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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): August 7, 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, Bethesda, Maryland 20814
(Address of principal executive office) (Zip Code)
Registrant’s telephone number, including area code (301) 986-6200
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))
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
Name of exchange on which registered:
Trading symbol:
Common Stock, $0.01 par value
New York Stock Exchange
BFS
6.875% Series C Preferred Stock, $0.01 par value
New York Stock Exchange
BFS/PRC
6.125% Series D Preferred Stock, $0.01 par value
New York Stock Exchange
BFS/PRD

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
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.    






Item 2.02. Results of Operations and Financial Condition.  
On August 7, 2019, Saul Centers, Inc. issued a press release to report its financial results for the quarter ended June 30, 2019. The release is furnished as Exhibit 99.1 hereto.


Item 9.01. Financial Statements and Exhibits.
(c) Exhibits
99.1 Press Release, dated August 7, 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: August 7, 2019    



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Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit
EXHIBIT INDEX
Exhibit        Description
No.
99.1         Press Release, dated August 7, 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 Second Quarter 2019 Earnings
August 7, 2019, Bethesda, MD.
Saul Centers, Inc. (NYSE: BFS), an equity real estate investment trust ("REIT"), announced its operating results for the quarter ended June 30, 2019 (“2019 Quarter”). Total revenue for the 2019 Quarter increased to $58.1 million from $56.1 million for the quarter ended June 30, 2018 (“2018 Quarter”). Net income increased to $16.8 million for the 2019 Quarter from $15.9 million for the 2018 Quarter. Net income available to common stockholders increased to $10.3 million ($0.45 per diluted share) for the 2019 Quarter from $9.6 million ($0.43 per diluted share) for the 2018 Quarter. Net income available to common stockholders increased primarily due to (a) an increase in lease termination fees ($1.0 million) and (b) higher base rent ($0.9 million), partially offset by (c) gain on sale in 2018 ($0.5 million), and (d) higher general and administrative expenses ($0.5 million).
Same property revenue increased $1.9 million (3.3%) and same property operating income increased $1.6 million (3.9%) for the 2019 Quarter compared to the 2018 Quarter. We define same property revenue as total revenue minus the revenue of properties not in operation for the entirety of the comparable reporting periods. 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 deferred leasing costs, (c) general and administrative expenses and (d) change in fair value of derivatives minus (e) gains on sale of property and (f) the results of properties which were not in operation for the entirety of the comparable periods. Shopping Center same property operating income for the 2019 Quarter totaled $33.7 million, a $1.4 million increase from the 2018 Quarter. Mixed-Use same property operating income totaled $10.5 million, a $0.2 million increase from the 2018 Quarter. The increase in Shopping Center same property operating income was primarily the result of (a) higher lease termination fees ($0.8 million) and (b) higher base rent ($0.5 million). The increase in Mixed-Use same property operating income was primarily the result of higher base rent ($0.2 million).
As of June 30, 2019, 94.7% of the commercial portfolio was leased (not including the residential portfolio), compared to 94.0% at June 30, 2018. On a same property basis, 95.2% of the commercial portfolio was leased as of June 30, 2019, compared to 94.0% at June 30, 2018. As of June 30, 2019, the residential portfolio was 98.1% leased compared to 98.6% at June 30, 2018.
For the six months ended June 30, 2019 (“2019 Period”), total revenue increased to $117.9 million from $112.2 million for the six months ended June 30, 2018 (“2018 Period”). Net income increased to $33.8 million for the 2019 Period from $30.8 million for the 2018 Period. Net income available to common stockholders increased to $20.8 million ($0.91 per diluted share) for the 2019 Period compared to $16.4 million ($0.74 per diluted share) for the 2018 Period. The increase in net income available to common stockholders was primarily due to (a) higher lease termination fees ($2.7 million), (b) extinguishment in 2018 of issuance costs upon redemption of preferred shares ($2.3 million), and (c) higher base rent ($1.7 million), partially offset by (d) higher income attributable to non-controlling interests ($1.4 million) and (e) higher general and administrative expenses ($0.9 million).
Same property revenue increased $4.6 million (4.1%) and same property operating income increased $3.5 million (4.1%) for the 2019 Period, compared to the 2018 Period. Shopping Center same property operating income increased 4.4% and mixed-use same property operating income increased 3.1%. Shopping Center same property operating income increased primarily due to (a) lease termination fees ($2.0 million) and (b) an increase in base rent ($0.8 million). Mixed-use same property operating income increased primarily due to higher base rent ($0.4 million).
Funds from operations ("FFO") available to common stockholders and noncontrolling interests (after deducting preferred stock dividends) was $25.3 million ($0.82 per diluted share) in the 2019 Quarter compared to $23.8 million ($0.79 per diluted share) in the 2018 Quarter. FFO is a non-GAAP supplemental earnings measure which the Company considers meaningful in measuring its operating performance. A reconciliation of net income to FFO is attached to this press release. The increase in FFO available to common stockholders and noncontrolling interests was primarily due to (a) higher lease termination fees ($1.0 million) and (b) higher capitalized interest ($1.1 million), partially offset by (c) higher interest incurred due to the higher outstanding construction loan balance ($0.7 million)
FFO available to common stockholders and noncontrolling interests (after deducting preferred stock dividends and the impact of preferred stock redemptions) increased 15.2% to $51.1 million ($1.66 per diluted share) in the 2019 Period from


www.SaulCenters.com


$44.4 million ($1.48 per diluted share) in the 2018 Period. FFO available to common stockholders and noncontrolling interests increased primarily due to (a) extinguishment in 2018 of issuance costs upon redemption of preferred shares ($2.3 million), (b) higher lease termination fees in the core portfolio ($2.2 million), (c) higher base rent in the core portfolio ($1.3 million), (d) the net operating income of recently acquired properties ($0.6 million) and (e) lower preferred stock dividends ($0.5 million).
Saul Centers, Inc. is a self-managed, self-administered equity REIT headquartered in Bethesda, Maryland, which currently operates and manages a real estate portfolio of 60 properties which includes (a) 49 community and neighborhood shopping centers and seven mixed-use properties with approximately 9.3 million square feet of leasable area and (b) four land and development properties. Approximately 85% of the Saul Centers' property operating income is generated by properties in the metropolitan Washington, DC/Baltimore area.

Contact:    Scott 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.



www.SaulCenters.com


Saul Centers, Inc.
Consolidated Balance Sheets
(In thousands)
 
June 30,
2019
 
December 31,
2018
 
(Unaudited)
Assets
 
 
 
Real estate investments
 
 
 
Land
$
488,942

 
$
488,918

Buildings and equipment
1,280,397

 
1,273,275

Construction in progress
249,719

 
185,972

 
2,019,058

 
1,948,165

Accumulated depreciation
(544,811
)
 
(525,518
)
 
1,474,247

 
1,422,647

Cash and cash equivalents
9,262

 
14,578

Accounts receivable and accrued income, net
51,602

 
53,876

Deferred leasing costs, net
25,525

 
28,083

Prepaid expenses, net
1,806

 
5,175

Other assets
6,720

 
3,130

Total assets
$
1,569,162

 
$
1,527,489

 
 
 
 
Liabilities
 
 
 
Notes payable
$
853,627

 
$
880,271

Term loan facility payable
74,641

 
74,591

Revolving credit facility payable
46,600

 
45,329

Construction loan payable
70,436

 
21,655

Dividends and distributions payable
19,313

 
19,153

Accounts payable, accrued expenses and other liabilities
42,287

 
32,419

Deferred income
25,649

 
28,851

Total liabilities
1,132,553

 
1,102,269

 
 
 
 
Equity
 
 
 
Preferred stock, 1,000,000 shares authorized:
 
 
 
Series C Cumulative Redeemable, 42,000 shares issued and outstanding
105,000

 
105,000

Series D Cumulative Redeemable, 30,000 shares issued and outstanding
75,000

 
75,000

Common stock, $0.01 par value, 40,000,000 shares authorized, 23,008,615 and 22,739,207 shares issued and outstanding, respectively
230

 
227

Additional paid-in capital
399,047

 
384,533

Distributions in excess of accumulated net income and accumulated
 other comprehensive loss
(212,109
)
 
(208,593
)
Accumulated other comprehensive loss
(384
)
 
(255
)
Total Saul Centers, Inc. equity
366,784

 
355,912

Noncontrolling interests
69,825

 
69,308

Total equity
436,609

 
425,220

Total liabilities and equity
$
1,569,162

 
$
1,527,489





Saul Centers, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Revenue
(unaudited)
 
(unaudited)
Rental revenue
$
55,953

 
$
54,970

 
$
112,756

 
$
109,960

Other
2,188

 
1,111

 
5,135

 
2,230

Total revenue
58,141

 
56,081

 
117,891

 
112,190

Expenses
 
 
 
 
 
 
 
Property operating expenses
7,115

 
6,732

 
15,116

 
13,856

Real estate taxes
6,819

 
6,778

 
13,967

 
13,622

Interest expense, net and amortization of deferred debt costs
10,793

 
11,168

 
21,860

 
22,594

Depreciation and amortization of deferred leasing costs
11,524

 
11,351

 
23,167

 
22,700

General and administrative
5,140

 
4,647

 
9,954

 
9,068

Total expenses
41,391

 
40,676

 
84,064

 
81,840

Change in fair value of derivatives

 
(12
)
 

 
(12
)
Gain on sale of property

 
509

 

 
509

Net Income
16,750

 
15,902

 
33,827

 
30,847

Noncontrolling interests
 
 
 
 
 
 
 
Income attributable to noncontrolling interests
(3,518
)
 
(3,359
)
 
(7,148
)
 
(5,718
)
Net income attributable to Saul Centers, Inc.
13,232

 
12,543

 
26,679

 
25,129

Extinguishment of issuance costs upon redemption of preferred shares

 

 

 
(2,328
)
Preferred stock dividends
(2,953
)
 
(2,953
)
 
(5,906
)
 
(6,356
)
Net income available to common stockholders
$
10,279

 
$
9,590

 
$
20,773

 
$
16,445

Per share net income available to common stockholders
 
 
 
 
 
 
 
Basic and diluted
$
0.45

 
$
0.43

 
$
0.91

 
$
0.74

Dividends declared per common share outstanding
$
0.53

 
$
0.52

 
$
1.06

 
$
1.04







Reconciliation of net income to FFO available to common stockholders and
noncontrolling interests (1)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In thousands, except per share amounts)
2019
 
2018
 
2019
 
2018
 
(unaudited)
 
(unaudited)
Net income
$
16,750

 
$
15,902

 
$
33,827

 
$
30,847

Subtract:
 
 
 
 
 
 
 
Gain on sale of property

 
(509
)
 

 
(509
)
Add:
 
 
 
 
 
 
 
Real estate depreciation and amortization
11,524

 
11,351

 
23,167

 
22,700

FFO
28,274

 
26,744

 
56,994

 
53,038

Subtract:
 
 
 
 
 
 
 
Extinguishment of issuance costs upon redemption of preferred shares

 

 

 
(2,328
)
Preferred stock dividends
(2,953
)
 
(2,953
)
 
(5,906
)
 
(6,356
)
FFO available to common stockholders and noncontrolling interests
$
25,321

 
$
23,791

 
$
51,088

 
$
44,354

Weighted average shares:
 
 
 
 
 
 
 
Diluted weighted average common stock
22,994

 
22,288

 
22,929

 
22,253

Convertible limited partnership units
7,853

 
7,726

 
7,844

 
7,646

Average shares and units used to compute FFO per share
30,847

 
30,014

 
30,773

 
29,899

FFO per share available to common stockholders and noncontrolling interests
$
0.82

 
$
0.79

 
$
1.66

 
$
1.48



(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.



Reconciliation of revenue to same property revenue (2)
(in thousands)
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(unaudited)
 
 
 
 
Total revenue
 
$
58,141

 
$
56,081

 
$
117,891

 
$
112,190

Less: Acquisitions, dispositions and development properties
 
(194
)
 

 
(1,083
)
 

Total same property revenue
 
$
57,947

 
$
56,081

 
$
116,808

 
$
112,190

 
 
 
 
 
 
 
 
 
Shopping Centers
 
$
42,259

 
$
40,755

 
$
85,417

 
$
81,679

Mixed-Use properties
 
15,688

 
15,326

 
31,391

 
30,511

Total same property revenue
 
$
57,947

 
$
56,081

 
$
116,808

 
$
112,190

 
 
 
 
 
 
 
 
 
Total Shopping Center revenue
 
$
42,259

 
$
40,755

 
$
85,417

 
$
81,679

Less: Shopping Center acquisitions, dispositions and development properties
 

 

 

 

Total same Shopping Center revenue
 
$
42,259

 
$
40,755

 
$
85,417

 
$
81,679

 
 
 
 
 
 
 
 
 
Total Mixed-Use property revenue
 
$
15,882

 
$
15,326

 
$
32,474

 
$
30,511

Less: Mixed-Use acquisitions, dispositions and development properties
 
(194
)
 

 
(1,083
)
 

Total same Mixed-Use property revenue
 
$
15,688

 
$
15,326

 
$
31,391

 
$
30,511


(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 net income to same property operating income (3)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(In thousands)
2019
 
2018
 
2019
 
2018
 
(unaudited)
 
(unaudited)
Net income
$
16,750

 
$
15,902

 
$
33,827

 
$
30,847

Add: Interest expense, net and amortization of deferred debt costs
10,793

 
11,168

 
21,860

 
22,594

Add: Depreciation and amortization of deferred leasing costs
11,524

 
11,351

 
23,167

 
22,700

Add: General and administrative
5,140

 
4,647

 
9,954

 
9,068

Add: Change in fair value of derivatives

 
12

 

 
12

Less: Gain on sale of property

 
(509
)
 

 
(509
)
Property operating income
44,207

 
42,571

 
88,808

 
84,712

Add (Less): Acquisitions, dispositions and development properties
12

 

 
(617
)
 

Total same property operating income
$
44,219

 
$
42,571

 
$
88,191

 
$
84,712

 
 
 
 
 
 
 
 
Shopping Centers
$
33,707

 
$
32,274

 
$
67,177

 
$
64,322

Mixed-Use properties
10,512

 
10,297

 
21,014

 
20,390

Total same property operating income
$
44,219

 
$
42,571

 
$
88,191

 
$
84,712

 
 
 
 
 
 
 
 
Shopping Center operating income
$
33,707

 
$
32,274

 
$
67,177

 
$
64,322

Less: Shopping Center acquisitions, dispositions and development properties

 

 

 

Total same Shopping Center operating income
$
33,707

 
$
32,274

 
$
67,177

 
$
64,322

 
 
 
 
 
 
 
 
Mixed-Use property operating income
$
10,500

 
$
10,297

 
$
21,631

 
$
20,390

Add (Less): Mixed-Use acquisitions, dispositions and development properties
12

 

 
(617
)
 

Total same Mixed-Use property operating income
$
10,512

 
$
10,297

 
$
21,014

 
$
20,390



(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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