
related to distributions to minority interests in excess of allocated net income
for the 1998 quarter.
14
<PAGE>
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
6. Business Segments
The company has two reportable business segments: Shopping Centers and Office
Properties. The accounting policies for the segments presented below are the
same as those described in the summary of significant accounting policies (see
Note 1). The Company evaluates performance based upon net operating income for
properties in each segment.
<TABLE>
<CAPTION>
(Dollars in thousands) Shopping Office Corporate Consolidated
Centers Properties and Other (1) Totals
- ------------------------------------------------------ ------------ -------------- -------------- -----------------
Quarter ended June 30, 1999
- ------------------------------------------------------
<S> <C> <C> <C> <C>
Real estate rental operations:
Revenues......................................... $ 13,199 $ 4,690 $ 131 $ 18,020
Expenses......................................... -2,468 -1,121 0 -3,589
------------ -------------- -------------- -----------------
Income from real estate............................... 10,731 3,569 131 14,431
Interest expense & amortization of debt costs.... -5,673 -5,673
General and administrative....................... -935 -935
------------ -------------- -------------- -----------------
Subtotal.............................................. 10,731 3,569 -6,477 7,823
Depreciation and amortization.................... -2,005 -865 -22 -2,892
Minority interests............................... -1,967 -1,967
------------ -------------- -------------- -----------------
Net income............................................ $ 8,726 $ 2,704 $ -8,466 $ 2,964
============ ============== ============== =================
Capital investment.................................... $ 6,577 $ 450 $ 81 $ 7,108
============ ============== ============== =================
Total assets.......................................... $ 186,882 $ 70,194 $ 22,135 $ 279,211
============ ============== ============== =================
- ------------------------------------------------------
Quarter ended June 30, 1998
- ------------------------------------------------------
Real estate rental operations:
Revenues......................................... $ 13,135 $ 4,596 $ -41 $ 17,690
Expenses......................................... -2,361 -1,155 -75 -3,591
------------ -------------- -------------- -----------------
Income from real estate............................... 10,774 3,441 -116 14,099
Interest expense & amortization of debt costs.... -5,780 -5,780
General and administrative....................... -885 -885
------------ -------------- -------------- -----------------
Subtotal.............................................. 10,774 3,441 -6,781 7,434
Depreciation and amortization.................... -2,007 -890 -26 -2,923
Cumulative effect of accounting method change.... -771 -771
Minority interests............................... -1,827 -1,827
------------ -------------- -------------- -----------------
Net income............................................ $ 8,767 $ 2,551 $ -9,405 $ 1,913
============ ============== ============== =================
Capital investment.................................... $ 1,999 $ 24 $ 82 $ 2,105
============ ============== ============== =================
Total assets.......................................... $ 174,469 $ 69,797 $ 19,251 $ 263,517
============ ============== ============== =================
</TABLE>
(1) Includes the Industrial Property, Crosstown.
15
<PAGE>
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
(Dollars in thousands) Shopping Office Corporate Consolidated
Centers Properties and Other (1) Totals
- ---------------------------------------------------- -------------- -------------- -------------- ------------------
Six months ended June 30, 1999
- ----------------------------------------------------
<S> <C> <C> <C> <C>
Real estate rental operations:
Revenues........................................ $ 26,596 $ 9,256 $ 132 $ 35,984
Expenses........................................ -4,876 -2,242 -2 -7,120
-------------- -------------- -------------- ------------------
Income from real estate............................. 21,720 7,014 130 28,864
Interest expense & amortization of debt costs... -11,306 -11,306
General and administrative...................... -1,797 -1,797
-------------- -------------- -------------- ------------------
Subtotal............................................ 21,720 7,014 -12,973 15,761
Depreciation and amortization................... -4,009 -1,736 -44 -5,789
Minority interests.............................. -3,888 -3,888
-------------- -------------- -------------- ------------------
Net income.......................................... $ 17,711 $ 5,278 $ -16,905 $ 6,084
============== ============== ============== ==================
Capital investment.................................. $ 11,997 $ 1,748 $ 186 $ 13,931
============== ============== ============== ==================
Total assets........................................ $ 186,882 $ 70,194 $ 22,135 $ 279,211
============== ============== ============== ==================
- ----------------------------------------------------
Six months ended June 30, 1998
- ----------------------------------------------------
Real estate rental operations:
Revenues........................................ $ 25,803 $ 9,013 $ 17 $ 34,833
Expenses........................................ -4,735 -2,213 -76 -7,024
-------------- -------------- -------------- ------------------
Income from real estate............................. 21,068 6,800 -59 27,809
Interest expense & amortization of debt costs... -11,485 -11,485
General and administrative...................... -1,687 -1,687
-------------- -------------- -------------- ------------------
Subtotal............................................ 21,068 6,800 -13,231 14,637
Depreciation and amortization................... -3,830 -1,759 -59 -5,648
Cumulative effect of accounting method change... -771 -771
Minority interests.............................. -3,540 -3,540
-------------- -------------- -------------- ------------------
Net income.......................................... $ 17,238 $ 5,041 $ -17,601 $ 4,678
============== ============== ============== ==================
Capital investment.................................. $ 3,240 $ 969 $ 102 $ 4,311
============== ============== ============== ==================
Total assets........................................ $ 174,469 $ 69,797 $ 19,251 $ 263,517
============== ============== ============== ==================
</TABLE>
(1) Includes the Industrial Property, Crosstown.
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
June 30, 1999 and for the three and six month periods ended June 30, 1999.
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 or office 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, construction financing, proceeds from
the operation of the Company's dividend reinvestment plan 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.
Management believes that the Company's current capital resources, which
includes the Company's credit line of which $38,500,000 was available for
borrowing as of June 30, 1999, will be sufficient to meet its liquidity needs
for the foreseeable future.
17
<PAGE>
Financial Information
- ---------------------
For the first quarter of 1999, the Company reported Funds From Operations
("FFO") of $7,823,000. This represents an 7.9% increase over the comparable
1998 period's FFO of $7,249,000. 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 Three Months Ended June 30,
- ------------------------------ -----------------------------------
(In thousands) 1999 1998
---- ----
<S> <C> <C>
Net income before minority
interests................................. $ 4,931 $ 4,326
Add:
Depreciation and amortization of real
property............................. 2,892 2,923
------- -------
Funds From Operations...................... $ 7,823 $ 7,249
======= =======
<CAPTION>
For the Six Months Ended June 30,
-----------------------------------
1999 1998
---- ----
<S> <C> <C>
Net income before minority
interests................................. $ 9,972 $ 8,218
Add:
Depreciation and amortization of real
property............................. 5,789 5,648
Nonrecurring item:
Change in accounting method......... - 771
------- -------
Funds From Operations...................... $15,761 $14,637
======= =======
</TABLE>
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. 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.
18
<PAGE>
Cash flow from operating activities, financing activities and investing
activities for the six months ended June 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Cash Flow provided by (used in):
- --------------------------------
(In thousands)
For the Six Months Ended June 30,
-----------------------------------
1999 1998
--------- ---------
<S> <C> <C>
Operating activities..................... $ 16,916 $ 15,175
Investing activities..................... (13,931) (4,311)
Financing activities..................... (3,379) (9,715)
</TABLE>
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.
In January 1999, the Company closed a $38 million construction loan, which
it anticipates will substantially fund the development costs associated with the
230,000 square foot North Washington Street mixed-use office/retail complex,
located in Old Town Alexandria, Virginia. The loan has an initial three-year
term with an interest rate of LIBOR plus 1.90%, which will decline as leasing of
the office and retail space proceeds. At July 30, 1999, outstanding borrowings
on this construction loan totaled $3.3 million.
At July 30, 1999, outstanding borrowings on the Company's $60 million
unsecured credit line totaled $27.0 million, leaving $33.0 million of credit
availability. The Company has fixed interest rates on approximately 90% of its
total debt outstanding, which now has a weighted remaining term of approximately
12 years.
19
<PAGE>
Redevelopment, Renovations and Acquisitions
- -------------------------------------------
The Company has been selectively involved in redevelopment, renovation and
acquisition activities. It continues to evaluate land parcels for retail and
office 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 activities at French
Market, Beacon Center, Shops at Fairfax, Avenel, and North Washington Street.
The Company has completed construction on a facade renovation and is
retenanting a 103,000 square foot anchor space at the 213,000 square foot French
Market center in Oklahoma City, Oklahoma. Leasing and occupancy of the first
three new spaces, a 41,000 square foot Bed, Bath and Beyond, an 8,000 square
foot Lakeshore Learning, a children's educational toy store and an 8,000 square
foot BridesMart formal wear retailer were completed in 1998. During the first
quarter of 1999, the Company signed a lease with a 25,000 square foot Staples
office supply store, which leaves only 21,000 square feet remaining to lease.
Staples is scheduled to open in late summer of 1999.
The Company is redeveloping the Beacon Center, located along U.S. Route 1
in Alexandria, Virginia. Beacon Center's central enclosed mall area has been
demolished and construction has commenced on a 148,000 square foot Lowe's home
improvement and garden center store, which is scheduled to open in early October
1999. Beacon's other tenants include anchors Giant Food, Marshalls and Office
Depot, with a complement of small shop space and restaurants. The 356,000 square
feet Beacon Center is now 100% leased. In addition to the new home improvement
store, 8,000 square feet of new small shop space adjacent to Lowe's and Giant
was constructed in late 1998 and is fully occupied.
The Company commenced another significant redevelopment during 1998 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 small enclosed mall comprising
a portion of the shopping center was demolished and replaced by the new
SuperFresh building and an additional 7,500 square feet of small shop space
adjacent to the supermarket. SuperFresh plans to open for business in
September. The Company has signed leases or received commitments for all of the
7,500 square feet of new small shop space. The facade of the adjacent Boulevard
shopping center, also owned by the Company, was renovated and modernized. This
renovation featured a new 12,000 square foot Party City store, which opened in
May 1999. Redevelopment plans included new landscaping and a more efficient
parking scheme. The Boulevard redevelopment complements the new construction at
Shops At Fairfax and positions the combined properties as an attractive
neighborhood shopping center.
20
<PAGE>
Office development and acquisition activities will be an integral part of
the Company's focus during 1999. In July 1998, the Company began development of
approximately 27,000 square feet of additional office/flex space at Avenel
Business Park on excess land that it owns. Construction of this new project
(Avenel V) was substantially completed during January 1999. Approximately 78% of
the space is leased, and negotiations continue for the remaining space.
Including this new development, Avenel Business Park is currently over 97%
leased.
In February 1999, the Company announced the development of a new 230,000
square foot Class A mixed-use office/retail complex along North Washington
Street in historic Old Town Alexandria in Northern Virginia. The project is well
located on a two-acre site along Alexandria's main street. Demolition of the
Company's existing 41,500 square foot building, formerly leased to Mastercraft
furniture, was completed in March 1999. Site excavation is substantially
completed and site's crane tower was erected in early July. Construction is
scheduled to be completed by the summer of 2000. Two twin four-story buildings
will feature a brick and cast stone exterior facade with a glass curtain wall
overlooking a spacious courtyard. Amenities will include 3-story atrium
lobbies, a fitness center, concierge service, a 600 space parking structure and
the latest computerized energy management system. The street level will have
45,000 square feet of retail space, of which substantially all of the space is
either leased or under negotiation. The Company is aggressively marketing the
185,000 square feet of office space to corporate users, professionals and trade
associations.
Portfolio Leasing Status
- ------------------------
At June 30, 1999, the portfolio consisted of twenty-nine Shopping Centers,
four Office Properties and one Industrial Property, all of which are located in
seven states and the District of Columbia. The Office Properties consist of one
office property and one office/retail property, both located in the District of
Columbia, and two properties in a research park located in a Maryland suburb of
Washington, D.C.
At June 30, 1999, 91.2% of the Company's 5.9 million square feet of
leasable space was leased to tenants, as compared to 89.4% at June 30, 1998. The
shopping center portfolio was 94.0% leased at June 30, 1999 versus 91.5% as of
June 30, 1998. The Office Properties were 96.8% leased at June 30, 1999 compared
to 96.7% at June 30, 1998. Excluding the 200,000 square foot warehouse
redevelopment which is currently vacant, 94.4% of the portfolio was leased. The
improvement was primarily impacted by the Company's successful leasing of the
former Caldor space at Great Eastern.
21
<PAGE>
Results of Operations
The following discussion compares the results of the Company for the three
month quarters and six month periods ended June 30, 1999 and 1998, 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, 1999 Compared to Three Months Ended June 30, 1998
- -----------------------------------------------------------------------------
Revenues for the three month period ended June 30, 1999 (the "1999
Quarter"), totaled $18,020,000 compared to $17,505,000 for the comparable
quarter in 1998 (the "1998 Quarter"), an increase of $515,000 (2.9%).
Base rent was $14,467,000 for the 1999 Quarter, compared to $13,990,000 for
the 1998 Quarter, representing an increase of $477,000 (3.4%).
Expense recoveries were $2,433,000 for the 1999 Quarter compared to
$2,394,000 for the comparable 1998 Quarter, representing an increase of $39,000
(1.6%).
Percentage rent was $250,000 in the 1999 Quarter, compared to $423,000 in
the 1998 Quarter a decrease of $173,000 (40.9%). The decrease in percentage rent
resulted primarily from the rollover of a Ravenwood anchor lease into higher
paying base rent in lieu of percentage rent.
Other income, which primarily consists of parking income, kiosk and
temporary leasing, and fees associated with early termination of leases, was
$870,000 in the 1999 Quarter, compared to $698,000 in the 1998 Quarter,
representing an increase of $172,000 (24.6%).
Operating expenses, consisting primarily of repairs and maintenance,
utilities, payroll, insurance and other property related expenses, decreased
$16,000 (0.8%) to $1,899,000 in the 1999 Quarter from $1,915,000 in the 1998
Quarter.
The provision for credit losses decreased $48,000 (42.9%) to $64,000 in the
1999 Quarter from $112,000 in the 1998 Quarter.
Real estate taxes increased $62,000 (4.0%) to $1,626,000 in the 1999
Quarter from $1,564,000 in the 1998 Quarter.
Interest expense of $5,568,000 for the 1999 Quarter represented a decrease
of $104,000 (1.8%) from $5,672,000 reported for the 1998 Quarter.
Amortization of deferred debt expense decreased $3,000 (2.8%) to $105,000
in the 1999 Quarter from $108,000 in the 1998 Quarter.
22
<PAGE>
Depreciation and amortization expense decreased $31,000 (1.1%) from
$2,923,000 in the 1998 Quarter to $2,892,000 in the 1999 Quarter.
General and administrative expense, which consists of payroll,
administrative and other overhead expense, was $935,000 for the 1999 Quarter, an
increase of $50,000 (5.6%) over the 1998 Quarter. The increase in 1999 expenses
compared to 1998 resulted primarily from increases in payroll related expenses.
Six months Ended June 30, 1999 Compared to Six months Ended June 30, 1998
- -------------------------------------------------------------------------
Revenues for the six month period ended June 30, 1999 (the "1999 Period"),
totaled $35,984,000 compared to $34,833,000 for the comparable period in 1998
(the "1998 Period") an increase of $1,151,000 (3.3%).
Base rent was $28,800,000 for the 1999 Period, compared to $27,461,000 for
the 1998 Period, representing an increase of $1,339,000 (4.9%).
Expense recoveries were $4,881,000 for the 1999 Period compared to
$4,714,000 for the comparable 1998 Period, representing an increase of $167,000
(3.5%).
Percentage rent was $1,030,000 in the 1999 Period, compared to $1,407,000
in the 1998 Period a decrease of $377,000 (26.8%). The decrease in percentage
rent resulted primarily from the rollover of a Ravenwood anchor lease into
higher paying base rent in lieu of percentage rent.
Other income, which primarily consists of parking income, kiosk and
temporary leasing, and fees associated with early termination of leases, was
$1,273,000 in the 1999 Period, compared to $1,251,000 in the 1998 Period,
representing an increase of $22,000 (1.8%).
Operating expenses, consisting primarily of repairs and maintenance,
utilities, payroll, insurance and other property related expenses, decreased
$51,000 (1.3%) to $3,835,000 in the 1999 Period from $3,886,000 in the 1998
Period.
The provision for credit losses decreased $27,000 (17.8%) to $125,000 in
the 1999 Period from $152,000 in the 1998 Period.
Real estate taxes increased $174,000 (5.8%) to $3,160,000 in the 1999
Period from $2,986,000 in the 1998 Period. The increase resulted from higher
taxes imposed primarily upon Seven Corners and to a lesser extent several of the
Company's other Virginia properties.
Interest expense of $11,098,000 for the 1999 Period represented a decrease
of $178,000 (1.6%) from $11,276,000 reported for the 1998 Period.
23
<PAGE>
Amortization of deferred debt expense decreased $1,000 (0.5%) to $208,000
in the 1999 Period from $209,000 in the 1998 Period.
Depreciation and amortization expense increased $141,000 (2.5%) from
$5,648,000 in the 1998 Period to $5,789,000 in the 1999 Period.
General and administrative expense, which consists of payroll,
administrative and other overhead expense, was $1,797,000 for the 1999 Period,
an increase of $110,000 (6.5%) over the 1998 Period. The increase in 1999
expenses compared to 1998 resulted from increases in payroll and state income
tax expenses.
Year 2000 Issue
- ---------------
The year 2000 issue relates to whether computer systems will properly
recognize date sensitive information to allow accurate processing of
transactions and data relating to the year 2000 and beyond. In addition, the
year 2000 issue relates to whether non-Information Technology (IT) systems that
depend upon embedded electronic technology will recognize the year 2000.
Systems that do not properly recognize such information could generate erroneous
information or fail.
In 1995, the Company contracted to replace virtually all of its management
information and accounting systems and install a local area network (LAN). One
of the selection criteria of the new software and hardware was that they be
fully year 2000 compliant. The new LAN and management and accounting
information systems have been installed. Therefore, the Company's management
information and accounting systems are fully year 2000 compliant. As a result
of its efforts, the Company does not expect to incur any additional expense for
its information systems related to the year 2000 issue.
The Company's property management staff has conducted a comprehensive
review of its non-IT systems at its shopping centers and office buildings to
determine whether any computer hardware and software in mechanical systems (i.e.
escalators, elevators, security, heating, ventilating and air conditioning
systems, etc.) are not year 2000 compliant. Work has commenced on repairs and
replacements required to make the Company's non-IT systems year 2000 compliant.
The costs were less than $100,000 and work was substantially completed in July
1999.
The Company believes there is risk that its operations may be affected by
vendors and tenants who are unable to perform as contracted due to their own
year 2000 exposure. It is very difficult to identify "the most reasonably
likely worst case scenario" at this time. The Company's potential exposure is
widespread; however there is no known or expected major direct exposure. The
Company believes that the most likely worst case exposure is at this indirect
level where vendors and tenants fail to perform their obligations to the
Company. For example, the Company believes it is possible that certain tenants'
information systems may fail, which may delay the payment of rents. To help
minimize this risk, the Company sent a letter to
24
<PAGE>
each tenant prior to January 1, 1999 advising the tenant that rent payments due
January 1, 2000 must be paid on time. These reminders will be sent twice again
in 1999. The Company's leases contain provisions empowering it to take certain
actions to enforce its right to the timely payment of rent, regardless of the
tenant's year 2000 exposure. While it is not possible at this time to determine
the likely impact of these potential problems, the Company will continue to
evaluate these areas and develop contingency plans, as appropriate.
25
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
None
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 are 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 are hereby incorporated by reference. The
First Amendment to the First Amended and Restated Agreement of
Limited Partnership of Saul Subsidiary I Limited Partnership,
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 3.(b) of
the 1997 Annual Report of the Company on Form 10-K are 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 are 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
June 30, 1998 Quarterly Report of the Company is hereby
incorporated by reference.
II-1
<PAGE>
(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 are hereby
incorporated by reference.
(c) First Amended and Restated Agreement of Limited Partnership of
Saul Subsidiary II Limited 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, as amended and restated by the
Deferred Compensation and Stock Plan for Directors, dated as
of March 18, 1999, filed as Exhibit 10.(k) of the March 31,
1999 Quarterly Report of the Company, is hereby incorporated
by reference.
II-2
<PAGE>
(l) Deed of Trust, Assignment of Rents, and Security Agreement
dated as of September 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 June 30,
1998 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 June 30,
1998 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
June 30, 1998 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 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 filed as Exhibit 10.(q) of the 1997
Annual Report of the Company on Form 10-K is hereby
incorporated by reference.
(r) Construction Loan Agreement dated as of January 11, 1999 by
and between Saul Holdings Limited Partnership and Saul
Centers, Inc. as Borrower and Wells Fargo Bank National
Association as Lender filed as Exhibit 10.(r) of the March 31,
1999 Quarterly Report of the Company on Form 10-Q is hereby
incorporated by reference.
(s) Promissory Note dated as of January 11, 1999 by and between
Saul Holdings Limited Partnership and Saul Centers, Inc. as
Borrower and Wells Fargo Bank National Association as Lender
filed as Exhibit 10.(s) of the March 31, 1999 Quarterly Report
of the Company on Form 10-Q is hereby incorporated by
reference.
II-3
<PAGE>
27. Financial Data Schedule
99. Schedule of Portfolio Properties
Reports on Form 8-K
-------------------
None.
II-4
<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 10, 1999 /s/ Philip D. Caraci
--------------- --------------------------------------
Philip D. Caraci, President
Date: August 10, 1999 /s/ Scott V. Schneider
--------------- --------------------------------------
Scott V. Schneider
Senior Vice President, Chief Financial Officer
S-1
<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, 1999 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-30-1999
<CASH> 2001
<SECURITIES> 0
<RECEIVABLES> 4796
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 352,574
<DEPRECIATION> 107,102
<TOTAL-ASSETS> 279,211
<CURRENT-LIABILITIES> 0
<BONDS> 294,211
0
0
<COMMON> 131
<OTHER-SE> (34,398)
<TOTAL-LIABILITY-AND-EQUITY> 279,211
<SALES> 0
<TOTAL-REVENUES> 35,984
<CGS> 0
<TOTAL-COSTS> 9,624
<OTHER-EXPENSES> 3,160
<LOSS-PROVISION> 125
<INTEREST-EXPENSE> 11,306
<INCOME-PRETAX> 9,972
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,972
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,084
<EPS-BASIC> 0.47
<EPS-DILUTED> 0.47
</TABLE>
<PAGE>
EXHIBIT 99
Saul Centers, Inc
Schedule of Current Portfolio Properties
June 30, 1999
<TABLE>
<CAPTION>
Leasable Year
Area Developed Land
(Square or Acquired Area
Property Location Feet) (Renovated) (Acres)
---------------------- -------------------------- ---------------- ------------------ -----------
<S> <C> <C> <C> <C>
Shopping Centers
- ----------------
Ashburn Village Ashburn, VA 108,204 1994 12.7
Beacon Center (a) Alexandria, VA 355,659 1972 (1993/1998) 32.3
Belvedere Baltimore, MD 54,941 1972 4.8
Boulevard Fairfax, VA 56,350 1994 5.0
Clarendon Arlington, VA 6,940 1973 0.5
Clarendon Station Arlington, VA 4,868 1996 0.1
Flagship Center Rockville, MD 21,500 1972, 1989 0.5
French Market Oklahoma City, OK 213,625 1974 (1984/98) 13.8
Germantown Germantown, MD 26,241 1992 2.7
Giant Baltimore, MD 70,040 1972 (1990) 5.0
The Glen Lake Ridge, VA 112,639 1994 14.7
Great Eastern District Heights, MD 255,448 1972 (1995) 23.9
Hampshire Langley Langley Park, MD 134,425 1972 (1979) 9.9
Leesburg Pike Baileys Crossroads, VA 97,888 1966 (1982/95) 9.4
Lexington Mall Lexington, KY 315,747 1974 30.0
Lumberton Lumberton, NJ 189,898 1975 (1992/96) 23.3
Olney Olney, MD 53,765 1975 (1990) 3.7
Park Road Center Washington, DC 106,650 1973 (1993) 1.7
Ravenwood Baltimore, MD 87,750 1972 8.0
Seven Corners Falls Church, VA 567,994 1973 (1994-7) 31.6
Shops at Fairfax (a) Fairfax, VA 60,703 1975 (1993/1998) 6.7
Southdale Glen Burnie, MD 479,749 1972 (1986) 39.6
</TABLE>
<TABLE>
<CAPTION>
Percentage Leased
Property Jun-1999 Jun-1998 Anchor / Significant Tenants
---------------------- ------------ ------------ --------------------------------------------------------------------
<S> <C> <C> <C>
Shopping Centers
- ----------------
Ashburn Village 98% 98% Giant Food, Blockbuster
Beacon Center (a) 100% 98% Lowe's, Giant Food, Office Depot, Outback Steakhouse, Marshalls,
Just For Feet, Hollywood Video, Hancock Fabrics
Belvedere 91% 97% Food King, McCrory
Boulevard 100% 100% Danker Furniture, Petco, Party City
Clarendon 100% 100%
Clarendon Station 100% 78%
Flagship Center 100% 100%
French Market 81% 62% Bed Bath & Beyond, Lakeshore Learning Center, Fleming Food, Furr's
Cafeteria, BridesMart, Staples
Germantown 100% 100%
Giant 100% 100% Giant Food
The Glen 97% 97% Safeway Marketplace, CVS Pharmacy
Great Eastern 97% 52% Giant Food, Pep Boys, Big Lots, Run N' Shoot
Hampshire Langley 100% 96% Safeway, McCrory
Leesburg Pike 100% 100% Zany Brainy, CVS Pharmacy, Hollywood Video
Lexington Mall 87% 92% Dillard's, Dawahares of Lexington, Fashion Shops, Rite Aid
Lumberton 91% 87% SuperFresh, Rite Aid, Blockbuster, Mandee
Olney 100% 94% Rite Aid
Park Road Center 100% 100%
Ravenwood 100% 100% Giant Food
Seven Corners 100% 98% Home Depot, Shoppers Club, Best Buy, Michaels, Barnes & Noble, Ross
Dress For Less, G Street Fabrics
Shops at Fairfax (a) 100% 98% SuperFresh
Southdale 96% 100% Giant Food, Hechinger, Circuit City, Kids R Us, Michaels, Marshalls,
PetSmart, Value City Furniture
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Leasable Year
Area Developed Land
(Square or Acquired Area
Property Location Feet) (Renovated) (Acres)
---------------------- -------------------------- ---------------- ------------------ -----------
<S> <C> <C> <C> <C>
Shopping Centers (continued)
- ----------------
Southside Plaza Richmond, VA 352,964 1972 32.8
South Dekalb Plaza Atlanta, GA 167,591 1976 14.6
Thruway Winston-Salem, NC 345,054 1972 (1997) 30.5
Village Center Centreville, VA 142,881 1990 17.2
West Park Oklahoma City, OK 77,810 1975 11.2
White Oak Silver Spring, MD 480,156 1972 (1993) 28.5
---------------- --------
Total Shopping Centers 4,947,480 414.5
---------------- --------
Office Properties
- -----------------
Avenel I-III Gaithersburg, MD 285,218 1981/85/89 28.2
Avenel IV Gaithersburg, MD 46,227 1998 3.2
Avenel V Gaithersburg, MD 27,667 1999 2.0
601 Pennsylvania Ave Washington, DC 225,223 1973 (1986) 1.0
Van Ness Square Washington, DC 156,182 1973 (1990) 1.2
---------------- ------------------ --------
Total Office Properties 740,517 35.6
---------------- --------
Industrial Property
- -------------------
Crosstown (b) Tulsa, OK 197,135 1975 21.5
---------------- --------
Development Property
- --------------------
North Washington (c) Alexandria, VA 1973 2.0
---------------- --------
Total Portfolio 5,885,132 SF 471.6
================ ========
</TABLE>
<TABLE>
<CAPTION>
Percentage Leased
Property Jun-1999 Jun-1998 Anchor / Significant Tenants
---------------------- ------------ ------------ --------------------------------------------------------------------
<S> <C> <C> <C>
Shopping Centers (continued)
- ----------------
Southside Plaza 90% 84% CVS Pharmacy, Community Pride Supermarket, Maxway
South Dekalb Plaza 78% 97% MacFrugals, Pep Boys, The Emory Clinic
Thruway 87% 86% Stein Mart, Harris Teeter, Fresh Market, Eckerd Drugs, Houlihan's,
Borders Books, Zany Brainy, Blockbuster, Bocock-Stroud
Village Center 91% 87% Giant Food
West Park 58% 92% Homeland Stores, Family Dollar
White Oak 100% 100% Giant Food, Sears, Rite Aid, Blockbuster
------------- ------------
94% 92%
------------- ------------
Office Properties
- -----------------
Avenel I-III 97% 97% Quanta Systems, General Services Administration, GeneLogic
Avenel IV 100% 0% Boston Biomedica, MicroAge
Avenel V 78% 0%
601 Pennsylvania Ave 100% 100% General Services Administration, Capital Grille
Van Ness Square 95% 90% United Mine Workers Pension Trust, Office Depot, Pier 1
------------- ------------
97% 97%
------------- ------------
Industrial Property
- -------------------
Crosstown (b) 0% 7%
------------- ------------
Development Property
- --------------------
North Washington (c) 100%
------------- ------------
91% 89%
============= ============
</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.
(c) Construction of a 230,000 square foot class A mixed-use office/retail
project is due to be completed summer 2000.
