SAUL CENTERS, INC. [BFS] Filings

10-Q 1 bfs-20230630.htm 10-Q bfs-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM			10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 1-12254


SAUL CENTERS, INC.
(Exact name of registrant as specified in its charter)


Maryland			52-1833074
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

7501 Wisconsin Avenue, Bethesda, Maryland 20814

(Address of principal executive office) (Zip Code)

Registrant’s telephone number, including area code (301) 986-6200

Securities registered pursuant to Section 12(b) of the Act:


Title of each class:	Trading symbol:	Name of exchange on which registered:
Common Stock, Par Value $0.01 Per Share	BFS	New York Stock Exchange
Depositary Shares each representing 1/100th of a share of 6.125% Series D Cumulative Redeemable Preferred Stock, Par Value $0.01 Per Share	BFS/PRD	New York Stock Exchange
Depositary Shares each representing 1/100th of a share of 6.000% Series E Cumulative Redeemable Preferred Stock, Par Value $0.01 Per Share	BFS/PRE	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

-1-

Table of Contents

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of shares of common stock, par value $0.01 per share outstanding as of July 31, 2023: 23,942,456.

-2-

Table of Contents

SAUL CENTERS, INC.

Table of Contents


			Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)


(a) Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022			4
(b) Consolidated Statements of Operations for the three and six months ended June 30, 2023 and 2022			5
(c) Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2023 and 2022			6
(d) Consolidated Statements of Equity for the three and six months ended June 30, 2023 and 2022			7
(e) Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022			9
(f) Notes to Consolidated Financial Statements			10

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

(a) Critical Accounting Policies			24

(b) Results of Operations:
Three months ended June 30, 2023 compared to three months ended June 30, 2022			25
Six months ended June 30, 2023 compared to six months ended June 30, 2022			26
Same property revenue and same property operating income			27

(c) Liquidity and Capital Resources			30

Item 3. Quantitative and Qualitative Disclosures About Market Risk			35

Item 4. Controls and Procedures			36

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			37
Item 1A. Risk Factors			37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			37
Item 3. Defaults Upon Senior Securities			37
Item 4. Mine Safety Disclosures			37
Item 5. Other Information			37
Item 6. Exhibits			37
Signatures			38

-3-

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(Dollars in thousands, except per share amounts)	June 30, 2023		December 31, 2022

Assets
Real estate investments
Land	$	511,529	$	511,529
Buildings and equipment	1,590,762		1,576,924
Construction in progress	410,966		319,683
	2,513,257		2,408,136
Accumulated depreciation	(708,770)		(688,475)
	1,804,487		1,719,661
Cash and cash equivalents	11,473		13,279
Accounts receivable and accrued income, net	51,949		56,323
Deferred leasing costs, net	22,799		22,388

Other assets	15,986		21,651
Total assets	$	1,906,694	$	1,833,302
Liabilities
Notes payable, net	$	951,505	$	961,577
Revolving credit facility payable, net	217,328		161,941
Term loan facility payable, net	99,456		99,382
Construction loan payable, net	25,841		—
Accounts payable, accrued expenses and other liabilities	54,211		42,978
Deferred income	21,836		23,169
Dividends and distributions payable	22,473		22,453

Total liabilities	1,392,650		1,311,500
Equity
Preferred stock, 1,000,000 shares authorized:


Series D Cumulative Redeemable, 30,000 shares issued and outstanding	75,000		75,000
Series E Cumulative Redeemable, 44,000 shares issued and outstanding	110,000		110,000
Common stock, $0.01 par value, 40,000,000 shares authorized, 24,048,626 and 24,016,009 shares issued and outstanding, respectively	240		240
Additional paid-in capital	448,231		446,301
Partnership units in escrow	39,650		39,650
Distributions in excess of accumulated earnings	(280,850)		(273,559)
Accumulated other comprehensive income	3,131		2,852
Total Saul Centers, Inc. equity	395,402		400,484
Noncontrolling interests	118,642		121,318
Total equity	514,044		521,802
Total liabilities and equity	$	1,906,694	$	1,833,302

The Notes to Financial Statements are an integral part of these statements.

-4-

Table of Contents

Saul Centers, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


(Dollars in thousands, except per share amounts)	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenue
Rental revenue	$	62,002	$	59,134	$	123,830	$	119,814
Other	1,707		1,159		2,928		2,623
Total revenue	63,709		60,293		126,758		122,437
Expenses
Property operating expenses	8,997		7,641		17,783		17,179
Real estate taxes	7,453		7,156		14,948		14,574
Interest expense, net and amortization of deferred debt costs	12,278		10,457		24,099		21,059
Depreciation and amortization of deferred leasing costs	12,114		12,377		24,130		24,704
General and administrative	5,678		5,665		10,946		10,433

Total expenses	46,520		43,296		91,906		87,949








Net Income	17,189		16,997		34,852		34,488
Noncontrolling interests
Income attributable to noncontrolling interests	(4,027)		(3,981)		(8,188)		(8,107)
Net income attributable to Saul Centers, Inc.	13,162		13,016		26,664		26,381

Preferred stock dividends	(2,799)		(2,799)		(5,597)		(5,597)
Net income available to common stockholders	$	10,363	$	10,217	$	21,067	$	20,784
Per share net income available to common stockholders



Basic and diluted	$	0.43	$	0.43	$	0.88	$	0.87

The Notes to Financial Statements are an integral part of these statements.

-5-

Table of Contents

Saul Centers, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
(Dollars in thousands)	2023		2022		2023		2022
Net income	$	17,189	$	16,997	$	34,852	$	34,488
Other comprehensive income
Change in unrealized gain on cash flow hedge	2,401		—		387		—
Total comprehensive income	19,590		16,997		35,239		34,488
Comprehensive income attributable to noncontrolling interests	(4,699)		(3,981)		(8,296)		(8,107)
Total comprehensive income attributable to Saul Centers, Inc.	14,891		13,016		26,943		26,381

Preferred stock dividends	(2,799)		(2,799)		(5,597)		(5,597)
Total comprehensive income available to common stockholders	$	12,092	$	10,217	$	21,346	$	20,784

The Notes to Financial Statements are an integral part of these statements.

-6-

Table of Contents

Saul Centers, Inc.

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)


(Dollars in thousands, except per share amounts)	Preferred Stock		Common Stock		Additional Paid-in Capital		Partnership Units in Escrow		Distributions in Excess of Accumulated Earnings		Accumulated Other Comprehensive Income		Total Saul Centers, Inc.		Noncontrolling Interests		Total
Balance, January 1, 2023	$	185,000	$	240	$	446,301	$	39,650	$	(273,559)	$	2,852	$	400,484	$	121,318	$	521,802


Issuance of shares of common stock:
13,227 shares pursuant to dividend reinvestment plan	—		—		543		—		—		—		543		—		543
699 shares due to share grants, exercise of stock options and issuance of directors’ deferred stock	—		—		290		—		—		—		290		—		290


Net income	—		—		—		—		13,502		—		13,502		4,161		17,663
Change in unrealized gain/loss on cash flow hedge	—		—		—		—		—		(1,450)		(1,450)		(564)		(2,014)




Distributions payable preferred stock:

Series D, $38.28 per share	—		—		—		—		(1,148)		—		(1,148)		—		(1,148)
Series E, $37.50 per share	—		—		—		—		(1,650)		—		(1,650)		—		(1,650)
Distributions payable common stock ($0.59/share) and distributions payable partnership units ($0.59/unit)	—		—		—		—		(14,165)		—		(14,165)		(5,486)		(19,651)
Balance, March 31, 2023	185,000		240		447,134		39,650		(277,020)		1,402		396,406		119,429		515,835

Issuance of shares of common stock:
15,588 shares pursuant to dividend reinvestment plan	—		—		544		—		—		—		544		—		544
3,104 shares due to share grants, exercise of stock options and issuance of directors’ deferred stock	—		—		553		—		—		—		553		—		553




Net income	—		—		—		—		13,162		—		13,162		4,027		17,189
Change in unrealized gain/loss on cash flow hedge	—		—		—		—		—		1,729		1,729		672		2,401




Distributions payable preferred stock:
Series D, $38.28 per share	—		—		—		—		(1,149)		—		(1,149)		—		(1,149)
Series E, $37.50 per share	—		—		—		—		(1,650)		—		(1,650)		—		(1,650)
Distributions payable common stock ($0.59/share) and distributions payable partnership units ($0.59/unit)	—		—		—		—		(14,193)		—		(14,193)		(5,486)		(19,679)
Balance, June 30, 2023	$	185,000	$	240	$	448,231	$	39,650	$	(280,850)	$	3,131	$	395,402	$	118,642	$	514,044

-7-

Table of Contents

Saul Centers, Inc.


CONSOLIDATED STATEMENTS OF EQUITY (continued) (Unaudited)
(Dollars in thousands, except per share amounts)	Preferred Stock		Common Stock		Additional Paid-in Capital		Partnership Units in Escrow		Distributions in Excess of Accumulated Earnings		Accumulated Other Comprehensive Income		Total Saul Centers, Inc.		Noncontrolling Interests		Total
Balance, January 1, 2022	$	185,000	$	238	$	436,609	$	39,650	$	(256,448)	$	—	$	405,049	$	125,438	$	530,487


Issuance of shares of common stock:
61,861 shares pursuant to dividend reinvestment plan	—		1		2,948		—		—		—		2,949		—		2,949
8,007 shares due to share grants, exercise of stock options and issuance of directors’ deferred stock	—		—		594		—		—		—		594		—		594
Issuance of 13,704 partnership units pursuant to dividend reinvestment plan	—		—		—		—		—		—		—		653		653

Net income	—		—		—		—		13,365		—		13,365		4,126		17,491



Distributions payable preferred stock:

Series D, $38.28 per share	—		—		—		—		(1,148)		—		(1,148)		—		(1,148)
Series E, $37.50 per share	—		—		—		—		(1,650)		—		(1,650)		—		(1,650)
Distributions payable common stock ($0.57/share) and distributions payable partnership units ($0.57/unit)	—		—		—		—		(13,625)		—		(13,625)		(5,292)		(18,917)
Balance, March 31, 2022	185,000		239		440,151		39,650		(259,506)		—		405,534		124,925		530,459



Issuance of shares of common stock:
57,821 shares pursuant to dividend reinvestment plan	—		1		2,948		—		—		—		2,949		—		2,949
19,618 shares due to share grants, exercise of stock options and issuance of directors’ deferred stock	—		—		1,397		—		—		—		1,397		—		1,397

Issuance of 12,955 partnership units pursuant to dividend reinvestment plan	—		—		—		—		—		—		—		669		669


Net income	—		—		—		—		13,016		—		13,016		3,981		16,997





Distributions payable preferred stock:

Series D, $38.28 per share	—		—		—		—		(1,148)		—		(1,148)		—		(1,148)
Series E, $37.50 per share	—		—		—		—		(1,650)		—		(1,650)		—		(1,650)
Distributions payable common stock ($0.59/share) and distributions payable partnership units ($0.59/unit)	—		—		—		—		(14,156)		—		(14,156)		(5,486)		(19,642)
Balance, June 30, 2022	$	185,000	$	240	$	444,496	$	39,650	$	(263,444)	$	—	$	405,942	$	124,089	$	530,031

The Notes to Financial Statements are an integral part of these statements.

-8-

Table of Contents

Saul Centers, Inc.


CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
	Six Months Ended June 30,
(Dollars in thousands)	2023		2022
Cash flows from operating activities:
Net income	$	34,852	$	34,488
Adjustments to reconcile net income to net cash provided by operating activities:




Depreciation and amortization of deferred leasing costs	24,130		24,704
Amortization of deferred debt costs	1,122		941
Compensation costs of stock and option grants	843		908
Credit losses (recoveries) on operating lease receivables, net	(27)		48
Decrease in accounts receivable and accrued income	4,401		3,068
Additions to deferred leasing costs	(2,486)		(903)

Decrease in other assets	3,315		1,013
Increase in accounts payable, accrued expenses and other liabilities	3,875		4,654
Decrease in deferred income	(1,333)		(2,437)

Net cash provided by operating activities	68,692		66,484
Cash flows from investing activities:

Additions to real estate investments	(14,109)		(7,014)
Additions to development and redevelopment projects	(85,257)		(44,900)



Net cash used in investing activities	(99,366)		(51,914)
Cash flows from financing activities:
Proceeds from notes payable	15,300		—
Repayments on notes payable	(25,614)		(53,531)

Proceeds from revolving credit facility	78,000		82,000
Repayments on revolving credit facility	(23,000)		(8,000)
Proceeds from construction loan	28,421		—

Additions to deferred debt costs	(421)		(3,388)
Proceeds from the issuance of:
Common stock	1,087		6,981
Partnership units	—		1,322





Distributions to:

Series D preferred stockholders	(2,297)		(2,297)
Series E preferred stockholders	(3,300)		(3,300)
Common stockholders	(28,336)		(27,208)
Noncontrolling interests	(10,972)		(10,576)
Net cash provided by (used in) financing activities	28,868		(17,997)
Net decrease in cash and cash equivalents	(1,806)		(3,427)
Cash and cash equivalents, beginning of period	13,279		14,594
Cash and cash equivalents, end of period	$	11,473	$	11,167
Supplemental disclosure of cash flow information:
Cash paid for interest	$	22,676	$	19,689
Accrued capital expenditures included in accounts payable, accrued expenses, and other liabilities	$	26,364	$	16,220

The Notes to Financial Statements are an integral part of these statements.

-9-

Table of Contents

Notes to Consolidated Financial Statements (Unaudited)

1. Organization, Basis of Presentation

Saul Centers, Inc. (“Saul Centers”) was incorporated under the Maryland General Corporation Law on June 10, 1993, and operates as a real estate investment trust (a “REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”). The Company is required to annually distribute at least 90% of its REIT taxable income (excluding net capital gains) to its stockholders and meet certain organizational and other requirements. Saul Centers has made and intends to continue to make regular quarterly distributions to its stockholders. Saul Centers, together with its wholly-owned subsidiaries and the limited partnerships of which Saul Centers or one of its subsidiaries is the sole general partner, are referred to collectively as the “Company.” B. Francis Saul II serves as Chairman of the Board of Directors and Chief Executive Officer of Saul Centers.

The Company, which conducts all of its activities through its subsidiaries, Saul Holdings Limited Partnership, a Maryland limited partnership (the “Operating Partnership”) and two subsidiary limited partnerships (the “Subsidiary Partnerships,” and, collectively with the Operating Partnership, the “Partnerships”), engages in the ownership, operation, management, leasing, acquisition, renovation, expansion, development and financing of community and neighborhood shopping centers and mixed-use properties, primarily in the Washington, D.C./Baltimore metropolitan area.

As of June 30, 2023, the Company’s properties (the “Current Portfolio Properties”) consisted of 50 shopping center properties (the “Shopping Centers”), seven mixed-use properties, which are comprised of office, retail and multi-family residential uses (the “Mixed-Use Properties”) and four (non-operating) land and development properties.

Because the properties are located primarily in the Washington, D.C./Baltimore metropolitan area, the Company is subject to a concentration of credit risk related to these properties. The Shopping Centers, a majority of which are anchored by one or more major tenants and 33 of which are anchored by a grocery store, offer primarily day-to-day necessities and services. Giant Food, a tenant at 11 Shopping Centers, individually accounted for 5.0% of the Company's total revenue for the six months ended June 30, 2023. No other tenant individually accounted for 2.5% or more of the Company’s total revenue, excluding lease termination fees, for the six months ended June 30, 2023.

The accompanying consolidated financial statements of the Company include the accounts of Saul Centers and its subsidiaries, including the Partnerships, which are majority owned by Saul Centers. Substantially all assets and liabilities of the Company as of June 30, 2023 and December 31, 2022, are comprised of the assets and liabilities of the Operating Partnership. Debt arrangements subject to recourse are described in Note 5. All significant intercompany balances and transactions have been eliminated in consolidation.

The Operating Partnership is a variable interest entity (“VIE”) because the limited partners do not have substantive kick-out or participating rights. The Company is the primary beneficiary of the Operating Partnership because it has the power to direct its activities and the rights to absorb 72.0% of its net income. Because the Operating Partnership is consolidated into the financial statements of the Company, classification of it as a VIE has no impact on the consolidated financial statements of the Company.

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments necessary for the fair presentation of the financial position and results of operations of the Company for the interim periods have been included. All such adjustments are of a normal recurring nature. These consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2022, which are included in its Annual Report on Form 10-K. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted pursuant to those instructions. The results of operations for interim periods are not necessarily indicative of results to be expected for the year.

-10-

Table of Contents

Notes to Consolidated Financial Statements (Unaudited)

2. Summary of Significant Accounting Policies

Our significant accounting policies disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022 have not changed significantly in number or composition.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The most significant estimates and assumptions relate to collectability of operating lease receivables and impairment of real estate properties. Actual results could differ from those estimates.

Accounts Receivable, Accrued Income and Allowance for Doubtful Accounts

Accounts receivable are primarily comprised of rental and reimbursement billings due from tenants, and straight-line rent receivables representing the cumulative amount of adjustments necessary to present rental income on a straight-line basis. 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. Further, we assess whether operating lease receivables, at the portfolio level, are appropriately valued based upon an analysis of balances outstanding, historical bad debt levels and current economic trends. As of June 30, 2023, of the $9.4 million of rents previously deferred, $0.3 million has been written off and $0.6 million has not yet come due. The amount that has not yet come due is included in Accounts receivable and accrued income, net in the Consolidated Balance Sheets.

Reclassifications

Certain reclassifications have been made to the prior year financial statements to conform to the presentation used as of and for the six months ended June 30, 2023.

3. Real Estate

Construction In Progress

Construction in progress includes land, preconstruction and development costs of active projects. Preconstruction costs include legal, zoning and permitting costs and other project carrying costs incurred prior to the commencement of construction. Development costs include direct construction costs and indirect costs incurred subsequent to the start of construction such as architectural, engineering, construction management and carrying costs consisting of interest, real estate taxes and insurance.

Construction in progress as of June 30, 2023 and December 31, 2022, is composed of the following:


(In thousands)	June 30, 2023		December 31, 2022
Twinbrook Quarter	$	297,104	$	227,672
Hampden House	105,192		80,704


Other	8,670		11,307
Total	$	410,966	$	319,683

Leases

We lease Shopping Centers and Mixed-Use Properties to lessees in exchange for monthly payments that cover rent, and, where applicable, reimbursement for property taxes, insurance, and certain property operating expenses. Our leases have been determined to be operating leases and generally range in term from one to 15 years.

Some of our leases have termination options and/or extension options. Termination options allow the lessee and/or lessor to terminate the lease prior to the end of the lease term, provided certain conditions are met. Termination options generally require advance notification from the lessee and/or lessor and payment of a termination fee. Termination fees are recognized as revenue over the modified lease term. Extension options are subject to terms and conditions stated in the lease.

-11-

Table of Contents

Notes to Consolidated Financial Statements (Unaudited)

An operating lease right of use asset and corresponding lease liability related to our headquarters sublease are reflected in other assets and other liabilities, respectively. The sublease expires on February 28, 2027. The right of use asset and corresponding lease liability totaled $2.8 million and $2.9 million, respectively, at June 30, 2023.

Due to the business disruptions and challenges affecting the global economy caused by the novel strain of coronavirus (“COVID-19”) pandemic, many lessees requested rent relief, including rent deferrals and other lease concessions. The lease modification guidance in Accounting Standards Update 2016-02, “Accounting for Leases” does not contemplate the rapid execution of concessions for multiple tenants in response to sudden liquidity constraints of lessees. In April 2020, the staff of the Financial Accounting Standards Board issued a question and answer document that provided guidance allowing the Company to elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. The Company elected to apply such relief, which, in the case of rent deferrals, results in the accrual of rent due from tenants. The Company will continue to monitor the collectability of rent receivables.

Deferred Leasing Costs

Deferred leasing costs primarily consist of initial direct costs incurred in connection with successful property leasing and amounts attributed to in-place leases associated with acquired properties. Such amounts are capitalized and amortized, using the straight-line method, over the term of the lease or the remaining term of an acquired lease. Initial direct costs primarily consist of leasing commissions, which are costs paid to third-party brokers and lease commissions paid to certain employees that are incremental to obtaining a lease and would not have been incurred if the lease had not been obtained. Unamortized deferred costs are charged to expense if the applicable lease is terminated prior to expiration of the initial lease term. Collectively, deferred leasing costs totaled $22.8 million and $22.4 million, net of accumulated amortization of $52.7 million and $51.3 million, as of June 30, 2023 and December 31, 2022, respectively. Amortization expense, included in depreciation and amortization of deferred leasing costs in the Consolidated Statements of Operations, totaled $2.1 million and $2.1 million for the six months ended June 30, 2023 and 2022, respectively.

Real Estate Investment Properties

Depreciation is calculated using the straight-line method and estimated useful lives of generally between 35 and 50 years for base buildings, or a shorter period if management determines that the building has a shorter useful life, and up to 20 years for certain other improvements that extend the useful lives. Leasehold improvement expenditures are capitalized when certain criteria are met, including when the Company supervises construction and will own the improvements. Tenant improvements are amortized, over the shorter of the lives of the related leases or the useful life of the improvements, using the straight-line method. Depreciation expense in the Consolidated Statements of Operations totaled $22.0 million and $22.6 million for the six months ended June 30, 2023 and 2022, respectively. Repairs and maintenance expense totaled $7.1 million and $7.4 million for the six months ended June 30, 2023 and 2022, respectively, and is included in property operating expenses in the Consolidated Statements of Operations.

As of June 30, 2023, 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 were recorded.

4. Noncontrolling Interests - Holders of Convertible Limited Partnership Units in the Operating Partnership

As of June 30, 2023, the B. F. Saul Company and certain other affiliated entities, each of which is controlled by B. Francis Saul II and his family members, (collectively, the “Saul Organization”) held an aggregate 26.6% limited partnership interest in the Operating Partnership represented by approximately 8.8 million convertible limited partnership units. These units are convertible into shares of Saul Centers’ common stock, at the option of the unit holder, on a one-for-one basis provided that, in accordance with the Company’s Articles of Incorporation, the rights may not be exercised at any time that the Saul Organization beneficially owns or will own after the exercise, directly or indirectly, in the aggregate more than 39.9% of the value of the outstanding common stock and preferred stock of Saul Centers (the “Equity Securities”). As of June 30, 2023, approximately 828,000 units could be converted into shares of Saul Centers common stock.

-12-

Table of Contents

Notes to Consolidated Financial Statements (Unaudited)

As of June 30, 2023, a third party investor holds a 1.4% limited partnership interest in the Operating Partnership represented by 469,740 convertible limited partnership units. At the option of the unit holder, these units are convertible into shares of Saul Centers’ common stock on a one-for-one basis; provided that, in lieu of the delivery of Saul Centers’ common stock, Saul Centers may, in its sole discretion, deliver cash in an amount equal to the value of such Saul Centers’ common stock.

The impact of the aggregate 28.0% limited partnership interest in the Operating Partnership held by parties other than Saul Centers is reflected as Noncontrolling Interests in the accompanying consolidated financial statements. Weighted average fully diluted partnership units and common stock outstanding for the three months ended June 30, 2023 and 2022, was approximately 34.0 million and 34.0 million, respectively and for the six months ended June 30, 2023 and 2022, was approximately 34.0 million and 33.9 million, respectively.

The Company previously issued 708,035 limited partnership units related to the contribution of Twinbrook Quarter that are held in escrow and will be released on October 18, 2023. Until such time as the units are released from escrow, they are not eligible to receive distributions from the Operating Partnership.

5. Notes Payable, Bank Credit Facility, Interest and Amortization of Deferred Debt Costs

At June 30, 2023, the Company had a $525.0 million senior unsecured credit facility (the “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, and may be extended by the Company for one additional year, subject to satisfaction of certain conditions. The term loan matures on February 26, 2027. Interest accrues at the Secured Overnight Financing Rate (“SOFR”) plus 10 basis points plus an applicable spread, which is determined by certain leverage tests. As of June 30, 2023, the applicable spread for borrowings was 140 basis points related to the revolving credit facility and 135 basis points related to the term loan. Letters of credit may be issued under the Credit Facility. On June 30, 2023, based on the value of the Company’s unencumbered properties calculated in accordance with the terms of the Credit Facility, approximately $165.3 million was available and undrawn under the Credit Facility, $319.0 million was outstanding and approximately $185,000 was committed for letters of credit.

On August 23, 2022, the Company entered into two floating-to-fixed interest rate swap agreements to manage the interest rate risk associated with $100.0 million of its variable-rate debt. The effective date of each swap agreement is October 3, 2022 and each has a $50.0 million notional amount. One agreement terminates on October 1, 2027 and effectively fixes SOFR at 2.96%. The other agreement terminates on October 1, 2030 and effectively fixes SOFR at 2.91%. Because the interest-rate swaps effectively fix SOFR for $100.0 million of variable-rate debt, unless otherwise indicated, $100.0 million of variable-rate debt is being treated as fixed-rate debt for disclosure purposes beginning September 30, 2022. The Company has designated the agreements as cash flow hedges for accounting purposes.

As of June 30, 2023, the fair value of the interest-rate swaps totaled approximately $4.3 million, which is included in Other assets in the Consolidated Balance Sheets. The increase in value from inception of the swaps is reflected in Other Comprehensive Income in the Consolidated Statements of Comprehensive Income.

On March 8, 2023, the Company closed on a 10-year, non-recourse, $15.3 million mortgage secured by BJ’s Wholesale Club in Alexandria, Virginia. The loan matures in 2033, bears interest at a fixed-rate of 6.07%, requires monthly principal and interest payments of $99,200 based on a 25-year amortization schedule and requires a final principal payment of $11.7 million at maturity. Proceeds were used to repay the remaining balance of approximately $9.3 million on the existing mortgage and reduce the outstanding balance of the Credit Facility.

During the second quarter of 2023, the Company commenced drawing on its $145.0 million construction-to-permanent loan related to the residential and retail portions of Phase I of the Twinbrook Quarter development project. As of June 30, 2023, the outstanding balance on the loan was $25.8 million, net of unamortized deferred debt costs.

Saul Centers and certain consolidated subsidiaries of the Operating Partnership have guaranteed the payment obligations of the Operating Partnership under the Credit Facility. The Operating Partnership is the guarantor of (a) the construction-to-permanent loan secured by Twinbrook Quarter Phase I (approximately $28.4 million at June 30, 2023), (b) the mortgage secured by Kentlands Place, Kentlands Square I and Kentlands Pad (totaling $27.7 million at June 30, 2023), (c) a portion of the mortgage secured by The Waycroft (approximately $23.6 million of the $150.9 million outstanding balance at June 30, 2023), (d) the mortgage secured by Ashbrook Marketplace (approximately $20.5 million at June 30, 2023) and (e) a portion of

-13-

Table of Contents

Notes to Consolidated Financial Statements (Unaudited)

the mortgage secured by Avenel Business Park (approximately $6.3 million of the $22.3 million outstanding balance at June 30, 2023). All other notes payable are non-recourse.

The principal amount of the Company’s outstanding debt totaled approximately $1.31 billion at June 30, 2023, of which approximately $1.09 billion was fixed-rate debt and approximately $219.0 million was unhedged variable rate debt outstanding under the Credit Facility. The carrying amount of the properties collateralizing the notes payable totaled approximately $1.33 billion as of June 30, 2023.

At December 31, 2022, the principal amount of the Company’s outstanding debt totaled approximately $1.24 billion, of which $1.07 billion was fixed rate debt and $164.0 million was unhedged variable rate debt outstanding under the Credit Facility. The carrying amount of the properties collateralizing the notes payable totaled approximately $1.04 billion as of December 31, 2022.

At June 30, 2023, the future principal payments of debt, including scheduled maturities and amortization, for years ending December 31, were as follows:


(In thousands)	Principal Payments
July 1 through December 31, 2023	$	16,728
2024	83,973
2025	271,086		(a)
2026	162,468
2027	123,792		(b)
2028	41,863
Thereafter	611,879
Principal amount	1,311,789
Unamortized deferred debt costs	17,659
Net	$	1,294,130

(a) Includes $219.0 million outstanding under the Credit Facility.

(b) Includes $100.0 million outstanding under the Credit Facility.

Deferred debt costs consist of fees and costs incurred to obtain long-term financing, construction financing and the Credit Facility. These fees and costs are being amortized on a straight-line basis over the terms of the respective loans or agreements, which approximates the effective interest method. Deferred debt costs totaling $17.7 million and $15.8 million, net of accumulated amortization of $9.1 million and $7.9 million, at June 30, 2023 and December 31, 2022, respectively, and are reflected as a reduction of the related debt in the Consolidated Balance Sheets. At June 30, 2023, deferred debt costs totaling $2.9 million related to the Hampden House construction-to-permanent loan, which has no outstanding balance, are included in Other Assets in the Consolidated Balance Sheets. At December 31, 2022, deferred debt costs totaling $2.7 million and $3.0 million, related to the Twinbrook Quarter and Hampden House construction-to-permanent loans, respectively, which had no outstanding balance, were included in Other Assets in the Consolidated Balance Sheets.

Interest expense, net and amortization of deferred debt costs for the three and six months ended June 30, 2023 and 2022, were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2023		2022		2023		2022
Interest incurred	$	16,267	$	12,468	$	31,780	$	24,781
Amortization of deferred debt costs	564		465		1,122		941
Capitalized interest	(4,472)		(2,474)		(8,614)		(4,661)
Interest expense	12,359		10,459		24,288		21,061
Less: Interest income	81		2		189		2
Interest expense, net and amortization of deferred debt costs	$	12,278	$	10,457	$	24,099	$	21,059

-14-

Table of Contents

Notes to Consolidated Financial Statements (Unaudited)

6. Equity

The consolidated statements of operations for the six months ended June 30, 2023 and 2022, reflect noncontrolling interests of $8.2 million and $8.1 million, respectively, representing income attributable to limited partnership units not held by Saul Centers.

At June 30, 2023, the Company had outstanding 3.0 million depositary shares, each representing 1/100th of a share of 6.125% Series D Cumulative Redeemable Preferred Stock (the “Series D Stock”). The depositary shares are redeemable at the Company's option, in whole or in part, at the $25.00 liquidation preference, plus accrued but unpaid dividends to but not including the redemption date. The depositary shares pay an annual dividend of $1.53125 per share, equivalent to 6.125% of the $25.00 liquidation preference. The Series D Stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and is not convertible into any other securities of the Company except in connection with certain changes in control or delisting events. Investors in the depositary shares generally have no voting rights, but will have limited voting rights if the Company fails to pay dividends for six or more quarters (whether or not declared or consecutive) and in certain other events.

At June 30, 2023, the Company had outstanding 4.4 million depositary shares, each representing 1/100th of a share of 6.000% Series E Cumulative Redeemable Preferred Stock (the “Series E Stock”). The depositary shares may be redeemed at the Company’s option, in whole or in part, on or after September 17, 2024, at the $25.00 liquidation preference, plus accrued but unpaid dividends to but not including the redemption date. The depositary shares pay an annual dividend of $1.50 per share, equivalent to 6.000% of the $25.00 liquidation preference. The Series E Stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and is not convertible into any other securities of the Company except in connection with certain changes in control or delisting events. Investors in the depositary shares generally have no voting rights, but will have limited voting rights if the Company fails to pay dividends for six or more quarters (whether or not declared or consecutive) and in certain other events.

Per Share Data

Per share data for net income (basic and diluted) is computed using weighted average shares of common stock. Convertible limited partnership units and employee stock options are the Company’s potentially dilutive securities. For all periods presented, the convertible limited partnership units are non-dilutive. The following table sets forth, for the indicated periods, weighted averages of the number of common shares outstanding, basic and diluted, the effect of dilutive options and the number of options which are not dilutive because the average price of the Company’s common stock was less than the exercise prices. The treasury stock method was used to measure the effect of the dilution.


	Average Shares/Options Outstanding
	Three Months Ended June 30,		Six Months Ended June 30,
(In thousands)	2023	2022	2023	2022
Weighted average common stock outstanding-Basic	24,043	23,963	24,034	23,924
Effect of dilutive options	1	16	1	15
Weighted average common stock outstanding-Diluted	24,044	23,979	24,035	23,939
Non-dilutive options	1,672	1,212	1,708	1,221
Years non-dilutive options were issued	2014 through 2022	2015 through 2020	2013 through 2022	2015 through 2020

7. Related Party Transactions

The Chairman and Chief Executive Officer, the President and Chief Operating Officer, the Executive Vice President-Chief Legal and Administrative Officer and the Senior Vice President-Chief Accounting Officer and Treasurer of the Company are also officers of various members of the Saul Organization and their management time is shared with the Saul Organization. Their annual compensation is fixed by the Compensation Committee of the Board of Directors, with the exception of the Senior Vice President-Chief Accounting Officer and Treasurer whose share of annual compensation allocated to the Company is determined by the shared services agreement (described below).

The Company participates in a multiemployer 401K plan with entities in the Saul Organization which covers those full-time employees who meet the requirements as specified in the plan. Company contributions, which are included in general and administrative expense or property operating expenses in the Consolidated Statements of Operations, at the discretionary

-15-

Table of Contents

Notes to Consolidated Financial Statements (Unaudited)

amount of up to 6% of the employee’s cash compensation, subject to certain limits, were $231,400 and $227,800 for the six months ended June 30, 2023 and 2022, respectively. All amounts contributed by employees and the Company are fully vested.

The Company also participates in a multiemployer nonqualified deferred compensation plan with entities in the Saul Organization which covers those full-time employees who meet the requirements as specified in the plan. According to the plan, which can be modified or discontinued at any time, participating employees defer 2% of their compensation in excess of a specified amount. For the six months ended June 30, 2023 and 2022, the Company credited to employee accounts $132,400 and $111,600, respectively, which is the sum of accrued earnings and up to three times the amount deferred by employees and is included in general and administrative expense. All amounts contributed by employees and credited by the Company are fully vested. The cumulative unfunded liability under this plan was $3.0 million and $3.0 million, at June 30, 2023 and December 31, 2022, respectively, and is included in accounts payable, accrued expenses and other liabilities in the Consolidated Balance Sheets.

The Company and the Saul Organization are parties to a shared services agreement (the “Agreement”) that provides for the sharing of certain personnel and ancillary functions such as computer hardware, software, and support services and certain direct and indirect administrative personnel. The method for determining the cost of the shared services is provided for in the Agreement and is based upon head count, estimates of usage or estimates of time incurred, as applicable. The terms of the Agreement and the payments made thereunder are deemed reasonable by management and are reviewed annually by the Audit Committee of the Board of Directors, which consists entirely of independent directors. Net billings by the Saul Organization for the Company’s share of these ancillary costs and expenses for the six months ended June 30, 2023 and 2022, which included rental expense for the Company’s headquarters sublease, totaled approximately $5.4 million and $4.6 million, respectively. The amounts are generally expensed as incurred and are primarily reported as general and administrative expenses in the Consolidated Statements of Operations. As of June 30, 2023 and December 31, 2022, accounts payable, accrued expenses and other liabilities included approximately $0.9 million and $1.2 million, respectively, representing amounts due to the Saul Organization for the Company’s share of these ancillary costs and expenses.

The Company subleases its corporate headquarters space from a member of the Saul Organization. The sublease commenced in March 2002, expires in 2027, and provides for base rent increases of 3% per year, with payment of a pro-rata share of operating expenses over a base year amount. The Agreement requires each party to pay an allocation of total rental payments based on a percentage proportionate to the number of employees employed by each party. The Company’s rent expense for its headquarters location was $436,000 and $394,000 for the six months ended June 30, 2023 and 2022, respectively, and is included in general and administrative expense.

The B. F. Saul Insurance Agency, Inc., a subsidiary of the B. F. Saul Company and a member of the Saul Organization, is a general insurance agency that receives commissions and fees in connection with the Company’s insurance program. Such commissions and fees amounted to $315,500 and $137,500 for the six months ended June 30, 2023 and 2022, respectively.

8. Stock-based Employee Compensation, Stock Option Plans, and Deferred Compensation Plan for Directors

In 2004, the Company established a stock incentive plan (the “Plan”), as amended. Under the Plan, options are granted at an exercise price not less than the market value of the common stock on the date of grant and expire ten years from the date of grant. Officer options vest ratably over four years following the grant and are charged to expense using the straight-line method over the vesting period. Director options vest immediately and are charged to expense as of the date of grant.

The Company uses the fair value method to value and account for employee stock options. The fair value of options granted is determined at the time of the grant using the Black-Scholes model, a widely used method for valuing stock-based employee compensation, and the following assumptions: (1) Expected Volatility determined using the most recent trading history of the Company’s common stock (month-end closing prices) corresponding to the average expected term of the options; (2) Average Expected Term of the options based on prior exercise history, scheduled vesting and the expiration date; (3) Expected Dividend Yield determined by management after considering the Company’s current and historic dividend yield, the Company’s yield in relation to other retail REITs and the Company’s market yield at the grant date; and (4) a Risk-free Interest Rate based upon the market yields of US Treasury obligations with maturities corresponding to the average expected term of the options at the grant date. The Company amortizes the value of options granted ratably over the vesting period and includes the amounts as compensation expense in general and administrative expenses.

Pursuant to the Plan, the Compensation Committee established a Deferred Compensation Plan for Directors for the benefit of the Company’s directors and their beneficiaries, which replaced a previous Deferred Compensation and Stock Plan for Directors. Annually, directors are given the ability to make an election to defer all or part of their fees and have the option to have their fees paid in cash, in shares of common stock or in a combination of cash and shares of common stock upon

-16-

Table of Contents

Notes to Consolidated Financial Statements (Unaudited)

separation from the Board. If a director elects to have their fees paid in stock, fees earned during a calendar quarter are aggregated and divided by the closing market price of the Company’s common stock on the first trading day of the following quarter to determine the number of shares to be credited to the director. During the six months ended June 30, 2023, 5,028 shares were credited to director’s deferred fee accounts and 6,865 shares were issued. As of June 30, 2023, the director's deferred fee accounts comprise 118,987 shares.

Effective May 12, 2023, the Company granted 253,500 options to its directors and certain officers. The following table summarizes the assumptions used in the valuation of the 2023 and 2022 option grants.


	Directors				Officers
Grant date	May 12, 2023		May 13, 2022		May 12, 2023		May 13, 2022
Exercise price per share	$	33.79	$	47.90	$	33.79	$	47.90
Fair value per option	$	6.53	$	8.34	$	6.06	$	7.66
Volatility	0.319		0.300		0.288		0.271
Expected life (years)	5.0		5.0		7.0		7.0
Assumed yield	4.94%		4.90%		4.96%		4.93%
Risk-free rate	3.45%		2.89%		3.45%		2.95%

During the six months ended June 30, 2023, stock option expense totaling $0.7 million was included in general and administrative expense in the Consolidated Statement of Operations. As of June 30, 2023, the estimated future expense related to unvested stock options was $2.8 million.

The table below summarizes the option activity for the six months ended June 30, 2023:


	Number of Shares	Weighted Average Exercise Price per share		Aggregate Intrinsic Value
Outstanding at January 1	1,768,375	$	51.28	$	—
Granted	253,500	33.79		770,640
Exercised	—	—		—
Expired/Forfeited	(96,875)	49.24		—
Outstanding at June 30	1,925,000	49.08		770,640
Exercisable at June 30	1,247,375	52.28		91,200

The intrinsic value of stock options outstanding or exercisable measures the price difference between the options’ exercise price and the closing share price quoted by the New York Stock Exchange as of the date of measurement. There were no options exercised during the six months ended June 30, 2023. The intrinsic value of stock options exercised during the six months ended June 30, 2022 was calculated by using the transaction price on the date of exercise and totaled $237,724. At June 30, 2023, the final trading day of the 2023 second quarter, the closing share price of $36.83 was lower than the exercise price of 1.7 million outstanding options granted in 2014 through 2022. The weighted average remaining contractual life of the Company’s outstanding and exercisable options is 6.0 years and 4.6 years, respectively.

9. Fair Value of Financial Instruments

The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are reasonable estimates of their fair value. The aggregate fair value of the notes payable with fixed-rate payment terms was determined using Level 2 data in a discounted cash flow approach, which is based upon management’s estimate of borrowing rates and loan terms currently available to the Company for fixed-rate financing, would be approximately $926.3 million and $919.2 million, respectively, compared to the principal balance of $1.09 billion and $1.07 billion at June 30, 2023 and December 31, 2022, respectively. A change in any of the significant inputs may lead to a change in the Company’s fair value measurement of its debt.

-17-

Table of Contents

Notes to Consolidated Financial Statements (Unaudited)

10. Derivatives and Hedging Activities

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses floating-to-fixed interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount

The change in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Such derivatives were used to hedge the variable cash flows associated with certain variable-rate debt.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the next twelve months, the Company estimates that approximately $2.3 million will be reclassified from other comprehensive income and reflected as a decrease to interest expense.

The Company carries its interest-rate swaps at fair value. The Company has determined the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy with the exception of the impact of counter-party risk, which was determined using Level 3 inputs and is not significant. Derivative instruments are classified within Level 2 of the fair value hierarchy because their values are determined using third-party pricing models that contain inputs that are derived from observable market data. Valuation models require a variety of inputs, including contractual terms, market prices, yield curves, credit spreads, measure of volatility, and correlations of such inputs. As of June 30, 2023, the fair value of the interest-rate swaps was approximately $4.3 million and is included in Other assets in the Consolidated Balance Sheets. The change in value during the period is reflected in Other Comprehensive Income in the Consolidated Statements of Comprehensive Income.

The table below details the fair value and location of the interest rate swaps as of June 30, 2023 and December 31, 2022.

(In thousands)

Fair Values of Derivative Instruments

June 30, 2023

December 31, 2022

Derivative Instrument

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Interest rate swaps

Other Assets

4,349

Other Assets

3,962

The table below details the location in the financial statements of the gain or loss recognized on interest rate derivatives designated as cash flow hedges for the three and six months ended June 30, 2023 and 2022.



(In thousands)	The Effect of Hedge Accounting on Other Comprehensive Income (OCI)
	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Amount of gain (loss) recognized in OCI	$	2,919	$	—	$	1,302	$	—
Location of gain (loss) reclassified from OCI into income	Interest expense, net and amortization of deferred debt costs		N/A		Interest expense, net and amortization of deferred debt costs		N/A
Amount of (gain) loss reclassified from OCI into income	$	(518)	$	—	$	(915)	$	—

-18-

Table of Contents

Notes to Consolidated Financial Statements (Unaudited)

11. Commitments and Contingencies

Neither the Company nor the Current Portfolio Properties are subject to any material litigation, nor, to management’s knowledge, is any material litigation currently threatened against the Company, other than routine litigation and administrative proceedings arising in the ordinary course of business. Management believes that these items, individually or in the aggregate, will not have a material adverse impact on the Company or the Current Portfolio Properties.

12. Business Segments

The Company has two reportable business segments: Shopping Centers and Mixed-Use Properties. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 2). The Company evaluates performance based upon income and cash flows from real estate of the combined properties in each segment. All of our properties within each segment generate similar types of revenues and expenses related to tenant rent, reimbursements and operating expenses. Although services are provided to a variety of tenants, the types of services provided to them are similar within each segment. The properties in each portfolio have similar economic characteristics and the nature of the products and services provided to our tenants and the method to distribute such services are consistent throughout the portfolio. Certain reclassifications have been made to prior year information to conform to the 2023 presentation.


Financial Information By Segment
(In thousands)	Shopping Centers		Mixed-Use Properties		Corporate and Other		Consolidated Totals
Three Months Ended June 30, 2023
Real estate rental operations:
Revenue	$	43,974	$	19,735	$	—	$	63,709
Expenses	(9,462)		(6,988)		—		(16,450)
Income from real estate	34,512		12,747		—		47,259

Interest expense, net and amortization of deferred debt costs	—		—		(12,278)		(12,278)
Depreciation and amortization of deferred leasing costs	(7,066)		(5,048)		—		(12,114)
General and administrative	—		—		(5,678)		(5,678)







Net income (loss)	$	27,446	$	7,699	$	(17,956)	$	17,189
Capital investment	$	4,221	$	51,989	$	—	$	56,210
Total assets	$	915,274	$	972,258	$	19,162	$	1,906,694


Three Months Ended June 30, 2022
Real estate rental operations:
Revenue	$	42,038	$	18,255	$	—	$	60,293
Expenses	(8,184)		(6,613)		—		(14,797)
Income from real estate	33,854		11,642		—		45,496

Interest expense, net and amortization of deferred debt costs	—		—		(10,457)		(10,457)
Depreciation and amortization of deferred leasing costs	(7,086)		(5,291)		—		(12,377)
General and administrative	—		—		(5,665)		(5,665)








Net income (loss)	$	26,768	$	6,351	$	(16,122)	$	16,997
Capital investment	$	2,427	$	32,619	$	—	$	35,046
Total assets	$	937,509	$	831,078	$	13,899	$	1,782,486

-19-

Table of Contents

Notes to Consolidated Financial Statements (Unaudited)


(In thousands)	Shopping Centers		Mixed-Use Properties		Corporate and Other		Consolidated Totals
Six Months Ended June 30, 2023
Real estate rental operations:
Revenue	$	88,199	$	38,559	$	—	$	126,758
Expenses	(18,722)		(14,009)		—		(32,731)
Income from real estate	69,477		24,550		—		94,027

Interest expense, net and amortization of deferred debt costs	—		—		(24,099)		(24,099)
Depreciation and amortization of deferred leasing costs	(14,193)		(9,937)		—		(24,130)
General and administrative	—		—		(10,946)		(10,946)







Net income (loss)	$	55,284	$	14,613	$	(35,045)	$	34,852
Capital investment	$	5,888	$	93,478	$	—	$	99,366
Total assets	$	915,274	$	972,258	$	19,162	$	1,906,694

Six Months Ended June 30, 2022
Real estate rental operations:
Revenue	$	86,137	$	36,300	$	—	$	122,437
Expenses	(18,276)		(13,477)		—		(31,753)
Income from real estate	67,861		22,823		—		90,684

Interest expense, net and amortization of deferred debt costs	—		—		(21,059)		(21,059)
Depreciation and amortization of deferred leasing costs	(14,227)		(10,477)		—		(24,704)
General and administrative	—		—		(10,433)		(10,433)








Net income (loss)	$	53,634	$	12,346	$	(31,492)	$	34,488
Capital investment	$	3,959	$	47,955	$	—	$	51,914
Total assets	$	937,509	$	831,078	$	13,899	$	1,782,486

13. Subsequent Events

The Company has reviewed operating activities for the period subsequent to June 30, 2023, and determined there are no subsequent events required to be disclosed.

-20-

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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, 2022. 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, 2022), “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, 2022), and “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” (Part I, Item 2 of this Form 10-Q).

-21-

Table of Contents

Impact of COVID-19

In February 2023, the Department of Health and Human Services declared that the federal Public Health Emergency for COVID-19 would end on May 11, 2023. On April 10, 2023, President Biden signed legislation ending the COVID-19 National Emergency. If the residual effects of COVID-19 result in deterioration of economic and market conditions, including supply chain issues, 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 future periods. As of June 30, 2023, 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, 2023, the Company had collected 99.1% of contractual base rent and operating expense and real estate tax recoveries due during the 2023 second quarter.

The Company is and will continue to be actively engaged in collection efforts related to uncollected rent, however, the Company can provide no assurance that such efforts or our efforts in future periods will be successful. Management considers reserves established as of June 30, 2023, 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.

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, 2023, with the exception of amounts due, which are as of June 30, 2023.


Rent Deferral Agreements
(Dollars in thousands)
										Collection Percentage (based on payments currently due)
Total Deferred Rent		Amount Due		Amount Written Off, Net		Amount Unpaid		Amount Collected
$	9,366	$	8,807	$	310	$	33	$	8,464	96	%

The extent of the effects of COVID-19 on the Company’s business, results of operations, cash flows, and growth prospects is uncertain and will ultimately depend on future developments, none of which can be predicted with any certainty. See Item 1A. Risk Factors.

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, 2023.

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 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 seven future pad sites.

Management believes acquisition opportunities for investment in existing and new shopping center and mixed-use properties in the near future are uncertain. Nevertheless, because of the Company’s conservative capital structure, including its

-22-

Table of Contents

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, D.C. 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 or closure 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 94.0% as of June 30, 2023, from 92.6% as of June 30, 2022.

The Company maintains a ratio of total debt to total estimated asset market value of under 50%, which allows the Company to obtain additional secured borrowings if necessary. As of June 30, 2023, including the $100.0 million hedged variable-rate debt, total fixed-rate debt with staggered maturities from 2024 to 2041 represented approximately 83.3% of the Company’s notes payable, thus mitigating refinancing risk. The Company’s unhedged variable-rate debt consists of $219.0 million outstanding under the Credit Facility. As of June 30, 2023, the Company has availability of approximately $165.3 million under its Credit Facility.

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 to 2023 Change
	2023		2022		Amount		Percent
Base rent	$	20.75	$	20.56	$	0.19	0.92	%
Effective rent	$	19.19	$	18.93	$	0.26	1.37	%

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 is not being 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. Excluding capitalized interest, 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 is being financed by a $145.0 million construction-to-permanent loan. During the second quarter of 2023, the Company commenced drawing on the loan and, as of June 30, 2023, the outstanding balance on the loan was $25.8 million, net of unamortized deferred debt costs. Concrete work is substantially complete and pre-cast façade panels, masonry and windows are being installed. Interior mechanical, electrical and plumbing infrastructure is also being installed. 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.

-23-

Table of Contents

The Company is developing Hampden House, a project located in downtown Bethesda, Maryland that will include up to 366 apartment units and 10,100 square feet of retail space. Excluding capitalized interest, 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. The Company has not yet commenced drawing on this loan. Below grade concrete work is substantially complete and lobby level construction has commenced. Construction is expected to be completed during 2025.

Critical Accounting Policies

The Company’s financial statements are prepared in accordance with 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 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, 2023 (the “2023 Quarter”) compared to the three months ended June 30, 2022 (the “2022 Quarter”)

SAUL CENTERS, INC. [BFS] Filings
SAUL CENTERS, INC. [BFS-PD] Filings
SAUL CENTERS, INC. [BFS-PE] Filings
10-Q	[2023-08-03]
10-Q	[2023-05-04]
10-K	[2023-03-02]
10-Q	[2022-11-08]
10-Q	[2022-08-04]
10-Q	[2022-05-05]
10-K	[2022-02-24]
10-Q	[2021-11-04]
10-Q	[2021-08-05]
10-Q	[2021-05-10]
10-K	[2021-02-25]
10-Q	[2020-11-05]
10-Q	[2020-08-06]
10-Q	[2020-05-06]
10-K	[2020-02-27]
10-Q	[2019-11-07]
10-Q	[2019-08-07]
10-Q	[2019-05-02]
10-K	[2019-02-26]
10-Q	[2018-11-01]
10-Q	[2018-08-03]
10-Q	[2018-05-03]
10-K	[2018-02-27]
10-Q	[2017-11-02]
10-Q	[2017-08-03]
10-Q	[2017-05-04]
10-K	[2017-03-07]
10-Q	[2016-11-01]
10-Q	[2016-08-02]
10-Q	[2016-05-05]
10-K	[2016-03-04]
10-Q	[2015-11-02]
10-Q	[2015-08-03]
10-Q	[2015-05-07]
10-K	[2015-03-06]
10-Q	[2014-11-03]
10-Q	[2014-08-04]
10-Q	[2014-05-07]
10-K	[2014-03-10]
10-Q	[2013-11-01]
10-Q	[2013-08-01]
10-Q	[2013-05-03]
10-K	[2013-03-13]
10-Q	[2012-11-02]
10-Q	[2012-08-06]
10-Q	[2012-05-03]
10-K	[2012-03-12]

SAUL CENTERS, INC. [BFS] Filings

SAUL CENTERS, INC. [BFS-PD] Filings

SAUL CENTERS, INC. [BFS-PE] Filings