Log in
Log in
Or log in with
GoogleGoogle
Twitter Twitter
Facebook Facebook
Apple Apple     
Sign up
Or log in with
GoogleGoogle
Twitter Twitter
Facebook Facebook
Apple Apple     

SAUL CENTERS, INC.

(BFS)
  Report
Delayed Nyse  -  04:00 2022-09-30 pm EDT
37.50 USD   +1.32%
09/22Saul Centers Maintains Quarterly Dividend at $0.59 a Share, Payable Oct. 31 to Shareholders as of Oct. 17
MT
09/22Saul Centers Declares Quarterly Dividends
PR
09/22Saul Centers, Inc. Declares Quarterly Dividend on Common Stock, Payable on October 31, 2022
CI
SummaryQuotesChartsNewsRatingsCalendarCompanyFinancialsConsensusRevisionsFunds 
SummaryMost relevantAll NewsAnalyst Reco.Other languagesPress ReleasesOfficial PublicationsSector news

SAUL CENTERS, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/04/2022 | 05:00pm EDT
This section should be read in conjunction with the consolidated financial
statements of the Company and the accompanying notes in "Item 1. Financial
Statements" of this report and the more detailed information contained in the
Company's Form 10-K for the year ended December 31, 2021. Historical results and
percentage relationships set forth in Item 1 and this section should not be
taken as indicative of future operations of the Company. Capitalized terms used
but not otherwise defined in this section have the meanings given to them in
Item 1 of this Form 10-Q.

Forward-Looking Statements

Certain statements contained herein constitute forward-looking statements as
such term is defined in Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements are not guarantees of performance. Our future
results, financial condition and business may differ materially from those
expressed in these forward-looking statements. You can find many of these
statements by looking for words such as "plans," "intends," "estimates,"
"anticipates," "expects," "believes" or similar expressions in this Form 10-Q.
Although management believes that the expectations reflected in such
forward-looking statements are based upon present expectations and reasonable
assumptions, our actual results could differ materially from those set forth in
the forward-looking statements. Forward-looking statements speak only as of the
date they are made, and we undertake no obligation to update or revise
forward-looking statements to reflect changed assumptions, the occurrence of
unanticipated events or changes to future operating results over time, unless
required by law. The following are some of the risks and uncertainties, although
not all risks and uncertainties, that could cause our actual results to differ
materially from those presented in our forward-looking statements:


•challenging domestic and global credit markets and their effect on
discretionary spending;
•the ability of our tenants to pay rent;
•our reliance on shopping center "anchor" tenants and other significant tenants;
•our substantial relationships with members of the Saul Organization;
•risks of financing, such as increases in interest rates, restrictions imposed
by our debt, our ability to meet existing financial covenants and our ability to
consummate planned and additional financings on acceptable terms;
•our development activities;
•our access to additional capital;
•our ability to successfully complete additional acquisitions, developments or
redevelopments, or if they are completed, whether such acquisitions,
developments or redevelopments perform as expected;
•risks generally incident to the ownership of real property, including adverse
changes in economic conditions, changes in the investment climate for real
estate, changes in real estate taxes and other operating expenses, adverse
changes in governmental rules and fiscal policies, the relative illiquidity of
real estate and environmental risks;
•risks related to our status as a REIT for federal income tax purposes, such as
the existence of complex regulations relating to our status as a REIT, the
effect of future changes to REIT requirements as a result of new legislation and
the adverse consequences of the failure to qualify as a REIT; and
•an epidemic or pandemic (such as the outbreak and worldwide spread of
COVID-19), and the measures that international, federal, state and local
governments, agencies, law enforcement and/or health authorities implement to
address it, which may (as with COVID-19) precipitate or exacerbate one or more
of the above-mentioned and/or other risks, and significantly disrupt or prevent
us from operating our business in the ordinary course for an extended period.


Additional information related to these risks and uncertainties are included in
"Risk Factors" (Part I, Item 1A of this Form 10-Q and our Annual Report on Form
10-K for the year ended December 31, 2021), "Quantitative and Qualitative
Disclosures about Market Risk" (Part I, Item 3 of this Form 10-Q and Part II,
Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2021),
and "Management's Discussion and Analysis of Financial Conditions and Results of
Operations" (Part I, Item 2 of this Form 10-Q).

                                      -20-
--------------------------------------------------------------------------------
  Table of Contents
Impact of COVID-19

Significant uncertainty remains around the long-term economic impact of the
COVID-19 pandemic, which could have a material and adverse effect on or cause
disruption to our business or financial condition, results from operations, cash
flows and the market value and trading price of our securities.

If the effects of COVID-19 result in continued deterioration of economic and
market conditions, or if the Company's expected holding period for assets
changes, subsequent tests for impairment could result in impairment charges in
the future. The Company can provide no assurance that material impairment
charges with respect to the Company's investment properties will not occur
during the remainder of 2022 or future periods. As of June 30, 2022, we have not
identified any impairment triggering events, including the impact of COVID-19
and corresponding tenant requests for rent relief. Therefore, under applicable
GAAP guidance, no impairment charges have been recorded. However, we have yet to
see the long-term effects of COVID-19 and the extent to which it may impact our
tenants in the future. Indications of a tenant's inability to continue as a
going concern, changes in our view or strategy relative to a tenant's business
or industry as a result of COVID-19, or changes in our long-term hold
strategies, could be indicative of an impairment triggering event. Accordingly,
the Company will continue to monitor circumstances and events in future periods
to determine whether impairment charges are warranted.

As of July 31, 2022, payments by tenants of contractual base rent and operating
expense and real estate tax recoveries for the 2022 second quarter totaled
approximately 99%. The following table summarizes the Company's consolidated
total collections of the 2022 first and second quarter rent billings as of
July 31, 2022:

                                       Retail      Office      Residential      Total
                2022 First Quarter       99  %      100  %           100  %      99  %
                2022 Second Quarter      98  %      100  %           100  %      99  %


Although the Company is and will continue to be actively engaged in collection
efforts related to uncollected rent, and the Company will continue to work with
certain tenants who have requested rent deferrals, the Company can provide no
assurance that such efforts or our efforts in future periods will be successful.

Deferral agreements executed with certain tenants as a result of business
disruption that occurred at the onset of the COVID-19 pandemic generally
deferred 30 to 90 days of rent, operating expense and real estate tax recovery
payments until a later time in the lease term with repayment typically occurring
over a 12-month period generally commencing in 2021. We continued to accrue
rental revenue during the deferral period.

The following is a summary of the Company's executed rent deferral agreements
and repayments as of July 31, 2022, with the exception of amounts due, which are
as of June 30, 2022.

                                                              Rent Deferral Agreements and Repayments
(In thousands)
                              Original Rent                                       Repayment                                                  Collection Percentage
                                  Amount                                            Amount
   Original Rent Due            (prior to                                                                 Amount            Amount             (based on payments
      By Quarter                deferral)             Repayment Year           (after deferral)            Due             Collected             currently due)
2020 First Quarter            $        67           2020                     $             331          $   331          $      331                          100  %
2020 Second Quarter                 6,282           2021                                 5,703            5,703               5,549                           97  %
2020 Third Quarter                  1,502           2022                                 1,988            1,112               1,052                           95  %
2020 Fourth Quarter                   391           2023                                   707
2021 First Quarter                    249           2024                                   274
2021 Second Quarter                   266           2025                                    53
2021 Third Quarter                    273           2026                                    19
2021 Fourth Quarter                    74           Thereafter                              50
2022 First Quarter                     21           Total                    $           9,125          $ 7,146          $    6,932                           97  %
2022 Second Quarter                     -
July 2022                               -
Total                         $     9,125


                                      -21-

--------------------------------------------------------------------------------

Table of Contents


The extent of the effects of COVID-19 on the Company's business, results of
operations, cash flows, and growth prospects is highly uncertain and will
ultimately depend on future developments, none of which can be predicted with
any certainty. See Item 1A. Risk Factors. However, we believe the actions we
have taken and are continuing to take have helped minimize interruptions to
operations and will put the Company in the best position as the economic
recovery continues. Management and the Board of Directors will continue to
actively monitor the effects of the pandemic, including governmental directives
in the jurisdictions in which we operate and the recommendations of public
health authorities, and will, as needed, take further measures to adapt the
Company's business in the best interests of our stockholders and personnel. The
extent to which COVID-19 continues to impact our operations and those of our
tenants will depend on future developments, which are highly uncertain and
cannot be predicted with confidence, including the scope, severity and duration
of the outbreak, the actions taken to contain the outbreak or mitigate its
impact, and the direct and indirect economic effects of the outbreak and
containment measures, among others.

We anticipate that some tenants eventually will not be able to pay amounts due
and we will incur losses against our rent receivables. The extent and timing of
the recognition of such losses will depend on future developments, which are
highly uncertain and cannot be predicted. Management considers reserves
established as of June 30, 2022, against such potential losses to be reasonable
and adequate. Rent collections during the second quarter and rent relief
requests to-date may not be indicative of collections or requests in any future
period.

General

The following discussion is based primarily on the consolidated financial statements of the Company as of and for the three and six months ended June 30, 2022.


Overview

The Company's primary strategy is to continue to focus on diversification of its
assets through development of transit-oriented, residential mixed-use projects
in the Washington, D.C. metropolitan area. The Company's operating strategy also
includes improvement of the operating performance of its assets, internal growth
of its Shopping Centers through the addition of pad sites, and supplementing its
development pipeline with selective redevelopment and renovations of its core
Shopping Centers. The Company has a pipeline of entitled sites in its portfolio,
some of which are currently shopping center operating properties, for
development of up to 3,700 apartment units and 975,000 square feet of retail and
office space. All such sites are located adjacent to Washington Metropolitan
Area Transit Authority ("WMATA") red line Metro stations in Montgomery County,
Maryland.

The Company intends to selectively add free-standing pad site buildings within
its Shopping Center portfolio and replace underperforming tenants with tenants
that generate strong traffic, including anchor stores such as supermarkets and
drug stores. The Company has executed leases or leases are under negotiation for
ten more pad sites.

In recent years, there has been a limited amount of quality properties for sale
and pricing of those properties has escalated. Accordingly, management believes
acquisition opportunities for investment in existing and new shopping center and
mixed-use properties in the near future is uncertain. Nevertheless, because of
the Company's conservative capital structure, including its cash and capacity
under its revolving credit facility, management believes that the Company is
positioned to take advantage of additional investment opportunities as
attractive properties are identified and market conditions improve. (See "Item
1. Business - Capital Policies".) It is management's view that several of the
sub-markets in which the Company operates have, or are expected to have in the
future, attractive supply/demand characteristics. The Company will continue to
evaluate acquisition, development and redevelopment as integral parts of its
overall business plan.

Prior to the COVID-19 pandemic, economic conditions within the local Washington,
DC metropolitan area were relatively stable. Issues facing the Federal
government relating to taxation, spending and interest rate policy will likely
continue to impact the office, retail and residential real estate markets over
the coming years. Because the majority of the Company's property operating
income is produced by our Shopping Centers, we continually monitor the
implications of government policy changes, as well as shifts in consumer demand
between on-line and in-store shopping, on future shopping center construction
and retailer store expansion plans. Based on our observations, we continue to
adapt our marketing and merchandising strategies in ways to maximize our future
performance.  The Company's commercial leasing percentage, on a same property
basis, which excludes the impact of properties not in operation for the entirety
of the comparable periods, increased to 92.6% at June 30, 2022, from 92.5% at
June 30, 2021.

The Company maintains a ratio of total debt to total asset value of under 50%,
which allows the Company to obtain additional secured borrowings if necessary.
As of June 30, 2022, amortizing fixed-rate mortgage debt with staggered
maturities from 2023 to 2041 represented approximately 76.2% of the Company's
notes payable, thus minimizing refinancing risk. The Company's variable-rate
debt consists of $280.0 million outstanding under the Credit Facility. As of
June 30, 2022, the Company has availability of approximately $200.4 million
under its Credit Facility.
                                      -22-

--------------------------------------------------------------------------------

Table of Contents


Although it is management's present intention to concentrate future acquisition
and development activities on transit-centric, residential mixed-use properties
and grocery-anchored shopping centers in the Washington, D.C./Baltimore
metropolitan area, the Company may, in the future, also acquire other types of
real estate in other areas of the country as opportunities present themselves.
The Company plans to continue to diversify in terms of property types,
locations, size and market, and it does not set any limit on the amount or
percentage of assets that may be invested in any one property or any one
geographic area.

The following table sets forth average annualized base rent per square foot and
average annualized effective rent per square foot for the Company's Commercial
properties (all properties except for the apartments within The Waycroft,
Clarendon Center and Park Van Ness properties). For purposes of this table,
annualized effective rent is annualized base rent minus amortized tenant
improvements and amortized leasing commissions.

                                         Commercial Rents per Square Foot
                                            Six Months Ended June 30,
                                                2022                       2021
           Base rent            $           20.56                        $ 20.56
           Effective rent       $           18.93                        $ 18.82


Recent Developments

The Company is developing Twinbrook Quarter Phase I ("Phase I") located in
Rockville, Maryland. Phase I includes an 80,000 square foot Wegmans,
approximately 25,000 square feet of small shop space, 450 apartments and a
230,000 square foot office building. The office tower portion of Phase I will
not be constructed at this time. In connection with the development of the
residential and retail portions of Phase I, we must also invest in
infrastructure and other items that will support both Phase I and other portions
of the development of Twinbrook Quarter. The total cost of the project is
expected to be approximately $331.5 million, of which $271.4 million is related
to the development of the residential and retail portions of Phase I and
$60.1 million is related to infrastructure and other items. A portion of the
project will be financed by a $145.0 million construction-to-permanent loan.
Excavation of the site has been completed and concrete has been poured for the
below-grade levels and is being poured for the ground level. Initial delivery of
Phase I is anticipated in late 2024. The development potential of all phases of
the entire 18.4 acre Twinbrook Quarter site totals 1,865 residential units,
473,000 square feet of retail space, and 431,000 square feet of office space.

Development of Hampden House, a project that will include up to 366 apartment
units and 10,100 square feet of retail space located in downtown Bethesda,
Maryland, is in process. The total cost of the project is expected to be
approximately $246.4 million, a portion of which will be financed by a $133.0
million construction-to-permanent loan. Demolition has been completed and
below-grade work has begun. Construction is expected to be completed during
2025.

Critical Accounting Policies


The Company's financial statements are prepared in accordance with accounting
principles generally accepted in the United States ("GAAP"), which requires
management to make certain estimates and assumptions that affect the reporting
of financial position and results of operations. If judgment or interpretation
of the facts and circumstances relating to various transactions had been
different, it is possible that different accounting policies would have been
applied resulting in a different presentation of the financial statements. The
Company has identified the following policies that, due to estimates and
assumptions inherent in these policies, involve a relatively high degree of
judgment and complexity.

Real Estate Investments


Real estate investment properties are stated at historic cost less depreciation.
Although the Company intends to own its real estate investment properties over a
long term, from time to time it will evaluate its market position, market
conditions, and other factors and may elect to sell properties that do not
conform to the Company's investment profile. Management believes that the
Company's real estate assets have generally appreciated in value since their
acquisition or development 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 the financial statements. Because the financial
statements are prepared in conformity with GAAP, they do not report the current
value of the Company's real estate investment properties.

If there is an event or change in circumstance that indicates a potential
impairment in the value of a real estate investment property, the Company
prepares an analysis to determine whether the carrying amount of the real estate
investment property exceeds its estimated fair value. The Company considers both
quantitative and qualitative factors when identifying impairment indicators
including recurring operating losses, significant decreases in occupancy, and
significant adverse changes in market
                                      -23-

--------------------------------------------------------------------------------

Table of Contents


conditions, legal factors and business climate. If impairment indicators are
present, the Company compares the projected cash flows of the property over its
remaining useful life, on an undiscounted basis, to the carrying amount of that
property. The Company assesses its undiscounted projected cash flows based upon
estimated capitalization rates, historic operating results and market conditions
that may affect the property. If the carrying amount is greater than the
undiscounted projected cash flows, the Company would recognize an impairment
loss equivalent to an amount required to adjust the carrying amount to its then
estimated fair value. The fair value of any property is sensitive to the actual
results of any of the aforementioned estimated factors, either individually or
taken as a whole. Should the actual results differ from management's
projections, the valuation could be negatively or positively affected.

Accounts Receivable, Accrued Income, and Allowance for Doubtful Accounts


Accounts receivable primarily represent amounts currently due from tenants in
accordance with the terms of their respective leases. Individual leases are
assessed for collectability and, upon the determination that the collection of
rents is not probable, accrued rent and accounts receivable are charged off, and
the charge off is reflected as an adjustment to rental revenue. Revenue from
leases where collection is not probable is recorded on a cash basis until
collectability is determined to be probable. We also assess whether operating
lease receivables, at the portfolio level, are appropriately valued based upon
an analysis of balances outstanding, effects of tenant bankruptcies, historical
levels of bad debt and current economic trends. Additionally, because of the
uncertainties related to the impact of the COVID-19 pandemic, our assessment
also takes into consideration the types of business conducted by tenants and
current discussions with the tenants, as well as recent rent collection
experience. Evaluating and estimating uncollectable lease payments and related
receivables requires a significant amount of judgment by management and is based
on the best information available to management at the time of evaluation.
Actual results could differ from these estimates.

Legal Contingencies


The Company is subject to various legal proceedings and claims that arise in the
ordinary course of business, which are generally covered by insurance. While the
resolution of these matters cannot be predicted with certainty, the Company
believes the final outcome of current matters will not have a material adverse
effect on its financial position or the results of operations. Upon
determination that a loss is probable to occur, the estimated amount of the loss
is recorded in the financial statements. Both the amount of the loss and the
point at which its occurrence is considered probable can be difficult to
determine.


                                      -24-
--------------------------------------------------------------------------------
  Table of Contents
Results of Operations

Three months ended June 30, 2022 (the "2022 Quarter") compared to the three months ended June 30, 2021 (the "2021 Quarter")


Net income for the 2022 Quarter increased to $17.0 million from $16.1 million
for the 2021 Quarter. Significant changes in revenue and expenses are discussed
below.

Revenue

                                                           Three Months Ended June 30,                             2021 to 2022 Change
(Dollars in thousands)                                       2022                 2021                        Amount                        Percent
Base rent                                              $       50,022          $ 49,389          $             633                                1.3  %
Expense recoveries                                              8,069             8,335                       (266)                              (3.2) %
Percentage rent                                                   544               488                         56                               11.5  %
Other property revenue                                            522               346                        176                               50.9  %
Credit losses on operating lease receivables,
net                                                               (23)              260                       (283)                                   NM
Rental revenue                                                 59,134            58,818                        316                                0.5  %
Other revenue                                                   1,159             1,186                        (27)                              (2.3) %
Total revenue                                          $       60,293          $ 60,004          $             289                                0.5  %


NM - Not Meaningful

Base rent includes $(0.1) million and $0.7 million for the 2022 Quarter and 2021
Quarter, respectively, to recognize base rent on a straight-line basis. In
addition, base rent includes $0.3 million and $0.3 million, for the 2022 Quarter
and 2021 Quarter, respectively, to recognize income from the amortization of
in-place leases acquired in connection with purchased real estate investment
properties.

Total revenue increased 0.5% in the 2022 Quarter compared to the 2021 Quarter, as described below.

Base Rent. The $0.6 million increase in base rent in the 2022 Quarter compared to the 2021 Quarter is primarily attributable to The Waycroft ($0.5 million).


Credit Losses on Operating Lease Receivables, net. Credit losses on operating
lease receivables, net for the 2022 Quarter increased $0.3 million from the 2021
Quarter. The increase is primarily due to higher collections in 2021 of
previously reserved rents as tenant operations improved due to restrictions
related to COVID-19 being removed or lessened.

Expenses

                                                         Three Months Ended June 30,                            2021 to 2022 Change
(Dollars in thousands)                                     2022                 2021                       Amount                        Percent
Property operating expenses                          $        7,641          $  7,524          $             117                               1.6  %

Real estate taxes                                             7,156             7,138                         18                               0.3  %

Interest expense, net and amortization of deferred debt costs

                                                   10,457            11,657                     (1,200)                            (10.3) %
Depreciation and amortization of lease costs                 12,377            12,637                       (260)                             (2.1) %
General and administrative                                    5,665             4,929                        736                              14.9  %

Total expenses                                       $       43,296          $ 43,885          $            (589)                             (1.3) %

Total expenses decreased 1.3% in the 2022 Quarter compared to the 2021 Quarter, as described below.


Interest Expense, net and Amortization of Deferred Debt Costs. Interest expense,
net and amortization of deferred debt costs decreased 10.3% in the 2022 Quarter
primarily due to (a) higher capitalized interest ($0.8 million), which was
largely driven by the Twinbrook development project and (b) the extinguishment
of the finance lease liability related to the land underlying the leasehold
interest for the Twinbrook development project ($0.3 million).

General and Administrative. General and administrative expenses increased 14.9% in the 2022 Quarter primarily due to increased salaries and benefits.

                                      -25-

--------------------------------------------------------------------------------

Table of Contents

Six months ended June 30, 2022 (the "2022 Period") compared to the six months ended June 30, 2021 (the "2021 Period")


Net income for the 2022 Period increased to $34.5 million from $28.9 million for
the 2021 Period. Significant changes in revenue and expenses are discussed
below.

Revenue

                                                              Six Months Ended
                                                                   June 30,                              2021 to 2022 Change
(Dollars in thousands)                                     2022               2021                  Amount                   Percent
Base rent                                              $  99,837          $  98,048          $            1,789                    1.8  %
Expense recoveries                                        17,793             17,747                          46                    0.3  %
Percentage rent                                            1,223              1,087                         136                   12.5  %
Other property revenue                                     1,009                644                         365                   56.7  %
Credit losses on operating lease receivables,
net                                                          (48)              (951)                        903                  (95.0) %
Rental revenue                                           119,814            116,575                       3,239                    2.8  %
Other revenue                                              2,623              2,154                         469                   21.8  %
Total revenue                                          $ 122,437          $ 118,729          $            3,708                    3.1  %



Base rent includes $(0.1) million and $1.5 million for the 2022 Period and the
2021 Period, respectively, to recognize base rent on a straight-line basis. In
addition, base rent includes $0.6 million and $0.7 million for the 2022 Period
and the
2021 Period, respectively, to recognize income from the amortization of in-place
leases acquired in connection with purchased real estate investment properties.

Total revenue increased 3.1% in the 2022 Period compared to the 2021 Period, as described below.

Base Rent. The $1.8 million increase in base rent in the 2022 Period compared to 2021 Period is primarily attributable to The Waycroft ($1.4 million).

Percentage Rent. The 12.5% increase in percentage rent in the 2022 Period compared to the 2021 Period is primarily attributable to increased sales reported by anchor and retail tenants at multiple Shopping Centers.


Credit Losses on Operating Lease Receivables, net. Credit losses on operating
lease receivables, net for the 2022 Period decreased $0.9 million from the 2021
Period. The decrease is primarily due to higher collections in 2022 of
previously reserved rents as tenant operations improved due to restrictions
related to COVID-19 being removed or lessened.

Other Revenue. Other revenue increased $0.5 million primarily due to higher parking revenue ($0.6 million).


Expenses

                                                           Six Months Ended
                                                                June 30,                              2021 to 2022 Change
(Dollars in thousands)                                   2022              2021                  Amount                   Percent
Property operating expenses                          $  17,179          $ 16,210          $              969                    6.0  %

Real estate taxes                                       14,574            14,967                        (393)                  (2.6) %

Interest expense, net and amortization of deferred debt costs

                                              21,059            23,646                      (2,587)                 (10.9) %
Depreciation and amortization of deferred leasing
costs                                                   24,704            25,385                        (681)                  (2.7) %
General and administrative                              10,433             9,607                         826                    8.6  %

Total expenses                                       $  87,949          $ 89,815          $           (1,866)                  (2.1) %

Total expenses decreased 2.1% in the 2022 Period compared to the 2021 Period, as described below.

                                      -26-

--------------------------------------------------------------------------------

Table of Contents


Property Operating Expenses. Property operating expenses increased 6.0% in the
2022 Period primarily due to increased repair and maintenance costs throughout
the portfolio.

Interest Expense, net and Amortization of Deferred Debt Costs. Interest expense,
net and amortization of deferred debt costs decreased 10.9% in the 2022 Period
primarily due to (a) higher capitalized interest ($1.9 million), which was
largely driven by the Twinbrook development project, (b) a lower weighted
average interest rate ($0.7 million) and (c) the extinguishment of the finance
lease liability related to the land underlying the leasehold interest for the
Twinbrook development project ($0.4 million), partially offset by (d) higher
average debt outstanding ($0.3 million).

General and Administrative. General and administrative expenses increased 8.6% in the 2022 Period primarily due to increased salaries and benefits.

Same property revenue and same property operating income


Same property revenue and same property operating income are non-GAAP financial
measures of performance and improve the comparability of these measures by
excluding the results of properties which were not in operation for the entirety
of the comparable reporting periods.

We define same property revenue as total revenue minus the revenue of properties
not in operation for the entirety of the comparable reporting periods, and we
define same property operating income as net income plus (a) interest expense,
net and amortization of deferred debt costs, (b) depreciation and amortization
of lease costs, (c) general and administrative expenses, and (d) change in fair
value of derivatives, minus (e) gains on property dispositions and (f) the
operating income of properties which were not in operation for the entirety of
the comparable periods.

Other REITs may use different methodologies for calculating same property revenue and same property operating income. Accordingly, our same property revenue and same property operating income may not be comparable to those of other REITs.


Same property revenue and same property operating income are used by management
to evaluate and compare the operating performance of our properties, and to
determine trends in earnings, because these measures are not affected by the
cost of our funding, the impact of depreciation and amortization expenses, gains
or losses from the acquisition and sale of operating real estate assets, general
and administrative expenses or other gains and losses that relate to ownership
of our properties. We believe the exclusion of these items from property revenue
and property operating income is useful because the resulting measures capture
the actual revenue generated and actual expenses incurred by operating our
properties.

Same property revenue and same property operating income are measures of the
operating performance of our properties but do not measure our performance as a
whole. Such measures are therefore not substitutes for total revenue, net income
or operating income as computed in accordance with GAAP.

The tables below provide reconciliations of total property revenue and property
operating income under GAAP to same property revenue and operating income for
the indicated periods. The same property results for the three and six months
ended June 30, 2022 and 2021 include all 50 Shopping Centers and all seven
Mixed-Use properties.

                                      -27-
--------------------------------------------------------------------------------
  Table of Contents
Same property revenue

(in thousands)                                       Three Months Ended June 30,                 Six Months Ended June 30,
                                                       2022                  2021                 2022                  2021
Total revenue                                    $       60,293          $  60,004          $      122,437          $ 118,729
Less: Acquisitions, dispositions and
development properties                                        -                  -                       -                  -
Total same property revenue                      $       60,293          $  60,004          $      122,437          $ 118,729

Shopping Centers                                 $       42,038          $  42,006          $       86,137          $  84,451
Mixed-Use properties                                     18,255             17,998                  36,300             34,278
Total same property revenue                      $       60,293          $  

60,004 $ 122,437 $ 118,729


Total Shopping Center revenue                    $       42,038          $  42,006          $       86,137          $  84,451
Less: Shopping Center acquisitions,
dispositions and development properties                       -                  -                       -                  -
Total same Shopping Center revenue               $       42,038          $  

42,006 $ 86,137 $ 84,451


Total Mixed-Use property revenue                 $       18,255          $  17,998          $       36,300          $  34,278
Less: Mixed-Use acquisitions, dispositions
and development properties                                    -                  -                       -                  -
Total same Mixed-Use revenue                     $       18,255          $  

17,998 $ 36,300 $ 34,278



The $0.3 million increase in same property revenue for the 2022 Quarter compared
to the 2021 Quarter, was primarily due to (a) higher base rent ($0.7 million),
partially offset by (b) higher credit losses on operating lease receivables and
corresponding reserves, net ($0.4 million).

The $3.7 million increase in same property revenue for the 2022 Period compared
to the 2021 Period, was primarily due to (a) higher base rent ($1.9 million),
(b) lower credit losses on operating lease receivables and corresponding
reserves, net ($0.8 million) and (c) higher parking income ($0.6 million).

                                      -28-
--------------------------------------------------------------------------------
  Table of Contents
Same property operating income

                                         Three Months Ended June 30,         Six Months Ended June 30,
(In thousands)                               2022               2021             2022             2021

Net income                            $       16,997         $ 16,119      $      34,488       $ 28,914
Add: Interest expense, net and
amortization of deferred debt
costs                                         10,457           11,657             21,059         23,646
Add: Depreciation and amortization
of lease costs                                12,377           12,637             24,704         25,385
Add: General and administrative                5,665            4,929       

10,433 9,607


Property operating income                     45,496           45,342             90,684         87,552
Less: Acquisitions, dispositions
and development properties                         -                -                  -              -
Total same property operating
income                                $       45,496         $ 45,342      $      90,684       $ 87,552

Shopping Centers                      $       33,854         $ 33,635      $      67,861       $ 66,004
Mixed-Use properties                          11,642           11,707             22,823         21,548
Total same property operating
income                                $       45,496         $ 45,342      $      90,684       $ 87,552

Shopping Center operating income      $       33,854         $ 33,635      $      67,861       $ 66,004
Less: Shopping Center
acquisitions, dispositions and
development properties                             -                -                  -              -
Total same Shopping Center
operating income                      $       33,854         $ 33,635      

$ 67,861 $ 66,004


Mixed-Use property operating
income                                $       11,642         $ 11,707      $      22,823       $ 21,548
Less: Mixed-Use acquisitions,
dispositions and development
properties                                         -                -                  -              -
Total same Mixed-Use property
operating income                      $       11,642         $ 11,707      

$ 22,823 $ 21,548



Same property operating income increased $0.2 million (0.3%) for the 2022
Quarter compared to the 2021 Quarter. Shopping Center same property operating
income for the 2022 Quarter totaled $33.9 million, a $0.2 million increase from
the 2021 Quarter. Mixed-Use same property operating income totaled
$11.6 million, a $0.1 million decrease from the 2021 Quarter.

Same property operating income increased $3.1 million (3.6%) for the 2022
Period, compared to the 2021 Period. Shopping Center same property operating
income increased $1.9 million (2.8%) and mixed-use same property operating
income increased $1.3 million (5.9%). Shopping Center same property operating
income increased primarily due to (a) lower credit losses on operating lease
receivables and corresponding reserves, net (collectively, $0.8 million),
(b) higher base rent ($0.8 million) and (c) higher percentage rent ($0.3
million). Mixed-use same property operating income increased primarily due to
(a) higher base rent ($1.1 million) and (b) higher parking income, net of
expenses ($0.4 million), partially offset by (c) lower recovery income, net of
expenses ($0.4 million).

Liquidity and Capital Resources

Cash and cash equivalents totaled $11.2 million and $14.9 million at June 30, 2022 and 2021, respectively. The Company's cash flow is affected by its operating, investing and financing activities, as described below.


                                                      Six Months Ended June 30,
    (In thousands)                                       2022                 2021
    Net cash provided by operating activities   $      66,484              

$ 66,653

    Net cash used in investing activities             (51,914)             

(27,516)

    Net cash used in financing activities             (17,997)             

(51,136)

    Net decrease in cash and cash equivalents   $      (3,427)             

$ (11,999)

                                      -29-

--------------------------------------------------------------------------------

Table of Contents

Operating Activities


Net cash provided by operating activities represents cash received primarily
from rental revenue, plus other revenue, less property operating expenses,
leasing costs, normal recurring general and administrative expenses and interest
payments on debt outstanding.

Investing Activities

Net cash used in investing activities includes property acquisitions,
developments, redevelopments, tenant improvements and other property capital
expenditures. The $24.4 million increase in cash used in investing activities is
primarily due to (a) increased development expenditures ($37.2 million),
partially offset by (b) decreased acquisitions of real estate investments ($9.0
million) and (c) decreased additions to real estate investments throughout the
portfolio ($3.8 million).

Financing Activities

Net cash used in financing activities represents (a) cash received from loan
proceeds and issuance of common stock, preferred stock and limited partnership
units minus (b) cash used to repay and curtail loans, redeem preferred stock and
pay dividends and distributions to holders of common stock, preferred stock and
limited partnership units. See note 5 to the consolidated financial statements
for a discussion of financing activity.

Liquidity Requirements


Short-term liquidity requirements consist primarily of normal recurring
operating expenses and capital expenditures, debt service requirements
(including debt service relating to additional and replacement debt),
distributions to common and preferred stockholders, distributions to unit
holders, and amounts required for 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 90% of its "real estate
investment trust taxable income," as defined in the Code. The Company expects to
meet these short-term liquidity requirements (other than amounts required for
additional property acquisitions and developments) through cash provided from
operations, available cash and its existing line of credit.

The Company is developing Twinbrook Quarter Phase I ("Phase I") located in
Rockville, Maryland. Phase I includes an 80,000 square foot Wegmans,
approximately 25,000 square feet of small shop space, 450 apartments and a
230,000 square foot office building. The office tower portion of Phase I will
not be constructed at this time. In connection with the development of the
residential and retail portions of Phase I, we must also invest in
infrastructure and other items that will support both Phase I and other portions
of the development of Twinbrook Quarter. The total cost of the project is
expected to be approximately $331.5 million, of which $271.4 million is related
to the development of the residential and retail portions of Phase I and $60.1
million is related to infrastructure and other items. A portion of the project
will be financed by a $145.0 million construction-to-permanent loan. Excavation
of the site has been completed and concrete has been poured for the below-grade
levels and is being poured for the ground level. Initial delivery of Phase I is
anticipated in late 2024. The development potential of all phases of the entire
18.4 acre Twinbrook Quarter site totals 1,865 residential units, 473,000 square
feet of retail space, and 431,000 square feet of office space.

Development of Hampden House, a project that will include up to 366 apartment
units and 10,100 square feet of retail space located in downtown Bethesda,
Maryland, is in process. The total cost of the project is expected to be
approximately $246.4 million, a portion of which will be financed by a $133.0
million construction-to-permanent loan. Demolition has been completed and
below-grade work has begun. Construction is expected to be completed during
2025.

Long-term liquidity requirements consist primarily of obligations under our long-term debt and dividends paid to our preferred shareholders. The Company anticipates that long-term liquidity requirements will also include amounts required for property acquisitions and developments.


The Company may also redevelop certain of the Current Portfolio Properties and
may develop additional freestanding outparcels or expansions within certain of
the Shopping Centers. Acquisition and development of properties are undertaken
only after careful analysis and review, and management's determination that such
properties are expected to provide long-term earnings and cash flow growth.
During the remainder of the year, developments, expansions or acquisitions (if
any) are expected to be funded with available cash, bank borrowings from the
Company's Credit Facility, construction and permanent financing, proceeds from
the operation of the Company's Dividend Reinvestment Plan ("DRIP") or other
external debt or equity capital resources available to the Company. Any future
borrowings may be at the Saul Centers, Operating Partnership or Subsidiary
Partnership level. The availability and terms of any such financing will depend
upon market and other conditions.
                                      -30-

--------------------------------------------------------------------------------

Table of Contents

Dividend Reinvestments


The Company has a DRIP that allows its common 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
DRIP provides for investing in newly issued shares of common stock at a 3%
discount from market price without payment of any brokerage commissions, service
charges or other expenses. All expenses of the DRIP are paid by the Company. The
Company issued 116,994 and 160,980 shares under the DRIP at a weighted average
discounted price of $49.28 and $34.63 per share, during the six months ended
June 30, 2022 and 2021, respectively. The Company issued 26,659 and 33,471
limited partnership units under the DRIP at a weighted average price of $49.81
and $35.05 per unit during the six months ended June 30, 2022 and 2021,
respectively. The Company also credited 2,688 and 3,494 shares to directors
pursuant to the reinvestment of dividends specified by the Directors' Deferred
Compensation Plan at a weighted average discounted price of $49.31 and $34.66
per share, during the six months ended June 30, 2022 and 2021, respectively.

Capital Strategy and Financing Activity


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 was below 50% as of
June 30, 2022.

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 strategy in light of
current economic conditions, relative costs of capital, market values of the
Company's 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 without shareholder approval and consequently, may
increase or decrease the Company's debt to total asset ratio above or below 50%
or may waive the policy for certain periods of time. The Company selectively
continues to refinance or renegotiate the terms of its outstanding debt in order
to achieve longer maturities, and obtain generally more favorable loan terms,
whenever management determines the financing environment is favorable.

At June 30, 2022, the Company had a $525.0 million Credit Facility comprised of
a $425.0 million revolving credit facility and a $100.0 million term loan. The
revolving credit facility matures on August 29, 2025, which may be extended by
the Company for one additional year, subject to satisfaction of certain
conditions. The term loan matures on February 26, 2027, and may not be extended.
Interest accrues at a rate of LIBOR plus an applicable spread which is
determined by certain leverage tests. As of June 30, 2022, the applicable spread
for borrowings was 135 basis points related to the revolving credit facility and
130 basis points related to the term loan. Saul Centers and certain consolidated
subsidiaries of the Operating Partnership have guaranteed the payment
obligations of the Operating Partnership under the Credit Facility. Letters of
credit may be issued under the Credit Facility. As of June 30, 2022, based on
the value of the Company's unencumbered properties, approximately $200.4 million
was available under the Credit Facility, $280.0 million was outstanding and
approximately $185,000 was committed for letters of credit.

The facility requires the Company and its subsidiaries to maintain compliance
with certain financial covenants. The material covenants require the Company, on
a consolidated basis, to:

•limit the amount of debt as a percentage of gross asset value, as defined in the loan agreement, to less than 60% (leverage ratio);

•limit the amount of debt so that interest coverage will exceed 2.0x on a trailing four-quarter basis (interest expense coverage); and


•limit the amount of debt so that interest, scheduled principal amortization and
preferred dividend coverage exceeds 1.4x on a trailing four-quarter basis (fixed
charge coverage).

As of June 30, 2022, the Company was in compliance with all such covenants.


On August 4, 2022, the Company closed on a 15-year non-recourse $25.3 million
mortgage secured by Village Center. The loan matures in 2037, bears interest at
a fixed-rate of 4.14%, requires monthly principal and interest payments of
$135,200 based on a 25-year amortization schedule and requires a final payment
of $13.4 million at maturity. Proceeds were used to repay the remaining balance
of approximately $11.2 million on the existing mortgage and reduce the
outstanding balance of the revolving credit facility. A prepayment penalty of
$0.4 million was incurred.
                                      -31-

--------------------------------------------------------------------------------

Table of Contents

Off-Balance Sheet Arrangements


The Company has no off-balance sheet arrangements that are reasonably likely to
have a current or future material effect on the Company's financial condition,
revenue or expenses, results of operations, liquidity, capital expenditures or
capital resources.

Funds From Operations

Funds From Operations (FFO)1 available to common stockholders and noncontrolling
interests for the 2022 Period, totaled $53.6 million, an increase of 10.0%
compared to the 2021 Period. FFO available to common stockholders and
noncontrolling interests increased primarily due to (a) higher capitalized
interest ($1.9 million), primarily due to the Twinbrook Quarter development
project, (b) higher base rent at The Waycroft ($1.4 million), (c) lower credit
losses on operating lease receivables and corresponding reserves, net
(collectively, $0.8 million), (d) higher base rent, exclusive of The Waycroft
($0.5 million), and (e) higher parking income, net of expenses ($0.4 million),
partially offset by (f) higher general and administrative costs ($0.8 million).

The following table presents a reconciliation from net income to FFO available to common stockholders and noncontrolling interests for the periods indicated:


                                                     Three Months Ended June 30,                 Six Months Ended June 30,
(In thousands, except per share amounts)               2022                  2021                 2022                 2021
Net income                                       $       16,997          $  16,119          $      34,488          $  28,914

Add:

Real estate depreciation and amortization                12,377             12,637                 24,704             25,385
FFO                                                      29,374             28,756                 59,192             54,299
Subtract:

Preferred stock dividends                                (2,799)            (2,799)                (5,597)            (5,597)

FFO available to common stockholders and
noncontrolling interests                         $       26,575          $  25,957          $      53,595          $  48,702
Weighted average shares and units:
Basic                                                    33,256             31,591                 33,210             31,542
Diluted (2)                                              33,981             33,008                 33,933             32,487
Basic FFO per share available to common
stockholders and noncontrolling interests        $         0.80          $    0.82          $        1.61          $    1.54
Diluted FFO per share available to common
stockholders and noncontrolling interests        $         0.78          $  

0.79 $ 1.58 $ 1.50




1  The National Association of Real Estate Investment Trusts (NAREIT) developed
FFO as a relative non-GAAP financial measure of performance of an equity REIT in
order to recognize that income-producing real estate historically has not
depreciated on the basis determined under GAAP. FFO is defined by NAREIT as net
income, computed in accordance with GAAP, plus real estate depreciation and
amortization, and excluding impairment charges on real estate assets and gains
or losses from real estate dispositions. FFO does not represent cash generated
from operating activities in accordance with GAAP and is not necessarily
indicative of cash available to fund cash needs, which is disclosed in the
Company's 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, its most directly
comparable GAAP measure, 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 meaningful supplemental measure of operating performance because
it primarily excludes the assumption that the value of the real estate assets
diminishes predictably over time (i.e. depreciation), which is contrary to what
the Company believes occurs with its assets, and because industry analysts have
accepted it as a performance measure. FFO may not be comparable to similarly
titled measures employed by other REITs.

2  Beginning March 5, 2021, fully diluted shares and units includes 1,416,071
limited partnership units held in escrow related to the contribution of
Twinbrook Quarter. Half of the units held in escrow were released on October 18,
2021. The remaining units held in escrow are scheduled to be released on October
18, 2023.
                                      -32-

--------------------------------------------------------------------------------

Table of Contents

Acquisitions and Redevelopments


Management anticipates that during the remainder of the year, the Company will
continue the build out of the remaining retail spaces at The Waycroft. The
Company may redevelop certain of the Current Portfolio Properties and may
develop additional freestanding outparcels or expansions within certain of the
Shopping Centers. Acquisition and development of properties are undertaken only
after careful analysis and review, and management's determination that such
properties are expected to provide long-term earnings and cash flow growth.
During the remainder of the year, any developments, expansions or acquisitions
are expected to be funded with bank borrowings from the Company's Credit
Facility, construction financing, proceeds from the operation of the Company's
dividend reinvestment plan or other external capital resources available to the
Company.

The Company has been selectively involved in acquisition, development, redevelopment and renovation activities. It continues to evaluate the acquisition of land parcels for retail and mixed-use development and acquisitions of operating properties for opportunities to enhance operating income and cash flow growth. The Company also continues to analyze redevelopment, renovation and expansion opportunities within the portfolio.

Portfolio Leasing Status

The following chart sets forth certain information regarding Commercial leases at our properties.


                                   Total Properties                                   Total Square Footage                                      Percent Leased
                          Shopping                                         Shopping                                                    Shopping
                          Centers                  Mixed-Use                Centers                       Mixed-Use                    Centers                   Mixed-Use
June 30, 2022                  50                         7               7,874,130                          1,136,885                         94.1  %                  82.6  %
June 30, 2021                  50                         7               7,872,002                          1,136,937                         93.4  %                  86.3  %


As of June 30, 2022, 92.6% of the Commercial portfolio was leased, compared to
92.5% June 30, 2021. On a same property basis, 92.6% of the Commercial portfolio
was leased, compared to 92.5% at June 30, 2021.

The following table shows selected data for leases executed in the indicated
periods. The information is based on executed leases without adjustment for the
timing of occupancy, tenant defaults, or landlord concessions. The base rent for
an expiring lease is the annualized contractual base rent, on a cash basis, as
of the expiration date of the lease. The base rent for a new or renewed lease is
the annualized contractual base rent, on a cash basis, as of the expected rent
commencement date. Because tenants that execute leases may not ultimately take
possession of their space or pay all of their contractual rent, the changes
presented in the table provide information only about trends in market rental
rates. The actual changes in rental income received by the Company may be
different.

                                                   Commercial Property Leasing Activity                                                                                 Average Base Rent per Square Foot
                                                                                                                   Number                                      New/Renewed                                 Expiring
   Three Months Ended June 30,                                Square Feet                                         of Leases                                       Leases                                    Leases
                                                                                                                                                                                                 Shopping
                                               Shopping Centers                Mixed-Use            Shopping Centers           Mixed-Use           Shopping Centers          Mixed-Use           Centers            Mixed-Use
2022                                               364,424                      29,051                      62                       6            $     17.74              $    24.53          $   16.60          $    24.23
2021                                               398,414                      87,168                      75                      16                  18.39                   40.65              18.22               45.59



                                      -33-

--------------------------------------------------------------------------------

Table of Contents


Additional information about the leasing activity during the three months ended
June 30, 2022 is set forth below. The below information includes leases for
space which had not been previously leased during the period of the Company's
ownership, either a result of acquisition or development.

                                                              Commercial 

Property Leasing Activity

                                               New                 First Generation/Development              Renewed
                                              Leases                          Leases                         Leases
Number of leases                                      21                                    -                        47
Square feet                                      149,305                                    -                   244,170
Per square foot average
annualized:
Base rent                              $           14.80          $                         -          $          20.34
Tenant improvements                                (3.36)                                   -                     (0.11)
Leasing costs                                      (0.48)                                   -                     (0.08)
Rent concessions                                   (0.34)                                   -                     (0.17)
Effective rents                        $           10.62          $                         -          $          19.98



As of December 31, 2021, 843,842 square feet of Commercial space was subject to
leases scheduled to expire in 2022. Of those leases, as of June 30, 2022, leases
representing 402,382 square feet of Commercial space have not yet renewed and
are scheduled to expire over the next six months. Below is information about
existing and estimated market base rents per square foot for that space.

                   Expiring Commercial Property Leases           Total
               Square feet                                      402,382
               Average base rent per square foot               $  26.91
               Estimated market base rent per square foot      $  26.57


As of June 30, 2022, the Residential portfolio was 98.1% leased compared to 98.4% at June 30, 2021.



              Residential Property Leasing Activity                         

Average Rent per Square Foot

 Three Months Ended June
           30,                                 Number of leases            New/Renewed Leases            Expiring Leases
2022                                                          309       $                3.50          $           3.20
2021                                                          185                           3.07                      3.20

© Edgar Online, source Glimpses

All news about SAUL CENTERS, INC.
09/22Saul Centers Maintains Quarterly Dividend at $0.59 a Share, Payable Oct. 31 to Sharehol..
MT
09/22Saul Centers Declares Quarterly Dividends
PR
09/22Saul Centers, Inc. Declares Quarterly Dividend on Common Stock, Payable on October 31, ..
CI
09/01Raymond James Cuts Price Target on Saul Centers to $50 From $56, Maintains Outperform R..
MT
08/10North American Morning Briefing: Caution -2-
DJ
08/09B. Riley Securities Downgrades Saul Centers to Neutral from Buy as Valuation Discount E..
MT
08/04Saul Centers : Quarterly Report for Quarter Ending June 30, 2022 (Form 10-Q)
PU
08/04Saul Centers : Reports Second Quarter 2022 Earnings - Form 8-K
PU
08/04Saul Centers : Q2 Earnings Snapshot
AQ
08/04SAUL CENTERS, INC. Management's Discussion and Analysis of Financial Condition and Res..
AQ
More news
Analyst Recommendations on SAUL CENTERS, INC.
More recommendations