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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): November 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
6.125% Series D Preferred Stock, $0.01 par value
New York Stock Exchange
BFS/PRD
6.000% Series E Preferred Stock, $0.01 par value
New York Stock Exchange
BFS/PRE
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 November 7, 2019, Saul Centers, Inc. issued a press release to report its financial results for the quarter ended September 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 November 7, 2019, of Saul Centers, Inc.

104.
Cover Page Interactive Data File (the Cover Page Interactive Data File is embedded within the Inline XBRL document).






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                                             Executive Vice President and Chief Financial Officer    
Dated: November 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 November 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 Third Quarter 2019 Earnings
November 7, 2019, Bethesda, MD.
Saul Centers, Inc. (NYSE: BFS), an equity real estate investment trust ("REIT"), announced its operating results for the quarter ended September 30, 2019 (“2019 Quarter”). Total revenue for the 2019 Quarter increased to $57.1 million from $56.9 million for the quarter ended September 30, 2018 (“2018 Quarter”). Net income decreased to $15.3 million for the 2019 Quarter from $16.7 million for the 2018 Quarter. Net income available to common stockholders decreased to $9.0 million ($0.39 per diluted share) for the 2019 Quarter from $10.2 million ($0.45 per diluted share) for the 2018 Quarter. Net income available to common stockholders decreased primarily due to (a) the impact of the operations of 7316 Wisconsin Avenue as the Company has completed the termination of leases to prepare for redevelopment ($1.1 million), (b) higher property operating expenses, exclusive of the impact of 7316 Wisconsin Avenue ($0.5 million) and (c) higher general and administrative expenses ($0.6 million) partially offset by (d) lower interest expense, net and amortization of deferred debt costs ($0.8 million), exclusive of the impact of 7316 Wisconsin Avenue.
Same property revenue increased $0.2 million (0.3%) and same property operating income decreased $0.5 million (1.2%) 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 $32.3 million, a $0.2 million decrease from the 2018 Quarter. Mixed-Use same property operating income totaled $10.2 million, a $0.3 million decrease from the 2018 Quarter.
As of September 30, 2019, 94.8% of the commercial portfolio was leased (not including the residential portfolio), compared to 95.0% at September 30, 2018. On a same property basis, 94.8% of the commercial portfolio was leased as of September 30, 2019, compared to 95.2% at September 30, 2018. As of September 30, 2019, the residential portfolio was 97.9% leased compared to 95.7% at September 30, 2018.
For the nine months ended September 30, 2019 (“2019 Period”), total revenue increased to $174.9 million from $169.1 million for the nine months ended September 30, 2018 (“2018 Period”). Net income increased to $49.2 million for the 2019 Period from $47.6 million for the 2018 Period. Net income available to common stockholders increased to $29.8 million ($1.30 per diluted share) for the 2019 Period compared to $26.6 million ($1.19 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, exclusive of the impact of 7316 Wisconsin Avenue ($2.5 million), (b) extinguishment in 2018 of issuance costs upon redemption of preferred shares ($2.3 million), (c) lower interest expense, net and amortization of deferred debt costs, exclusive of the impact of 7316 Wisconsin Avenue ($2.3 million), and (d) higher same property operating income, exclusive of lease termination fees ($0.5 million) partially offset by (e) the impact of the operations of 7316 Wisconsin Avenue as the Company has completed the termination of leases to prepare for redevelopment ($1.8 million), (f) higher general and administrative expenses ($1.5 million) and (g) higher income attributable to non-controlling interests ($1.0 million).
Same property revenue increased $4.8 million (2.8%) and same property operating income increased $3.0 million (2.3%) for the 2019 Period, compared to the 2018 Period. Shopping Center same property operating income increased 2.8% and Mixed-Use same property operating income increased 1.0%. Shopping Center same property operating income increased primarily due to (a) lease termination fees ($2.4 million) and (b) an increase in base rent ($0.8 million). Mixed-Use same property operating income increased primarily due to higher base rent ($0.5 million).
Funds from operations ("FFO") available to common stockholders and noncontrolling interests (after deducting preferred stock dividends) was $24.1 million ($0.78 per diluted share) in the 2019 Quarter compared to $25.0 million ($0.83 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 decrease in FFO available to


www.SaulCenters.com


common stockholders and noncontrolling interests was primarily due to (a) higher general and administrative expenses ($0.6 million), (b) lower property operating income, exclusive of the impact of the operations of 7316 Wisconsin Avenue ($0.5 million), (c) the impact of the operations of 7316 Wisconsin Avenue as the Company has completed the termination of leases to prepare for redevelopment ($0.3 million), and (d) higher preferred stock dividends ($0.3 million), partially offset by (e) lower interest expense, net and amortization of deferred debt costs, exclusive of the impact of 7316 Wisconsin Avenue ($0.8 million). 
FFO available to common stockholders and noncontrolling interests (after deducting preferred stock dividends and the impact of preferred stock redemptions) increased 8.5% to $75.2 million ($2.44 per diluted share) in the 2019 Period from $69.4 million ($2.31 per diluted share) in the 2018 Period. FFO available to common stockholders and noncontrolling interests increased primarily due to (a) higher lease termination fees in the core portfolio ($2.5 million), (b) extinguishment in 2018 of issuance costs upon redemption of preferred shares ($2.3 million), (c) higher base rent in the core portfolio ($1.3 million) and (d) lower preferred stock dividends ($0.2 million) partially offset by (e) the impact of the operations of 7316 Wisconsin Avenue as the Company has completed the termination of leases to prepare for redevelopment ($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 six mixed-use properties with approximately 9.2 million square feet of leasable area and (b) five 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)
 
September 30,
2019
 
December 31,
2018
 
(Unaudited)
Assets
 
 
 
Real estate investments
 
 
 
Land
$
450,256

 
$
488,918

Buildings and equipment
1,284,315

 
1,273,275

Construction in progress
317,798

 
185,972

 
2,052,369

 
1,948,165

Accumulated depreciation
(553,829
)
 
(525,518
)
 
1,498,540

 
1,422,647

Cash and cash equivalents
52,269

 
14,578

Accounts receivable and accrued income, net
55,207

 
53,876

Deferred leasing costs, net
24,947

 
28,083

Prepaid expenses, net
9,357

 
5,175

Other assets
6,444

 
3,130

Total assets
$
1,646,764

 
$
1,527,489

 
 
 
 
Liabilities
 
 
 
Notes payable
$
846,525

 
$
880,271

Term loan facility payable
74,666

 
74,591

Revolving credit facility payable

 
45,329

Construction loan payable
93,537

 
21,655

Dividends and distributions payable
19,634

 
19,153

Accounts payable, accrued expenses and other liabilities
39,741

 
32,419

Deferred income
27,224

 
28,851

Total liabilities
1,101,327

 
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

Series E Cumulative Redeemable, 44,000 and 0 shares issued and outstanding, respectively
110,000

 

Common stock, $0.01 par value, 40,000,000 shares authorized, 23,116,013 and 22,739,207 shares issued and outstanding, respectively
231

 
227

Additional paid-in capital
401,395

 
384,533

Distributions in excess of accumulated earnings
(215,334
)
 
(208,593
)
Accumulated other comprehensive loss
(343
)
 
(255
)
Total Saul Centers, Inc. equity
475,949

 
355,912

Noncontrolling interests
69,488

 
69,308

Total equity
545,437

 
425,220

Total liabilities and equity
$
1,646,764

 
$
1,527,489





Saul Centers, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Revenue
(unaudited)
 
(unaudited)
Rental revenue
$
55,487

 
$
55,733

 
$
168,242

 
$
165,693

Other
1,565

 
1,177

 
6,701

 
3,407

Total revenue
57,052

 
56,910

 
174,943

 
169,100

Expenses
 
 
 
 
 
 
 
Property operating expenses
7,525

 
6,910

 
22,641

 
20,766

Real estate taxes
7,114

 
6,937

 
21,081

 
20,559

Interest expense, net and amortization of deferred debt costs
10,325

 
10,974

 
32,185

 
33,568

Depreciation and amortization of deferred leasing costs
12,018

 
11,256

 
35,185

 
33,956

General and administrative
4,742

 
4,141

 
14,696

 
13,208

Total expenses
41,724

 
40,218

 
125,788

 
122,057

Change in fair value of derivatives

 
10

 

 
(2
)
Gain on sale of property

 

 

 
509

Net Income
15,328

 
16,702

 
49,155

 
47,550

Noncontrolling interests
 
 
 
 
 
 
 
Income attributable to noncontrolling interests
(3,102
)
 
(3,547
)
 
(10,250
)
 
(9,265
)
Net income attributable to Saul Centers, Inc.
12,226

 
13,155

 
38,905

 
38,285

Extinguishment of issuance costs upon redemption of preferred shares

 

 

 
(2,328
)
Preferred stock dividends
(3,210
)
 
(2,953
)
 
(9,116
)
 
(9,309
)
Net income available to common stockholders
$
9,016

 
$
10,202

 
$
29,789

 
$
26,648

Per share net income available to common stockholders
 
 
 
 
 
 
 
Basic and diluted
$
0.39

 
$
0.45

 
$
1.30

 
$
1.19

Dividends declared per common share outstanding
$
0.53

 
$
0.52

 
$
1.59

 
$
1.56







Reconciliation of net income to FFO available to common stockholders and
noncontrolling interests (1)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In thousands, except per share amounts)
2019
 
2018
 
2019
 
2018
 
(unaudited)
 
(unaudited)
Net income
$
15,328

 
$
16,702

 
$
49,155

 
$
47,550

Subtract:
 
 
 
 
 
 
 
Gain on sale of property

 

 

 
(509
)
Add:
 
 
 
 
 
 
 
Real estate depreciation and amortization
12,018

 
11,256

 
35,185

 
33,956

FFO
27,346

 
27,958

 
84,340

 
80,997

Subtract:
 
 
 
 
 
 
 
Extinguishment of issuance costs upon redemption of preferred shares

 

 

 
(2,328
)
Preferred stock dividends
(3,210
)
 
(2,953
)
 
(9,116
)
 
(9,309
)
FFO available to common stockholders and noncontrolling interests
$
24,136

 
$
25,005

 
$
75,224

 
$
69,360

Weighted average shares:
 
 
 
 
 
 
 
Diluted weighted average common stock
23,121

 
22,501

 
22,993

 
22,336

Convertible limited partnership units
7,869

 
7,808

 
7,852

 
7,700

Average shares and units used to compute FFO per share
30,990

 
30,309

 
30,845

 
30,036

FFO per share available to common stockholders and noncontrolling interests
$
0.78

 
$
0.83

 
$
2.44

 
$
2.31



(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 September 30,
 
Nine months ended September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(unaudited)
 
(unaudited)
Total revenue
 
$
57,052

 
$
56,910

 
$
174,943

 
$
169,100

Less: Acquisitions, dispositions and development properties
 
(72
)
 
(82
)
 
(1,155
)
 
(82
)
Total same property revenue
 
$
56,980

 
$
56,828

 
$
173,788

 
$
169,018

 
 
 
 
 
 
 
 
 
Shopping Centers
 
$
41,313

 
$
41,091

 
$
126,730

 
$
122,770

Mixed-Use properties
 
15,667

 
15,737

 
47,058

 
46,248

Total same property revenue
 
$
56,980

 
$
56,828

 
$
173,788

 
$
169,018

 
 
 
 
 
 
 
 
 
Total Shopping Center revenue
 
$
41,313

 
$
41,091

 
$
126,730

 
$
122,770

Less: Shopping Center acquisitions, dispositions and development properties
 

 

 

 

Total same Shopping Center revenue
 
$
41,313

 
$
41,091

 
$
126,730

 
$
122,770

 
 
 
 
 
 
 
 
 
Total Mixed-Use property revenue
 
$
15,739

 
$
15,819

 
$
48,213

 
$
46,330

Less: Mixed-Use acquisitions, dispositions and development properties
 
(72
)
 
(82
)
 
(1,155
)
 
(82
)
Total same Mixed-Use property revenue
 
$
15,667

 
$
15,737

 
$
47,058

 
$
46,248


(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 September 30,
 
Nine Months Ended September 30,
(In thousands)
2019
 
2018
 
2019
 
2018
 
(unaudited)
 
(unaudited)
Net income
$
15,328

 
$
16,702

 
$
49,155

 
$
47,550

Add: Interest expense, net and amortization of deferred debt costs
10,325

 
10,974

 
32,185

 
33,568

Add: Depreciation and amortization of deferred leasing costs
12,018

 
11,256

 
35,185

 
33,956

Add: General and administrative
4,742

 
4,141

 
14,696

 
13,208

Add: Change in fair value of derivatives

 
(10
)
 

 
2

Less: Gain on sale of property

 

 

 
(509
)
Property operating income
42,413

 
43,063

 
131,221

 
127,775

Add (Less): Acquisitions, dispositions and development properties
97

 
(52
)
 
(519
)
 
(52
)
Total same property operating income
$
42,510

 
$
43,011

 
$
130,702

 
$
127,723

 
 
 
 
 
 
 
 
Shopping Centers
$
32,339

 
$
32,517

 
$
99,516

 
$
96,839

Mixed-Use properties
10,171

 
10,494

 
31,186

 
30,884

Total same property operating income
$
42,510

 
$
43,011

 
$
130,702

 
$
127,723

 
 
 
 
 
 
 
 
Shopping Center operating income
$
32,339

 
$
32,517

 
$
99,516

 
$
96,839

Less: Shopping Center acquisitions, dispositions and development properties

 

 

 

Total same Shopping Center operating income
$
32,339

 
$
32,517

 
$
99,516

 
$
96,839

 
 
 
 
 
 
 
 
Mixed-Use property operating income
$
10,074

 
$
10,546

 
$
31,705

 
$
30,936

Add (Less): Mixed-Use acquisitions, dispositions and development properties
97

 
(52
)
 
(519
)
 
(52
)
Total same Mixed-Use property operating income
$
10,171

 
$
10,494

 
$
31,186

 
$
30,884



(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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