<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, 2000
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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 No.)
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) 986-6200
--------------
Number of shares of common stock, par value $0.01 per share
outstanding as of August 11, 2000: 13,730,648
------------
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 of Contents
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements (Unaudited)
(a) Consolidated Balance Sheets as of June 30, 2000 and
December 31, 1999............................................. 4
(b) Consolidated Statements of Operations for the three
and six months ended June 30, 2000 and 1999................... 5
(c) Consolidated Statements of Stockholders' Equity as of
June 30, 2000 and December 31, 1999........................... 6
(d) Consolidated Statements of Cash Flows for the six months
ended June 30, 2000 and 1999.................................. 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, 2000 compared to three months
ended June 30, 1999........................................... 22
Six months ended June 30, 2000 compared to six months
ended June 30, 1999........................................... 23
Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................. 25
Item 2. Changes in Securities............................................. 25
Item 3. Defaults Upon Senior Securities................................... 25
Item 4. Submission of Matters to a Vote of Security Holders............... 25
Item 5. Other Information................................................. 25
Item 6. Exhibits and Reports on Form 8-K.................................. 26
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<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 the 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, 1999, 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.
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<PAGE>
Saul Centers, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
(Dollars in thousands) 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Real estate investments
Land
Buildings and equipment $ 65,676 $ 64,233
313,979 304,149
---------------------- ----------------------
Accumulated depreciation 379,655 368,382
(117,844) (112,272)
---------------------- ----------------------
Construction in progress 261,811 256,110
Cash and cash equivalents 33,859 21,201
Accounts receivable and accrued income, net 3,171 957
Prepaid expenses 6,475 8,723
Deferred debt costs, net 7,307 7,959
Other assets 3,157 3,197
3,422 1,518
---------------------- ----------------------
Total assets $ 319,202 $ 299,665
====================== ======================
Liabilities
Notes payable
Accounts payable, accrued expenses and other liabilities $ 327,236 $ 310,268
Deferred income 21,163 18,391
2,629 2,865
---------------------- ----------------------
Total liabilities 351,028 331,524
---------------------- ----------------------
Minority interests
-- --
---------------------- ----------------------
Stockholders' equity (deficit)
Common stock, $0.01 par value, 30,000,000 shares
authorized, 13,600,181 and 13,334,145 shares issued and
outstanding, respectively
Additional paid-in capital 136 133
Accumulated deficit 48,523 44,616
(80,485) (76,608)
---------------------- ----------------------
Total stockholders' equity (deficit) (31,826) (31,859)
---------------------- ----------------------
Total liabilities and stockholders' equity (deficit)
$ 319,202 $ 299,665
====================== ======================
</TABLE>
The accompanying notes are an 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
(Dollars in thousands, except Ended June 30, Ended June 30,
per share amounts) 2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue
Base rent $ 15,734 $ 14,467 $ 31,381 $ 28,800
Expense recoveries 2,545 2,433 5,367 4,881
Percentage rent 261 250 849 1,030
Other 448 870 798 1,273
--------------------- ---------------------- ---------------------- -------------------
Total revenue 18,988 18,020 38,395 35,984
--------------------- ---------------------- ---------------------- -------------------
Operating expenses
Property operating expenses 1,960 1,899 4,216 3,835
Provision for credit losses 112 64 233 125
Real estate taxes 1,553 1,626 3,194 3,160
Interest expense 5,870 5,568 11,658 11,098
Amortization of deferred debt expense 104 105 207 208
Depreciation and amortization 3,236 2,892 6,283 5,789
General and administrative 970 935 1,888 1,797
--------------------- ---------------------- ---------------------- -------------------
Total operating expenses 13,805 13,089 27,679 26,012
--------------------- ---------------------- ---------------------- -------------------
Net income before minority interests 5,183 4,931 10,716 9,972
--------------------- ---------------------- ---------------------- -------------------
Minority interests
Minority share of income (1,430) (1,371) (2,968) (2,752)
Distributions in excess of earnings (587) (596) (1,066) (1,136)
--------------------- ---------------------- ---------------------- -------------------
Total minority interests (2,017) (1,967) (4,034) (3,888)
--------------------- ---------------------- ---------------------- -------------------
Net income $ 3,166 $ 2,964 $ 6,682 $ 6,084
===================== ====================== ====================== ===================
Per share (basic and dilutive)
Net income before minority interests $ 0.28 $ 0.28 $ 0.58 $ 0.56
===================== ====================== ====================== ===================
Net income $ 0.24 $ 0.23 $ 0.50 $ 0.47
===================== ====================== ====================== ===================
</TABLE>
The accompanying notes are an inegral part of these statements
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<PAGE>
Saul Centers, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Paid-in Accumulated
(Dollars in thousands, except per share amounts) Stock Capital Deficit
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Stockholders' equity (deficit):
Balance, December 31, 1998 $ 129 $ 31,967 $ (69,380)
Issuance of 497,767 shares of
common stock 4 7,158 --
Issuance of 373,546 convertible
limited partnership units in the
Operating Partnership -- 5,491 --
Net income -- -- 13,297
Distributions ($1.17 per share) -- -- (15,323)
Distributions payable ($.39 per share) -- -- (5,202)
--------------------- ---------------------- ----------------------
Balance, December 31, 1999 133 44,616 (76,608)
Issuance of 134,696 shares of
common stock 2 1,943 --
Net income -- -- 3,516
Distributions payable ($.39 per share) -- -- (5,254)
--------------------- ---------------------- ----------------------
Balance, March 31, 2000 135 46,559 (78,346)
Issuance of 131,340 shares of
common stock 1 1,964 --
Net income -- -- 3,166
Distributions payable ($.39 per share) -- -- (5,305)
--------------------- ---------------------- ----------------------
Balance, June 30, 2000 $ 136 $ 48,523 $ (80,485)
===================== ====================== ======================
(Dollars in thousands, except per share amounts) Total
----------------------------------------------------------------------
<S> <C>
Balance, December 31, 1998 $ (37,284)
Issuance of 497,767 shares of
common stock 7,162
Issuance of 373,546 convertible
limited partnership units in the
Operating Partnership 5,491
Net income 13,297
Distributions ($1.17 per share) (15,323)
Distributions payable ($.39 per share) (5,202)
----------------------
Balance, December 31, 1999 (31,859)
Issuance of 134,696 shares of
common stock 1,945
Net income 3,516
Distributions payable ($.39 per share) (5,254)
----------------------
Balance, March 31, 2000 (31,652)
Issuance of 131,340 shares of
common stock 1,965
Net income 3,166
Distributions payable ($.39 per share) (5,305)
----------------------
Balance, June 30, 2000 $ (31,826)
======================
</TABLE>
The accompanying notes are an integral part of these statements.
-6-
<PAGE>
Saul Centers, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
(Dollars in thousands) 2000 1999
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,682 $ 6,084
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interests 4,034 3,888
Depreciation and amortization 6,490 5,997
Provision for credit losses 233 125
Decrease in accounts receivable 2,015 1,426
Increase in prepaid expenses (59) (134)
Increase in other assets (1,904) (2,042)
Increase in accounts payable, accrued expenses and other liabilities 2,772 2,072
Decrease in deferred income (236) (500)
---------------------- ----------------------
Net cash provided by operating activities 20,027 16,916
---------------------- ----------------------
Cash flows from investing activities:
Additions to real estate investments (6,903) (5,057)
Additions to construction in progress (17,028) (8,874)
---------------------- ----------------------
Net cash used in investing activities (23,931) (13,931)
---------------------- ----------------------
Cash flows from financing activities:
Proceeds from notes payable 38,581 10,500
Repayments on notes payable (21,613) (6,912)
Additions to deferred debt expense (167) (12)
Proceeds from the issuance of common stock and
convertible limited partnership units in
the Operating Partnership 3,910 7,108
Distributions to common stockholders and holders
of convertible limited partnership units in
the Operating Partnership (14,593) (14,063)
---------------------- ----------------------
Net cash provided by (used in) financing activities 6,118 (3,379)
---------------------- ----------------------
Net decrease in cash 2,214 (394)
Cash, beginning of period 957 2,395
---------------------- ----------------------
Cash, end of period $ 3,171 $ 2,001
====================== ======================
</TABLE>
The accompanying notes are an integral part of these statements.
-7-
<PAGE>
1. Organization, Formation and Structure
Organization
Saul Centers, Inc. ("Saul Centers") was incorporated under the Maryland
General Corporation Law on June 10, 1993. Saul Centers operates as a real
estate investment trust (a "REIT") under the Internal Revenue Code of 1986, as
amended (the "Code"). Saul Centers generally will not be subject to federal
income tax, provided it annually distributes at least 95% of its REIT taxable
income to its stockholders and meets certain organizational and other
requirements. Saul Centers has made and intends to continue to make regular
quarterly distributions to its stockholders. 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". B. Francis Saul II serves as Chairman of the
Board of Directors and Chief Executive Officer of Saul Centers.
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", and collectively
with the Operating Partnership, the "Partnerships"), shopping center and office
properties, and the management functions related to the transferred properties.
Since its formation, the Company has purchased and developed additional
properties. The Company is currently developing Washington Square at Old Town,
a 235,000 square foot Class A mixed-use office/retail complex, on the two-acre
site of the former North Washington shopping center property, and is
repositioning an under-performing shopping center to an industrial/warehouse use
(the "Industrial Property"). As of June 30, 2000, the Company's properties (the
"Current Portfolio Properties") consisted of 28 operating shopping center
properties (the "Shopping Centers"), three predominantly office operating
properties and Washington Square at Old Town (the "Office Properties"), and the
Industrial Property.
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 Centers serves as the sole general
partner of the Operating Partnership and of Saul Subsidiary II Limited
Partnership, while Saul QRS, Inc. 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>
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. The Company's long-term
objectives are to increase cash flow from operations and to maximize capital
appreciation of its real estate.
The Company is the owner and operator of a real estate portfolio of 33
properties totaling approximately 6,100,000 square feet of gross leasable area
("GLA") located primarily in the Washington, D.C./Baltimore metropolitan area.
The portfolio is composed of 28 neighborhood and community Shopping Centers, 4
Office Properties and one Industrial Property, totaling 4,931,000, 975,000 and
197,000 square feet of GLA, respectively. Only the United States Government
(10.6%), a tenant of seven properties and Giant Food (7.3%), a tenant of eight
Shopping Centers, individually accounted for more than 1.6% of the Company's
1999 total revenues. With the exception of five Shopping Center properties and
a portion of one Office Property purchased or developed during the past four
years, the Company's Current Portfolio Properties consist of seasoned properties
that have been owned and managed by The Saul Organization for 15 years or more.
The Company expects to hold its properties as long-term investments, and it has
no maximum period for retention of any investment. The Company plans to
selectively acquire additional income-producing properties and to expand,
renovate, and improve its properties when circumstances warrant.
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
-9-
<PAGE>
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, 2000 and 1999, was $1,068,000 and
$314,000, respectively. 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 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,
2000 and December 31, 1999, accounts receivable included $2,373,000 and
$1,803,000, respectively, 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 $763,000 and $594,000, at June 30, 2000 and
December 31, 1999, respectively.
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 $1,203,000 and
$1,005,000, at June 30, 2000 and December 31, 1999, respectively.
-10-
<PAGE>
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.
Income Taxes
The Company made an election to be treated, and intends to continue
operating so as to qualify as a REIT under the Code, 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
consolidated 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 18,729,000 and 18,042,000, for
the quarters, and 18,663,000 and 17,921,000, for the six month periods ended
June 30, 2000 and 1999, respectively. Per share data for net income after
minority interests is computed using weighted average shares of 13,557,000 and
13,036,000, for the quarters ended, and 13,491,000 and 12,977,000, for the six
month periods ended June 30, 2000 and 1999, 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.
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<PAGE>
Minority Interests - Holders of Convertible Limited Partner Units in the
Operating Partnership
The Saul Organization has a 27.6% limited partnership interest, represented
by 5,172,000 convertible limited partnership units in the Operating Partnership,
as of June 30, 2000. These Convertible Limited Partnership Units are
convertible into shares of Saul Centers' common stock on a one-for-one basis.
The impact of The Saul Organization's 27.6% limited partnership interest in the
Operating Partnership is reflected as minority interests in the accompanying
consolidated financial statements.
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 closing market price of the
common stock on the day the fee is earned. As of June 30, 2000, 120,000 shares
were authorized and registered for use under the Plan, and 82,000 shares had
been credited to the directors' deferred fee accounts.
Beginning in 1999, pursuant to the Plan, 100 shares of the Company's common
stock are 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.
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, 2000 and
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Construction in Progress
------------------------
(In thousands)
June 30, December 31,
2000 1999
------- -------
<S> <C> <C>
Washington Square.......................... $31,228 $18,009
Ashburn Village II......................... - 2,326
French Market.............................. 2,292 509
Crosstown Business Center.................. 339 357
------- -------
Total ..................................... $33,859 $21,201
======= =======
</TABLE>
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<PAGE>
4. Notes Payable
Notes payable totaled $327,236,000 at June 30, 2000, of which $278,578,000
(85.1%) was fixed rate debt and $48,658,000 (14.9%) was floating rate debt. At
June 30, 2000, the Company had a $60,000,000 unsecured revolving credit facility
with outstanding borrowings of $23,000,000 and additional borrowing availability
of $37,000,000. The Company and the agent bank closed on a new three year
agreement on July 18, 2000, which increased the borrowing availability from
$60,000,000 to $70,000,000. The new facility matures July 18, 2003. The new
facility requires monthly interest payments either at a rate of LIBOR plus a
spread of 1.625% to 1.875% (determined by certain debt service coverage and
leverage tests) or at the bank's reference rate at the Company's option. The
Company also had borrowed $25,658,000 of a $42,000,000 construction loan secured
by Washington Square at June 30, 2000. The facility requires monthly interest
payments at a rate of LIBOR plus a spread of 1.9%, which will decrease as
leasing of the office and retail space proceeds.
Notes payable totaled $310,268,000 at December 31,1999, of which
$266,990,000 (86.1%), was fixed rate debt and $43,278,000 (13.9%) was floating
rate debt. Outstanding borrowings on the $60,000,000 unsecured revolving credit
facility were $31,000,000 at December 31,1999, with additional borrowing
availability of $29,000,000.
At June 30, 2000, the scheduled maturities of all debt for years ending
December 31, were as follows:
Debt Maturity Schedule
----------------------
(In thousands)
July 1 through December 31, 2000................. $ 25,706
2001............................................. 6,322
2002............................................. 31,679
2003............................................. 6,525
2004............................................. 16,317
2005............................................. 7,375
Thereafter....................................... 233,312
--------
Total............................................ $327,236
========
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<PAGE>
5. Shareholders' Equity (Deficit) and Minority Interests
The accompanying consolidated 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 (Deficit) 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 (Deficit) 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, 2000 includes a charge for minority interests of $2,017,000 consisting of
$1,430,000 related to The Saul Organization's share of the net income for such
quarter and $587,000 related to distributions to minority interests in excess of
allocated net income for that period. The charge for the three months ended
June 30, 1999 of $1,967,000 consists of $1,371,000 related to The Saul
Organization's share of net income for such quarter and $596,000 related to
distributions to minority interests in excess of allocated net income for that
period. The Consolidated Statement of Operations for the six months ended June
30, 2000 includes a charge for minority interests of $4,034,000 consisting of
$2,968,000 related to The Saul Organization's share of the net income for such
quarter and $1,066,000 related to distributions to minority interests in excess
of allocated net income for that period. The charge for the six months ended
June 30, 1999 of $3,888,000 consists of $2,752,000 related to The Saul
Organization's share of net income for such quarter and $1,136,000 related to
distributions to minority interests in excess of allocated net income for that
period.
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<PAGE>
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 2). The Company evaluates performance based upon net operating income
for properties in each segment.
<TABLE>
<CAPTION>
(Dollars in thousands) Shopping Office
Centers Properties
------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Quarter ended June 30, 2000
-------------------------------------------------------------------
Real estate rental operations:
Revenues................................................... $ 13,621 $ 5,282
Expenses................................................... -2,468 -1,146
------------ ------------
Income from real estate........................................ 11,153 4,136
Interest expense & amortization of debt costs.............. 0 0
General and administrative................................. 0 0
------------ ------------
Subtotal....................................................... 11,153 4,136
Depreciation and amortization.............................. -2,308 -904
Gain on property sale...................................... 0 0
Minority interests......................................... 0 0
------------ ------------
Net income..................................................... $ 8,845 $ 3,232
============ ============
Capital investment............................................. $ 3,744 $ 6,436
============ ============
Total assets................................................... $ 192,915 $ 100,736
============ ============
-------------------------------------------------------------------
Quarter ended June 30, 1999
-------------------------------------------------------------------
Real estate rental operations:
Revenues................................................... $ 13,292 $ 4,681
Expenses................................................... -2,468 -1,121
------------ ------------
Income from real estate........................................ 10,824 3,560
Interest expense & amortization of debt costs.............. 0 0
General and administrative................................. 0 0
------------ ------------
Subtotal....................................................... 10,824 3,560
Depreciation and amortization.............................. -2,005 -865
Gain on property sale...................................... 0 0
Minority interests......................................... 0 0
------------ ------------
Net income..................................................... $ 8,819 $ 2,695
============ ============
Capital investment............................................. $ 6,577 $ 450
============ ============
Total assets................................................... $ 186,882 $ 70,194
============ ============
(Dollars in thousands) Corporate Consolidated
and Other (1) Totals
------------------------------------------------------------------- ------------- ---------------
<S> <C> <C>
Quarter ended June 30, 2000
-------------------------------------------------------------------
Real estate rental operations:
Revenues................................................... $ 85 $ 18,988
Expenses................................................... -11 -3,625
------------- ---------------
Income from real estate........................................ 74 15,363
Interest expense & amortization of debt costs.............. -5,974 -5,974
General and administrative................................. -970 -970
------------- ---------------
Subtotal....................................................... -6,870 8,419
Depreciation and amortization.............................. -24 -3,236
Gain on property sale...................................... 0 0
Minority interests......................................... -2,017 -2,017
------------- ---------------
Net income..................................................... $ -8,911 $ 3,166
============= ===============
Capital investment............................................. $ -186 $ 9,994
============= ===============
Total assets................................................... $ 25,551 $ 319,202
============= ===============
-------------------------------------------------------------------
Quarter ended June 30, 1999
-------------------------------------------------------------------
Real estate rental operations:
Revenues................................................... $ 47 $ 18,020
Expenses................................................... 0 -3,589
------------- ---------------
Income from real estate........................................ 47 14,431
Interest expense & amortization of debt costs.............. -5,673 -5,673
General and administrative................................. -935 -935
------------- ---------------
Subtotal....................................................... -6,561 7,823
Depreciation and amortization.............................. -22 -2,892
Gain on property sale...................................... 0 0
Minority interests......................................... -1,967 -1,967
------------- ---------------
Net income..................................................... $ -8,550 $ 2,964
============= ===============
Capital investment............................................. $ 81 $ 7,108
============= ===============
Total assets................................................... $ 22,135 $ 279,211
============= ===============
(1) Includes the Industrial Property, Crosstown Business Center.
</TABLE>
-15-
<PAGE>
<TABLE>
<CAPTION>
(Dollars in thousands) Shopping Office
Centers Properties
------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Six months ended June 30, 2000
-------------------------------------------------------------------
Real estate rental operations:
Revenues................................................... $ 27,726 $ 10,505
Expenses................................................... -5,278 -2,349
------------ ------------
Income from real estate........................................ 22,448 8,156
Interest expense & amortization of debt costs.............. 0 0
General and administrative................................. 0 0
------------ ------------
Subtotal....................................................... 22,448 8,156
Depreciation and amortization.............................. -4,411 -1,827
Gain on property sale...................................... 0 0
Minority interests......................................... 0 0
------------ ------------
Net income..................................................... $ 18,037 $ 6,329
============ ============
Capital investment............................................. $ 9,557 $ 14,253
============ ============
Total assets................................................... $ 192,915 $ 100,736
============ ============
-------------------------------------------------------------------
Six months ended June 30, 1999
-------------------------------------------------------------------
Real estate rental operations:
Revenues................................................... $ 26,689 $ 9,248
Expenses................................................... -4,875 -2,242
------------ ------------
Income from real estate........................................ 21,814 7,006
Interest expense & amortization of debt costs.............. 0 0
General and administrative................................. 0 0
------------ ------------
Subtotal....................................................... 21,814 7,006
Depreciation and amortization.............................. -4,009 -1,736
Gain on property sale...................................... 0 0
Minority interests......................................... 0 0
------------ ------------
Net income..................................................... $ 17,805 $ 5,270
============ ============
Capital investment............................................. $ 11,997 $ 1,748
============ ============
Total assets................................................... $ 186,882 $ 70,194
============= ============
(Dollars in thousands) Corporate Consolidated
and Other (1) Totals
------------------------------------------------------------------- ------------- ---------------
<S> <C> <C>
Six months ended June 30, 2000
-------------------------------------------------------------------
Real estate rental operations:
Revenues................................................... $ 164 $ 38,395
Expenses................................................... -16 -7,643
------------- ---------------
Income from real estate........................................ 148 30,752
Interest expense & amortization of debt costs.............. -11,865 -11,865
General and administrative................................. -1,888 -1,888
------------- ---------------
Subtotal....................................................... -13,605 16,999
Depreciation and amortization.............................. -45 -6,283
Gain on property sale...................................... 0 0
Minority interests......................................... -4,034 -4,034
------------- ---------------
Net income..................................................... $ -17,684 $ 6,682
============= ===============
Capital investment............................................. $ 121 $ 23,931
============= ===============
Total assets................................................... $ 25,551 $ 319,202
============= ===============
-------------------------------------------------------------------
Six months ended June 30, 1999
-------------------------------------------------------------------
Real estate rental operations:
Revenues................................................... $ 47 $ 35,984
Expenses................................................... -3 -7,120
------------- ---------------
Income from real estate........................................ 44 28,864
Interest expense & amortization of debt costs.............. -11,306 -11,306
General and administrative................................. -1,797 -1,797
------------- ---------------
Subtotal....................................................... -13,059 15,761
Depreciation and amortization.............................. -44 -5,789
Gain on property sale...................................... 0 0
Minority interests......................................... -3,888 -3,888
------------- ---------------
Net income..................................................... $ -16,991 $ 6,084
============= ===============
Capital investment............................................. $ 186 $ 13,931
============= ===============
Total assets................................................... $ 22,135 $ 279,211
============= ===============
(1) Includes the Industrial Property, Crosstown Business Center.
</TABLE>
-16-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This section should be read in conjunction with the consolidated
financial statements of the Company and the accompanying notes in "Item 1.
Financial Statements" of this report. Historical results and percentage
relationships set forth in Item 1 and this section should not be taken as
indicative of future operations of the Company. Capitalized terms used but not
otherwise defined in this section, have the meanings given to them in Item 1 of
this Form 10-Q. This Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These statements are
generally characterized by terms such as "believe", "expect" and "may".
Although the Company believes that the expectations reflected in such
forward-looking statements are based upon reasonable assumptions, the Company's
actual results could differ materially from those given in the forward-looking
statements as a result of changes in factors which include among others, the
following: general economic and business conditions, which will, among other
things, affect demand for retail and office space; demand for retail goods;
availability and credit worthiness of the prospective tenants; lease rents and
the terms and availability of financing; adverse changes in the real estate
markets including, among other things, competition with other companies and
technology, risks of real estate development and acquisition, governmental
actions and initiatives, debt refinancing risk, conflicts of interests,
maintenance of REIT status and environmental/safety requirements.
General
-------
The following discussion is based primarily on the consolidated financial
statements of the Company, as of June 30, 2000 and for the three and six month
periods ended June 30, 2000.
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 Code. 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: i)
redevelop certain of the Shopping Centers, ii) develop additional freestanding
outparcels or expansions within certain of the Shopping Centers, iii) acquire
existing neighborhood and community shopping centers and/or office properties
and iv) develop new shopping center or office sites.
-17-
<PAGE>
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
include the Company's credit line of which $37,000,000 was available for
borrowing as of June 30, 2000, will be sufficient to meet its liquidity needs
for the foreseeable future.
Financial Information
---------------------
For the second quarter of 2000, the Company reported Funds From Operations
("FFO") of $8,419,000. This represents an 7.6% increase over the comparable
1999 period's FFO of $7,823,000. For the six month period ended June 30, 2000,
the Company reported FFO of $16,999,000, representing a 7.9% increase over the
comparable 1999 period's FFO of $15,761,000. 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 items and before real
estate depreciation and amortization. The following table represents a
reconciliation from net income before minority interests to FFO:
Funds From Operations Schedule
------------------------------
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Three Months Ended June 30,
-----------------------------------
2000 1999
------ ------
<S> <C> <C>
Net income before minority interests................................. $5,183 $4,931
Add:
Depreciation and amortization of real property................. 3,236 2,892
------ ------
Funds From Operations ............................................... $8,419 $7,823
====== ======
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
-----------------------------------
2000 1999
------- -------
<S> <C> <C>
Net income before minority interests................................. $10,716 $ 9,972
Add:
Depreciation and amortization of real property................. 6,283 5,789
------- -------
Funds From Operations ............................................... $16,999 $15,761
======= =======
</TABLE>
FFO, as defined by the National Association of Real Estate Investment
Trusts, is net income before minority interests excluding gains or losses from
sales of property, adjustments for unconsolidated partnerships and joint
ventures, depreciation and amortization. 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 accompanying 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, investing activities and financing 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.
Cash flow from operating activities, investing activities and financing
activities for the six months ended June 30, 2000 and 1999 are as follows:
Cash flow provided by (used in):
--------------------------------
(Dollars in thousands)
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
------------------------------------
2000 1999
-------- ---------
<S> <C> <C>
Operating $ 20,027 $ 16,916
activities....................................................
Investing activities........................................... -23,931 -13,931
Financing 6,118 -3,379
activities....................................................
</TABLE>
-19-
<PAGE>
Capital Strategy and Financing Activity
---------------------------------------
The Company's capital strategy is to maintain a ratio of total debt to total
asset value of approximately 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 1999, the Company closed a $42,000,000 construction loan, which it
anticipates will substantially fund the development costs associated with the
235,000 square foot Washington Square 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 August 11, 2000, outstanding borrowings on
this construction loan totaled $27,662,000.
On May 30, 2000, the Company closed a $14,300,000, 15-year, fixed rate
mortgage loan. The loan is collateralized by the Shops at Fairfax and Boulevard
shopping centers. The loan requires monthly payments of principal and interest.
Principal payments are calculated upon on a 22-year period and interest is
calculated at 8.33%. The proceeds of the loan were used to repay a portion of
outstanding indebtedness under the Company's floating rate credit line.
On July 18, 2000, the Company and the agent bank for the Company's unsecured
credit line closed a new three year agreement which increased the maximum
borrowing available under the facility from $60,000,000 to $70,000,000. The new
facility requires monthly interest payments either at a rate of LIBOR plus a
spread of 1.625% to 1.875% (determined by certain debt service coverage and
leverage tests) or at the bank's reference rate, at the Company's option. The
facility matures July 18, 2003, but may be extended an additional year, at the
Company's option, upon the payment of an extension fee. At August 11, 2000,
outstanding borrowings on the unsecured credit line totaled $29,200,000, leaving
$40,800,000 of credit availability.
At August 11, 2000, the Company had fixed interest rates on approximately
83.0% of its total debt outstanding, which then had a weighted remaining term of
approximately 10 years.
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
Washington Square, Ashburn II, French Market and Crosstown Business Center.
In February 1999, the Company announced the development of Washington Square
at Old Town, a new Class A mixed-use office / retail complex along North
Washington Street in historic Old Town Alexandria in Northern Virginia. The
project will provide 235,000 square feet of leasable area and is well located on
a two-acre site along Alexandria's main street. The project
-20-
<PAGE>
consists of two identical buildings separated by a brick courtyard. Construction
of the southern building is nearing completion. Work continues on the building's
interior common areas and mechanical systems. The Company expects to deliver a
portion of the retail space to tenants during the early portion of the third
quarter of 2000. Work on the north building is proceeding on schedule, with
delivery lagging the south building by approximately six weeks. Base building
construction of both buildings is scheduled to be completed by the end of the
third quarter of 2000. The 45,000 square feet of retail space is approximately
82% pre-leased and several leases are under negotiation with office tenant
prospects.
During late 1999, the Company purchased land located within the 1,580 acre
community of Ashburn Village in Loudoun County, Virginia, adjacent to its
108,000 square foot Ashburn Village neighborhood shopping center. The land was
developed into Ashburn Village II, a 39,700 square foot in-line and pad
expansion to the existing shopping center, containing 23,600 square feet of
retail space and 16,100 square feet of professional office suites. Pad sites
are being leased to restaurant and other users for free-standing buildings.
Base building construction and site work was completed in June 2000.
Approximately 80% of the new space has been leased. On May 2, 2000, the Company
delivered over 85% of the retail space to tenants to begin their work in
preparation for store openings approximately 90 days later. Office space
finish work is underway.
During 1999, the Company completed construction of 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. In December, a 90,000 square
foot lease was signed with Burlington Coat Factory ("Burlington") to locate in
the adjacent enclosed mall portion of the center. The common areas of the mall
will become part of the Burlington leasable area, increasing the center to
247,000 square feet upon completion of tenant improvements. Mall tenants have
been relocated to other space in the center or have ceased operations, which
allowed construction to commence in February 2000. Burlington is scheduled to
open in the third quarter of 2000, thereby increasing the center's occupancy to
over 95%.
The conversion and redevelopment of the former Tulsa, Oklahoma shopping center
to an industrial/office campus named Crosstown Business Center is proceeding.
The first tenants have occupied 25% of the office park and several other leases
are under negotiation.
Portfolio Leasing Status
------------------------
At June 30, 2000, the portfolio consisted of 28 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, a research park located in a Maryland suburb of Washington, D.C. and
an office/retail property under construction in Old Town Alexandria, Virginia.
At June 30, 2000, 92.9% of the Company's 5.8 million square feet of operating
leaseable space was leased to tenants, as compared to 91.2% at June 30, 1999.
The shopping center portfolio was 94.9% leased at June 30, 2000 and 94.0% leased
at June 30, 1999. The Office Properties (excluding the Washington Square
project under development) were 97.7% leased at
-21-
<PAGE>
June 30, 2000 compared to 96.8% as of June 30, 1999. The Industrial Property was
25% leased at June 30, 2000 while it was vacant as of June 30, 1999. The overall
improvements in the current period's leasing percentages compared to the prior
year's period resulted primarily from the leasing of a substantial portion of
French Market to Burlington, improved office leasing at Avenel Business Park and
the progress in leasing the Crosstown Business Center.
Results of Operations
---------------------
The following discussion compares the results of the Company for the three
month and six month periods ended June 30, 2000 and 1999, 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, 2000 Compared to Three Months Ended June 30, 1999
-----------------------------------------------------------------------------
Revenues for the three month period ended June 30, 2000 (the "2000 Quarter"),
totaled $18,988,000 compared to $18,020,000 for the comparable quarter in 1999
(the "1999 Quarter"), an increase of $968,000 (5.4%).
Base rent income was $15,734,000 for the 2000 Quarter, compared to $14,467,000
for the 1999 Quarter, representing an increase of $1,267,000 (8.8%). The
increase in base rent resulted primarily from new leases in effect at recently
redeveloped shopping centers (French Market, Shops at Fairfax, Thruway and
Boulevard), a two percent average occupancy increase at Avenel Business Park and
a 60,000 square foot tenant paying higher rent while holding over beyond its
scheduled lease expiration at 601 Pennsylvania Avenue.
Expense recoveries were $2,545,000 for the 2000 Quarter compared to $2,433,000
for the comparable 1999 Quarter, representing an increase of $112,000 (4.6%).
Percentage rent was $261,000 in the 2000 Quarter, compared to $250,000 in the
1999 Quarter, an increase of $11,000 (4.4%).
Other income, which primarily consists of parking income, kiosk and temporary
leasing, and fees associated with the early termination of leases, was $448,000
in the 2000 Quarter, compared to $870,000 in the 1999 Quarter, representing a
decrease of $422,000 (48.5%). The decrease in other income resulted primarily
from the collection of three shopping center lease termination fees in the 1999
Quarter.
Operating expenses, consisting primarily of repairs and maintenance,
utilities, payroll, insurance and other property related expenses, increased
$61,000 (3.2%) to $1,960,000 in the 2000 Quarter from $1,899,000 in the 1999
Quarter.
-22-
<PAGE>
The provision for credit losses increased $48,000 (75.0%) to $112,000 in the
2000 Quarter from $64,000 in the 1999 Quarter. The increase resulted primarily
from additions to credit loss reserves for a retail tenant in bankruptcy and
rent in dispute with an office tenant.
Real estate taxes decreased $73,000 (4.5%) to $1,553,000 in the 2000 Quarter
from $1,626,000 in the 1999 Quarter.
Interest expense increased $302,000 (5.4%) to $5,870,000 for the 2000 Quarter
from $5,568,000 reported for the 1999 Quarter. The increase resulted from
increased average borrowing balances on the Company's credit line used to fund
redevelopments placed in service during 1999 and to a lesser extent, interest
rates on the Company's floating rate credit line averaging 127 basis points
higher in the 2000 Quarter compared to the 1999 Quarter.
Amortization of deferred debt expense decreased $1,000 (1.0%) to $104,000
for the 2000 Quarter compared to $105,000 for the 1999 Quarter.
Depreciation and amortization expense increased $344,000 (11.9%) from
$2,892,000 in the 1999 Quarter to $3,236,000 in the 2000 Quarter, reflecting
increased depreciation expense on redevelopments placed in service during 1999.
General and administrative expense, which consists of payroll,
administrative and other overhead expense, was $970,000 for the 2000 Quarter, an
increase of $35,000 (3.7%) over the 1999 Quarter.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
-------------------------------------------------------------------------
Revenues for the six month period ended June 30, 2000 (the "2000 Period"),
totaled $38,395,000 compared to $35,984,000 for the comparable period in 1999
(the "1999 Period"), an increase of $2,411,000 (6.7%).
Base rent income was $31,381,000 for the 2000 Period, compared to $28,800,000
for the 1999 Period, representing an increase of $2,581,000 (9.0%). The
increase in base rent resulted primarily from new leases at recently redeveloped
shopping centers (French Market, Shops at Fairfax, Thruway and Boulevard), a
four percent average occupancy increase at Avenel Business Park and a 60,000
square foot tenant paying higher rent while holding over beyond its scheduled
lease expiration at 601 Pennsylvania Avenue.
Expense recoveries were $5,367,000 for the 2000 Period compared to $4,881,000
for the comparable 1999 Period, representing an increase of $486,000 (10.0%).
This increase resulted primarily from substantial snow removal expenses during
the 2000 Period, which were recovered from many of the Company's shopping center
tenants.
Percentage rent was $849,000 in the 2000 Period, compared to $1,030,000 in the
1999 Period, a decrease of $181,000 (17.6%). The decrease in percentage rent
resulted primarily from the renewal of two anchor tenant leases with higher base
rent in lieu of percentage rent at White Oak and Giant shopping centers.
-23-
<PAGE>
Other income, which primarily consists of parking income, kiosk and temporary
leasing, and fees associated with early termination of leases, was $798,000 in
the 2000 Period, compared to $1,273,000 in the 1999 Period, representing a
decrease of $475,000 (37.3%). The decrease in other income resulted primarily
from the collection of five shopping center lease termination fees in the 1999
Period and only one in the 2000 Period.
Operating expenses, consisting primarily of repairs and maintenance,
utilities, payroll, insurance and other property related expenses, increased
$381,000 (9.9%) to $4,216,000 in the 2000 Period from $3,835,000 in the 1999
Period. The increase was primarily caused by higher snow removal expenses
resulting from two severe snowstorms impacting the Mid-Atlantic region during
January and February 2000.
The provision for credit losses increased $108,000 (86.4%) to $233,000 in the
2000 Period from $125,000 in the 1999 Period. The increase resulted primarily
from additions to credit loss reserves for a retail tenant in bankruptcy and
rent in dispute with an office tenant.
Real estate taxes increased $34,000 (1.1%) to $3,194,000 in the 2000 Period
from $3,160,000 in the 1999 Period.
Interest expense increased $560,000 (5.0%) to $11,658,000 in the 2000 Period
from $11,098,000 reported in the 1999 Period. The increase resulted from
higher average borrowing balances on the Company's credit line used to fund
redevelopments placed in service during 1999 and, to a lesser extent, interest
rates on the Company's floating rate credit line averaging 99 basis points
higher in the 2000 Period compared to the 1999 Period.
Amortization of deferred debt expense decreased $1,000 (0.5%) to $207,000
in the 2000 Period compared to $208,000 in the 1999 Period.
Depreciation and amortization expense increased $494,000 (8.5%) from
$5,789,000 in the 1999 Period to $6,283,000 in the 2000 Period, reflecting
depreciation expense on redevelopments placed in service during 1999.
General and administrative expense, which consists of payroll, administrative
and other overhead expense, was $1,888,000 in the 2000 Period, an increase of
$91,000 (5.1%) over the 1999 Period. The increase in 2000 expenses compared to
1999 primarily resulted from a 5% change in payroll related expenses and higher
legal expense.
-24-
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to certain financial market risks, the most
predominant being fluctuations in interest rates. Interest rate fluctuations
are monitored by management as an integral part of the Company's overall risk
management program, which recognizes the unpredictability of financial markets
and seeks to reduce the potentially adverse effect on the Company's results of
operations. The Company does not enter into financial instruments for trading
purposes.
The Company is exposed to interest rate fluctuations primarily as a result
of its variable rate debt used to finance the Company's development and
acquisition activities and for general corporate purposes. As of June 30, 2000,
the Company had variable rate indebtedness totaling $48,658,000. Interest rate
fluctuations will affect the Company's interest expense on its variable rate
debt. If the interest rate on the Company's variable rate debt instruments
outstanding at June 30, 2000 had been one percent higher, annual interest
expense relating to these debt instruments would have increased by $487,000,
based on those balances. Interest rate fluctuations will also affect the fair
value of the Company's fixed rate debt instruments. As of June 30, 2000, the
Company had fixed rate indebtedness totaling $278,578,000. If interest rates on
the Company's fixed rate debt instruments at June 30, 2000 had been one percent
higher, the fair value of those debt instruments on that date would have
decreased by approximately $16,374,000.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
-25-
<PAGE>
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 March 31, 1997
Quarterly Report of the Company is hereby incorporated by
reference. The Fifth Amendment to the First Amended and Restated
Agreement of Limited Partnership of Saul Holdings Limited
Partnership filed as Exhibit 4.(c) to Registration Statement No.
333-41436, 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
-26-
<PAGE>
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.
(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
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<PAGE>
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 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) Promissory Note dated as of November 30, 1999 by and between Saul
Holdings Limited Partnership as Borrower and Wells Fargo Bank
National Association as Lender filed as Exhibit 10.(r) of the
1999 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.
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<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, 2000 /s/ Philip D. Caraci
--------------------------------------
Philip D. Caraci, President
Date: August 14, 2000 /s/ Scott V. Schneider
--------------------------------------
Scott V. Schneider
Senior Vice President, Chief Financial Officer
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