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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
------ EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
------ EXCHANGE ACT OF 1934
For the transition period from to
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Commission File number 1-12254
SAUL CENTERS, INC.
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(Exact name of registrant as specified in its charter)
Maryland 52-1833074
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(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 offices) (Zip Code)
Registrant's telephone number, including area code: (301) 986-6200
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on which
Title of each class registered
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Common Stock, Par Value $0.01 Per Share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
N/A
Indicate by check mark whether 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 requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
----
The number of shares of Common Stock, $0.01 par value, outstanding as of
February 28, 2000 was 13,468,259.
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TABLE OF CONTENTS
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PART I Page Numbers
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Item 1. Business 3
Item 2. Properties 8
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 12
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 21
Item 8. Financial Statements and Supplementary Data 22
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 22
PART III
Item 10. Directors and Executive Officers of the Registrant 22
Item 11. Executive Compensation 22
Item 12. Security Ownership of Certain Beneficial Owners and Management 22
Item 13. Certain Relationships and Related Transactions 22
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 23
FINANCIAL STATEMENT SCHEDULE
Schedule III. Real Estate and Accumulated Depreciation F-18
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PART I
Item 1. Business
General
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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.
The Company's principal business activity is the ownership, management and
development of income-producing properties. The Company's long-term objectives
are to increase cash flow from operations and to maximize capital appreciation
of its real estate.
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 Ashburn
Village II, a 39,700 square foot retail and office suite expansion to the
Company's Ashburn Village shopping center and repositioning an under-performing
shopping center to an industrial/warehouse use (the "Industrial Property"). On
December 16, 1999, the District of Columbia purchased the Park Road retail
property as part of an assemblage of parcels for a neighborhood revitalization
project. Therefore, as of December 31, 1999, the Company's properties (the
"Current Portfolio Properties") consisted of 27 operating shopping center
properties and Ashburn II (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.
Management of the Current Portfolio Properties
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The Partnerships manage the Current Portfolio Properties and will manage
any subsequently acquired properties. The management of the properties includes
performing property management, leasing, design, renovation, development and
accounting duties for each property. The Partnerships provide each property with
a fully integrated property management capability, utilizing a staff of
approximately 50 employees who have developed an extensive and mature network of
relationships with tenants and potential tenants as well as with members of the
brokerage and property owners' communities. The Company currently does not, and
does not intend to, retain third party managers or provide management services
to third parties.
The Company augments its property management capabilities by sharing with
The Saul Organization certain ancillary functions, at cost, such as computer and
payroll services, benefits administration and in-house legal
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services. The Company also shares insurance administration expenses on a pro
rata basis with The Saul Organization. The Saul Organization subleases office
space to the Company at its cost. Management believes that these arrangements
result in lower costs than could be obtained by contracting with third parties.
These arrangements permit the Company to capture greater economies of scale in
purchasing from third party vendors than would otherwise be available to the
Company alone and to capture internal economies of scale by avoiding payments
representing profits with respect to functions provided internally. The terms of
all sharing arrangements with The Saul Organization, including payments related
thereto, are reviewed periodically by the Audit Committee of the Company's Board
of Directors.
Principal Offices
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The principal offices of the Company are located at 8401 Connecticut
Avenue, Chevy Chase, Maryland 20815, and the Company's telephone number is (301)
986-6200. The Company's internet web address is www.saulcenters.com.
Operating Strategies
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The Company's primary operating strategy is to focus on its community and
neighborhood shopping center business and to operate its properties to achieve
both cash flow growth and capital appreciation. Community and neighborhood
shopping centers typically provide reliable cash flow and steady long-term
growth potential. Management intends to actively manage its property portfolio
by engaging in strategic leasing activities, tenant selection, lease negotiation
and shopping center expansion and reconfiguration. The Company seeks to
optimize tenant mix by selecting tenants for its shopping centers that provide a
broad spectrum of goods and services, consistent with the role of community and
neighborhood shopping centers as the source for day-to-day necessities.
Management believes that such a synergistic tenanting approach results in
increased cash flow from existing tenants by providing the Shopping Centers with
consistent traffic and a desirable mix of shoppers, resulting in increased sales
and, therefore, increased cash flows.
Management believes there is significant potential for growth in cash flow
as existing leases for space in the Shopping Centers expire and are renewed, or
newly available or vacant space is leased. The Company intends to renegotiate
leases aggressively and seek new tenants for available space in order to
maximize this potential for increased cash flow. As leases expire, management
expects to revise rental rates, lease terms and conditions, relocate existing
tenants, reconfigure tenant spaces and introduce new tenants to increase cash
flow. In those circumstances in which leases are not otherwise expiring,
management intends to attempt to increase cash flow through a variety of means,
including renegotiating rents in exchange for additional renewal options or in
connection with renovations or relocations, recapturing leases with below market
rents and re-leasing at market rates, as well as replacing financially troubled
tenants. When possible, management also will seek to include scheduled
increases in base rent, as well as percentage rental provisions in its leases.
The Shopping Centers contain numerous undeveloped parcels within the
centers which are suitable for development as free-standing retail facilities,
such as restaurants, banks, auto centers or cinemas. Management will continue
to seek desirable tenants for facilities to be developed on these sites and to
develop and lease these sites in a manner that complements the Shopping Centers
in which they are located.
The Company will also seek growth opportunities in its Washington, D.C.
metropolitan area office portfolio, primarily through development and
redevelopment. Management also intends to negotiate lease renewals or to re-
lease available space in the Office Properties, while considering the strategic
balance of optimizing short-term cash flow and long-term asset value.
It is management's intention to hold properties for long-term investment
and to place strong emphasis on regular maintenance, periodic renovation and
capital improvement. Management believes that such characteristics as
cleanliness, lighting and security are particularly important in community and
neighborhood shopping centers, which are frequently visited by shoppers during
hours outside of the normal work day. Management believes that the Shopping
Centers and Office Properties generally are attractive and well maintained. The
Shopping Centers and Office Properties will undergo expansion, renovation,
reconfiguration and modernization from time to time when management believes
that such action is warranted by opportunities or changes in the competitive
environment of a property. Several of the Shopping Centers have been renovated
recently. During 1999 and 1998, the Company was
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involved in predevelopment and/or development of 12 of its properties. The
Company will continue its practice of expanding existing properties by
undertaking new construction on outparcels suitable for development as free
standing retail or office facilities.
Redevelopment, Renovations and Acquisitions
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The Company's redevelopment, renovation and acquisition objective is to
selectively and opportunistically redevelop and renovate its properties, by
replacing leases with below market rents with strong, traffic-generating anchor
stores such as supermarkets and drug stores, as well as other desirable local,
regional and national tenants. The Company's strategy remains focused on
continuing the operating performance and internal growth of its existing
Shopping Centers, while enhancing this growth with selective retail
redevelopments and renovations.
Management believes that attractive opportunities for investment in
existing and new shopping center properties will continue to be available.
Management believes that the Company will be well situated to take advantage of
these opportunities because of its access to capital markets, ability to acquire
properties either for cash or securities (including Operating Partnership
interests in tax advantaged transactions) and because of management's experience
in seeking out, identifying and evaluating potential acquisitions. In addition,
management believes its shopping center expertise should permit it to optimize
the performance of shopping centers once they have been acquired.
Management also believes that opportunities exist for investment in new
office properties. It is management's view that several of the office sub-
markets in which the Company operates have very attractive supply/demand
characteristics. The Company will continue to evaluate new office development
and redevelopment as an integral part of its overall business plan.
In evaluating a particular redevelopment, renovation, acquisition, or
development, management will consider a variety of factors, including (i) the
location and accessibility of the property; (ii) the geographic area (with an
emphasis on the Mid-Atlantic region) and demographic characteristics of the
community, as well as the local real estate market, including potential for
growth and potential regulatory impediments to development; (iii) the size of
the property; (iv) the purchase price; (v) the non-financial terms of the
proposed acquisition; (vi) the availability of funds or other consideration for
the proposed acquisition and the cost thereof; (vii) the "fit" of the property
with the Company's existing portfolio; (viii) the potential for, and current
extent of, any environmental problems; (ix) the current and historical occupancy
rates of the property or any comparable or competing properties in the same
market; (x) the quality of construction and design and the current physical
condition of the property; (xi) the financial and other characteristics of
existing tenants and the terms of existing leases; and (xii) the potential for
capital appreciation.
Although it is management's present intention to concentrate future
acquisition and development activities on community and neighborhood shopping
centers and office properties in the Mid-Atlantic region, the Company may, in
the future, also acquire other types of real estate in other regions of the
country.
Capital Strategies
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As a general policy, the Company intends to maintain a ratio of its 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. Asset value is the aggregate fair market value of
the Current Portfolio Properties and any subsequently acquired properties as
reasonably determined by management by reference to the properties' aggregate
cash flow. Given the Company's current debt level, it is management's belief
that the ratio of the Company's debt to total asset value as of December 31,
1999 remains less than 50%.
The organizational documents of the Company do not limit the absolute
amount or percentage of indebtedness that it may incur. The Board of Directors
may, from time to time, reevaluate the Company's debt capitalization policy in
light of current economic conditions, relative costs of capital, market values
of the Company property portfolio, opportunities for acquisition, development or
expansion, and such other factors as the Board of Directors then deems relevant.
The Board of Directors may modify the Company's debt capitalization policy based
on such a reevaluation and consequently, may increase or decrease the Company's
debt to total asset ratio above or below 50%. The Company selectively continues
to refinance or renegotiate the terms of its outstanding debt in
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order to achieve longer maturities, and obtain generally more favorable loan
terms, whenever management determines the financing environment is favorable.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources --Borrowing Capacity."
The Company intends to finance future acquisitions and to make debt
repayments by utilizing the sources of capital then deemed to be most
advantageous. Such sources may include undistributed operating cash flow,
secured or unsecured bank and institutional borrowings, private and public
offerings of debt or equity securities, proceeds from the Company's Dividend
Reinvestment and Stock Purchase Plan, and proceeds from the sale of properties.
Borrowings may be at the Operating Partnership or Subsidiary Partnerships' level
and securities offerings may include (subject to certain limitations) the
issuance of Operating Partnership interests convertible into common stock or
other equity securities.
Competition
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As an owner of, or investor in, commercial real estate properties, the
Company is subject to competition from a variety of other owners of similar
properties in connection with their sale, lease or other disposition and use.
Management believes that success in such competition is dependent in part upon
the geographic location of the property, the tenant mix, the performance of
property managers, the amount of new construction in the area and the
maintenance and appearance of the property. Additional competitive factors
impacting retail and commercial properties include the ease of access to the
properties, the adequacy of related facilities such as parking, and the
demographic characteristics in the markets in which the properties compete.
Overall economic circumstances and trends and new properties in the vicinity of
each of the Current Portfolio Properties are also competitive factors.
Environmental Matters
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The Current Portfolio Properties are subject to various laws and
regulations relating to environmental and pollution controls. The effect upon
the Company of the application of such laws and regulations either prospectively
or retrospectively is not expected to have a materially adverse effect on the
Company's property operations. As a matter of policy, the Company requires an
environmental study be performed with respect to a property that may be subject
to possible environmental hazards prior to its acquisition to ascertain that
there are no material environmental hazards associated with such property.
Employees
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As of February 28, 2000, the Company employed approximately 50 persons,
including six full-time leasing officers. None of the Company's employees are
covered by collective bargaining agreements. Management believes that its
relationship with employees is good.
Recent Developments
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Property Acquisitions, Developments and Redevelopments.
A significant enhancement to the Company's sustained historical internal
growth in shopping centers has been its continuing program of renovation,
redevelopment and expansion activities. These development activities serve to
position the Company's centers as architecturally consistent with the times in
terms of facade image, site improvements and flexibility to accommodate tenant
size requirements and merchandising evolution.
The Company completed a significant redevelopment during 1999 with the
opening of a 53,000 square foot SuperFresh 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. SuperFresh
opened for business in late September and the small shop space is 100% leased
and occupied. The Company also completed a facade renovation of the adjacent
56,000 square foot Boulevard shopping center, similar in appearance with the
Shops at Fairfax.
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In late 1999, the Company completed redevelopment of the Beacon Center,
located along U.S. Route 1 in Alexandria, Virginia. Beacon Center's central
enclosed mall area was demolished and construction of a 148,000 square foot
Lowe's home improvement and garden center store was completed and opened during
the first week in November. In addition to the new Lowe's, 8,000 square feet of
new small shop space was also constructed and is 100% leased and occupied.
During 1999, the Company completed construction on a facade renovation and
retenanting of a 103,000 square foot anchor space at the 213,000 square foot
French Market center in Oklahoma City, Oklahoma. 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 fall of 2000, increasing the center's occupancy to over 95%.
The Company recently 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 is being developed
into Ashburn Village II, a 39,700 square foot in-line and pad building 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, with a 5,400
square foot pad lease completed. Construction began in November with
substantial completion scheduled for the spring of 2000. Approximately 56% of
the new space has been pre-leased.
Office development and acquisition activities were an integral part of the
Company's focus during 1999, and substantial efforts in this area will continue
throughout 2000. Development of the Company's 235,000 square foot, class A
mixed-use office/retail complex located along North Washington Street in
historic Old Town Alexandria, Virginia is proceeding on schedule. 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 three-
story atrium lobbies, a fitness center, concierge service, a 600 space parking
structure and the latest computerized energy management system. Office space
will total 190,000 square feet, with the top floor containing walk-out terraces.
Construction of the underground parking deck has been substantially completed,
with building frames for the retail and office levels completed to the roof
deck. Precast facade features and brick work is being installed and base
building construction of the two buildings is scheduled to be completed by late
summer 2000. The 45,000 square feet of retail space is 62% pre-leased.
In January 1999, the Company completed construction of approximately 27,000
square feet of additional office/flex space at Avenel Business Park, in the
Maryland suburbs of Washington, D.C. on excess land that it owns. Approximately
78% of the space is leased.
During late 1998, the Company obtained the necessary approvals to convert
an under-performing shopping center located on a 27 acre parcel in Tulsa,
Oklahoma, into an industrial/warehouse use property, in order to capitalize on
the property's proximity to interstate highways and the Tulsa International
Airport. Crosstown Business Center is being redeveloped to provide approximately
197,000 square feet of predominantly warehouse space. The first tenant occupied
its space in December 1999 and the project is now 15% leased.
Property Dispositions.
In December 1999, the District of Columbia purchased the Park Road retail
property as part of an assemblage of parcels for a neighborhood revitalization
project. The Company recognized a net gain of approximately $553,000 on the
sale of the property.
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Item 2. Properties
Overview
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The Company is the owner and operator of a real estate portfolio of 33
properties totaling approximately 6.1 million 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 approximately 4.9, 1.0
and 0.2 million 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 total revenues for the year ending December 31, 1999. 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. It plans to selectively acquire additional
income-producing properties and to expand, renovate, and improve its properties
when circumstances warrant. See "Item 1. Business--Operating Strategies" and
"Business--Capital Strategies."
The Shopping Centers
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Community and neighborhood shopping centers typically are anchored by one
or more supermarkets, discount department stores or drug stores. These anchors
offer day-to-day necessities rather than apparel and luxury goods and,
therefore, generate consistent local traffic. By contrast, regional malls
generally are larger and typically are anchored by one or more full-service
department stores.
The Shopping Centers (typically) are seasoned community and neighborhood
shopping centers located in well established, highly developed, densely
populated, middle and upper income areas. Based upon census data, the average
estimated population within a three and five-mile radius of the Shopping
Centers is approximately 105,000 and 255,000, respectively. The average
household income within a three and five mile radius of the Shopping Centers is
$63,000 each, compared to a national average of $54,000. Because the Shopping
Centers generally are located in highly developed areas, management believes
that there is little likelihood that any significant numbers of competing
centers will be developed in the future.
The Shopping Centers range in size from 5,000 to 561,000 square feet of
GLA, with seven in excess of 300,000 square feet, and a weighted average of
approximately 172,000 square feet. A majority of the Shopping Centers are
anchored by several major tenants and other tenants offering primarily day-to-
day necessities and services. Eighteen of the 28 Shopping Centers are anchored
by a grocery store. As of February 2000, no single Shopping Center accounted
for more than 11.5% of the total Shopping Center GLA.
The Office Properties
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The four Office Properties are all located in the Washington, D.C.
metropolitan area and contain an aggregate GLA of approximately 975,000 square
feet, comprised of 884,000 and 86,000 square feet of office and retail space,
respectively. The Office Properties represent three distinct styles of
facilities, are located in differing commercial environments with distinctive
demographic characteristics, and are geographically removed from one another.
As a consequence, management believes that the Office Properties compete for
tenants in different commercial and geographic sub-markets of the metropolitan
Washington, D.C. market and do not compete with one another.
601 Pennsylvania Ave. is a nine-story, Class A office building (with a
small amount of street level retail space) built in 1986 and located in a prime
downtown location. Van Ness Square is a six-story office/retail building
rebuilt in 1990. Van Ness Square is located in a highly developed commercial
area of Northwest Washington, D.C. which offers extensive retail and restaurant
amenities. Management believes that the Washington, D.C. office market is one
of the strongest and most stable leasing markets in the nation, with relatively
low vacancy rates in
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comparison to other major metropolitan areas. It believes that the long-term
stability of this market is attributable to the status of Washington, D.C. as
the nation's capital and to the presence of the federal government,
international agencies, and an expanding private sector job market. Avenel
Business Park (Phases I-III) is a research park located in a Maryland suburb of
Washington, D.C. On April 1, 1998, the Company purchased Avenel IV, a newly
constructed and 100% leased office / flex building located adjacent to Avenel
Phases I-III. Two additional buildings (Avenel V) were completed in January
1999. The combined business park consists of 11 one-story buildings built in
five phases which were completed in 1981, 1985, 1989, 1998 and 1999. Management
believes that, due to its desirable location, the high quality of the property
and the relative scarcity of research and development space in its immediate
area, Avenel should continue to attract and retain desirable tenants in the
future.
Washington Square at Old Town is a new 235,000 square foot Class A mixed-
use office/retail complex being developed on a two-acre site along Alexandria's
main street, North Washington Street, in historic Old Town Alexandria.
Washington Square features two twin four-story buildings with brick and cast
stone exterior facades and glass curtain walls overlooking a spacious courtyard.
Prospective tenants will be attracted by the property's three-story atrium
lobbies, fitness center, concierge service, 600 space parking structure and
computerized energy management system. The Company is marketing the 190,000
square feet of office space to corporate users, professionals and trade
associations. The project's office tenants and Alexandria's residents will be
served by 45,000 square feet of street-level retail businesses. Construction of
Washington Square is scheduled to be completed and ready for occupancy by late
summer 2000.
The Industrial Property
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The Industrial Property, Crosstown Business Center, is a 197,135 square
foot warehouse and flex office complex located in Tulsa, Oklahoma. The Company
is capitalizing on the property's close proximity to Tulsa's international
airport and complimentary facilities by converting the former strip shopping
center into a use more suitable to the property's location and physical layout.
The following table sets forth, at the dates indicated, certain information
regarding the Current Portfolio Properties:
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Saul Centers, Inc
Schedule of Current Portfolio Properties
December 31, 1999
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Leasable Year
Area Developed Land
(Square or Acquired Area
Property Location Feet) (Renovated) (Acres)
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Shopping Centers
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Ashburn Village Ashburn, VA 108,204 1994 12.7
Ashburn Village II (a) Ashburn, VA 39,700 1999/2000 6.6
Beacon Center Alexandria, VA 355,659 1972 (1993/99) 32.3
Belvedere Baltimore, MD 54,941 1972 4.8
Boulevard Fairfax, VA 56,350 1994 (1999) 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 247,393 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 97,880 1966 (1982/95) 9.4
Lexington Mall Lexington, KY 315,707 1974 30.0
Lumberton Lumberton, NJ 189,898 1975 (1992/96) 23.3
Olney Olney, MD 53,765 1975 (1990) 3.7
Ravenwood Baltimore, MD 87,750 1972 8.0
Seven Corners Falls Church, VA 560,998 1973 (1994-7) 31.6
Shops at Fairfax Fairfax, VA 68,743 1975 (1993/99) 6.7
Southdale Glen Burnie, MD 483,874 1972 (1986) 39.6
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Percentage Leased
Dec-99 Dec-98 Anchor/Significant Tenants
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100% 100% Giant Food, Blockbuster
(a) (a) Giant Food, Blockbuster
100% 100% Lowe's, Giant Food, Office Depot, Outback Steakhouse, Marshalls,
Hollywood Video, Hancock Fabrics
89% 100% Food King, McCrory
100% 92% Danker Furniture, Petco, Party City
100% 100%
100% 78%
100% 100%
94% 65% Burlington Coat Factory, Bed Bath & Beyond, Famous Footwear, Lakeshore
Learning Center, BridesMart, Staples
97% 100%
100% 100% Giant Food
97% 97% Safeway Marketplace, CVS Pharmacy
98% 96% Giant Food, Pep Boys, Big Lots, Run N' Shoot
100% 100% Safeway, McCrory
100% 93% Zany Brainy, CVS Pharmacy, Hollywood Video
82% 91% Dillard's, Dawahares of Lexington, Rite Aid
85% 89% SuperFresh, Rite Aid, Blockbuster, Ace Hardware
99% 94% Rite Aid
100% 100% Giant Food, Hollywood Video
100% 100% Home Depot, Shoppers Club, Best Buy, Michaels, Barnes & Noble, Ross
Dress For Less, G Street Fabrics, Champs
100% 100% SuperFresh, Blockbuster
100% 100% Giant Food, Circuit City, Kids R Us, Michaels, Marshalls, PetSmart, Value
City Furniture
</TABLE>
10
<PAGE>
Saul Centers, Inc
Schedule of Current Portfolio Properties
December 31, 1999
<TABLE>
<CAPTION>
Leasable Year
Area Developed Land
(Square or Acquired Area
Property Location Feet) (Renovated) (Acres)
========================== =========================== ================ ================== ==========
<S> <C> <C> <C> <C> <C>
Shopping Centers (continued)
- -----------------------------
Southside Plaza Richmond, VA 352,964 1972 32.8
South Dekalb Plaza Atlanta, GA 183,199 1976 14.6
Thruway Winston-Salem, NC 345,534 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 4,935,507 419.6
---------------- ----------
Office Properties
- ------------------
Avenel I-III Gaithersburg, MD 284,739 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
Washington Square (a) Alexandria, VA 235,000 1975 (2000) 2.0
---------------- ----------
Total Office Properties 975,038 35.6
---------------- ----------
Industrial Property
- -------------------
Crosstown (b) Tulsa, OK 197,135 1975 (2000) 21.5
---------------- ----------
Total Portfolio 6,107,680 SF 476.7
================ ==========
<CAPTION>
Percentage Leased
Dec-99 Dec-98
====== ======
92% 92% CVS Pharmacy, Community Pride Supermarket, Maxway
82% 95% MacFrugals, Pep Boys, The Emory Clinic
96% 95% Bed, Bath & Beyond, Stein Mart, Harris Teeter, Fresh Market, Eckerd
Drugs, Houlihan's, Borders Books, Zany Brainy, Blockbuster
98% 91% Giant Food, Tuesday Morning
58% 74% Homeland Stores, Family Dollar
100% 100% Giant Food, Sears, Rite Aid, Blockbuster
- ------- ---------
95% 95%
- ------- ---------
95% 91% Quanta Systems, General Services Administration, GeneLogic, Ventana
Medical, Paragea Communications
100% - Boston Biomedica, MicroAge
78% -
100% 100% General Services Administration, Alltel, American Arbitration, Capital Grille
96% 96% United Mine Workers Pension Trust, Office Depot, Pier 1
(a) (a)
- --------- --------
96% 95%
- --------- ---------
15% 2% Compass Group, Roxtec
- --------- ---------
93% 92%
========= =========
</TABLE>
(a) Under construction and not operational at yearend December 31, 1999.
(b) Currently operational, but under development to convert former shopping
center to warehouse use.
11
<PAGE>
Item 3. Legal Proceedings
In the normal course of business, the Company is involved in litigation,
including litigation arising out of the collection of rents, the enforcement or
defense of the priority of its security interests, and the continued development
and marketing of certain of its real estate properties. In the opinion of
management, litigation that is currently pending should not have a material
adverse impact on the financial condition or future operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Market Information
- ------------------
Saul Centers completed its initial public offering on August 26, 1993.
Shares of common stock were sold at an initial offering price of $20 per share
and the net offering proceeds were used to acquire general partnership interests
in the Operating Partnership and Subsidiary Partnerships. The shares are
listed on the New York Stock Exchange under the symbol "BFS". The high and low
sales prices for the common stock shares for each quarter of 1999 and 1998 were
as follows:
Period Share Price
-------- -----------
High Low
------------- -------------
October 1, 1999 - December 31, 1999 $1515/16 $ 14
July 1, 1999 - September 30, 1999 $ 173/8 $1413/16
April 1, 1999 - June 30, 1999 $ 171/8 $ 143/4
January 1, 1999 - March 31, 1999 $ 159/16 $ 141/2
October 1, 1998 - December 31, 1998 $ 16 3/4 $ 153/8
July 1, 1998 - September 30, 1998 $ 183/16 $ 153/16
April 1, 1998 - June 30, 1998 $1815/16 $ 173/16
January 1, 1998 - March 31, 1998 $1815/16 $ 173/8
On February 28, 2000, the closing price was 143/8.
Holders
- -------
The approximate number of holders of record of the common stock was 500 as of
February 28, 2000.
12
<PAGE>
Dividends
- ---------
The Company paid four quarterly distributions in the amount of $0.39 per
share, during each of the years ended December 31, 1999 and 1998, totaling $1.56
per share for each of these years, or an annual yield of 10.8% based on the
closing price of the common stock on the New York Stock Exchange as of February
28, 2000. The Company has determined that 86.09% of the total $1.56 per share
paid in calendar year 1999 represents currently taxable dividend income to the
stockholders, while the balance of 13.91% is considered return of capital.
The Company's estimate of cash flow available for distributions is believed
to be based on reasonable assumptions and represents a reasonable basis for
setting distributions. However, the actual results of operations of the Company
will be affected by a variety of factors, including actual rental revenue,
operating expenses of the Company, interest expense, general economic
conditions, federal, state and local taxes (if any), unanticipated capital
expenditures, and the adequacy of reserves. While the Company intends to
continue paying regular quarterly distributions, any future payments will be
determined solely by the Board of Directors and will depend on a number of
factors, including cash flow of the Company, its financial condition and capital
requirements, the annual distribution requirements required to maintain its
status as a REIT under the Code, and such other factors as the Board of
Directors deems relevant.
Under the Code, REIT's are subject to numerous organizational and operation
requirements, including the requirement to distribute at least 95% of REIT
taxable income. The Company distributed amounts greater than the required
amount in 1999 and 1998. Actual distributions by the Company were $28,231,000
in 1999 and $26,971,000 in 1998.
Item 6. Selected Financial Data
The selected financial data of the Company contained herein has been
derived from the consolidated financial statements of the Company. The data
should be read in conjunction with "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Consolidated Financial
Statements included elsewhere in this report. The historical selected financial
data have been derived from audited financial statements for all periods.
13
<PAGE>
SELECTED FINANCIAL DATA to be inserted.
<TABLE>
<CAPTION>
Saul Centers, Inc.
SELECTED FINANCIAL DATA
(In thousands, except per share data)
Years Ended December 31,
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
Operating Data:
- --------------
<S> <C> <C> <C> <C> <C>
Total revenue ................................ $ 73,791 $ 70,583 $ 67,717 $ 64,023 $ 61,469
Operating expenses ........................... 53,124 53,393 50,722 49,761 47,258
--------- --------- --------- --------- ---------
Operating income ............................. 20,667 17,190 16,995 14,262 14,211
Non-operating income (loss)
Gain on sale of property................... 553
Change in accounting method ............... (771)
Sale of interest rate protection
agreements............................... -- -- (4,392) (972) --
--------- --------- --------- --------- ---------
Net income before extraordinary item and
minority interests.......................... 21,220 16,419 12,603 13,290 14,211
Extraordinary item: Early extinguishment
of debt .................................... -- (50) (3,197) (587) (998)
--------- --------- --------- --------- ---------
Net income before minority interests ......... 21,220 16,369 9,406 12,703 13,213
Minority interests ........................... (7,923) (7,240) (6,854) (6,852) (6,852)
--------- --------- --------- --------- ---------
Net income ................................... $ 13,297 $ 9,129 $ 2,552 $ 5,851 $ 6,361
========= ========= ========= ========= =========
Per Share Data:
- --------------
Net income before extraordinary item and
minority interests ......................... $ 1.17 $ 0.95 $ 0.76 $ 0.81 $ 0.87
========= ========= ========= ========= =========
Net income ................................... $ 1.01 $ 0.72 $ 0.21 $ 0.49 $ 0.54
========= ========= ========= ========= =========
Weighted average shares outstanding :
Fully converted ........................... 18,148 17,233 16,690 16,424 16,285
========= ========= ========= ========= =========
Common stock............................... 13,100 12,644 12,297 12,031 11,892
========= ========= ========= ========= =========
Dividends Paid:
--------------
Cash dividends to common stockholders (1)... $ 20,308 $ 19,731 $ 19,063 $ 18,669 $ 18,531
========= ========= ========= ========= =========
Cash dividends per share ................... $ 1.56 $ 1.56 $ 1.56 $ 1.56 $ 1.56
========= ========= ========= ========= =========
Balance Sheet Data:
- ------------------
Income-producing properties
(net of accumulated depreciation) .......... $ 256,110 $ 246,151 $ 242,653 $234,699 $ 229,425
Total assets .................................. 299,665 271,034 260,942 263,495 269,407
Total debt, including accrued interest ........ 311,114 291,576 286,072 273,731 273,979
Total stockholders' equity (deficit) .......... (31,859) (37,284) (38,054) (26,361) (16,735)
Other Data
- ----------
Funds from operations (2)
Net income before minority interests ....... $ 21,220 $ 16,369 $ 9,406 $ 12,703 $ 13,213
Depreciation and amortization of real
property ................................. 12,163 12,578 10,642 10,860 10,425
Gain on sale of property ................... (553) -- -- -- --
Change in accounting method ................ -- 771 -- -- --
Debt restructuring losses:
Sale of interest rate protection
agreements ............................. -- -- 4,392 972 --
Early extinguishment of debt ............. -- 50 3,197 587 998
--------- --------- --------- --------- ---------
Funds from operations ......................... $ 32,830 $ 29,768 $ 27,637 $ 25,122 $ 24,636
========= ========= ========= ========= =========
Cash flow provided by ( used in ) :
Operating activities ....................... $ 31,645 $ 29,686 $ 28,936 $ 29,677 $ 25,055
Investing activities ....................... $ (36,920) $ (14,776) $ (16,094) $ (8,035) $ (20,992)
Financing activities ....................... $ 3,837 $ (13,203) $ (12,192) $(22,278) $ (4,416)
- --------------------------------------------------------------------------------------------------------------------------------
(1) By operation of the Company's dividend reinvestment plan, $6,914, $6,366 and $4,305, was reinvested in newly issued common
stock during 1999, 1998 and 1997, respectively.
(2) Funds From Operations (FFO) as defined by the National Association of Real Estate Investment Trusts (NAREIT), represents net
income excluding gains or losses from debt restructuring, 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 cash needs.
FFO may not be comparable to similarly titled measures employed by other REITs.
</TABLE>
14
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This section should be read in conjunction with the selected financial data
and the Consolidated Financial Statements of the Company and The Saul
Organization and the accompanying notes in "Item 6. Selected Financial Data" and
"Item 8. Financial Statements and Supplementary Data," respectively, of this
report. Historical results and percentage relationships set forth in these
Items 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 Items 1 - 6 of this Form 10-K. This Form 10-
K 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 on the consolidated financial statements
of the Company as of December 31, 1999 and for the year ended December 31, 1999.
Prior year data is based on the Company's consolidated financial statements as
of December 31, 1998 and 1997 and for the years ended December 31, 1998 and
1997.
Liquidity and Capital Resources
- -------------------------------
The Company's principal demands for liquidity are expected to be
distributions to its stockholders, debt service and loan repayments, expansion
and renovation of the Current Portfolio Properties and selective acquisition and
development of additional properties. In order to qualify as a REIT for federal
income tax purposes, the Company must distribute to its stockholders at least
95% of its "real estate investment trust taxable income," as defined in the
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 coming 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. 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 coming year, any developments,
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, including
approximately $29,000,000 of the Company's credit line which was available for
borrowing as of December 31, 1999, will be sufficient to meet its liquidity
needs for the foreseeable future.
15
<PAGE>
Capital Strategy and Financing Activity
- ---------------------------------------
The Company's capital strategy is to maintain a ratio of total debt to
total asset value of 50% or less, and to actively manage the Company's leverage
and debt expense on an ongoing basis in order to maintain prudent coverage of
fixed charges. Management believes that current total debt remains less than
50% of total asset value. Over 80% of the Company's debt has a maturity beyond
the year 2010. The Company's interest expense coverage ratio increased to 2.48
during the past year, from 2.33 in 1998.
During 1999, the Company closed a $38,000,000 construction loan to fund the
development costs associated with Washington Square, the mixed-use office/retail
complex which the Company is constructing in Old Town Alexandria, Virginia. In
October 1999, the Company secured a $4,000,000 increase in the construction loan
in order to fully fund the increase in the overall project size from 225,000
leasable square feet to 235,000 leasable square feet and additional construction
costs. The loan has an initial three-year term with an interest rate of LIBOR
plus 1.90%, with the spread over LIBOR declining as leasing of the office and
retail space is achieved.
In conjunction with the Company's April 1998 acquisition of Avenel IV and
the development of the 28,000 square foot Avenel V during 1999, the Company
closed a $6,400,000 permanent loan in September 1998. The new loan term is 13
years, maturing in December 2011, and requires monthly principal and interest
payments based on a 25-year amortization schedule and a rate of 7.09%. This
loan is a part of a cross-collateralized mortgage pool totaling $76,914,000 at
December 31, 1999. See "Note 4-Notes Payable in Item 8. Financial Statements and
Supplemental Data."
As of February 28, 2000, outstanding borrowings on the Company's
$60,000,000 unsecured credit line totaled $35,000,000, leaving $25,000,000 of
credit availability. The Company has fixed interest rates on approximately 83.3%
of its total debt outstanding, which now has a weighted remaining term of 10.2
years.
16
<PAGE>
Financial Information
- ---------------------
In 1999, the Company reported Funds From Operations (FFO) of $32,830,000 on
a fully converted basis. This represents a 10.3% increase over 1998 FFO of
$29,768,000. The following table represents a reconciliation from net income
before minority interests to FFO:
<TABLE>
<CAPTION>
For the Years Ended December 31,
(Dollars in thousands) 1999 1998 1997
- ---------------------- ---- ---- ----
<S> <C> <C> <C>
Net income before minority interests $21,220 $16,369 $ 9,406
Subtract:
Gain on sale of property 553 - -
Add:
Depreciation and amortization of real property 12,163 12,578 10,642
Debt restructuring losses:
Disposition of interest rate protection agreements - - 4,392
Write-off of unamortized loan costs - 50 3,197
------- ------- -------
32,830 28,997 27,637
Add: Retroactive impact of change in accounting method(1) - 771 -
------- ------- -------
Funds From Operations(2) $32,830 $29,768 $27,637
======= ======= =======
</TABLE>
Cash flow from operating activities, investing activities and financing
activities are as follows:
<TABLE>
<CAPTION>
Cash flow provided by (used in):
- -------------------------------
(Dollars in thousands) For the Years Ended December 31,
- --------------------- 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Operating activities $ 31,645 $ 29,686 $ 28,936
Investing activities -36,920 -14,776 -16,094
Financing activities 3,837 -13,203 -12,192
</TABLE>
- --------------------------
1 Retroactive to January 1, 1998, the Company began recognition of percentage
rental income in accordance with a new accounting pronouncement.
2 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.
17
<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
Washington Square, Ashburn II, French Market and Crosstown Business Center.
The Company also completed development activity during 1999 at Beacon Center,
Shops at Fairfax and Avenel Business Park.
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 leaseable area and is well located
on a two-acre site, formerly leased to Mastercraft furniture, along Alexandria's
main street. Construction of the underground parking deck has been substantially
completed, with building frames for the retail and office levels completed to
the roof deck. Precast facade features and brick work is being installed and
base building construction of the two buildings is scheduled to be completed by
the summer of 2000. The 45,000 square feet of retail space is 62% pre-leased.
The Company recently 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 is being developed
into Ashburn 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. Construction began in November
with substantial completion scheduled for the spring of 2000. Approximately 56%
of the new space has been pre-leased.
During 1999, the Company completed construction on a facade renovation and
retenanting of a 103,000 square foot anchor space at the 213,000 square foot
French Market center in Oklahoma City, Oklahoma. 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 fall of 2000, increasing the center's occupancy to over 95%.
The conversion of the under-performing Tulsa, Oklahoma shopping center
formerly anchored by Wal-Mart, to an industrial/office campus named Crosstown
Business Center has commenced. The first tenant occupied its space in December
1999 and the project is now 15% leased.
In late 1999, the Company completed redevelopment of the Beacon Center,
located along U.S. Route 1 in Alexandria, Virginia. Beacon Center's central
enclosed mall area was demolished and construction of a 148,000 square foot
Lowe's home improvement and garden center store was completed and opened during
the first week in November. In addition to the new Lowe's, 8,000 square feet of
new small shop space was constructed and is 100% leased and occupied.
The Company also recently completed another significant redevelopment
during 1999 with the opening of a 53,000 square foot SuperFresh 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.
SuperFresh opened for business in late September, and the shop space is 100%
leased and occupied.
The 1998 acquisition of Avenel IV and the completion in 1999 of the 27,000
square foot Avenel V expansion, increased the leasable area of the Company's
Avenel Business Park by 26% to 359,000 square feet. Avenel Business Park is
currently over 97% leased.
18
<PAGE>
Portfolio Leasing Status
- ------------------------
At December 31, 1999, the portfolio consisted of twenty eight 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 December 31, 1999, 92.7% of the Company's 5.8 million square feet of
operating leasable space was leased to tenants, as compared to 92.1% at December
31, 1998. The shopping center portfolio was 95.2% leased at both December 31,
1999 and 1998. The Office Properties (excluding the Washington Square project
under development) were 96.3% leased at December 31, 1999 compared to 95.4% as
of December 31, 1998. The Industrial Property was 15% leased at December 31,
1999 compared to 2% as of December 31, 1998. The overall improvement in the
year-end 1999 leasing percentage resulted primarily from the Company's
successful leasing at Avenel Business Park and the commencement of leasing at
Crosstown Business Center.
Results of Operations
- ---------------------
The following discussion compares the results of the Company for the year
ended December 31, 1999 with the year ended December 31, 1998, and compares the
year ended December 31, 1998 with the year ended December 31, 1997. This
information should be read in conjunction with the accompanying consolidated
financial statements and the notes related thereto.
Years Ended December 31, 1999 and 1998
- --------------------------------------
Base rent increased to $59,200,000 in 1999 from $55,542,000 in 1998,
representing a $3,658,000 (6.6%) increase. The increase in base rent resulted
primarily from new leases in effect at recently redeveloped shopping centers
(French Market, Seven Corners, Beacon Center and Thruway), leases rolling-over
to higher rents in the Office Properties and the rollover of three anchor tenant
leases into higher paying base rent in lieu of percentage rent at White Oak,
Ravenwood and Giant shopping centers. The increase in base rent was diminished
in part by the temporary absence of rental income on space being redeveloped at
the Washington Square at Old Town and Shops at Fairfax developments.
Expense recoveries increased to $10,176,000 in 1999 from $9,911,000 in
1998, representing an increase of $265,000 (2.7%). Expense recovery income
increased primarily as a result of increases in real estate tax expense billed
and collected from the Company's shopping center tenants.
Percentage rent was $2,222,000 in 1999, compared to $2,755,000 in 1998,
representing a decrease of $533,000 (19.3%). The decrease in percentage rent
resulted primarily from the rollover of three anchor tenant leases into higher
paying base rent in lieu of percentage rent at White Oak, Ravenwood and Giant
shopping centers.
Other income, which consists primarily of parking income at two of the
Office Properties, kiosk leasing, temporary leases and payments associated with
early termination of leases, was $2,193,000 in 1999, compared to $2,375,000 in
1998, representing a decrease of $182,000 (7.7%). The decrease in other income
resulted from reduced lease termination payments in the Office Properties
compared to the prior year.
As a consequence of the foregoing, the 1999 total revenues of $73,791,000
represented an increase of $3,208,000 (4.5%) over 1998 total revenues of
$70,583,000.
Operating expenses, which consist mainly of repairs and maintenance,
utilities, payroll and insurance expense, decreased $110,000 (1.4%) to
$7,720,000 in 1999 from $7,830,000 in 1998.
The provision for credit losses was $295,000 in 1999 compared to $418,000
in 1998, representing a decrease of $123,000 (29.4%). The credit loss decrease
resulted from lower credit loss activity in 1999 compared to 1998, when a tenant
at Avenel Business Park filed for bankruptcy protection.
19
<PAGE>
Real estate taxes were $6,207,000 in 1999 compared to $6,128,000 in 1998,
representing an increase of $79,000 (1.3%).
Interest expense was $22,568,000 in 1999 compared to $22,627,000 in 1998,
representing a decrease of $59,000 (0.3%).
Amortization of deferred debt expense was $416,000 in 1999 compared to
$419,000 in 1998, a decrease of $3,000 (0.7%).
Depreciation and amortization expense was $12,163,000 in 1999 compared to
$12,578,000 in 1998, representing a decrease of $415,000 (3.3%).
General and administrative expense, which consists primarily of
administrative payroll and other overhead expenses, was $3,755,000 in 1999
compared to $3,393,000 in 1998, representing an increase of $362,000 (10.7%).
The increase in 1999 expenses compared to 1998 resulted from increases in
payroll and state income tax expenses.
Gain on sale of property of $553,000 in 1999 resulted from the District of
Columbia's purchase of the Company's Park Road property as part of an assemblage
of parcels for a neighborhood revitalization project. There were no property
sales in the 1998 year.
Extraordinary item, early extinguishment of debt, resulted in losses of
$50,000 in 1998. The losses resulted from the write-off of unamortized loan
costs when the Company refinanced a portion of its loan portfolio. There were
no such losses in 1999.
Cumulative effect of change in accounting method occurred in 1998, when the
Company adopted a new accounting method as directed by the Emerging Issues Task
Force (EITF), Issue 98-9, Accounting for Contingent Rent In Interim Financial
Periods. The Company recorded a charge of $771,000 for contingent rents
recognized under the previous method.
Years Ended December 31, 1998 and 1997
- --------------------------------------
Base rent increased to $55,542,000 in 1998 from $51,779,000 in 1997,
representing a $3,763,000 (7.3%) increase. The increase in base rent resulted
primarily from improved occupancy at the redeveloped Seven Corners and Beacon
Center, increased minimum rents on lease rollover from three tenants previously
paying percentage rent, and to a lesser extent, generally higher rents on lease
renewals.
Expense recoveries increased to $9,911,000 in 1998 from $9,479,000 in 1997,
representing an increase of $432,000 (4.6%). The equal increases in common area
maintenance expense recoveries and real estate tax expense recovery occurred due
to improved occupancy primarily at Seven Corners and the addition of the Avenel
IV property to the Company's portfolio during 1998.
Percentage rent was $2,755,000 in 1998, compared to $2,948,000 in 1997,
representing a decrease of $193,000 (6.5%). This decrease resulted primarily
from the rollover of three leases into higher paying base rent in lieu of
percentage rent.
Other income, which consists primarily of parking income at two of the
Office Properties, kiosk leasing, temporary leases and payments associated with
early termination of leases, was $2,375,000 in 1998, compared to $3,511,000 in
1997, representing a decrease of $1,136,000 (32.4%). The decrease in other
income resulted from two large lease termination payments collected from former
tenants at Seven Corners and Beacon Center in 1997.
As a consequence of the foregoing, the 1998 total revenues of $70,583,000
represented an increase of $2,866,000 (4.2%) over 1997 total revenues of
$67,717,000.
Operating expenses, which consist mainly of repairs and maintenance,
utilities, payroll and insurance expense, decreased $245,000 (3.0%) to
$7,830,000 in 1998 from $8,075,000 in 1997.
20
<PAGE>
The provision for credit losses was $418,000 in 1998 compared to $505,000
in 1997, representing a decrease of $87,000 (17.2%). The decrease resulted from
fewer uncollectible rent receivables resulting from tenants vacating their space
prior to lease expiration.
Real estate taxes were $6,128,000 in 1998 compared to $6,084,000 in 1997,
representing an increase of $44,000 (0.7%).
Interest expense was $22,627,000 in 1998 compared to $20,308,000 in 1997,
representing an increase of $2,319,000 (11.4%). This increase is primarily
attributable to higher interest rates resulting from the Company's October 1997
refinancing and conversion of approximately $147.0 million of its mortgage debt
from interest rate capped floating rate loans to longer term, fixed rate loans.
New debt associated with the acquisition of Avenel IV in April 1998 also added
approximately $210,000 to interest expense in 1998.
Amortization of deferred debt expense decreased $1,310,000 (75.8%) to
$419,000 in 1998 from $1,729,000 in 1997. The decrease in the 1998 expense
resulted from the elimination of amortization on interest rate protection
agreements with notional values of $162.8 million sold during the fourth quarter
of 1997, and reduced amortization because new debt costs related to the October
1997 refinancings are being amortized over a longer term than the prior debt
costs.
Depreciation and amortization expense increased $1,936,000 (18.2%) from
$10,642,000 in 1997 to $12,578,000 in 1998. The increase resulted from the non-
recurring write-off of unamortized tenant improvement costs due to the early
termination of tenant leases at Beacon Center and Shops At Fairfax
redevelopments and increased recurring expense related to new assets placed in
service during 1998 and the latter half of 1997.
General and administrative expense, which consists primarily of
administrative payroll and other overhead expenses, was $3,393,000 in 1998
compared to $3,379,000 in 1997, representing an increase of $14,000 (0.4%).
Non-operating item, sales of interest rate protection agreements, resulted
in a loss of $4,392,000 in 1997 due to the write-off of unamortized costs in
excess of sale proceeds received when the Company sold its remaining interest
rate protection agreements. No such sales occurred in 1998.
Extraordinary item, early extinguishment of debt, resulted in losses of
$50,000 and $3,197,000, in 1998 and 1997, respectively. The losses in each
period resulted from the write-off of unamortized loan costs when the Company
refinanced a portion of its loan portfolio.
Item 7a. 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 December 31,
1999, the Company had variable rate indebtedness totalling $43,278,000. Interest
rate fluctuations will affect the Company's annual interest expense on its
variable rate debt. If the interest rate on the Company's variable rate debt
instruments outstanding at December 31, 1999 had been one percent higher, our
annual interest expense relating to these debt instruments would have increased
by $310,000, based on those balances. Interest rate fluctuations will also
affect the fair value of the Company's fixed rate debt instruments. As of
December 31, 1999, the Company had fixed rate indebtedness totalling 26,990,000.
If interest rates on the Company's fixed rate debt instruments at December 31,
1999 had been one percent higher, the fair value of those debt instruments on
that date would have decreased by approximately $17,030,000.
21
<PAGE>
Item 8. Financial Statements and Supplementary Data
The financial statements of the Company and its consolidated subsidiaries
are included in this report on the pages indicated, and are incorporated herein
by reference:
<TABLE>
<CAPTION>
Page
- ------
<S> <C> <C>
F-1 (a) Report of Independent Public Accountants
F-2 (b) Consolidated Balance Sheets - December 31, 1999 and 1998
F-3 (c) Consolidated Statements of Operations - Years ended December 31, 1999, 1998 and 1997.
F-4 (d) Consolidated Statements of Stockholders' Equity - Years ended December 31, 1999, 1998 and 1997.
F-5 (e) Consolidated Statements of Cash Flows - Years ended December 31, 1999, 1998 and 1997.
F-6 (f) Notes to Consolidated Financial Statements
</TABLE>
The selected quarterly financial data included in Note 15 of the Notes to
Consolidated Financial Statements referred to above are incorporated herein by
reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
PART III
Certain information Part III requires will be filed in a definitive proxy
statement with the SEC pursuant to Regulation 14A (the "Proxy Statement") not
later than 120 days after the end of the fiscal year covered by this Report, and
certain information to be included therein is incorporated herein by reference.
Only those sections or pages of the Proxy Statement which specifically address
the items set forth herein are incorporated by reference.
Item 10. Directors and Executive Officers of the Registrant
The information this Item requires is incorporated by reference to the
information under the captions "Election of Directors" and "Compensation of
Directors" on pages 3 through 7 of the Company's Proxy Statement to be filed
with the SEC for its annual shareholders' meeting to be held on April 28, 2000.
Item 11. Executive Compensation
The information this Item requires is incorporated by reference to the
information under the captions "Executive Compensation," "Compensation Committee
Report" and "Performance Graph" on pages 8 through 11 of the Company's Proxy
Statement to be filed with the SEC for its annual shareholders' meeting to be
held on April 28, 2000.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information this Item requires is incorporated by reference to the
information under the caption "Security Ownership of Certain Beneficial Owners
and Management" on page 12 of the Company's Proxy Statement to be filed with
the SEC for its annual shareholders' meeting to be held on April 28, 2000.
Item 13. Certain Relationships and Related Transactions
The information this Item requires is incorporated by reference to the
information under the caption "Certain Relationships and Transactions" on page
13 of the Company's Proxy Statement to be filed with the SEC for its annual
shareholders' meeting to be held on April 28, 2000.
22
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
--------------------
The following financial statements of the Company and their
consolidated subsidiaries are incorporated by reference in
Part II, Item 8.
(a) Report of Independent Public Accountants
(b) Consolidated Balance Sheets - December 31, 1999 and 1998
(c) Consolidated Statements of Operations - Years ended December 31,
1999, 1998 and 1997
(d) Consolidated Statements of Stockholders' Equity - Years ended
December 31, 1999, 1998 and 1997
(e) Consolidated Statements of Cash Flows - Years ended December 31,
1999, 1998 and 1997
(f) Notes to Consolidated Financial Statements
2. Financial Statement Schedule and Supplementary Data
---------------------------------------------------
(a) Selected Quarterly Financial Data for the Company are
incorporated by reference in Part II, Item 8
(b) Report of Independent Public Accountants on the Schedule
(included in Report of Independent Public Accountants on the
Financial Statements)
(c) Schedule of the Company:
Schedule III - Real Estate and Accumulated Depreciation
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
3. 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, 1993 and filed as Exhibit
3.(a) of the 1993 Annual Report of the Company on Form 10-K is
hereby incorporated by reference.
(b) Amended and Restated Bylaws of Saul Centers, Inc. as in effect
at and after August 24, 1993 and as of August 26, 1993 and
filed as Exhibit 3 (b) of the 1993 Annual Report of the Company
on Form 10-K is hereby incorporated by reference. The First
Amendment to the First Amended and Restated Agreement of Limited
Partnership of Saul Subsidiary I Limited Partnership, the
Partnership of Saul Subsidiary I Limited Partnership, the Third
Amendment to the First Amended and Restated Agreement of Limited
Partnership of Saul Subsidiary I Limited
23
<PAGE>
Partnership and the Fourth Amendment to the First Amended and
Restated Agreement of Limited Partnership of Saul Subsidiary I
Limited Partnership as filed as Exhibit 3.(b) of the 1997 Annual
Report of the Company on Form 10-K is hereby incorporated by
reference.
10. (a) First Amended and Restated Agreement of Limited Partnership
of Saul Holdings Limited Partnership filed as Exhibit No. 10.1 to
Registration Statement No. 33-64562 is hereby incorporated by
reference. The First Amendment to the First Amended and Restated
Agreement of Limited Partnership of Saul Holdings Limited
Partnership, the Second Amendment to the First Amended and
Restated Agreement of Limited Partnership of Saul Holdings
Limited Partnership, and the Third Amendment to the First Amended
and Restated Agreement of Limited Partnership of Saul Holdings
Limited Partnership filed as Exhibit 10.(a) of the 1995 Annual
Report of the Company on Form 10-K is hereby incorporated by
reference. The Fourth Amendment to the First Amended and
Restated Agreement of Limited Partnership of Saul Holdings
Limited Partnership filed as Exhibit 10.(a) of the March 31, 1997
Quarterly Report of the Company is hereby incorporated by
reference.
(b) First Amended and Restated Agreement of Limited Partnership of
Saul Subsidiary I Limited Partnership and Amendment No. 1 thereto
filed as Exhibit 10.2 to Registration Statement No. 33-64562 are
hereby incorporated by reference. The Second Amendment to the
First Amended and Restated Agreement of Limited Partnership of
Saul Subsidiary I Limited Partnership, the Third Amendment to the
First Amended and Restated Agreement of Limited Partnership of
Saul Subsidiary I Limited Partnership and the Fourth Amendment to
the First Amended and Restated Agreement of Limited Partnership
of Saul Subsidiary I Limited Partnership as filed as Exhibit
10.(b) of the 1997 Annual Report of the Company on Form 10-K is
hereby incorporated by reference.
(c) First Amended and Restated Agreement of Limited Partnership of
Saul II Subsidiary Partnership and Amendment No. 1 thereto filed
as Exhibit 10.3 to Registration Statement No. 33-64562 are hereby
incorporated by reference.
(d) Property Conveyance Agreement filed as Exhibit 10.4 to
Registration Statement No. 33-64562 is hereby incorporated by
reference.
(e) Management Functions Conveyance Agreement filed as Exhibit 10.5
to Registration Statement No. 33-64562 is hereby incorporated
by reference.
(f) Registration Rights and Lock-Up Agreement filed as Exhibit 10.6
to Registration Statement No. 33-64562 is hereby incorporated by
reference.
(g) Exclusivity and Right of First Refusal Agreement filed as Exhibit
10.7 to Registration Statement No. 33-64562 is hereby
incorporated by reference.
(h) Saul Centers, Inc. 1993 Stock Option Plan filed as Exhibit 10.8
to Registration Statement No. 33-64562 is hereby incorporated by
reference.
(i) Agreement of Assumption dated as of August 26, 1993 executed by
Saul Holdings Limited Partnership and filed as Exhibit 10. (I) of
the 1993 Annual Report of the Company on Form 10-K is hereby
incorporated by reference.
(j) Saul Centers, Inc. 1995 Dividend Reinvestment and Stock Purchase
Plan as filed with the Securities and Exchange Commission as File
No. 33-80291 is hereby incorporated by reference.
24
<PAGE>
(k) Deferred Compensation Plan for Directors dated as of December 13,
1993 as filed as Exhibit 10.(r) of the 1995 Annual Report of the
Company on Form 10-K is hereby incorporated by reference.
(l) Deed of Trust, Assignment of Rents, and Security Agreement dated
as of June 9, 1994 by and between Saul Holdings Limited
Partnership and Ameribanc Savings Bank, FSB as filed as Exhibit
10.(t) of the 1995 Annual Report of the Company on Form 10-K is
hereby incorporated by reference.
(m) Deed of Trust Note dated as of January 22, 1996 by and between
Saul Holdings Limited Partnership and Clarendon Station Limited
Partnership, filed as Exhibit 10.(s) of the March 31, 1997
Quarterly Report of the Company, is hereby incorporated by
reference.
(n) Loan Agreement dated as of November 7, 1996 by and among Saul
Holdings Limited Partnership, Saul Subsidiary II Limited
Partnership and PFL Life Insurance Company, c/o AEGON USA Realty
Advisors, Inc., filed as Exhibit 10.(t) of the March 31, 1997
Quarterly Report of the Company, is hereby incorporated by
reference.
(o) Promissory Note dated as of January 10, 1997 by and between Saul
Subsidiary II Limited Partnership and The Northwestern Mutual
Life Insurance Company, filed as Exhibit 10.(z) of the March 31,
1997 Quarterly Report of the Company, is hereby incorporated by
reference.
(p) Loan Agreement dated as of October 1, 1997 between Saul
Subsidiary I Limited Partnership, as Borrower and Nomura Asset
Capital Corporation, as Lender, is as filed as Exhibit 10.(p) of
the 1997 Annual Report of the Company on Form 10-K is hereby
incorporated by reference.
(q) Revolving Credit Agreement dated as of October 1, 1997 by and
between Saul Holdings Limited Partnership and Saul Subsidiary II
Limited Partnership, as Borrower and U.S. Bank National
Association, as agent, is as filed as Exhibit 10.(q) of the 1997
Annual Report of the Company on Form 10-K is hereby incorporated
by reference.
(r) Promissory Note, dated as of November 30, 1999 between Saul
Holdings Limited Partnership, as Borrower and Wells Fargo Bank,
National Association, as Lender, is filed herewith.
23. Consent of Independent Public Accountants is filed herewith.
27. Financial Data Schedule is filed herewith.
Reports on Form 8-K.
--------------------
None.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 23, 2000 /s/ B. Francis Saul II
------ ----------------------
B. Francis Saul II
Chairman of the Board of Directors
& Chief Executive Officer
(Principal Executive Officer)
Date: March 23, 2000 /s/ B. Francis Saul III
------ -----------------------
B. Francis Saul III, Vice Chairman
and Director
Date: March 23, 2000 /s/ Philip D. Caraci
------ --------------------
Philip D. Caraci, President and Director
Date: March 23, 2000 /s/ Scott V. Schneider
------ ----------------------
Scott V. Schneider, Senior Vice President
and Secretary (Principal Financial and
Accounting Officer)
Date: March 23, 2000 /s/ Gilbert M. Grosvenor
------ ------------------------
Gilbert M. Grosvenor, Director
Date: March 23, 2000 /s/ Philip C. Jackson Jr.
------ -------------------------
Philip C. Jackson Jr., Director
Date: March 23, 2000 /s/ General Paul X. Kelley
------ --------------------------
General Paul X. Kelley, Director
Date: March 23, 2000 /s/ Charles R. Longsworth
------ -------------------------
Charles R. Longsworth, Director
Date: March 23, 2000 /s/ Patrick F. Noonan
------ ---------------------
Patrick F. Noonan, Director
Date: March 23, 2000 /s/ Mr. Mark Sullivan III
------ -------------------------
Mark Sullivan III, Director
Date: March 23, 2000 /s/ James W. Symington
------ ----------------------
James W. Symington, Director
Date: March 23, 2000 /s/ John R. Whitmore
------ --------------------
John R. Whitmore, Director
26
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Saul Centers, Inc.:
We have audited the accompanying consolidated balance sheets of Saul
Centers, Inc. (a Maryland corporation) and subsidiaries as of December 31, 1999
and 1998, and the related consolidated statements of operations, stockholders'
equity and cash flows for the three years ended December 31, 1999, 1998 and
1997. These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Saul Centers, Inc.
and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years ended December 31,
1999, 1998 and 1997 in conformity with accounting principles generally accepted
in the United States.
As explained in Note 2 to the financial statements, effective June 30,
1998, the Company changed its method of accounting for percentage rent.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. Schedule III "Real Estate and
Accumulated Depreciation" on page F-18 and F-19 is presented for the purpose of
complying with the Securities and Exchange Commission's rules and is not a
required part of the basic financial statements. The schedule has been subject
to the auditing procedures applied in our audits of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Vienna, Virginia
February 7, 2000
F-1
<PAGE>
Saul Centers, Inc.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
(Dollars in thousands) 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
Assets
Real estate investments
<S> <C> <C>
Land $ 64,233 $ 64,339
Buildings and equipment 304,149 283,722
----------------- -----------------
368,382 348,061
Accumulated depreciation (112,272) (101,910)
----------------- -----------------
256,110 246,151
Construction in progress 21,201 4,506
Cash and cash equivalents 957 2,395
Accounts receivable and accrued income, net 8,723 6,347
Prepaid expenses 7,959 6,873
Deferred debt costs, net 3,197 3,604
Other assets 1,518 1,158
----------------- -----------------
Total assets $ 299,665 $ 271,034
================= =================
Liabilities
Notes payable $ 310,268 $ 290,623
Accounts payable, accrued expenses and other liabilities 18,391 14,856
Deferred income 2,865 2,839
----------------- -----------------
Total liabilities 331,524 308,318
----------------- -----------------
Minority interests -- --
----------------- -----------------
Stockholders' equity (deficit)
Common stock, $0.01 par value, 30,000,000 shares
authorized, 13,334,145 and 12,836,378 shares issued and
outstanding, respectively 133 129
Additional paid-in capital 44,616 31,967
Accumulated deficit (76,608) (69,380)
----------------- -----------------
Total stockholders' equity (deficit) (31,859) (37,284)
----------------- -----------------
Total liabilities and stockholders' equity (deficit) $ 299,665 $ 271,034
================= =================
The accompanying notes are an integral part of these statements.
</TABLE>
F-2
<PAGE>
Saul Centers, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended December 31,
(Dollars in thousands, except per share amounts) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Revenue
<S> <C> <C> <C>
Base rent $59,200 $55,542 $51,779
Expense recoveries 10,176 9,911 9,479
Percentage rent 2,222 2,755 2,948
Other 2,193 2,375 3,511
------------------ ------------------ ----------------------
Total revenue 73,791 70,583 67,717
------------------ ------------------ ----------------------
Operating expenses
Property operating expenses 7,720 7,830 8,075
Provision for credit losses 295 418 505
Real estate taxes 6,207 6,128 6,084
Interest expense 22,568 22,627 20,308
Amortization of deferred debt expense 416 419 1,729
Depreciation and amortization 12,163 12,578 10,642
General and administrative 3,755 3,393 3,379
------------------ ------------------ ----------------------
Total operating expenses 53,124 53,393 50,722
------------------ ------------------ ----------------------
Operating income 20,667 17,190 16,995
Non-operating items
Gain on sale of property 553 -- --
Sales of interest rate protection agreements -- -- (4,392)
------------------ ------------------ ----------------------
Net income before extraordinary item, cumulative effect
of change in accounting method and minority interests 21,220 17,190 12,603
Extraordinary item
Early extinguishment of debt -- (50) (3,197)
Cumulative effect of change in accounting method -- (771) --
------------------ ------------------ ----------------------
Net income before minority interests 21,220 16,369 9,406
------------------ ------------------ ----------------------
Minority interests
Minority share of income (5,899) (4,354) (2,483)
Distributions in excess of earnings (2,024) (2,886) (4,371)
------------------ ------------------ ----------------------
Total minority interests (7,923) (7,240) (6,854)
------------------ ------------------ ----------------------
Net income $ 13,297 $ 9,129 $ 2,552
================== ================== ======================
Per share (basic and dilutive)
Net income before extraordinary item, cumulative
effect of change in accounting method and
minority interests $ 1.17 $ 1.00 $ 0.76
Extraordinary item -- -- (0.19)
Cumulative effect of change in accounting method -- (0.05) --
------------------ ------------------ ----------------------
Net income before minority interests $ 1.17 $ 0.95 $ 0.57
================== ================== ======================
Net income $ 1.01 $ 0.72 $ 0.21
================== ================== ======================
</TABLE>
F-3
<PAGE>
Saul Centers, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Additional
Common Paid-in Accumulated
(Dollars in thousands, except per share amounts) Stock Capital Deficit Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stockholders' equity (deficit):
Balance, December 31, 1996 $ 121 $ 15,950 $ (42,011) $ (25,940)
Issuance of 275,374 shares of
common stock 3 4,497 -- 4,500
Net income -- -- 2,552 2,552
Distributions ($1.17 per share) -- -- (14,334) (14,334)
Distributions payable ($.39 per share) -- -- (4,832) (4,832)
------------------ ----------------- ---------------- ----------------
Balance, December 31, 1997 124 20,447 (58,625) (38,054)
Issuance of 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 497,767 shares of
common stock 4 7,158 -- 7,162
Issuance of 373,546 convertible
limited partnership units in the
Operating Partnership -- 5,491 -- 5,491
Net income -- -- 13,297 13,297
Distributions ($1.17 per share) -- -- (15,323) (15,323)
Distributions payable ($.39 per share) -- -- (5,202) (5,202)
------------------ ----------------- ---------------- ----------------
Balance, December 31, 1999 $ 133 $ 44,616 $ (76,608) $ (31,859)
================== ================= ================ ================
The accompanying notes are an integral part of these statements.
</TABLE>
F-4
<PAGE>
Saul Centers, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31,
(Dollars in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 13,297 $ 9,129 $ 2,552
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interests 7,923 7,240 6,854
Gain on sale of property (553) -- --
Sales of interest rate protection agreements -- -- 4,392
Cumulative effect of change in
accounting method -- 771 --
Loss on early extinguishment of debt -- 50 3,197
Depreciation and amortization 12,579 12,997 12,371
Provision for credit losses 295 418 505
Increase in accounts receivable (2,671) (1,346) (406)
Increase in prepaid expenses (2,434) (2,742) (1,426)
Decrease (increase) in other assets (360) 3 2,548
Increase (decrease) in accounts payable,
accrued expenses and other liabilites 3,535 1,763 (1,640)
Increase (decrease) in deferred income 26 1,409 (11)
Other, net 8 (6) --
------------------ ----------------- -------------------
Net cash provided by operating activities 31,645 29,686 28,936
------------------ ----------------- -------------------
Cash flows from investing activities:
Net proceeds from sale of property 1,718 -- --
Additions to real estate investments (11,587) (6,607) (4,377)
Additions to construction in progress (27,051) (8,169) (11,717)
------------------ ----------------- -------------------
Net cash used in investing activities (36,920) (14,776) (16,094)
------------------ ----------------- -------------------
Cash flows from financing activities:
Proceeds from notes payable 33,979 20,900 223,600
Repayments on notes payable (14,334) (18,407) (212,388)
Proceeds from sale of interest rate protection agreements -- -- 1,370
Note prepayment fees -- -- (95)
Additions to deferred debt expense (13) (220) (3,159)
Proceeds from the issuance of common stock and
convertible limited partnership units in
the Operating Partnership 12,653 11,648 4,500
Distributions to common stockholders and holders
of convertible limited partnership units in
the Operating Partnership (28,448) (27,124) (26,020)
------------------ ----------------- -------------------
Net cash provided by (used in) financing 3,837 (13,203) (12,192)
activities
------------------ ----------------- -------------------
Net increase (decrease) in cash (1,438) 1,707 650
Cash, beginning of year 2,395 688 38
------------------ ----------------- -------------------
Cash, end of year $ 957 $ 2,395 $ 688
================== ================= ===================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest, net of amount capitalized $ 22,698 $ 22,575 $ 19,804
The accompanying notes are an integral part of these statements.
</TABLE>
F-5
<PAGE>
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
1. ORGANIZATION, FORMATION, AND BASIS OF PRESENTATION
Organization
Saul Centers, Inc. ("Saul Centers") was incorporated under the Maryland
General Corporation Law on June 10, 1993. The authorized capital stock of Saul
Centers consists of 30,000,000 shares of common stock, having a par value of
$0.01 per share, and 1,000,000 shares of preferred stock. Each holder of common
stock is entitled to one vote for each share held. 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") 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
2-acre site of the former North Washington shopping center property, and Ashburn
II, a 39,700 square foot retail and office suite expansion to the Company's
Ashburn Village shopping center and repositioning an under-performing shopping
center to an industrial/warehouse use (the "Industrial Property"). On December
16, 1999, the District of Columbia purchased the Park Road retail property as
part of an assemblage of parcels for a neighborhood revitalization project.
Therefore, as of December 31, 1999, the Company's properties (the "Current
Portfolio Properties") consisted of 27 operating shopping center properties and
Ashburn II (the "Shopping Centers"), 3 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 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.
Basis of Presentation
The accompanying financial statements of the Company have been presented on
the historical cost basis of The Saul Organization because of affiliated
ownership and common management and because the assets and liabilities were the
subject of a business combination with the Operating Partnership, the Subsidiary
Partnerships and Saul Centers, all newly formed entities with no prior
operations.
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 Shopping Centers
are anchored by a grocery store and offer primarily day-to-day necessities and
F-6
<PAGE>
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
services. As of December 31, 1999, no single Shopping Center accounted for more
than 11.5% of the total Shopping Center gross leasable area. Only one retail
tenant, Giant Food, at 7.3%, accounted for more than 1.6% of the Company's 1999
total revenues. No office tenant other than the United States Government, at
10.6%, accounted for more than 1.8% of 1999 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.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Real Estate Investment Properties
Real estate investment properties are stated at the lower of depreciated
cost or fair value less cost to sell. Management believes that these assets
have generally appreciated in value and, accordingly, the aggregate current
value exceeds their aggregate net book value and also exceeds the value of the
Company's liabilities as reported in these financial statements. These
financial statements are prepared in conformity with generally accepted
accounting principles, and accordingly, do not report the current value of the
Company's real estate assets.
Interest, real estate taxes and other carrying costs are capitalized on
projects under construction. Once construction is substantially complete and
the assets are placed in service, rental income, direct operating expenses, and
depreciation associated with such properties are included in current operations.
Expenditures for repairs and maintenance are charged to operations as incurred.
Repairs and maintenance expense totaled $2,815,000, $2,616,000, and $2,479,000,
for calendar years 1999, 1998 and 1997, respectively, and is included in
operating expenses in the accompanying financial statements. Interest expense
capitalized totaled $934,000, $257,000 and $297,000, for calendar years 1999,
1998 and 1997, respectively.
In the initial rental operations of development projects, a project is
considered substantially complete and available for occupancy upon completion of
tenant improvements, but no later than one year from the cessation of major
construction activity. Substantially completed portions of a project are
accounted for as separate projects. Depreciation is calculated using the
straight-line method and estimated useful lives of 33 to 50 years for buildings
and up to 20 years for certain other improvements. Leasehold improvements are
amortized over the lives of the related leases using the straight-line method.
Accounts Receivable and Accrued Income
Accounts receivable primarily represent amounts currently due from tenants
in accordance with the terms of the respective leases. In addition, accounts
receivable included $1,803,000, $1,443,000 and $1,663,000, at December 31, 1999,
1998 and 1997, respectively, representing minimum rental income accrued on a
straight-line basis to be paid by tenants over the term of the respective
leases. Receivables are reviewed monthly and reserves are established with a
charge to current period operations when, in the opinion of management,
collection of the receivable is doubtful. Accounts receivable in the
accompanying financial statements are shown net of an allowance for doubtful
accounts of $594,000, $657,000 and $506,000, at December 31, 1999, 1998 and
1997, respectively.
F-7
<PAGE>
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
Allowance for Doubtful Accounts
-------------------------------
(In thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------
1999 1998 1997
---------- ---------- -----------
<S> <C> <C> <C>
Beginning Balance................................. $ 657 $ 506 $ 427
Provision for Credit Losses....................... 295 418 505
Charge-offs....................................... -358 -267 -426
----- ----- -----
Ending Balance ................................... $ 594 $ 657 $ 506
===== ===== =====
</TABLE>
Deferred Debt Costs
Deferred debt costs consists of fees and costs incurred to obtain long-term
financing, construction financing and the revolving line of credit. 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 $1,005,000, $589,000 and $171,000, at
December 31, 1999, 1998 and 1997, respectively.
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 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. As of December 31, 1999 and 1998, the total tax basis of the
Company's assets was $323,080,000 and $296,658,000, and the tax basis of the
liabilities was $317,474,000 and $298,280,000, respectively.
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 December 31, 1999, 120,000 shares were
authorized and registered for use under the Plan, and 72,000 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.
F-8
<PAGE>
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
Change In Accounting Method
On May 21, 1998, the Emerging Issues Task Force ("EITF") discussed Issue
98-9 "Accounting for Contingent Rent In Interim Financial Periods" and reached a
consensus that lessors should defer the accounting recognition of contingent
rent, such as percentage rent, until the specific tenant sales breakpoint 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 did not affect the amount of
percentage rent income reported on an annual basis, but did impact the
recognition of percentage rent income reported on an interim basis by increasing
revenues the Company reported 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. As a result of adoption of
EITF Issue 98-9, the Company recorded a $771,000 charge for the cumulative
effect of change in accounting method, which is included in the consolidated
statement of operations for the year ended December 31, 1998.
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 December 31, 1999
and 1998 are as follows:
Construction in Progress
------------------------
(In thousands)
<TABLE>
<CAPTION>
December 31,
----------------------------
1999 1998
------------- -------------
<S> <C> <C>
Washington Square................................. $18,009 $ --
Ashburn Village II................................ 2,326 --
French Market..................................... 509 949
Crosstown Business Center......................... 357 55
Avenel V.......................................... -- 2,800
Shops At Fairfax.................................. -- 702
------- ------
Balance .......................................... $21,201 $4,506
======= ======
</TABLE>
Cash and Cash Equivalents
Cash and cash equivalents includes cash and short-term investments with
maturities of three months or less.
Per Share Data
Per share data is calculated in accordance with SFAS No. 128, "Earnings Per
Share". The Company has no dilutive securities, therefore, basic and diluted
earnings per share are identical. Net income before minority interests is
presented on a fully converted basis, that is, assuming the limited partners
exercise their right to convert their partnership ownership into shares of Saul
Centers and is computed using weighted average shares of 18,147,954, 17,233,047
and 16,690,417, shares for the years ended December 31, 1999, 1998 and 1997,
respectively. Per share data relating to net income after minority interests is
computed on the basis of 13,100,295, 12,643,639 and 12,297,254, weighted average
common shares for the years ended December 31, 1999, 1998 and 1997,
respectively.
F-9
<PAGE>
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
3. MINORITY INTERESTS - HOLDERS OF CONVERTIBLE LIMITED PARTNERSHIP UNITS IN
THE OPERATING PARTNERSHIP
The Saul Organization has a 27.9% limited partnership interest, represented
by 5,172,241 convertible limited partnership units, in the Operating
Partnership, as of December 31, 1999. These convertible limited partnership
units are convertible into shares of Saul Centers' common stock on a one-for-one
basis, provided the rights may not be exercised at any time that The Saul
Organization owns, directly or indirectly, in the aggregate more than 24.9% of
the outstanding equity securities of Saul Centers. The impact of the Saul
Organization's 27.9% limited partnership interest in the Operating Partnership
is reflected as minority interests in the accompanying consolidated financial
statements.
4. NOTES PAYABLE
December 31, 1999
During 1999 the Company obtained a $42,000,000 loan to fund the
construction of the Washington Square at Old Town project in Alexandria,
Virginia. Borrowings totaled $31,000,000 on the Company's $60,000,000 unsecured
revolving credit facility at December 31, 1999, leaving $29,000,000 available
for future use. The Company has the option to pay a fee of 1/4% and extend the
term one year, however, the Company and lender are currently negotiating a new
three year facility. Notes payable totaled $310,268,000 at December 31, 1999,
as follows:
<TABLE>
<CAPTION>
Principal Interest Scheduled
Notes Payable Outstanding Rate * Maturity *
-------------- ------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Fixed Rate Mortgages: $142,772 (a) 7.67 % Oct 2012
76,914 (b) 8.52 % Dec 2011
36,874 (c) 7.88 % Jan 2013
10,430 (d) 6.88 % May 2004
---------------------------------------------
Total Fixed Rate 266,990 7.91 % 12.2 Years
---------------------------------------------
Variable Rate Loans:
Construction Loan 12,278 (e) 8.40 % Jan 2002
Line of Credit 31,000 (f) 8.00 % Sep 2000
---------------------------------------------
Total Variable Rate 43,278 8.26 % 1.1 Years
---------------------------------------------
Total Notes Payable $310,268 7.96 % 10.7 Years
=============================================
* Weighted averages computed for interest and scheduled maturity totals.
</TABLE>
(a) The loan is collateralized by nine shopping centers.
(b) The loan is collateralized by Avenel Business Park, Van Ness Square,
Ashburn Village I and II, Leesburg Pike, Lumberton Plaza and Village
Center. The loan was amended during 1998 to include new borrowings of
$6,400,000 at a rate of 7.09%. Avenel IV (acquired in 1998) and Avenel V
(under construction at year-end 1998 and substantially completed during
1999) were added as collateral. The 8.52% blended interest rate is the
weighted average of the initial loan rate and the additional borrowings
rate.
(c) The loan is collateralized by 601 Pennsylvania Avenue.
(d) The loan is collateralized by The Glen shopping center.
(e) The loan is a construction loan totaling $42,000,000. Interest expense is
calculated based upon the 1,2,3 or 6 month LIBOR rate plus a spread of
1.45% to 1.9% (determined by certain leasing and/or construction
benchmarks) or upon the bank's prime rate at the Company's option. The
loan may be extended for 2 one-year terms with payment of a fee of 1/4% at
the Company's option. The interest rate in effect on December 31, 1999 was
based on a LIBOR of 6.5% and spread of 1.9%.
(f) The loan is a revolving credit facility totaling $60,000,000. Interest
expense is calculated based upon the 1,2,3 or 6 month LIBOR rate plus a
spread of 1.375% to 1.625% (determined by certain debt service coverage
and leverage tests) or upon the bank's reference rate plus 1/2% at the
Company's option. The line may be extended one year with payment of a fee
of 1/4% at the Company's option. The interest rate in effect on December
31, 1999 was based on a LIBOR of 6.5% and spread of 1.5%.
F-10
<PAGE>
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
Notes payable balances outstanding at December 31, 1999 have a weighted
average remaining term of 10.7 years, and a weighted average interest rate of
7.96%. Of the $310,268,000 total debt at December 31, 1999, $266,990,000 was
fixed rate (86.1% of the total notes payable) and $43,278,000 was variable rate
(13.9% of the total notes payable). The December 31, 1999 depreciated cost of
properties collateralizing the mortgage notes payable totaled $193,696,000.
Certain loans are subject to covenant test. The Company believes it is in
compliance with all such covenant tests.
Notes payable of $266,990,000 at December 31, 1999 require monthly
installments of principal and interest, with principal amortization on schedules
averaging approximately 20 years. The remaining notes payable totaling
$43,278,000 at December 31, 1999 require monthly installments of interest only.
Notes payable at December 31, 1999 totaling $221,075,000 are guaranteed by
members of The Saul Organization.
As of December 31, 1999, the scheduled maturities of all debt for years
ended December 31, are as follows:
Debt Maturity Schedule
----------------------
(In thousands)
<TABLE>
<S> <C>
2000............. $ 36,297
2001............. 6,074
2002............. 18,030
2003............. 6,232
2004............. 15,999
Thereafter....... 227,636
--------
$ 310,268
=========
</TABLE>
December 31, 1998
The Company assumed a $3,700,000 loan when it acquired Avenel IV on April
1, 1998. In September 1998, the Company closed a $6,400,00 permanent fixed rate
loan to replace the variable rate loan assumed on the acquisition of Avenel IV.
The balance of the loan, $2,700,000, was used to fund construction of the new
Avenel V development. The new loan term was 13 years and required monthly
principal and interest payments based upon a 25 year amortization schedule and
an interest rate of 7.09%. Borrowings totaled $18,000,000 on the Company's
$60,000,000 unsecured revolving credit facility at December 31, 1998, leaving
$42,000,000 available for future use. Notes payable totaled $290,623,000 at
December 31, 1998.
Notes payable balances outstanding at December 31, 1998 had a weighted
average remaining term of 12.5 years, and a weighted average interest rate of
7.84%. Of the $290,623,000 total debt at December 31, 1998, $272,623,000 was
fixed rate (93.8% of the total notes payable) and $18,000,000 was variable rate
(6.2% of the total notes payable). The December 31, 1998 depreciated cost of
properties collateralizing the mortgage notes payable totaled $192,000,000.
Notes payable of $272,422,000 at December 31, 1998 required monthly
installments of principal and interest, with principal amortization on schedules
averaging approximately 20 years. The $201,000 note required monthly interest
and an annual principal payment of $100,000. The remaining notes payable
totaling $18,000,000 at December 31, 1998 required monthly installments of
interest only. Notes payable at December 31, 1998 totaling $211,000,000 were
guaranteed by members of The Saul Organization.
5. LEASE AGREEMENTS
Lease income includes primarily base rent arising from noncancellable commercial
leases. Base rent for the years ended December 31, 1999, 1998 and 1997,
amounted to $59,200,000, $55,542,000 and $51,779,000, respectively. Future base
rent under noncancellable leases for years ended December 31, are as follows:
F-11
<PAGE>
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Future Base Rental Income
- -------------------------
<S> <C>
(In thousands)
2000........... $ 59,121
2001........... 52,658
2002........... 45,705
2003........... 39,176
2004........... 34,022
Thereafter..... 246,062
--------
$476,744
========
</TABLE>
The majority of the leases also provide for rental increases and expense
recoveries based on increases in the Consumer Price Index or increases in
operating expenses, or both. These increases generally are payable in equal
installments throughout the year based on estimates, with adjustments made in
the succeeding year. Expense recoveries for the years ended December 31, 1999,
1998 and 1997 amounted to $10,176,000, $9,911,000 and $9,479,000, respectively.
In addition, certain retail leases provide for percentage rent based on sales in
excess of the minimum specified in the tenant's lease. Percentage rent amounted
to $2,222,000, $2,755,000 and $2,948,000, for the years ended December 31, 1999,
1998 and 1997, respectively.
6. LONG-TERM LEASE OBLIGATIONS
Certain properties are subject to noncancellable long-term leases which
apply to land underlying the Shopping Centers. Certain of the leases provide
for periodic adjustments of the base annual rent and require the payment of real
estate taxes on the underlying land. The leases will expire between 2058 and
2068. Reflected in the accompanying consolidated financial statements is
minimum ground rent expense of $154,000, $152,000 and $152,000, for each of the
years ended December 31, 1999, 1998 and 1997, respectively. The minimum future
rental commitments under these ground leases are as follows:
<TABLE>
<CAPTION>
Ground Lease Rental Commitments
- -------------------------------
(In thousands)
Annual Rent Total
2000 2001 2002-2004 Thereafter
------------------------------------------ ----------
<S> <C> <C> <C> <C>
Beacon Center $ 47 $ 51 $ 53 $ 3,395
Olney 50 50 50 4,575
Southdale 60 60 60 3,785
----- ----- ---------- -------
Total $ 157 $ 161 $ 163 $11,755
===== ===== ========== =======
</TABLE>
The Company's Flagship Center consists of two developed outparcels that are
part of a larger adjacent community shopping center formerly owned by The Saul
Organization and sold to an affiliate of a tenant in 1991. The Company has a
90-year ground leasehold interest which commenced in September 1991 with a
minimum rent of one dollar per year.
F-12
<PAGE>
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
7. SHAREHOLDERS' EQUITY AND MINORITY INTERESTS
The consolidated statement of operations for the year ended December 31,
1999 includes a charge for minority interests of $7,923,000, consisting of
$5,899,000 related to The Saul Organization's share of the net income for the
year and $2,024,000 related to distributions to minority interests in excess of
allocated net income for the year. The charge for the year ended December 31,
1998 of $7,240,000 consists of $4,354,000 related to The Saul Organization's
share of net income for the year and $2,886,000 related to distributions to
minority interests in excess of allocated net income for the year. The charge
for the year ended December 31, 1997 of $6,854,000 consists of $2,483,000
related to The Saul Organization's share of the net income for the year and
$4,371,000 related to distributions to minority interests in excess of allocated
net income for the year.
8. RELATED-PARTY TRANSACTIONS
In October 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 at a price of
$1,438,000. The land is being developed into a 39,700 square foot expansion to
the existing shopping center, containing approximately 23,600 square feet of
retail and restaurant space and 16,100 square feet of professional office
suites. The seller was a member of The Saul Organization.
In April 1998, the Company purchased, through its Operating Partnership, a
46,227 square foot office/flex property known as Avenel IV. The $5,600,000
purchase price consisted of $3,657,000 in variable rate debt assumption, with
the balance paid through the issuance of 105,922 new units in Saul Centers'
Operating Partnership. The seller was a member of The Saul Organization.
Chevy Chase Bank, an affiliate of The Saul Organization, leases space in
twelve of the Company's properties. Total rental income from Chevy Chase Bank
amounted to $1,169,000, $1,192,000 and $1,181,000, for the years ended December
31, 1999, 1998 and 1997, respectively.
The Chairman and Chief Executive Officer, the Vice Chairman and the
President of the Company are officers of The Saul Organization but devote a
substantial amount of time to the management of the Company. The annual
compensation for these officers is fixed by the Compensation Committee of the
Board of Directors.
The Company shares with The Saul Organization on a prorata basis certain
ancillary functions such as computer and payroll services and insurance expense
based on management's estimate of usage or time incurred, as applicable. Also,
The Saul Organization subleases office space to the Company. The terms of all
such arrangements with The Saul Organization, including payments related
thereto, are periodically reviewed by the Audit Committee of the Board of
Directors. Included in general and administrative expense for the years ended
December 31, 1999, 1998 and 1997, are charges totaling $1,798,000, $1,685,000
and $1,624,000, related to shared services, of which $1,773,000, $1,480,000 and
$1,436,000, was paid during the years ended December 31, 1999, 1998 and 1997,
respectively.
9. STOCK OPTION PLAN
The Company has established a stock option plan for the purpose of
attracting and retaining executive officers and other key personnel. The plan
provides for grants of options to purchase a specified number of shares of
common stock. A total of 400,000 shares are available under the plan. The plan
authorizes the Compensation Committee of the Board of Directors to grant options
at an exercise price which may not be less than the market value of the common
stock on the date the option is granted.
The Compensation Committee has granted options to purchase a total of
180,000 shares (90,000 shares from incentive stock options and 90,000 shares
from nonqualified stock options) to five Company officers. The options vested
25% per year over four years, have an exercise price of $20 per share and a term
of ten years, subject to earlier expiration upon termination of employment. A
total of 170,000 of the options expire September 23, 2003 and 10,000 expire
September 24, 2004. As of December 31, 1999, all 180,000 of the options were
fully vested. No compensation expense has been recognized as a result of these
grants.
F-13
<PAGE>
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
10. NON-OPERATING ITEMS
Sales of Interest Rate Protection Agreements
The Company sold the remaining portion of its interest rate protection
agreements with a notional value of $162,800,000 in October 1997. The sales
resulted in the write-off of unamortized costs in excess of the proceeds
received totaling $4,392,000 for the year ended December 31, 1997.
Gain on Sale of Property
Gain on sale of property of $553,000 in 1999 resulted from the District of
Columbia's purchase of the Company's Park Road property as part of an
assemblage of parcels for a neighborhood revitalization project. There were no
property sales in the 1998 year.
11. EXTRAORDINARY ITEM - EARLY EXTINGUISHMENT OF DEBT
The consolidated statements of operations for the years ending December 31,
1998 and 1997, include $50,000 and $3,197,000, respectively, related to the
write-off of deferred financing costs on loans that were prepaid. There was no
such write-off for the year ended December 31, 1999.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments," requires disclosure about the fair value for
all financial instruments. The carrying values of cash, accounts receivable,
accounts payable and accrued expenses are reasonable estimates of their fair
value. Based on interest rates currently available to the Company, the carrying
value of the variable rate credit line payable is a reasonable estimation of
fair value, because the debt bears interest based on short-term interest rates.
Based upon management's estimate of borrowing rates and loan terms currently
available to the Company for fixed rate financing in the amount of the total
notes payable, the fair value is not materially different from its carrying
value.
13. COMMITMENTS AND CONTINGENCIES
Neither the Company nor the Current Portfolio Properties are subject to any
material litigation, nor, to management's knowledge, is any material litigation
currently threatened against the Company, other than routine litigation and
administrative proceedings arising in the ordinary course of business.
Management believes that these items, individually or in the aggregate, will not
have a material adverse impact on the Company or the Current Portfolio
Properties.
F-14
<PAGE>
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
14. DISTRIBUTIONS
In December 1995, the Company established a Dividend Reinvestment and Stock
Purchase Plan (the "Plan"), to allow its stockholders and holders of limited
partnership interests an opportunity to buy additional shares of common stock by
reinvesting all or a portion of their dividends or distributions. The Plan
provides for investing in newly issued shares of common stock at a 3% discount
from market price without payment of any brokerage commission, service charges
or other expenses. All expenses of the Plan are paid by the Company. The
January 31, 1996 dividend was the initial dividend payment date when the
Company's stockholders and holders of limited partnership interests could
participate in the Plan.
Of the distributions paid during 1999, $1.34 per share represented ordinary
dividend income and $0.22 per share represented return of capital to the
shareholders. The following summarizes distributions paid during the years
ended December 31, 1999, 1998 and 1997, including activity in the Plan:
<TABLE>
<CAPTION>
Total Distributions to Dividend Reinvestment Plan
---------------------- --------------------------
Limited Common
Common Partnership Stock Units Discounted
Stockholders Unitholders Issued Issued Share Price
- -------------------------------------------------------------------------------------------------------------------------
(in thousands) (in thousands)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Distributions during 1999
- ------------------------------
- -------------------------------------------------------------------------------------------------------------------------
October 29 $ 5,148 $2,017 130,753 -- $13.76
- -------------------------------------------------------------------------------------------------------------------------
July 30 5,100 2,018 119,142 126,967 14.79
- -------------------------------------------------------------------------------------------------------------------------
April 30 5,075 1,967 111,990 119,877 15.28
- -------------------------------------------------------------------------------------------------------------------------
January 29 4,985 1,921 116,727 126,702 14.07
------- ------ ------- -------
- -------------------------------------------------------------------------------------------------------------------------
$20,308 $7,923 478,612 373,546
======= ====== ======= =======
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Distributions during 1998
- ------------------------------
- -------------------------------------------------------------------------------------------------------------------------
October 30 $ 4,980 $1,873 105,756 112,867 $15.40
- -------------------------------------------------------------------------------------------------------------------------
July 29 4,969 1,827 101,739 106,010 16.01
- -------------------------------------------------------------------------------------------------------------------------
April 30 4,950 1,827 90,856 80,733 17.40
- -------------------------------------------------------------------------------------------------------------------------
January 30 4,832 1,713 94,304 -- 16.19
------- ------ ------- -------
- -------------------------------------------------------------------------------------------------------------------------
$19,731 $7,240 392,655 299,610
======= ====== ======= =======
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Distributions during 1997
- ------------------------------
- -------------------------------------------------------------------------------------------------------------------------
October 31 $ 4,808 $1,713 72,901 -- $17.10
- -------------------------------------------------------------------------------------------------------------------------
July 31 4,782 1,715 63,291 -- 16.98
- -------------------------------------------------------------------------------------------------------------------------
April 30 4,744 1,713 68,913 -- 15.16
- -------------------------------------------------------------------------------------------------------------------------
January 31 4,729 1,713 58,728 -- 16.01
------- ------ ------- -------
- -------------------------------------------------------------------------------------------------------------------------
$19,063 $6,854 263,833 --
======= ====== ======= =======
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
In December 1999, 1998 and 1997, the Board of Directors of the Company
authorized a distribution of $0.39 per share payable in January 2000, 1999 and
1998, to holders of record on January 17, 2000, January 15, 1999 and January 16,
1998, respectively. As a result, $5,202,000, $4,985,000 and $4,832,000 was paid
to common shareholders on January 31, 2000, January 29, 1999 and January 30,
1998, respectively. Also, $2,017,000, $1,921,000 and $1,713,000, was paid to
limited partnership unitholders on January 31, 2000, January 29, 1999 and
January 30, 1998 ($0.39 per Operating Partnership unit), respectively. These
amounts are reflected as a reduction of stockholders' equity and are included in
accounts payable in the accompanying consolidated financial statements.
F-15
<PAGE>
<TABLE>
<CAPTION>
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
15. INTERIM RESULTS (UNAUDITED)
The following summary presents the results of operations of the Company
for the quarterly periods of years 1999 and 1998.
(In thousands, except Three Months Ended
--------------------------------------------------------------
per share amounts) 12/31/99 09/30/99 06/30/99 03/31/99
------------- ----------- ------------ ------------------
<S> <C> <C> <C> <C>
Revenues $ 19,398 $ 18,409 $ 18,020 $ 17,964
------------- ----------- ------------ ------------------
Net income before extraordinary item
and minority interests 6,103 5,145 4,931 5,041
Minority interests (2,017) (2,018) (1,967) (1,921)
------------- ----------- ------------ ------------------
Net income $ 4,086 $ 3,127 $ 2,964 $ 3,120
============= =========== ============ ==================
Per Share Data :
Net income before extraordinary item
and minority interests $ 0.33 $ 0.28 $ 0.27 $ 0.28
============= =========== ============ ==================
Net income $ 0.31 $ 0.24 $ 0.23 $ 0.24
============= =========== ============ ==================
12/31/99 09/30/99 06/30/99 03/31/99
------------- ----------- ------------ ------------------
<S> <C> <C> <C> <C>
Revenues $ 18,100 $ 17,650 $ 17,505 $ 17,143
------------- ----------- ------------ ------------------
Net income before extraordinary item
and minority interests 3,774 4,427 4,326 4,478
Extraordinary item-Early extinguishment of debt -- (50) -- --
Minority interests (1,873) (1,827) (1,827) (1,713)
------------- ----------- ------------ ------------------
Net income $ 1,901 $ 2,550 $ 2,499 $ 2,765
============= =========== ============ ==================
Per Share Data :
Net income before extraordinary item
and minority interests $ 0.21 $ 0.26 $ 0.25 $ 0.27
============= =========== ============ ==================
Net income $ 0.15 $ 0.20 $ 0.20 $ 0.22
============= =========== ============ ==================
In June 1998, the Company adopted a new accounting method as directed by the Emerging Issues Task Force (EITF) Issue 98-9
"Accounting for Contingent Rent In Interim Financial Periods" which reallocated the amount of annual percentage rent income
recognized in its quarterly reports. (See Note 2, Summary of Significant Accounting Policies-Change In Accounting Method.)
The Company adopted the new accounting method during the second quarter of 1998, retroactive to January 1, 1998. The Company
reported revenues and net income, of $34,833,000 and $4,678,000, respectively, for the six months ended June 30, 1998. The six month
results included additional percentage rent income of $185,000 and the cumulative effect of change in accounting method of
($771,000), which would have been reported in the first quarter had the accounting method been then adopted. The 1998 second, third
and fourth quarter interim results presented above reflect application of the new accounting method. The 1998 first quarter does not
reflect the allocation of percentage rent income earned in accordance with the new accounting method and therefore is not comparable
with the 1999 results. The application of the change in accounting method had no impact on the Company's cash flows nor the amount
of revenues reported for the year ended December 31, 1999 and 1998.
</TABLE>
F-16
<PAGE>
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
16. Business Segments
The company has two reportable business segments: Shopping Centers and
Office Properties. The accounting policies of 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 income from real estate for the combined properties in each
segment.
<TABLE>
<CAPTION>
(in thousands) Shopping Office Corporate Consolidated
Centers Properties and Other Totals
------------ -------------- --------------- ------------------
<S> <C> <C> <C> <C>
- ----------------------------------------------
| 1999 |
- ----------------------------------------------
Real estate rental operations:
Revenues ............................... $ 54,510 $ 19,178 $ 103 $ 73,791
Expenses ............................... (9,604) (4,611) (7) (14,222)
------------ -------------- --------------- ------------------
Income from real estate .................. 44,906 14,567 96 59,569
Interest expense & amortization of debt
costs ................................ -- -- (22,984) (22,984)
General and administrative -- -- (3,755) (3,755)
------------ -------------- --------------- ------------------
Subtotal ................................. 44,906 14,567 (26,643) 32,830
Depreciation and amortization .......... (8,414) (3,662) (87) (12,163)
Gain on property sale .................. 553 -- -- 553
Minority interests ..................... -- -- (7,923) (7,923)
------------ -------------- --------------- ------------------
Net income ............................. $ 37,045 $ 10,905 $ (34,653) $ 13,297
============ ============== =============== ==================
Capital investment ..................... $ 16,939 $ 21,397 $ 302 $ 38,638
============ ============== =============== ==================
Total assets ........................... $ 186,769 $ 88,310 $ 24,586 $ 299,665
============ ============== =============== ==================
- ---------------------------------------------
| 1998 |
- ---------------------------------------------
Real estate rental operations:
Revenues ............................... $ 52,595 $ 17,871 $ 117 $ 70,583
Expenses ............................... (9,523) (4,723) (130) (14,376)
------------ -------------- --------------- ------------------
Income (loss) from real estate ........... 43,072 13,148 (13) 56,207
Interest expense & amortization of debt
costs ................................ -- -- (23,046) (23,046)
General and administrative ............. -- -- (3,393) (3,393)
------------ -------------- --------------- ------------------
Subtotal ................................. 43,072 13,148 (26,452) 29,768
Depreciation and amortization........... (8,758) (3,694) (126) (12,578)
Early extinguishment of debt ........... -- -- (50) (50)
Cumulative effect of accounting method
change ............................... -- -- (771) (771)
Minority interests ..................... -- -- (7,240) (7,240)
------------ -------------- --------------- ------------------
Net income ............................... $ 34,314 $ 9,454 $ (34,639) $ 9,129
============ ============== =============== ==================
Capital investment ....................... $ 11,807 $ 2,892 $ 77 $ 14,776
============ ============== =============== ==================
Total assets ............................. $ 178,459 $ 70,182 $ 22,393 $ 271,034
============ ============== =============== ==================
- ---------------------------------------------
| 1997 |
- ---------------------------------------------
Real estate rental operations:
Revenues ............................... $ 51,096 $ 16,302 $ 319 $ 67,717
Expenses ............................... (9,771) (4,691) (202) (14,664)
------------ -------------- --------------- ------------------
Income from real estate .................. 41,325 11,611 117 53,053
Interest expense & amortization of debt
costs ................................ -- -- (22,037) (22,037)
General and administrative ............. -- -- (3,379) (3,379)
------------ -------------- --------------- ------------------
Subtotal ................................. 41,325 11,611 (25,299) 27,637
Depreciation and amortization .......... (7,144) (3,373) (125) (10,642)
Sales of interest rate protection
agreements ........................... -- -- (4,392) (4,392)
Early extinguishment of debt ........... -- -- (3,197) (3,197)
Minority interests ..................... -- -- (6,854) (6,854)
------------ -------------- --------------- ------------------
Net income ............................... $ 34,181 $ 8,238 $ (39,867) $ 2,552
============ ============== =============== ==================
Capital investment ....................... $ 15,240 $ 849 $ 5 $ 16,094
============ ============== =============== ==================
Total assets ............................. $ 174,556 $ 67,016 $ 19,370 $ 260,942
============ ============== =============== ==================
</TABLE>
F-17
<PAGE>
Schedule III
<TABLE>
<CAPTION>
SAUL CENTERS, INC.
Real Estate and Accumulated Depreciation
December 31, 1999
(Dollars in Thousands)
Costs
Capitalized Basis at Close of Period
---------------------------------------------------------------
Subsequent Buildings
Initial to and Leasehold
Basis Acquisition Land Improvements Interests Total
----------- --------------- ------------- --------------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Shopping Centers
Ashburn Village, Ashburn, VA $ 11,431 $ 423 $ 3,738 $ 8,116 $ -- $ 11,854
Beacon Center, Alexandria, VA 1,493 14,117 -- 14,516 1,094 15,610
Belvedere, Baltimore, MD 932 583 263 1,252 -- 1,515
Boulevard, Fairfax, VA 4,883 1,273 3,687 2,469 -- 6,156
Clarendon, Arlington, VA 385 398 635 148 -- 783
Clarendon Station, Arlington, VA 834 35 425 444 -- 869
Flagship Center, Rockville, MD 160 9 169 -- -- 169
French Market, Oklahoma City, OK 5,781 5,096 1,118 9,759 -- 10,877
Germantown, Germantown, MD 3,576 289 2,034 1,831 -- 3,865
Giant, Baltimore, MD 998 262 422 838 -- 1,260
The Glen, Lake Ridge, VA 12,918 343 5,300 7,961 -- 13,261
Great Eastern, District Heights., MD 3,472 9,266 2,264 10,474 -- 12,738
Hampshire Langley, Langley Park, MD 3,159 1,807 1,856 3,110 -- 4,966
Leesburg Pike, Baileys Crossroads, VA 2,418 5,039 1,132 6,325 -- 7,457
Lexington Mall, Lexington, KY 4,868 5,793 2,111 8,550 -- 10,661
Lumberton Plaza, Lumberton, NJ 4,400 7,613 950 11,063 -- 12,013
Olney, Olney, MD 1,884 1,150 -- 3,034 -- 3,034
Ravenwood, Baltimore, MD 1,245 987 703 1,529 -- 2,232
Seven Corners, Falls Church, VA 4,848 38,836 4,913 38,771 -- 43,684
Shops at Fairfax, Fairfax, VA 2,708 10,147 992 11,863 -- 12,855
Southdale, Glen Burnie, MD 3,650 14,891 -- 17,919 622 18,541
Southside Plaza, Richmond, VA 6,728 3,387 1,878 8,237 -- 10,115
Sunshine City, Atlanta, GA 2,474 2,340 703 4,111 -- 4,814
Thruway, Winston-Salem, NC 4,778 10,991 5,464 10,200 105 15,769
Village Center, Centreville, VA 16,502 694 7,851 9,345 -- 17,196
West Park, Oklahoma City, OK 1,883 598 485 1,996 -- 2,481
White Oak, Silver Spring, MD 6,277 3,624 4,787 5,114 -- 9,901
----------- --------------- ------------- --------------- ----------------- ------------
Total Shopping Centers 114,685 139,991 53,880 198,975 1,821 254,676
----------- --------------- ------------- --------------- ----------------- ------------
Commercial Properties
Avenel Business Park, Gaithersburg, MD 21,459 11,996 3,251 30,204 -- 33,455
601 Pennsylvania Ave., Washington DC 5,479 44,333 5,667 44,145 -- 49,812
Van Ness Square, Washington, DC 812 25,801 831 25,782 -- 26,613
----------- --------------- ------------- --------------- ----------------- ------------
Total Commercial Properties 27,750 82,130 9,749 100,131 -- 109,880
----------- --------------- ------------- --------------- ----------------- ------------
Industrial Property
Crosstown, Tulsa, OK 3,454 372 604 3,222 -- 3,826
---------------------------------------------------------------------------------------------
Total $ 145,889 $ 222,493 $ 64,233 $ 302,328 $ 1,821 $ 368,382
=============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Buildings
and
Improvements
Accumulated Related Date of Date Depreciable
Depreciation Debt Construction Acquired Lives in Years
---------------- ----------- -------------- ------------- ----------------------
<S> <C> <C> <C> <C> <C>
Shopping Centers
Ashburn Village, Ashburn, VA $ 1,184 $ 12,096 1994 3/94 40
Beacon Center, Alexandria, VA 5,309 6,064 1960 & 1974 1/72 40 & 50
Belvedere, Baltimore, MD 713 2,681 1958 1/72 40
Boulevard, Fairfax, VA 188 1,306 1969 4/94 40
Clarendon, Arlington, VA 35 271 1949 7/73 33
Clarendon Station, Arlington, VA 45 -- 1949 1/96 40
Flagship Center, Rockville, MD -- 449 -- 1/72 --
French Market, Oklahoma City, OK 3,037 1,883 1972 3/74 50
Germantown, Germantown, MD 404 985 1990 8/93 40
Giant, Baltimore, MD 579 2,719 1959 1/72 40
The Glen, Lake Ridge, VA 1,186 10,430 1993 6/94 40
Great Eastern, District Heights., MD 2,425 11,655 1958 & 1960 1/72 40
Hampshire Langley, Langley Park, MD 1,722 10,674 1960 1/72 40
Leesburg Pike, Baileys Crossroads, VA 2,862 12,046 1965 2/66 40
Lexington Mall, Lexington, KY 4,362 6,487 1971 & 1974 3/74 50
Lumberton Plaza, Lumberton, NJ 5,796 8,498 1975 12/75 40
Olney, Olney, MD 1,575 2,156 1972 11/75 40
Ravenwood, Baltimore, MD 627 6,881 1959 1/72 40
Seven Corners, Falls Church, VA 9,884 46,585 1956 7/73 33
Shops at Fairfax, Fairfax, VA 2,012 1,501 1975 6/75 50
Southdale, Glen Burnie, MD 10,112 7,663 1962 & 1987 1/72 40
Southside Plaza, Richmond, VA 5,133 10,315 1958 1/72 40
Sunshine City, Atlanta, GA 2,183 2,143 1970 2/76 40
Thruway, Winston-Salem, NC 3,984 26,647 1955 & 1965 5/72 40
Village Center, Centreville, VA 1,728 9,478 1990 8/93 40
West Park, Oklahoma City, OK 914 92 1974 9/75 50
White Oak, Silver Spring, MD 2,743 24,615 1958 & 1967 1/72 40
---------------- -----------
Total Shopping Centers 70,742 226,320
---------------- -----------
Commercial Properties
Avenel Business Park, Gaithersburg, MD 10,855 26,633 1984, 1986, 12/84, 8/85, 35 & 40
1990 & 1998 2/86 & 4/98
601 Pennsylvania Ave., Washington DC 17,923 36,874 1986 7/73 35
Van Ness Square, Washington, DC 10,801 8,162 1990 7/73 35
---------------- -----------
Total Commercial Properties 39,579 71,669
---------------- -----------
Industrial Property
Crosstown, Tulsa, OK 1,951 -- 1974 10/75 40
-----------------------------
Total $ 112,272 $297,989
=============================
</TABLE>
F-18
<PAGE>
Schedule III
SAUL CENTERS, INC.
Real Estate and Accumulated Depreciation
December 31, 1999
Depreciation and amortization related to the real estate investments reflected
in the statements of operations is calculated over the estimated useful lives of
the assets as follows:
Base building 33 - 50 years
Building components 20 years
Tenant improvements The lesser of the term of the
lease or the useful life of the
improvements
The aggregate remaining net basis of the real estate investments for federal
income tax purposes was approximately $280,759,000 at December 31, 1999.
Depreciation and amortization are provided on the declining balance and
straight-line methods over the estimated useful lives of the assets.
The changes in total real estate investments and related accumulated
depreciation for each of the years in the three year period ended December 31,
1999 are summarized as follows.
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- ----------------------------------------------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
Total real estate investments:
Balance, beginning of year $ 348,061 $ 335,268 $ 329,664
Improvements 21,943 14,784 17,785
Sales 1,192 -- --
Retirements 430 1,991 12,181
------------------- ------------------- -------------------
Balance, end of year $ 368,382 $ 348,061 $ 335,268
=================== =================== ===================
Total accumulated depreciation:
Balance, beginning of year $ 101,910 $ 92,615 $ 94,965
Depreciation expense 10,714 10,409 9,797
Sales 42 -- --
Retirements 310 1,114 12,147
------------------- ------------------- -------------------
Balance, end of year $ 112,272 $ 101,910 $ 92,615
=================== =================== ===================
</TABLE>
F-19
<PAGE>
REPLACEMENT PROMISSORY NOTE
---------------------------
$42,000,000.00 November 30, 1999
FOR VALUE RECEIVED, the undersigned, SAUL HOLDINGS LIMITED PARTNERSHIP,
a Maryland limited partnership and SAUL CENTERS, INC., a Maryland corporation
(hereinafter collectively called "Maker"), promises to pay to the order of WELLS
FARGO BANK, NATIONAL ASSOCIATION, a national banking association (hereinafter,
together with all subsequent holders of this Note, called "Payee"), on or before
the 12th day of January, 2002 (the "Maturity Date"), the principal sum of
FORTY-TWO MILLION AND NO/100 DOLLARS ($42,000,000.00), or so much thereof as may
actually be advanced from time to time hereunder, together with interest on the
unpaid principal balance from time to time outstanding at the rate per annum
equal to the "Prime Rate" (as herein defined) of interest as it fluctuates
(hereinafter called the "Applicable Rate"); provided, however, subject to the
limitations stated herein, Maker may elect in accordance with the procedures set
forth below to have interest accrue and be paid on all or a portion of the
outstanding principal balance hereof at a rate per annum equal to the "Fixed
Increment Rate" (as herein defined).
1. Defined Terms. Certain terms used herein shall be defined as set
--------------
forth above or immediately below. All capitalized terms, unless otherwise
specifically defined herein, shall be defined as set forth in the Deed of Trust
(as herein defined).
(a) "Appraisal": An appraisal of the Trust Property, in form and
---------
substance acceptable to Payee, prepared at Maker's expense, by a third-party
appraiser approved by Payee with such adjustments as Payee's appraisal division
may reasonably determine on review.
(b) "Average Rent": The aggregate annual rent from all leases in
------------
question, as Rent is determined in the second sentence of Section 1(t), divided
by the aggregate rentable square feet demised by such leases.
(c) "Business Day": (i) With respect to any borrowing, payment or
------------
rate determination for a Fixed Increment Rate, a day, other than a Saturday or
Sunday, on which Payee is open for business in Washington, D.C. and San
Francisco, California and on which dealings in U.S. dollars are carried on in
the London interbank market; and (ii) for all other purposes, any day, excluding
(x) Saturday and Sunday, (y) any day which is a legal holiday under the laws of
the State of California and the District of Columbia, and (z) any day on which
banking
Initials:________
<PAGE>
institutions located in California or the District of Columbia are required or
authorized by law or other governmental action to close.
(d) "Debt Constant Test": The determination by Payee, in its sole but
------------------
reasonable discretion, that Net Operating Income from the most recent fiscal
quarter multiplied by four (4) is not less than an amount equal to the Loan
Amount (as defined below) multiplied by twelve percent (12%).
(e) "Event of Default": As that term is defined in the Deed of Trust.
----------------
(f) "Extension Test".: The determination by Payee, in its sole but
--------------
reasonable discretion, that (i) there is no Event of Default arising under any
of the Loan Documents, (ii) the Loan to Value Test has been satisfied, and (iii)
the Debt Constant Test has been satisfied.
(g) "First Leasing Requirement". The delivery to Payee of fully
-------------------------
executed leases covering not less than 100,000 rentable square feet of office
space and not less than 25,000 rentable square feet of retail space in the
Improvements on the Trust Property (as such terms are defined in the Deed of
Trust), approved by Payee or which, under the terms of the Deed of Trust, do not
require the approval of Payee generating in the aggregate Average Rent equal to
at least the Minimum Rent.
(h) "Fixed Increment": The portion of the outstanding principal
---------------
balance hereof specified by Maker to Payee effective as of the applicable Fixed
Period Commencement Date (as herein defined); provided, however, in no event
shall the initial Fixed Increment be less than One Million and No/100 Dollars
($1,000,000.00) and all other Fixed Increments shall be available in increments
of Five Hundred Thousand and No/100 Dollars ($500,000.00) or the remaining
outstanding principal balance under this Note.
(i) "Fixed Increment Rate": The interest rate with respect to a Fixed
--------------------
Increment shall be equal to the sum of (i) One and Ninety Hundredths percent
(1.90%) plus (ii) the Fixed LIBO Rate, which Fixed LIBO Rate is divided by one
(1.00) minus the LIBO Rate Reserve Requirement; provided, however, that upon
request of Maker and the submission to Payee of all necessary documentation
evidencing (as determined by Payee) that the First Leasing Requirement (as
herein defined) is satisfied, the interest rate with respect to a Fixed
Increment shall be equal to the sum of (i) One and Seventy Hundredths percent
(1.70%) plus (ii) the Fixed LIBO Rate, which Fixed LIBO Rate is divided by one
(1.00) minus the LIBO Rate Reserve Requirement, provided, further, however, that
upon request of Maker and the submission to Payee of all necessary documentation
evidencing (as determined by Payee) that the Second Leasing Requirement (as
herein defined) is satisfied, the interest rate with respect to a Fixed
Increment shall be equal to the sum of (i) One and Forty-five Hundredths percent
(1.45%) plus (ii) the Fixed LIBO
Initials:________
-2-
<PAGE>
Rate, which Fixed LIBO Rate is divided by one (1.00) minus the LIBO Rate Reserve
Requirement. The Fixed Increment Rate shall be rounded upward to the nearest
whole multiple of one-hundredth of one percent (.01%). Effective on the first
day of the month immediately succeeding the determination by Payee that the
First Leasing Requirement or the Second Leasing Requirement, as applicable, is
satisfied, the interest rate with respect to all Fixed Increments then in effect
shall be reduced to the applicable level set forth in this Paragraph 1(h).
(j) "Fixed LIBO Rate": The rate of interest quoted by Payee as the
---------------
London Inter Bank Offered Rate for deposits in U.S. Dollars at approximately
9:00 A.M. Pacific time, on a Fixed Period Commencement Date, for purposes of
calculating effective rates of interest for loans or obligations making
reference thereto for an amount approximately equal to a Fixed Increment and for
a period of time approximately equal to a Fixed Period. The Fixed LIBO Rate
shall be rounded, if necessary, to the next highest one sixteenth of one percent
(1/16%).
(k) "Fixed Period": A period as designated by Maker of thirty (30),
------------
sixty (60), ninety (90) or one hundred eighty (180) days from the Fixed Period
Commencement Date. Notwithstanding the foregoing, in no event shall any Fixed
Period extend beyond the Maturity Date.
(l) "Fixed Period Commencement Date": The proposed commencement of
------------------------------
the applicable Fixed Period.
(m) "Fixed Rate Notice". A written notice in the form prescribed by
-------------------
Payee which confirms the Fixed Increment Rate for a particular Fixed Increment.
(n) "LIBO Rate Reserve Requirement": The daily average during the
-----------------------------
Fixed Period of the maximum aggregate reserve requirement (including all basic,
supplemental, marginal and other reserves and taking into account any
transitional adjustments or other schedule changes in reserve requirements
during the Fixed Period) which is imposed under Regulations K and D (defined
below) against Eurocurrency liabilities.
(o) "Loan": The loan advanced under this Note and evidenced hereby
----
and by the other Loan Documents.
(p) "Loan Amount": The principal amount outstanding under this Note
-----------
from time to time.
(q) "Loan Documents": As that term is defined in the Deed of Trust.
--------------
(r) "Loan to Value Test": The determination by Payee, in its sole but
------------------
reasonable discretion pursuant to the Appraisal that the Loan to Value Ratio (as
herein defined) does not exceed seventy-five percent (75%).
Initials:________
-3-
<PAGE>
(s) "Loan to Value Ratio": The ratio obtained by dividing (i) the Loan
-------------------
Amount by (ii) the then current market value of the Trust Property determined
pursuant to the Appraisal dated no earlier than sixty (60) days prior to the
date of calculation of such ratio.
(t) "Minimum Rent": In the case of office space, $20.50 per rentable
------------
square foot triple net with no expense stop or $28.50 per rentable square foot
on a full service basis with an estimated base year expense of $8.00 per
rentable square foot, and in the case of retail space, $27.50 per rentable
square foot triple net with no expense stop. Rent, as used in this paragraph as
applied to each lease, shall mean the nominal rent on an annual basis stated in
such lease less the sum, amortized on an annual basis over the term of such
lease in years, of any and all (i) rent abatements, (ii) tenant improvements in
excess of $25 per rentable square foot funded by Maker, and (iii) other tenant
concessions.
(u) "Net Operating Income": The sum of (i) all net income generated by
--------------------
the Trust Property as determined on a GAAP accrual basis plus (to the extent
deducted in determining such net income) interest, depreciation and amortization
and less rent concessions applicable on a cash basis to the period in question
(to the extent included in receipts in the determination of net income) as
generated pursuant to leases with bona fide third party tenants in possession of
their space pursuant to leases which are in full force and effect and have been
previously approved by Payee (or for which Payee's approval is not required
under the Loan Documents), and (ii) all other income other than from leases
arising from direct operations of or licenses or operating agreements for any
part of the Improvements determined on a GAAP accrual basis. Maker shall provide
Payee with all information and materials required by Payee necessary for the
determination of Net Operating Income.
(v) "Prime Rate": The base rate of interest per annum established from
----------
time to time by Payee, San Francisco, California, and designated as its prime
rate. Changes in the Applicable Rate resulting from changes in the Prime Rate
shall become effective on the date each such change in such Prime Rate is
established by Payee.
(w) "Regulation D": Regulation D of the Board of Governors of the
------------
Federal Reserve System from time to time in effect and shall include any
successor or other regulation of said Board of Governors relating to reserve
requirements applicable to member banks of the Federal Reserve System.
(x) "Regulation K": Regulation K of the Board of Governors of the
------------
Federal Reserve System from time to time in effect and shall include any
successor or other regulation of said Board of Governors relating to the
international and
Initials:________
-4-
<PAGE>
foreign activities of United States banking organizations applicable to member
banks of the Federal Reserve System.
(y) "Second Leasing Requirement". Attainment of the First Leasing
--------------------------
Requirement, Substantial Completion of the Base Building, as defined in the
Construction Loan Agreement and the delivery to Payee of fully executed leases
covering not less than eighty-five (85%) of the net rentable square footage of
the Improvements on the Trust Property, approved by Payee or which, under the
terms of the Deed of Trust, do not require the approval of Payee, generating (in
the aggregate) Average Rent equal to at least the Minimum Rent.
(z) "Unmatured Event of Default": Any event, happening or occurrence
--------------------------
which would constitute an Event of Default under the Loan Documents after the
giving of any required notice or expiration of any applicable cure period or
grace period.
2. Interest Rates; Term; Repayment.
-------------------------------
(a) Accrual of Interest; Repayment of Loan. Interest based on
--------------------------------------
a 360-day year will accrue on the number of days funds are actually outstanding.
Interest shall be calculated on a daily basis and shall be payable monthly in
arrears on the first day of each and every month following the date hereof until
the Maturity Date, at which time all accrued and unpaid interest and the unpaid
principal balance hereof shall be due and payable in full.
(b) Extension of Maturity Date. The Maturity Date of this Note
--------------------------
may be extended by Maker for two (2) periods of one (1) year each (an "Extension
Period") upon the written request of Maker given not less than sixty (60) days
nor more than one hundred twenty (120) days prior to the then-effective Maturity
Date to be extended, each such extension being subject to satisfaction of the
following:
(1) Payment at the commencement of each applicable Extension
Period by Maker of an extension fee equal to One Quarter of One percent (0.25%)
of the principal amount of this Note;
(2) Payment prior to the first day of each applicable Extension
Period by Maker of any tax, together with penalties and interest thereon (if
any) due to either the City of Alexandria or the Commonwealth of Virginia in
connection with the Loan or any extension thereof;
(3) The delivery by Maker to Payee of an extension agreement and
such other documentation as Payee may reasonably require in connection
therewith, all of which shall be in form and substance acceptable to Payee
(including a modification of this Note to provide that the maximum amount of
interest payable from the date of such modification shall not exceed the
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maximum amount payable under law in effect during the applicable Extension
Period);
(4) At the time of such notice and on the first day of the
applicable Extension Period, there shall exist no uncured Event of Default under
any of the Loan Documents ( as defined in the Deed of Trust);
(5) Maker shall, if requested by Payee, deliver to Payee an
opinion of counsel in form and substance acceptable to Payee, stating that,
inter alia, the Loan Documents create valid and binding obligations of Maker and
are enforceable in accordance with their terms, subject to customary
qualifications;
(6) Maker shall deliver to Payee an endorsement to or reissuance
of the existing title insurance policy held by Payee in connection with the
Loan, revising the effective date of the policy to the first day of the
applicable Extension Period and stating that the coverage afforded thereby, or
the agreements thereunder, shall not be adversely affected because of such
extension;
(7) An Appraisal having an effective date not earlier than sixty
(60) days and delivered not later than thirty (30) days prior to the Maturity
Date indicating that the Loan to Value Test is satisfied;
(8) The delivery by Maker to Payee of all financial information
reasonably requested by Payee, as provided for in the Deed of Trust;
(9) Maker shall pay, at its sole cost and expense, all
reasonable costs incurred by Payee in connection with such extension, including
appraisal fees, inspection fees, survey and survey recertification fees,
reasonable legal fees, and fees for environmental studies and reports and such
other professional services which Payee in good faith determines at the time
such extension is requested are necessary to satisfy any Legal Requirement (as
defined in the Deed of Trust) and to protect the value of the Trust Property and
Improvements; the payment by Maker of these costs and expenses shall not be
credited, in any way or to any extent, against any portion of the outstanding
balance of this Note; and
(10) Payee is satisfied that the Extension Test has been met.
(c) No Obligation to Extend. Notwithstanding Maker's right to
-----------------------
extend the Maturity Date of the Loan as set forth hereinabove, Maker hereby
agrees that Payee shall have no commitment or obligation to extend the Maturity
Date beyond January 12, 2004.
(d) Election to Fix Interest Rate. Any election to fix the
-----------------------------
interest rate with respect to each Fixed Increment may be made only (i) once
during any
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<PAGE>
thirty (30) day period and (ii) while no Event of Default or Unmatured Event of
Default is in existence hereunder or under any of the other Loan Documents.
Maker, at its option and upon satisfaction of the conditions set forth herein,
may request a Fixed Increment Rate to be used in calculating interest on the
portion of the unpaid principal balance and for the period selected in
accordance with and subject to the following conditions:
(i) One Business Day before requesting a Fixed Increment Rate,
Maker shall give Payee advance telephonic notice that it will request a rate
quotation for a portion of the principal balance of this Note and for a period
of time which conforms to a Fixed Increment and Fixed Period as defined herein.
(ii) At approximately 9:00 A.M. (Pacific time) on the Business
Day next following said advance notice, Maker may telephonically request Payee
to quote telephonically an applicable Fixed Increment Rate for the Fixed
Increment and Fixed Period selected by Maker. At any one time during the term
hereof, no more than five (5) Fixed Increments may be outstanding. Maker shall
not be released from its obligation to pay interest at the Applicable Rate and
Payee shall incur no liability to Maker if Maker is unable to obtain a
telephonic quote on any Business Day.
(iii) If Maker accepts Payee's telephonic quote of the Fixed
Increment Rate requested within five (5) minutes of the quotation thereof by
Payee, interest at said Fixed Increment Rate shall accrue on the Fixed Increment
and for the Fixed Period selected. The date the quoted Fixed Increment Rate is
telephonically accepted by Maker shall be the Fixed Period Commencement Date for
that Fixed Period.
Payee is authorized to rely upon the telephonic request and
acceptance of Scott V. Schneider and William Anhut as Maker's duly authorized
agents, or such additional authorized agents as Maker shall designate in writing
to Payee. Maker's telephonic notices, requests and acceptances shall be directed
to such officers of Payee as Payee may from time to time designate.
If Maker elects the Fixed Increment Rate, but the applicable
Fixed Period will commence on a date which is not a Business Day, such Fixed
Period shall be deemed to commence on the next Business Day after it would
otherwise commence, and any interest which accrues hereunder in the interim
shall accrue at the Applicable Rate.
(e) Fixed Rate Notice. Maker's acceptance of a Fixed Increment
-----------------
Rate shall be confirmed by a written Fixed Rate Notice, which Payee shall
deliver to Maker. Payee's failure to deliver the Fixed Rate Notice shall not
release Maker from Maker's obligation to pay interest at the Applicable Rate
pursuant to the terms hereof.
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(f) Nonavailability of Funds. Notwithstanding anything contained
------------------------
herein to the contrary, if Maker elects the Fixed Increment Rate to apply but
Payee is unable for any reason to obtain funds in the amount of the Fixed
Increment elected for the Fixed Period elected, interest on such Fixed Increment
shall accrue at the Applicable Rate unless and until a new election of the Fixed
Increment Rate is made by Maker and Payee is then able to obtain such funds.
(g) No Effective Election. In the absence of an effective election by
---------------------
Maker of the Fixed Increment Rate in accordance with the above procedures prior
to the expiration of the then current Fixed Period with respect to any Fixed
Increment, interest on such Fixed Increment shall accrue at the Applicable Rate,
effective immediately upon the expiration of such Fixed Period.
(h) Payment of Fees and Costs. Maker shall (i) pay all legal fees
-------------------------
reasonably incurred by Payee in connection with the preparation of this Note and
any and all other Loan Documents contemplated hereby (including, but not limited
to, any amendments hereto or thereto or consents, releases or waivers hereunder
or thereunder); (ii) reimburse Payee promptly upon demand for all amounts
expended, advanced or incurred by Payee pursuant to the terms of the Loan
Documents to satisfy any obligation of Maker under this Note or any other Loan
Documents, which amounts shall include all court costs, reasonable attorneys'
fees (including, without limitation, for trial, appeal or other proceedings),
fees of auditors and accountants, and investigation expenses reasonably incurred
by Payee in connection with any such matter; and (iii) any and all other costs
and expenses payable by Maker pursuant to the Loan Documents, including, without
limitation, the Loan fee in the amount of $283,776.00, an appraisal fee in the
amount of $12,000.00, an environmental review fee in the amount of $425.00,
documentary taxes and recording, brokerage, reasonable attorneys', surveyors',
accountants', engineers', architects' and inspectors' fees and title insurance
premiums. Except to the extent that certain of these costs and expenses are
included within the definition of Indebtedness (as defined in the Deed of
Trust), the costs and expenses shall not be credited, in any way or to any
extent, against any portion of the Indebtedness.
3. Special Provisions Applicable to Fixed LIBO Rate. Notwithstanding any
------------------------------------------------
other provisions hereof:
(a) Costs of Payee. Maker acknowledges and agrees that Payee may
--------------
incur costs, expenses and losses, including, without limitation, costs, expenses
and losses resulting from the occurrence of any of the events referred to in
subsections (b) and (c) below which increase the cost to Payee of maintaining
the Loan on a Fixed LIBO Rate basis. Accordingly, Maker shall pay to Payee
within twenty (20) days of written demand, in addition to all other amounts due
under this Note and under the Loan Documents, all amounts reasonably determined
by Payee required to compensate Payee for all such costs, expenses and losses,
if any, to the
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<PAGE>
extent that such costs, expenses and losses increase the cost to Payee of
maintaining the Loan on a Fixed LIBO Rate basis, provided that Payee agrees, as
soon as reasonably possible, to give Maker notice of any such increased costs,
expenses, or losses, which written notice shall include an explanatory
certificate in reasonable detail as to the increased costs.
(b) Change in Law. If any change in applicable law or regulations or
-------------
any interpretation thereof by any government, central bank, or agency or
instrumentality of either ("Governmental Authority") charged with the
administration thereof shall:
(i) impose, modify, or deem applicable any reserve, special
deposit or special requirements against assets held by, or deposits in or for
the account of, or loans by, or any other acquisition of funds for advances by
Payee; or
(ii) impose on Payee any other conditions regarding this Note;
or
(iii) subject Payee (or make it apparent that Payee is subject)
to any tax (including, without limitation, any international interest
equalization tax), levy, impost, duty, charge, fee, deduction or withholding on
or from payment due from Maker under this Note and the other Loan Documents,
other than income and franchise taxes of the United States and its political
subdivisions, or
(iv) change the basis of taxation of payments due from Maker to
Payee hereunder (other than by a change in the statutory rate of taxation of the
overall income of Payee);
and any of the foregoing results in an increase in the cost to Payee of
maintaining the Loan on a Fixed LIBO Rate basis, then upon demand made by Payee
to Maker, Maker shall pay to Payee, from time to time, as reasonably determined
and certified by Payee, additional amounts that shall compensate Payee for such
increased cost. Payee will notify Maker of any event that entitles Payee to such
additional amounts and will furnish Maker with an explanatory certificate in
reasonable detail as to the increased cost as a result of any such event
mentioned in this subsection. Maker shall within twenty (20) days of written
demand pay such additional amounts to Payee. All such determinations by Payee
that are certified to Maker shall be presumed to be correct, absent manifest
computational errors, provided they are made in good faith.
(c) Reserve Cost Requirement. Maker shall pay Payee on the days on
------------------------
which interest is payable under this Note the actual costs to Payee, as
determined in good faith by Payee and evidenced by an explanatory notice
delivered to Maker by Payee, of Payee's complying with any reserve, special
deposit or similar requirements (including, but not limited to, state law
requirements and, to the extent not already paid by Maker by inclusion within
the definition of LIBO Rate
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<PAGE>
Reserve Requirement, Regulations K and D of the Board of Governors of the
Federal Reserve System of the United States) imposed or deemed applicable
against foreign assets held by, or deposits in or for the account of, or loans
by, or any other acquisition of funds for advances by Payee of any Governmental
Authority charged with the administration of such requirements, to the extent
that such requirements increase the cost to Payee of maintaining the Loan on a
Fixed LIBO Rate basis.
4. Prepayment
----------
(a) Ability to Prepay. Maker shall have the right prior to the
-----------------
Maturity Date, upon ten (10) days' prior written notice, to prepay all or any
portion (except any portion constituting a Fixed Increment during its applicable
Fixed Period which may only be prepaid as set forth in the following paragraphs)
of the principal balance owing hereunder from time to time; provided, however,
that (x) if such prepayment is only a partial payment of the then outstanding
principal balance hereof, such prepayment shall be accompanied by the payment of
all accrued but unpaid interest on the portion of the outstanding principal
balance of the Note being so paid through the date the prepayment is made, and
(y) for same day credit all monies shall be received at Payee's office at Wells
Fargo Bank, 2120 East Park Place, Suite 100, E1 Segundo, California 90245 on or
before 11:00 a.m., Pacific Standard Time or Pacific Daylight Time (as
applicable). All monies received after this time shall be deemed received on the
following Business Day and shall continue to accrue interest in accordance with
the terms hereof to the date funds are deemed received.
(b) Prepayment of Fixed Increment. Maker shall have the right to
-------------------------------
prepay any Fixed Increment only upon payment to Payee, at the time of such
prepayment, of an amount equal to all costs, fees and penalties incurred by
Payee in connection with such prepayment, such amounts to include that sum which
is equal to the excess of (i) the interest that would have been payable by Maker
for such Fixed Increment for the remainder of the applicable Fixed Period at the
applicable Fixed Increment Rate had such prepayment not been made by Maker, over
(ii) the interest that would have been payable by Maker for such Fixed Increment
for the remainder of the applicable Fixed Period at the applicable Fixed
Increment Rate in effect on the date of prepayment.
(c) Prepayment Resulting from Acceleration. In addition, in any such
--------------------------------------
event, the provisions of the immediately preceding paragraph hereto (relating to
the obligation of Maker to pay to Payee certain amounts in the event of the
prepayment of a Fixed Increment prior to the last day of the applicable Fixed
Period) shall apply with respect to any Fixed Increment prepaid by Maker prior
to the last day of the applicable Fixed Period as a result of the acceleration
by Payee of the outstanding principal balance hereof.
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5. General Provisions.
------------------
(a) Application of Payments. All payments on this Note shall, at the
-----------------------
option of Payee, be applied first to the payment of late charges, if any, then
to the payment of accrued interest, and after all such interest has been paid,
any remainder shall be applied to reduction of the principal balance, and, from
and after the occurrence of an Event of Default, in such order as Payee may
designate. All payments hereunder shall be delivered to Payee at Payee's office
at Wells Fargo Bank, 2120 East Park Place, Suite 100, El Segundo, California
90245 or at such other address as Payee may from time to time designate in
writing to Maker.
(b) Waivers. Except as otherwise specifically provided in the Loan
-------
Documents, Maker and any endorsers hereof jointly and severally waive
presentment and demand for payment, notice of intent to accelerate maturity,
notice of acceleration of maturity, protest or notice of protest and nonpayment,
bringing of suit and diligence in taking any action to collect any sums owing
hereunder or in proceeding against any of the rights and properties securing
payment hereof. Maker and any endorsers hereof agree that the time for any
payments hereunder may be extended from time to time without notice and consent
to the acceptance of further security or the release of any existing security
for this Note, all without in any manner affecting their liability under or with
respect to this Note. No extension of time for the payment of this Note or any
installment hereof shall affect the liability of Maker under this Note even
though Maker is not a party to such agreement.
(c) Acceleration. If an Event of Default shall occur under any of the
------------
Loan Documents, then Payee may, at its option, without further notice or demand,
declare the unpaid principal balance and accrued and unpaid interest on this
Note, together with any other sums owing at the time of such declaration, at
once due and payable; foreclose all security deeds, deeds of trust, mortgages
and liens securing payment hereof; pursue any and all other rights, remedies,
and recourses available to Payee, or pursue any combination of the foregoing,
all remedies hereunder and under the Loan Documents being cumulative.
(d) No Waiver. Failure to exercise any of the foregoing options shall
---------
not constitute a waiver of the right to exercise the same or any other option at
any subsequent time in respect to any other event. The acceptance by Payee of
any payment hereunder that is less than payment in full of all amounts due and
payable at the time of such payment shall not constitute a waiver of the right
to exercise any of the foregoing options at that time or at any subsequent time
or nullify any prior exercise of any such option without the express written
consent of Payee.
(e) Late Charges. If any payment required under this Note (other than
------------
the payment of the principal hereof at the Maturity Date or upon acceleration)
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<PAGE>
is not paid within ten (10) days after it becomes due and payable, Payee of this
Note may require an additional payment of a late charge for late payment to
compensate for Payee's loss of use of funds and for the expenses of handling the
delinquent payment, in an amount not to exceed three percent (3%) of such
delinquent payment. Said late charge shall be paid in any event not later than
the due date of the next subsequent installment of principal and/or interest. In
the event the maturity of the Indebtedness hereunder is accelerated by Payee,
this paragraph shall apply only to payments overdue prior to the time of such
acceleration. This paragraph shall not be deemed to be a waiver of Payee's right
to accelerate payment of this Note under the terms hereof.
(f) Interest Rate After an Event of Default. Upon the occurrence of
---------------------------------------
an Event of Default, at the option of Payee (i) all amounts hereunder then
bearing interest at a Fixed Increment Rate shall bear interest at the Applicable
Rate, and (ii) all amounts payable hereunder or under the Loan Documents shall
bear interest for the period beginning with the date of occurrence of such
default at a rate of interest per annum (the "Default Rate"), payable on the
first day of each and every month, equal to four percent (4%) above the
Applicable Rate, as it fluctuates, or four percent (4%) above the Fixed
Increment Rate to the extent that Payee does not exercise its option to change
the Fixed Increment Rate to the Applicable Rate, as set forth in subparagraph
(5)(f)(i) above, whichever is applicable, as in effect from time to time and
continuing until such Event of Default shall have been cured.
(g) Default Rate on Outstanding Balance. Notwithstanding any other
-----------------------------------
provision of this Note to the contrary, from and after the Maturity Date of this
Note (as it may have been extended pursuant to the terms hereof), or such
earlier date as the unpaid principal owing on this Note becomes due and payable
upon acceleration or otherwise pursuant to the terms hereof, the whole of the
unpaid principal and interest owing on this Note shall thereafter bear interest
until paid in full at the Default Rate.
(h) Legal Tender; Costs of Collection. All amounts payable hereunder
---------------------------------
are payable in lawful money of the United States of America. Maker agrees to pay
all costs of collection hereof when incurred, including reasonable attorneys'
fees, whether or not any legal action shall be instituted to enforce this Note.
(i) Security. This Note is issued pursuant to that certain
--------
Construction Loan Agreement dated January 11, 1999 as amended by that certain
Modification of Loan Documents of even date herewith executed by Maker and Payee
and is secured, inter alia, by a certain Deed of Trust, Security Agreement and
----- ----
Assignment of Leases and Rents dated January 11, 1999 as amended by that certain
First Amendment to Credit Line Deed of Trust, Security Agreement and Assignment
of Leases and Rents and to Assignment of Leases and Rents dated of even date
herewith (collectively the "Deed of Trust") executed by Maker and given
Initials:________
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<PAGE>
to Payee, covering certain real and personal property situated in the City of
Alexandria, Commonwealth of Virginia, as more particularly described therein.
All of the agreements, conditions, covenants, warranties, representations,
provisions and stipulations made by or imposed upon Maker under the Loan
Documents are hereby made a part of this Note to the same extent and with the
same force and effect as if they were fully inserted herein, and Maker covenants
and agrees to keep and perform the same, or cause them to be kept and performed,
strictly in accordance with their terms.
(j) Joint and Several Liability. If this Note is executed by more
---------------------------
than one party, each such party shall be jointly and severally liable for the
obligations of Maker under this Note. If Maker is a partnership, each general
partner of Maker shall be jointly and severally liable hereunder, and each such
general partner hereby waives any requirement of law that, in the Event of a
Default hereunder or under any of the Loan Documents, Payee exhaust any assets
of Maker before proceeding against such general partner's assets.
(k) Time of Essence. MAKER AGREES THAT TIME IS OF THE ESSENCE IN THE
---------------
PERFORMANCE OF ALL OBLIGATIONS HEREUNDER.
(l) Governing Law. This Note shall be governed by and construed
-------------
according to the laws of the Commonwealth of Virginia.
(m) Usury. It is expressly stipulated and agreed to be the intent of
-----
Maker and Payee at all times to comply with the applicable law now or hereafter
governing the interest payable on this Note or the Loan (or applicable United
States federal law to the extent that it permits Payee to contract for, charge,
take, reserve, or receive a greater amount of interest than under Virginia law).
If the applicable law is ever revised, repealed, or judicially interpreted so as
to render usurious any amount called for under this Note, or under any of the
Loan Documents, or contracted for, charged, taken, reserved or received with
respect to the Loan, or if Payee's exercise of the option herein contained to
accelerate the maturity of this Note, or if any prepayment by Maker results in
Maker's having paid any interest in excess of that permitted by applicable law,
then it is Maker's and Payee's express intent that all excess amounts
theretofore collected by Payee be credited on the principal balance of this Note
(or if the Note has been paid in full, refunded to Maker), and the provisions of
this Note and the Loan Documents immediately be deemed reformed and the amounts
thereafter collectible hereunder and thereunder reduced, without the necessity
of the execution of any new document, so as to comply with the then applicable
law, but so as to permit the recovery of the fullest amount otherwise called for
hereunder and thereunder.
(n) Amortization. All sums paid or agreed to be paid to Payee for the
------------
use, forbearance or detention of the indebtedness evidenced hereby and by the
other Loan Documents shall, to the extent permitted by applicable law, be
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amortized, prorated, allocated and spread throughout the full term of such
indebtedness until payment in full so that the rate or amount of interest on
account of such indebtedness does not exceed the usury ceiling from time to time
in effect and applicable to the Loan for so long as debt is outstanding under
the Loan.
(o) Successors and Assigns. The term "Maker" as used in this Note
----------------------
shall mean and have reference to, collectively, all parties and each of them
directly or indirectly obligated for the indebtedness evidenced by this Note,
whether as principal maker, endorser, or otherwise, together with all parties
who have acquired the property conveyed by the Deed of Trust or any portion or
portions thereof, together with the respective heirs, administrators, executors,
legal representatives, successors and assigns of each of the foregoing.
(p) No Merger. Except as may be permitted by the terms of the Deed of
---------
Trust, Maker shall not merge into or with any other company, firm or corporation
without the prior written consent of Payee; provided, however, if any merger
occurs, then the resulting merged company, firm or corporation shall become
liable as Maker under this Note to the same extent as Maker hereunder. Maker
warrants and represents that Maker has full power and authority to make and
execute this Note, and that this Note is fully and legally binding upon Maker.
(q) Notices. All notices or other communications required or
-------
permitted to be given pursuant to this Note shall be in writing and shall be
considered as properly given if mailed by first-class United States mail,
postage prepaid, registered or certified with return receipt requested, or if
sent by Federal Express or other overnight delivery service, or by delivering
same in person to the intended addressee or by prepaid telegram. Notice given in
any manner shall be effective upon receipt. For purposes of notice, the
addresses of the parties shall be as set forth below:
The address of Maker is:
Saul Holdings Limited Partnership
c/o Saul Centers, Inc.
8401 Connecticut Avenue
Chevy Chase, MD 20815
Attention: Chief Financial Officer
With copies of all notices to Maker to:
Shaw Pittman
2300 N Street, N.W.
Washington, DC 20037
Attention: Sheldon J. Weisel, Esq.
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<PAGE>
The address of Payee is:
Wells-Fargo Bank, National Association
Real Estate Group
2020 K Street, N.W., Suite 420
Washington, D.C. 20006-1806
With copies of all notices to Payee to:
Wells Fargo Bank
Real Estate Group
420 Montgomery Street
San Francisco, CA 94111
Attention: Chief Credit Officer
provided, however that any party hereto shall have the right to change its
address for notice hereunder to any other location within the continental United
States by the giving of fifteen (15) business days' notice to the other party in
the manner set forth hereinabove.
(r) Purpose. The undersigned and all endorsers of this Note, and
-------
other parties primarily or secondarily liable hereon, each represents and
warrants that the amounts advanced or to be advanced under this Note and Loan
Documents and evidenced hereby are greater than $5,000 and are being made
exclusively in connection with a loan made for business or investment purposes
within the meaning and intent of Section 6.1-330.75 of the Code of Virginia
(1950), as amended.
(s) Interpretation. Whenever possible, each provision of this Note
--------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Note shall be prohibited by or
invalid under such law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Note.
(t) Amendments. This Note may not be changed orally, but only by an
----------
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification or discharge is sought.
(u) WAIVER OF JURY TRIAL. EACH PARTY TO THIS NOTE AND, BY ITS
--------------------
ACCEPTANCE HEREOF, PAYEE, HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF
ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (1) ARISING UNDER THIS NOTE OR ANY
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN
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<PAGE>
CONNECTION THEREWITH, OR (2) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL
TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS NOTE
OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND EACH PARTY AND PAYEE HEREBY
AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL
BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS NOTE AND
PAYEE MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT
AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO AND PAYEE TO THE WAIVER
OF THEIR RIGHT TO TRIAL BY JURY.
6. Reduction in Recourse Provision.
--------------------------------
(a) Subject to the exceptions and qualifications described
below, upon (i) Substantial Completion of the Base Building and (ii) receipt by
Payee of estoppel certificates reasonably acceptable to Payee from tenants
providing for in the aggregate Average Rent equal to at least the Minimum Rent
under leases approved by Payee or which do not require the approval of Payee
pursuant to the Deed of Trust, for not less than fifty percent (50%) of the
rentable space in the Improvements, the undersigned shall thereafter no longer
be personally liable for the payment of the indebtedness evidenced by or created
or arising under this Note or arising under the Loan Documents for any amount in
excess of (x) Twenty-One Million Dollars ($21,000,000.00) plus (y) any and all
interest and fees set forth in this Note, plus (z) any unreimbursed expenses
incurred by Wells Fargo in protecting, preserving or defending its interests in
connection with the Loan or under the Loan Documents, including, without
limitation all reasonable attorneys' fees and all other expenses incurred by
Wells Fargo in connection with any trustee's sale or foreclosure and/or sale of
all or any of the Trust Property or other collateral covered by the Loan
Documents (the "Adjusted Amount), and any judgment or decree in any action
brought to enforce the obligation of the undersigned to pay such indebtedness in
excess of the Adjusted Amount shall be enforceable against the undersigned only
to the extent of its interest in the property encumbered by the Deed of Trust
and the other Loan Documents and any such judgment or decree shall not be
subject to execution upon or be a lien upon the assets of the undersigned other
than its interest in such property. All proceeds of any trustee's sale or
foreclosure and/or sale of all or any of the Trust Property or other collateral
covered by the Loan Documents applicable by their terms to the amount of this
Note shall be allocated first to the portion of this Note for which Maker is not
personably liable and then to the portion of this Note for which Maker is
personably liable, and Maker acknowledges that Payee may pursue any and all
rights, remedies, and recourses available to Payee under this Note or under the
Loan Documents, or pursue any combination of the foregoing, in such order as
Payee may
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<PAGE>
determine in its sole discretion, and that all rights, remedies and recourses
hereunder and under the Loan Documents are cumulative.
(b) The foregoing limitation of personal liability shall be subject to
the following exceptions and qualifications:
The undersigned shall be fully and personally liable for all costs,
expenses or losses incurred by Payee as a result of any of the following:
(A) Failure to pay taxes, assessments and any other charges
which could result in prior liens against any portion of the property covered by
the Deed of Trust or the other Loan Documents;
(B) Failure to pay and discharge any mechanic's liens,
materialmen's liens or other liens against any portion of the property covered
by the Deed of Trust or the other Loan Documents;
(C) Fraud, misrepresentation or waste;
(D) Retention by the undersigned of any rental income or other
income arising with respect to any property covered by the Deed of Trust or the
other Loan Documents which, under the terms thereof, should have been paid to
Payee hereof;
(E) All insurance proceeds, condemnation awards or other similar
funds or payments attributable to any property covered by the Deed of Trust or
the other Loan Documents which, under the terms thereof, should have been paid
to Payee hereof;
(F) Failure to maintain, repair or restore any property covered
by the Deed of Trust or the other Loan Documents in accordance with the terms
thereof;
(G) The removal, demolition, damage or destruction of any
property covered by the Deed of Trust or the other Loan Documents which is
neither permitted by the terms of the Loan Documents, consented to in writing by
Payee nor is fully compensated for by insurance proceeds or condemnation awards;
and
(H) The failure of the Deed of Trust or any Other Loan Document
to constitute a first and prior lien upon the property subject only to the
exceptions set forth in Exhibit "B" to the Deed of Trust and any exceptions
permitted by any other Loan Document.
Initials:________
-17-
<PAGE>
(I) Any expense, damage, loss or liability incurred by the
Lender arising from the presence of oil, toxic or hazardous waste on the
property encumbered by the Deed of Trust and the other Loan Documents.
(c) Nothing contained in this paragraph shall affect or limit the
ability of Payee hereof to enforce any of its rights or remedies with respect to
any property encumbered by the Deed of Trust and the other Loan Documents.
(d) Nothing contained in this paragraph shall affect or limit the
rights of Payee hereof to proceed against any person or entity, including the
undersigned or any partner in the undersigned, with respect to the enforcement
of any separate guaranties of payment or guaranties of performance and
completion or other similar rights, but the foregoing shall not be construed to
extend and relate to any obligation of Saul Centers, Inc. arising under this
Note or any other Loan Document executed prior to or contemporaneously with this
Note, all of which obligations are subject to the limitations of liability
contained in this Paragraph 6.
(e) The limitation contained in this paragraph shall be void and
completely ineffective in the event that the undersigned or any general partner
of the undersigned shall voluntarily file any petition or commence any case or
proceeding under any provision or chapter of the Federal Bankruptcy Act, the
Federal Bankruptcy Code, or any other federal or state law relating to
insolvency, bankruptcy or reorganization, or the entry of any order of relief
under the Federal Bankruptcy Code with respect to the undersigned or any general
partner in the undersigned.
7. This Note is issued in replacement of that certain Promissory Note in
the amount of Thirty-Eight Million Dollars ($38,000,000.00) dated January 11,
1999 from Maker to the order of the Payee (the "Original Note") secured by that
certain Deed of Trust, Security Agreement and Assignment of Leases and Rents
recorded among the Land Records of the City of Alexandria on January 14, 1999 in
Deed Book 1679 at page 1307. The Original Note has been delivered to the Maker
and marked "Replaced by that certain Replacement Promissory Note in the
principal amount of Forty-Two Million Dollars ($42,000,000.00) dated ________
from the Maker to the order of the Payee."
Initials:________
-18-
<PAGE>
IN WITNESS WHEREOF, this Note has been duly executed as of the date first
above written.
WITNESS/ATTEST:
SAUL HOLDINGS LIMITED
PARTNERSHIP, a Maryland limited
partnership
[CORPORATE SEAL] By: Saul Centers, Inc., a Maryland
corporation
General Partner
__________________________ By: ______________________________
B. Francis Saul II
Chairman
[CORPORATE SEAL] SAUL CENTERS, INC., a Maryland
corporation
__________________________ By: ________________________
B. Francis Saul II
Chairman
This signature page is attached to and is a part of that certain Replacement
Promissory Note in the original principal amount of Forty-Two Million and No/100
Dollars ($42,000,000.00), from Saul Holdings Limited Partnership and Saul
Centers, Inc., collectively as "Maker", to Wells Fargo Bank, National
Association, as "Payee."
Initials:________
-19-
<PAGE>
CERTIFICATE OF IDENTIFICATION
-----------------------------
This Note is secured by a Deed of Trust, Security Agreement, and
Assignment of Leases and Rents ") dated January 11, 1999 (the "Deed of Trust")
on property located in the City of Alexandria, Virginia from Saul Holdings
Limited Partnership and Saul Centers, Inc. to Thomas G. McGarry and Joseph B.
Whitebread, Jr., Trustees as amended by that certain First Amendment to Deed of
Trust, Security Agreement and Assignment of Leases and Rents and to Assignment
of Leases and Rents dated of even date herewith (the "Amendment").
THIS IS TO CERTIFY that this is the Note described in such Deed of
Trust as so amended, said Amendment and this Note having been executed in my
presence.
----------------------------------
Notary Public
My Commission Expires: ___________________
Initials:________
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in the Company's December 31, 1999 Form 10-K into the
previously filed Registration Statement File No. 33-80291.
Arthur Andersen LLP
Vienna, Virginia
March 27, 2000
<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-K for the
period ended December 31, 1999 of Saul Centers, Inc." and is qualified in its
entirety by refernce to such financial "statements, schedules and other
disclosure."
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 957
<SECURITIES> 0
<RECEIVABLES> 8723
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 368,382
<DEPRECIATION> 112,272
<TOTAL-ASSETS> 299,665
<CURRENT-LIABILITIES> 0
<BONDS> 310,268
0
0
<COMMON> 133
<OTHER-SE> (31,992)
<TOTAL-LIABILITY-AND-EQUITY> 299,665
<SALES> 0
<TOTAL-REVENUES> 73,791
<CGS> 0
<TOTAL-COSTS> 19,883
<OTHER-EXPENSES> 6,207
<LOSS-PROVISION> 295
<INTEREST-EXPENSE> 22,984
<INCOME-PRETAX> 21,220
<INCOME-TAX> 0
<INCOME-CONTINUING> 21,220
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,297
<EPS-BASIC> 1.01
<EPS-DILUTED> 1.01
</TABLE>
