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Section 1: 8-K (8-K)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
 
FORM 8-K
___________________
 
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
Date of Report (Date of earliest event reported): February 26, 2019
__________________
 Saul Centers, Inc.
(Exact name of registrant as specified in its charter)
__________________
 
 
 
 
 
 
Maryland
 
1-12254
 
52-1833074
(State or Other Jurisdiction
of Incorporation)
 
(Commission File Number)
 
(IRS Employer
Identification Number)
 
 
 
 
7501 Wisconsin Avenue, Suite 1500 E, Bethesda, Maryland
 
20814
(Address of Principal Executive Offices)
 
(Zip Code)
 
(301) 986-6200
(Registrant’s telephone number, including area code)
 
Not Applicable
(Former name or former address, if changed since last report)
 
_________________________
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    o







Item 2.02. Results of Operations and Financial Condition.
 
On February 26, 2019, Saul Centers, Inc. issued a press release to report its financial results for the quarter and year ended December 31, 2018. The release is furnished as Exhibit 99.1 hereto.




Item 9.01. Financial Statements and Exhibits.
 
(c) Exhibits
 
99.1 Press Release, dated February 26, 2019, of Saul Centers, Inc.
 








SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
SAUL CENTERS, INC.
 
 
By:
 
/s/ Scott V. Schneider
 
 
Scott V. Schneider
 
 
Senior Vice President and Chief Financial Officer
 
Dated: February 26, 2019






EXHIBIT INDEX




Exhibit No.        Description

99.1        Press Release, dated February 26, 2019, of Saul Centers, Inc.
 
 




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Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit


EXHIBIT INDEX
Exhibit        Description
No.
99.1         Press Release, dated February 26, 2019, of Saul Centers, Inc.

Section 2: EX-99.1 (EX-99.1)
Exhibit 99.1
SAUL CENTERS, INC.
7501 Wisconsin Avenue, Suite 1500, Bethesda, Maryland 20814-6522
(301) 986-6200
Saul Centers, Inc. Reports Fourth Quarter 2018 Earnings
February 26, 2019, Bethesda, MD.
Saul Centers, Inc. (NYSE: BFS), an equity real estate investment trust ("REIT"), announced its operating results for the quarter ended December 31, 2018 (“2018 Quarter”). Total revenue for the 2018 Quarter increased to $58.3 million from $56.7 million for the quarter ended December 31, 2017 (“2017 Quarter”). Operating income, which is net income before the impact of the change in fair value of derivatives, loss on early extinguishment of debt, gains on sales of property and gains on casualty settlements, increased to $15.5 million for the 2018 Quarter from $14.4 million for the 2017 Quarter.
Net income available to common stockholders was $9.3 million ($0.41 per diluted share) for the 2018 Quarter compared to $8.5 million ($0.38 per diluted share) for the 2017 Quarter. The increase in net income available to common stockholders was primarily due to (a) higher property operating income ($1.6 million), partially offset by (b) higher depreciation and amortization ($0.6 million).
Same property revenue increased 1.3% and same property operating income increased 2.1% for the 2018 Quarter compared to the 2017 Quarter. We define same property revenue as property revenue minus the revenue of properties not in operation for the entirety of the comparable reporting periods. We define same property operating income as property operating income minus the results of properties which were not in operation for the entirety of the comparable periods. Shopping Center same property operating income increased 2.1% and Mixed-Use same property operating income increased 2.2%. The increase in Shopping Center same property operating income was primarily the result of (a) higher other revenue, primarily lease termination fees ($0.5 million) and (b) higher base rent ($0.4 million) partially offset by (c) lower percentage rent ($0.1 million). The increase in Mixed-Use same property operating income was the result of (a) lower provision for credit losses ($0.2 million) and (b) higher base rent ($0.1 million) partially offset by (c) lower percentage rent ($0.1 million). Same property revenue and same property operating income are non-GAAP supplemental performance measures that the Company considers meaningful in measuring its operating performance. Reconciliations of same property revenue and same property operating income to property revenue and property operating income are attached to this press release.
For the year ended December 31, 2018 (“2018 Period”), total revenue increased to $228.2 million from $227.3 million for the year ended December 31, 2017 (“2017 Period”). Operating income was $62.6 million for the 2018 Period compared to $60.6 million for the 2017 Period. Operating income for the 2018 Period increased primarily due to lower interest expense and amortization of deferred debt costs ($2.2 million).
Net income available to common stockholders was $36.0 million ($1.60 per diluted share) for the 2018 Period compared to $35.9 million ($1.63 per diluted share) for the 2017 Period. Net income available to common stockholders for the 2018 Period increased primarily due to (a) lower interest expense and amortization of deferred debt costs ($2.2 million) and (b) gain on sale of property ($0.5 million) partially offset by (c) extinguishment of issuance costs upon redemption of preferred shares ($2.3 million) and (d) higher general and administrative expense ($0.3 million).
Same property revenue increased 0.1% and same property operating income decreased 0.4% for the 2018 Period compared to the 2017 Period. Shopping Center same property operating income decreased 1.1% and Mixed-Use same property operating income increased 1.9%. Shopping Center same property operating income decreased $1.5 million primarily due to (a) the net impact of 2017 lease terminations at Broadlands and Kentlands Square II ($3.5 million) and (b) higher property operating expenses and real estate taxes, net of recoveries ($0.6 million) partially offset by (c) higher base rent ($2.8 million). Mixed-Use same property operating income increased $0.8 million primarily due to (a) higher base rent ($0.8 million) and (b) a rebound in parking revenue as a result of the completion of a garage refurbishment in 2017 ($0.3 million) partially offset by (c) lower percentage rent ($0.3 million).

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www.SaulCenters.com




As of December 31, 2018, 95.5% of the commercial portfolio was leased (all properties except the residential portfolio), compared to 94.3% at December 31, 2017. On a same property basis, 95.7% of the portfolio was leased at December 31, 2018, compared to 94.3% at December 31, 2017. As of December 31, 2018, the residential portfolio was 98.3% leased compared to 96.3% as of December 31, 2017.
Funds From Operations ("FFO") available to common stockholders and noncontrolling interests (after deducting preferred stock dividends and preferred stock redemption charges) increased to $24.5 million ($0.80 per diluted share) in the 2018 Quarter from $22.7 million ($0.76 per diluted share) in the 2017 Quarter. FFO is a non-GAAP supplemental earnings measure which the Company considers meaningful in measuring its operating performance. A reconciliation of FFO to net income is attached to this press release. The increase in FFO available to common stockholders and noncontrolling interests for the 2018 Quarter was primarily due to higher property operating income ($1.6 million).
FFO available to common stockholders and noncontrolling interests (after deducting preferred stock dividends and preferred stock redemptions) decreased 0.2% to $93.8 million ($3.11 per diluted share) in the 2018 Period from $94.0 million ($3.18 per diluted share) in the 2017 Period. FFO available to common stockholders and noncontrolling interests for the 2018 Period decreased primarily due to (a) the net impact of 2017 lease terminations at Broadlands and Kentlands Square II ($3.5 million) and (b) extinguishment of issuance costs upon redemption of preferred shares ($2.3 million) partially offset by (c) higher base rent ($3.6 million) and (d) lower interest expense and amortization of debt expense ($2.2 million).
Saul Centers is a self-managed, self-administered equity REIT headquartered in Bethesda, Maryland. Saul Centers currently operates and manages a real estate portfolio comprised of 60 properties which includes (a) 56 community and neighborhood shopping centers and mixed-use properties with approximately 9.3 million square feet of leasable area and (b) four land and development properties. Over 85% of the Company’s property operating income is generated from properties in the metropolitan Washington, DC/Baltimore area.

 
 
 
Contact:
 
Scott V. Schneider
 
 
(301) 986-6220
 
 
 
Safe Harbor Statement
Certain matters discussed within this press release may be deemed to be forward-looking statements within the meaning of the federal securities laws. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Although the Company believes the expectations reflected in the forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. These factors include, but are not limited to, the risk factors described in our Annual Report on Form 10-K filed on February 26, 2019, and include the following: (i) general adverse economic and local real estate conditions, (ii) the inability of major tenants to continue paying their rent obligations due to bankruptcy, insolvency or a general downturn in their business, (iii) financing risks, such as the inability to obtain equity, debt or other sources of financing or refinancing on favorable terms to the Company, (iv) the Company’s ability to raise capital by selling its assets, (v) changes in governmental laws and regulations and management’s ability to estimate the impact of such changes, (vi) the level and volatility of interest rates and management’s ability to estimate the impact thereof, (vii) the availability of suitable acquisition, disposition, development and redevelopment opportunities, and risks related to acquisitions not performing in accordance with our expectations, (viii) increases in operating costs, (ix) changes in the dividend policy for the Company’s common and preferred stock and the Company’s ability to pay dividends at current levels, (x) the reduction in the Company’s income in the event of multiple lease terminations by tenants or a failure by multiple tenants to occupy their premises in a shopping center, (xi) impairment charges, and (xii) unanticipated changes in the Company’s intention or ability to prepay certain debt prior to maturity. Given these uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements that we make, including those in this press release. Except as may be required by law, we make no promise to update any of the forward-looking statements as a result of new information, future events or otherwise. You should carefully review the risks and risk factors included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 26, 2019.


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www.SaulCenters.com




Saul Centers, Inc.
Condensed Consolidated Balance Sheets
(In thousands)

 
December 31,
2018
 
December 31,
2017
 
 
 
 
Assets
 
 
 
Real estate investments
 
 
 
Land
$
488,918

 
$
450,256

Buildings and equipment
1,273,275

 
1,261,830

Construction in progress
185,972

 
91,114

 
1,948,165

 
1,803,200

Accumulated depreciation
(525,518
)
 
(488,166
)
 
1,422,647

 
1,315,034

Cash and cash equivalents
14,578

 
10,908

Accounts receivable and accrued income, net
53,876

 
54,057

Deferred leasing costs, net
28,083

 
27,255

Prepaid expenses, net
5,175

 
5,248

Other assets
3,130

 
9,950

Total assets
$
1,527,489

 
$
1,422,452

 
 
 
 
Liabilities
 
 
 
Mortgage notes payable
$
880,271

 
$
897,888

Term loan facility payable
74,591

 

Revolving credit facility payable
45,329

 
60,734

Construction loan payable
21,655

 

Dividends and distributions payable
19,153

 
18,520

Accounts payable, accrued expenses and other liabilities
32,419

 
23,123

Deferred income
28,851

 
29,084

Total liabilities
1,102,269

 
1,029,349

 
 
 
 
Equity
 
 
 
Preferred stock
180,000

 
180,000

Common stock
227

 
221

Additional paid-in capital
384,533

 
352,590

Distributions in excess of accumulated earnings and other comprehensive loss
(208,848
)
 
(198,406
)
Total Saul Centers, Inc. equity
355,912

 
334,405

Noncontrolling interests
69,308

 
58,698

Total equity
425,220

 
393,103

Total liabilities and equity
$
1,527,489

 
$
1,422,452







Saul Centers, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
 
Three Months Ended 
 December 31,
 
Year Ended December 31,
 
2018
 
2017
 
2018
 
2017
 
(unaudited)
 
 
Property revenue
 
 
 
 
 
Base rent
$
46,685

 
$
45,705

 
$
184,684

 
$
181,141

Expense recoveries
8,955

 
8,969

 
35,537

 
35,347

Percentage rent
208

 
490

 
994

 
1,458

Other
2,426

 
1,462

 
6,689

 
9,259

Total property revenue
58,274

 
56,626

 
227,904

 
227,205

Operating expenses
 
 
 
 
 
 
 
Property operating expenses
7,436

 
7,146

 
28,202

 
27,689

Provision for credit losses
155

 
304

 
685

 
906

Real estate taxes
6,817

 
6,873

 
27,376

 
26,997

Total property expenses
14,408

 
14,323

 
56,263

 
55,592

Property operating income
43,866

 
42,303

 
171,641

 
171,613

 
 
 
 
 
 
 
 
Other revenue
54

 
49

 
272

 
80

Other expenses
 
 
 
 
 
 
 
Interest expense and amortization of deferred debt costs
11,254

 
11,640

 
45,040

 
47,225

Depreciation and amortization of deferred leasing costs
11,905

 
11,298

 
45,861

 
45,694

General and administrative
5,251

 
4,998

 
18,459

 
18,176

Total other expenses
28,410

 
27,936

 
109,360

 
111,095

Operating income
15,510

 
14,416

 
62,553

 
60,598

Change in fair value of derivatives
(1
)
 
72

 
(3
)
 
70

Gain on sale of property

 

 
509

 

Net Income
15,509

 
14,488

 
63,059

 
60,668

Noncontrolling interests
 
 
 
 
 
 
 
Income attributable to noncontrolling interests
(3,240
)
 
(2,928
)
 
(12,505
)
 
(12,411
)
Net income attributable to Saul Centers, Inc.
12,269

 
11,560

 
50,554

 
48,257

Extinguishment of issuance costs upon redemption of preferred shares

 

 
(2,328
)
 

Preferred stock dividends
(2,953
)
 
(3,094
)
 
(12,262
)
 
(12,375
)
Net income available to common stockholders
$
9,316

 
$
8,466

 
$
35,964

 
$
35,882

Per share net income available to common stockholders
 
 
 
 
 
 
 
Basic
$
0.42

 
$
0.39

 
$
1.61

 
$
1.64

Diluted
$
0.41

 
$
0.38

 
$
1.60

 
$
1.63

 
 
 
 
 
 
 
 
Weighted Average Common Stock:
 
 
 
 
 
 
 
Common stock
22,664

 
22,072

 
22,383

 
21,901

Effect of dilutive options
31

 
114

 
42

 
107

Diluted weighted average common stock
22,695

 
22,186

 
22,425

 
22,008







Reconciliation of net income to FFO available to common stockholders and noncontrolling interests (1)
 
 
Three Months Ended 
 December 31,
 
Year Ended December 31,
 
(In thousands, except per share amounts)
2018
 
2017
 
2018
 
2017
 
Net income
$
15,509

 
$
14,488

 
$
63,059

 
$
60,668

 
Subtract:
 
 
 
 
 
 
 
 
Gain on sale of property

 

 
(509
)
 

 
Add:
 
 
 
 
 
 
 
 
Real estate depreciation and amortization
11,905

 
11,298

 
45,861

 
45,694

 
FFO
27,414

 
25,786

 
108,411

 
106,362

 
Subtract:
 
 
 
 
 
 
 
 
Preferred stock dividends
(2,953
)
 
(3,094
)
 
(12,262
)
 
(12,375
)
 
Preferred stock redemption

 

 
(2,328
)
 

 
FFO available to common stockholders and noncontrolling interests
$
24,461

 
$
22,692

 
$
93,821

 
$
93,987

 
Weighted average shares:
 
 
 
 
 
 
 
 
Diluted weighted average common stock
22,695

 
22,186

 
22,425

 
22,008

 
Convertible limited partnership units
7,821

 
7,536

 
7,731

 
7,503

 
Average shares and units used to compute FFO per share
30,516

 
29,722

 
30,156

 
29,511

 
FFO per share available to common stockholders and noncontrolling interests
$
0.80

 
$
0.76

 
$
3.11

 
$
3.18

 
 
 
 
 
 
 
 
 
(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 depreciable real estate assets and gains or losses from property 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.






Reconciliation of property revenue to same property revenue (2)
(in thousands)
 
Three Months Ended December 31,
 
Year Ended December 31,
 
 
2018
 
2017
 
2018
 
2017
Total property revenue
 
$
58,274

 
$
56,626

 
$
227,904

 
$
227,205

Less: Acquisitions, dispositions and development properties
 
(892
)
 

 
(5,839
)
 
(5,460
)
Total same property revenue
 
$
57,382

 
$
56,626

 
$
222,065

 
$
221,745

 
 
 
 
 
 
 
 
 
Shopping Centers
 
$
41,689

 
$
40,999

 
$
159,806

 
$
160,393

Mixed-Use properties
 
15,693

 
15,627

 
62,259

 
61,352

Total same property revenue
 
$
57,382

 
$
56,626

 
$
222,065

 
$
221,745

 
 
 
 
 
 
 
 
 
Total Shopping Center revenue
 
$
41,689

 
$
40,999

 
$
164,671

 
$
165,853

Less: Shopping Center acquisitions, dispositions and development properties
 

 

 
(4,865
)
 
(5,460
)
Total same Shopping Center revenue
 
$
41,689

 
$
40,999

 
$
159,806

 
$
160,393

 
 
 
 
 
 
 
 
 
Total Mixed-Use property revenue
 
$
16,585

 
$
15,627

 
$
63,233

 
$
61,352

Less: Mixed-Use acquisitions, dispositions and development properties
 
(892
)
 

 
(974
)
 

Total same Mixed-Use revenue
 
$
15,693

 
$
15,627

 
$
62,259

 
$
61,352

(2) Same property revenue is a non-GAAP financial measure of performance that improves the comparability of reporting periods by excluding the results of properties that were not in operation for the entirety of the comparable reporting periods. Same property revenue adjusts property revenue by subtracting the revenue of properties not in operation for the entirety of the comparable reporting periods. Same property revenue is a measure of the operating performance of the Company’s properties but does not measure the Company’s performance as a whole. Same property revenue should not be considered as an alternative to total revenue, its most directly comparable GAAP measure, as an indicator of the Company’s operating performance. Management considers same property revenue a meaningful supplemental measure of operating performance because it is not affected by the cost of the Company’s 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 the Company’s properties. Management believes the exclusion of these items from same property revenue is useful because the resulting measure captures the actual revenue generated and actual expenses incurred by operating the Company’s properties. Other REITs may use different methodologies for calculating same property revenue. Accordingly, the Company’s same property revenue may not be comparable to those of other REITs.







 
Reconciliation of property operating income to same property operating income (3)
 
Three Months Ended December 31,
 
Year Ended December 31,
 
(In thousands)
2018
 
2017
 
2018
 
2017
 
Property operating income
$
43,866

 
$
42,303

 
$
171,641

 
$
171,613

 
Less: Acquisitions, dispositions and development properties
(676
)
 

 
(4,787
)
 
(4,083
)
 
Total same property operating income
$
43,190

 
$
42,303

 
$
166,854

 
$
167,530

 
 
 
 
 
 
 
 
 
 
Shopping Centers
$
32,862

 
$
32,199

 
$
125,641

 
$
127,095

 
Mixed-Use properties
10,328

 
10,104

 
41,213

 
40,435

 
Total same property operating income
$
43,190

 
$
42,303

 
$
166,854

 
$
167,530

 
 
 
 
 
 
 
 
 
 
Shopping Center operating income
$
32,862

 
$
32,199

 
$
129,701

 
$
131,178

 
Less: Shopping Center acquisitions, dispositions and development properties

 
$

 
(4,060
)
 
(4,083
)
 
Total same Shopping Center operating income
$
32,862

 
$
32,199

 
$
125,641

 
$
127,095

 
 
 
 
 
 
 
 
 
 
Mixed-Use property operating income
$
11,004

 
$
10,104

 
$
41,940

 
$
40,435

 
Less: Mixed-Use acquisitions, dispositions and development properties
(676
)
 

 
(727
)
 

 
Total same Mixed-Use property operating income
$
10,328

 
$
10,104

 
$
41,213

 
$
40,435


(3) Same property operating income is a non-GAAP financial measure of performance that improves the comparability of reporting periods by excluding the results of properties that were not in operation for the entirety of the comparable reporting periods. Same property operating income adjusts property operating income by subtracting the results of properties that were not in operation for the entirety of the comparable periods. Same property operating income is a measure of the operating performance of the Company’s properties but does not measure the Company’s performance as a whole. Same property operating income should not be considered as an alternative to property operating income, its most directly comparable GAAP measure, as an indicator of the Company’s operating performance. Management considers same property operating income a meaningful supplemental measure of operating performance because it is not affected by the cost of the Company’s 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 the Company’s properties. Management believes the exclusion of these items from property operating income is useful because the resulting measure captures the actual revenue generated and actual expenses incurred by operating the Company’s properties. Other REITs may use different methodologies for calculating same property operating income. Accordingly, same property operating income may not be comparable to those of other REITs.




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