10-Q 1 bfs-20220331.htm 10-Q bfs-20220331
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q
 
(Mark One)
        ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2022
OR
        ☐ 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)
Maryland52-1833074
(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 ShareBFSNew 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   ☐
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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 April 29, 2022: 23.9 million.
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SAUL CENTERS, INC.
Table of Contents
 
 Page
-3-
PART I. FINANCIAL INFORMATION
Item 1.    Financial Statements


CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
(Dollars in thousands, except per share amounts)March 31,
2022		December 31,
2021
Assets
Real estate investments
Land$511,529 $511,529 
Buildings and equipment1,570,123 1,566,686 
Construction in progress225,087 205,911 
2,306,739 2,284,126 
Accumulated depreciation(660,855)(650,113)
1,645,884 1,634,013 
Cash and cash equivalents12,313 14,594 
Accounts receivable and accrued income, net56,357 58,659 
Deferred leasing costs, net23,420 24,005 
Other assets17,578 15,490 
Total assets$1,755,552 $1,746,761 
Liabilities
Notes payable$905,225 $941,456 
Revolving credit facility payable135,360 103,167 
Term loan facility payable99,270 99,233 
Accounts payable, accrued expenses and other liabilities39,649 25,558 
Deferred income23,867 25,188 
Dividends and distributions payable21,722 21,672 
Total liabilities1,225,093 1,216,274 
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, 42,000,000 shares authorized, 23,910,338 and 23,840,471 shares issued and outstanding, respectively
239 238 
Additional paid-in capital440,151 436,609 
Partnership units in escrow39,650 39,650 
Distributions in excess of accumulated earnings(259,506)(256,448)
Total Saul Centers, Inc. equity405,534 405,049 
Noncontrolling interests124,925 125,438 
Total equity530,459 530,487 
Total liabilities and equity$1,755,552 $1,746,761 
The Notes to Financial Statements are an integral part of these statements.
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Saul Centers, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
(Dollars in thousands, except per share amounts)Three Months Ended March 31,
20222021
Revenue
Rental revenue$60,680 $57,756 
Other1,464 968 
Total revenue62,144 58,724 
Expenses
Property operating expenses9,538 8,686 
Real estate taxes7,418 7,829 
Interest expense, net and amortization of deferred debt costs10,602 11,988 
Depreciation and amortization of lease costs12,327 12,748 
General and administrative4,768 4,678 
Total expenses44,653 45,929 
Net Income17,491 12,795 
Noncontrolling interests
Income attributable to noncontrolling interests(4,126)(2,533)
Net income attributable to Saul Centers, Inc.13,365 10,262 
Preferred stock dividends(2,798)(2,798)
Net income available to common stockholders$10,567 $7,464 
Per share net income available to common stockholders
Basic and diluted$0.44 $0.32 
The Notes to Financial Statements are an integral part of these statements.
-5-
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 EscrowDistributions in Excess of Accumulated EarningsTotal Saul
Centers, Inc.		Noncontrolling
Interests		Total
Balance at 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 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 
Balance at January 1, 2021$185,000 $235 $420,625 $— $(241,535)$364,325 $63,208 $427,533 
Issuance of shares of common stock:
96,268 shares pursuant to dividend reinvestment plan
— 1 2,839 — — 2,840 — 2,840 
910 shares due to exercise of stock options and issuance of directors’ deferred stock
— — 323 — — 323 — 323 
Issuance of 19,493 partnership units pursuant to dividend reinvestment plan
— — — — — — 575 575 
1,416,071 partnership units placed in escrow pursuant to Twinbrook contribution
— — — 79,300 — 79,300 — 79,300 
Net income— — — — 10,262 10,262 2,533 12,795 
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 ($0.53/share) and distributions payable partnership units ($0.53/unit)
— — — — (12,488)(12,488)(4,218)(16,706)
Balance, March 31, 2021$185,000 $236 $423,787 $79,300 $(246,559)$441,764 $62,098 $503,862 

The Notes to Financial Statements are an integral part of these statements.
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Saul Centers, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
(Dollars in thousands)20222021
Cash flows from operating activities:
Net income$17,491 $12,795 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of lease costs12,327 12,748 
Amortization of deferred debt costs477 405 
Compensation costs of stock and option grants286 323 
Credit losses on operating lease receivables25 1,211 
Decrease in accounts receivable and accrued income2,277 1,061 
Additions to deferred leasing costs(496)(508)
Decrease in other assets2,519 831 
Increase in accounts payable, accrued expenses and other liabilities6,425 4,356 
Increase (decrease) in deferred income(1,321)1,519 
Increase in finance lease liability— 37 
Net cash provided by operating activities40,010 34,778 
Cash flows from investing activities:
Acquisitions of real estate investments (1)
— (8,399)
Additions to real estate investments(3,941)(6,069)
Additions to development and redevelopment projects(12,927)(4,450)
Net cash used in investing activities(16,868)(18,918)
Cash flows from financing activities:
Repayments on notes payable(36,473)(13,553)
Proceeds from revolving credit facility40,000 8,000 
Repayments on revolving credit facility(8,000)(8,500)
Proceeds from construction loan— 1,919 
Additions to deferred debt costs(3,194)— 
Proceeds from the issuance of:
Common stock3,257 2,840 
Partnership units (1)
653 575 
Distributions to:
Series D preferred stockholders(1,149)(1,148)
Series E preferred stockholders(1,650)(1,650)
Common stockholders(13,583)(12,438)
Noncontrolling interests(5,284)(4,207)
Net cash used in financing activities(25,423)(28,162)
Net decrease in cash and cash equivalents(2,281)(12,302)
Cash and cash equivalents, beginning of period14,594 26,856 
Cash and cash equivalents, end of period$12,313 $14,554 
Supplemental disclosure of cash flow information:
Cash paid for interest$9,737 $11,689 
Increase (decrease) in accrued real estate investments and development costs$6,189 $(1,276)

(1) The 2021 acquisition of real estate and proceeds from the issuance of partnership units each excludes $79,300 in connection with the contribution of Twinbrook Quarter by the B. F. Saul Real Estate Investment Trust in exchange for limited partnership units held in escrow. Half of the units held in escrow were released on October 18, 2021. The remaining units held in escrow are scheduled to be released on October 18, 2023.


-7-
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, DC/Baltimore metropolitan area.
As of March 31, 2022, 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) development properties.
Because the properties are located primarily in the Washington, DC/Baltimore metropolitan area, the Company is subject to a concentration of credit risk related to these properties. A majority of the Shopping Centers are anchored by one or more major tenants. As of March 31, 2022, 33 of the Shopping Centers were anchored by a grocery store and offer primarily day-to-day necessities and services. Giant Food, a tenant at 11 Shopping Centers, individually accounted for 5.2% of the Company's total revenue for the three months ended March 31, 2022. No other tenant individually accounted for 2.5% or more of the Company’s total revenue, excluding lease termination fees, for the three months ended March 31, 2022.
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 March 31, 2022 and December 31, 2021, 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 71.9% 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, 2021, 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.
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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, 2021 have not changed significantly in amount 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 March 31, 2022, $6.7 million of rents previously deferred have come due. Of the amounts that have come due, $6.5 million, or approximately 97%, has been paid.
At March 31, 2022 and December 31, 2021, accounts receivable was comprised of:
(In thousands)March 31, 2022December 31, 2021
Rents currently due$5,728 $8,484 
Deferred rents3,710 4,141 
Straight-line rent46,279 46,239 
Other receivables3,672 2,877 
Allowance for doubtful accounts(3,032)(3,082)
Total$56,357 $58,659 
Reclassifications
Certain reclassifications have been made to the prior year financial statements to conform to the presentation used for the three months ended March 31, 2022.
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Notes to Consolidated Financial Statements (Unaudited)


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 March 31, 2022 and December 31, 2021, is composed of the following:
(In thousands)March 31, 2022December 31, 2021
Twinbrook Quarter$155,284 $138,069 
Hampden House58,499 56,898 
Other11,304 10,944 
Total$225,087 $205,911 
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.
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 $3.7 million and $3.7 million, respectively, at March 31, 2022.
Due to the business disruptions and challenges severely 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"
("ASU 2016-02") 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 $23.4 million and $24.0 million, net of accumulated amortization of $49.3 million and $48.7 million, as of March 31, 2022 and December 31, 2021, respectively. Amortization expense, included in depreciation and amortization of lease costs in the Consolidated Statements of Operations, totaled $1.1 million and $1.2 million for the three months ended March 31, 2022 and 2021, respectively.

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Notes to Consolidated Financial Statements (Unaudited)

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 $11.2 million and $11.5 million for the three months ended March 31, 2022 and 2021, respectively. Repairs and maintenance expense totaled $4.5 million and $3.9 million for the three months ended March 31, 2022 and 2021, respectively, and is included in property operating expenses in the Consolidated Statements of Operations.
As of March 31, 2022, we have not identified any impairment triggering events, including the impact of COVID-19 and corresponding tenant requests for rent relief. Therefore, under applicable GAAP guidance, no impairment charges were recorded.

4.    Noncontrolling Interests - Holders of Convertible Limited Partnership Units in the Operating Partnership
As of March 31, 2022, 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 26.7% 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 March 31, 2022, approximately 350,000 units could be converted into shares of Saul Centers common stock.
As of March 31, 2022, 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 28.1% 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 March 31, 2022 and 2021, was approximately 33.9 million and 32.0 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, Revolving Credit Facility, Interest and Amortization of Deferred Debt Costs
At March 31, 2022, 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, which may be extended by the Company for one additional year, subject to satisfaction of certain conditions. The term loan matures on February 26, 2027, and may not be extended. Interest accrues at a rate of LIBOR plus an applicable spread which is determined by certain leverage tests. As of March 31, 2022, the applicable spread for borrowings was 135 basis points related to the revolving credit facility and 130 basis points related to the term loan. Letters of credit may be issued under the Credit Facility. On March 31, 2022, based on the value of the Company’s unencumbered properties, approximately $233.5 million was available under the Credit Facility, $238.0 million was outstanding and approximately $185,000 was committed for letters of credit.
On February 23, 2022, the Company closed on a $133.0 million construction-to-permanent loan, the proceeds of which will be used to partially fund Hampden House. The loan matures in 2040, bears interest at a fixed rate of 3.90%, and requires interest only payments, which will be funded by the loan, until conversion to permanent. The conversion is expected in the first quarter of 2026, and thereafter, monthly principal and interest payments based on a 25-year amortization schedule will be required.
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Notes to Consolidated Financial Statements (Unaudited)

On March 11, 2022, the Company repaid in full the remaining principal balance of $28.3 million of the mortgage loan secured by Lansdowne Town Center, which was scheduled to mature in June 2022.
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) a portion of the Broadlands mortgage (approximately $3.7 million of the $29.5 million outstanding balance at March 31, 2022), (b) a portion of the Avenel Business Park mortgage (approximately $6.3 million of the $23.8 million outstanding balance at March 31, 2022), (c) a portion of The Waycroft mortgage (approximately $23.6 million of the $155.2 million outstanding balance at March 31, 2022), (d) the Ashbrook Marketplace mortgage (totaling $21.2 million at March 31, 2022), and (e) the mortgage secured by Kentlands Place, Kentlands Square I and Kentlands Pad (totaling $28.8 million at March 31, 2022). All other notes payable are non-recourse.
The principal amount of the Company’s outstanding debt totaled approximately $1.2 billion at March 31, 2022, of which approximately $912.6 million was fixed-rate debt and approximately $238.0 million was variable rate debt outstanding under the Credit Facility. The carrying value of the properties collateralizing the notes payable totaled approximately $1.1 billion as of March 31, 2022.
At December 31, 2021, the principal amount of the Company’s outstanding debt totaled approximately $1.2 billion, of which $949.0 million was fixed rate debt and $206.0 million was variable rate debt outstanding under the Credit Facility. The carrying value of the properties collateralizing the notes payable totaled approximately $1.1 billion as of December 31, 2021.
At March 31, 2022, the scheduled maturities of debt, including scheduled principal amortization, for years ending December 31, were as follows:
(In thousands)Balloon
Payments		Scheduled
Principal
Amortization		Total
April 1 through December 31, 2022$8,555 $25,513 $34,068 
20239,225 35,080 44,305 
202466,164 34,652 100,816 
2025158,363 (a)31,814 190,177 
2026134,088 28,474 162,562 
2027142,028 (b)22,052 164,080 
Thereafter339,177 115,367 454,544 
Principal amount$857,600 $292,952 1,150,552 
Unamortized deferred debt costs10,697 
Net$1,139,855 

(a) Includes $138.0 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 totaled $10.7 million and $11.2 million, net of accumulated amortization of $7.7 million and $7.7 million, at March 31, 2022 and December 31, 2021, respectively, and are reflected as a reduction of the related debt in the Consolidated Balance Sheets.
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Notes to Consolidated Financial Statements (Unaudited)

Interest expense, net and amortization of deferred debt costs for the three months ended March 31, 2022 and 2021, were as follows:
 Three Months Ended March 31,
(In thousands)20222021
Interest incurred$12,313 $12,681 
Amortization of deferred debt costs477 405 
Capitalized interest(2,187)(1,095)
Interest expense10,603 11,991 
Less: Interest income1 3 
Interest expense, net and amortization of deferred debt costs$10,602 $11,988 
 
6.    Equity
The consolidated statements of operations for the three months ended March 31, 2022 and 2021, reflect noncontrolling interests of $4.1 million and $2.5 million, respectively, representing income attributable to limited partnership units not held by Saul Centers.
At March 31, 2022, 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 may be redeemed at the Company’s option, in whole or in part, on or after January 23, 2023, 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 March 31, 2022, 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 dilutive, 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.
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Notes to Consolidated Financial Statements (Unaudited)

Average Shares/Options Outstanding
 Three Months Ended March 31,
(In thousands)20222021
Weighted average common stock outstanding-Basic23,884 23,542 
Effect of dilutive options14 — 
Weighted average common stock outstanding-Diluted23,898 23,542 
Non-dilutive options 1,231 1,423 
Years non-dilutive options were issued2015 through 20202011 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 amount of up to 6% of the employee’s cash compensation, subject to certain limits, were $112,200 and $123,100 for the three months ended March 31, 2022 and 2021, 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 three months ended March 31, 2022 and 2021, the Company credited to employee accounts $46,800 and $33,400, 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 $2.6 million and $3.2 million, at March 31, 2022 and December 31, 2021, 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 three months ended March 31, 2022 and 2021, which included rental expense for the Company’s headquarters sublease, totaled approximately $2.4 million and $2.0 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 March 31, 2022 and December 31, 2021, accounts payable, accrued expenses and other liabilities included approximately $821,100 and $1.1 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 $192,900 and $202,900 for the three months ended March 31, 2022 and 2021, respectively, and is included in general and administrative expense.
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Notes to Consolidated Financial Statements (Unaudited)

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 $70,700 and $99,100 for the three months ended March 31, 2022 and 2021, 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 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 three months ended March 31, 2022, 1,873 shares were credited to director's deferred fee accounts and 6,535 shares were issued. As of March 31, 2022, the director's deferred fee accounts comprise 115,578 shares.
During the three months ended March 31, 2022, stock option expense totaling $0.3 million was included in general and administrative expense in the Consolidated Statements of Operations. As of March 31, 2022, the estimated future expense related to unvested stock options was $1.4 million.
The table below summarizes the option activity for the three months ended March 31, 2022:
Number of
Shares		Weighted
Average
Exercise Price
per share		Aggregate
Intrinsic Value
Outstanding at January 11,601,250 $51.73 $4,886,106 
Granted— — — 
Exercised(7,500)41.00 43,548 
Expired/Forfeited— — — 
Outstanding at March 311,593,750 51.78 4,486,236 
Exercisable at March 311,091,000 53.30 2,069,031 
The intrinsic value 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. The intrinsic value of stock options exercised during the three months ended March 31, 2022 was calculated by using the transaction price on the date of exercise and totaled $43,548. No options were exercised during the three months ended March 31, 2021. At March 31, 2022, the final trading day of the 2022 first quarter, the closing share price of $52.70 was lower than the exercise price of 625,875 outstanding options granted in 2016, 2017, and 2019. The weighted average remaining contractual life of the Company’s outstanding and exercisable options is 6.0 years and 5.0 years, respectively.

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Notes to Consolidated Financial Statements (Unaudited)

9.     Fair Value of Financial Instruments
The carrying values 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 3 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 and, assuming long-term market interest rates of approximately 4.25% and 3.60%, would be approximately $933.9 million and $933.0 million, respectively, compared to the principal balance of $912.6 million and $949.0 million at March 31, 2022 and December 31, 2021, respectively. A change in any of the significant inputs may lead to a change in the Company’s fair value measurement of its debt.

10.    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.
 
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Notes to Consolidated Financial Statements (Unaudited)

11.    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 2022 presentation.
Financial Information By Segment
(In thousands) Shopping
Centers		Mixed-Use
Properties		Corporate
and Other		Consolidated
Totals
Three Months Ended March 31, 2022
Real estate rental operations:
Revenue$44,099 $18,045 $— $62,144 
Expenses(10,092)(6,864)— (16,956)
Income from real estate34,007 11,181 — 45,188 
Interest expense, net and amortization of deferred debt costs— — (10,602)(10,602)
Depreciation and amortization of lease costs(7,141)(5,186)— (12,327)
General and administrative— — (4,768)(4,768)
Net income (loss)$26,866 $5,995 $(15,370)$17,491 
Capital investment$1,532 $15,336 $— $16,868 
Total assets$940,049 $794,682 $20,821 $1,755,552 
Three Months Ended March 31, 2021
Real estate rental operations:
Revenue$42,444 $16,280 $— $58,724 
Expenses(10,077)(6,438)— (16,515)
Income from real estate32,367 9,842 — 42,209 
Interest expense, net and amortization of deferred debt costs— — (11,988)(11,988)
Depreciation and amortization of lease costs(7,241)(5,507)— (12,748)
General and administrative— — (4,678)(4,678)
Net income (loss)$25,126 $4,335 $(16,666)$12,795 
Capital investment$4,149 $14,769 $— $18,918 
Total assets$967,458 $751,445 $15,353 $1,734,256 

12. Subsequent Events
The Company has reviewed operating activities for the period subsequent to March 31, 2022, and determined there are no subsequent events required to be disclosed.
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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, 2021. Historical results and percentage relationships set forth in Item 1 and this section should not be taken as indicative of future operations of the Company. Capitalized terms used but not otherwise defined in this section have the meanings given to them in Item 1 of this Form 10-Q.
Forward-Looking Statements
Certain statements contained herein constitute forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of performance. Our future results, financial condition and business may differ materially from those expressed in these forward-looking statements. You can find many of these statements by looking for words such as “plans,” “intends,” “estimates,” “anticipates,” “expects,” “believes” or similar expressions in this Form 10-Q. Although management believes that the expectations reflected in such forward-looking statements are based upon present expectations and reasonable assumptions, our actual results could differ materially from those set forth in the forward-looking statements. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law. The following are some of the risks and uncertainties, although not all risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements:

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

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

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Impact of COVID-19
On March 11, 2020, the World Health Organization declared a novel strain of coronavirus ("COVID-19") a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19. As a result, the COVID-19 pandemic is negatively affecting almost every industry directly or indirectly.
The actions taken by federal, state and local governments to mitigate the spread of COVID-19 by ordering closure of nonessential businesses and ordering residents to generally stay at home, and subsequent phased re-openings, resulted in many of our tenants announcing mandated or temporary closures of their operations and/or requesting adjustments to their lease terms. While most of our tenants that closed due to COVID-19 have re-opened their businesses, there remains significant uncertainty around the long-term economic impact of the COVID-19 pandemic, which could have a material and adverse effect on or cause disruption to our business or financial condition, results from operations, cash flows and the market value and trading price of our securities.
If the effects of COVID-19 result in continued deterioration of economic and market conditions, or if the Company’s expected holding period for assets changes, subsequent tests for impairment could result in impairment charges in the future. The Company can provide no assurance that material impairment charges with respect to the Company’s investment properties will not occur during the remainder of 2022 or future periods. As of March 31, 2022, we have not identified any impairment triggering events, including the impact of COVID-19 and corresponding tenant requests for rent relief. Therefore, under applicable GAAP guidance, no impairment charges have been recorded. However, we have yet to see the long-term effects of COVID-19 and the extent to which it may impact our tenants in the future. Indications of a tenant’s inability to continue as a going concern, changes in our view or strategy relative to a tenant’s business or industry as a result of COVID-19, or changes in our long-term hold strategies, could be indicative of an impairment triggering event. Accordingly, the Company will continue to monitor circumstances and events in future periods to determine whether impairment charges are warranted.
While the Company’s grocery store, pharmacy, bank and home improvement store tenants have generally remained fully open throughout the COVID-19 pandemic, many restaurants have operated with reduced hours and/or limited indoor seating, supplemented with delivery and curbside pick-up, and most health, beauty supply and services, fitness centers, and other non-essential businesses are open with limited or full capacity depending on location. As of April 30, 2022, payments by tenants of contractual base rent and operating expense and real estate tax recoveries for the 2022 first quarter totaled approximately 98%. The deferral agreements, generally, permit tenants to defer 30 to 90 days of rent, operating expense and real estate tax recovery payments until a later time in their lease term with repayment typically occurring over a 12-month period generally commencing in 2021. We will continue to accrue rental revenue during the deferral period. However, we anticipate that some tenants eventually will not be able to pay amounts due and we will incur losses against our rent receivables. The extent and timing of the recognition of such losses will depend on future developments, which are highly uncertain and cannot be predicted. Management considers reserves established as of March 31, 2022, against such potential losses to be reasonable and adequate. Rent collections during the first quarter and rent relief requests to-date may not be indicative of collections or requests in any future period.
The following is a summary of the Company's executed rent deferral agreements and repayments as of April 30, 2022, with the exception of amounts due, which are as of March 31, 2022.
(In thousands)
Original Rent Due
By Quarter 		Original Rent
Amount		Repayment
Year		Repayment
Amount		Amount
Due		Amount
Collected		Collection Percentage
(prior to deferral)(after deferral)(based on payments currently due)
2020 First Quarter$67 2020$331 $331 $331 100 %
2020 Second Quarter6,282 20215,703 5,703 5,549 97 %
2020 Third Quarter1,502 20221,979 645 610 95 %
2020 Fourth Quarter391 2023695 
2021 First Quarter249 2024274 
2021 Second Quarter266 202553 
2021 Third Quarter273 202619 
2021 Fourth Quarter74 Thereafter50 
2022 First Quarter— Total$9,104 $6,679 $6,490 97 %
April 2022— 
Total$9,104 
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While we expect collections of rent billings, including minimum rent, operating expense recoveries and real estate tax reimbursements, to remain below pre-pandemic levels in the near-term, when taking into account the amount of time elapsed since the due date of the payment, we continue to experience sequential improvement in our collection rates.

The following table summarizes the Company's consolidated total collections of the 2022 first quarter rent billings as of April 30, 2022:
RetailOfficeResidentialTotal
2022 First Quarter98 %99 %99 %98 %
Although the Company is and will continue to be actively engaged in rent collection efforts related to uncollected rent, and the Company will continue to work with certain tenants who have requested rent deferrals, the Company can provide no assurance that such efforts or our efforts in future periods will be successful, particularly in the event that the COVID-19 pandemic and restrictions intended to prevent its spread continue for a prolonged period. The Company strongly encouraged small business tenants to apply for Paycheck Protection Program loans, as available, under the Coronavirus Aid, Relief, and Economic Security Act. The Company has information that many tenants applied for these loans and several tenants have communicated that loan proceeds were received and have subsequently remitted rental payments.
As of April 30, 2022, the Company had $6.8 million of cash and cash equivalents and borrowing availability of approximately $217.5 million under its Credit Facility.
The extent of the effects of COVID-19 on the Company’s business, results of operations, cash flows, and growth prospects is highly uncertain and will ultimately depend on future developments, none of which can be predicted with any certainty. See Item 1A. Risk Factors. However, we believe the actions we have taken and are continuing to take have helped minimize interruptions to operations and will put the Company in the best position as the economic recovery continues. Management and the Board of Directors will continue to actively monitor the effects of the pandemic, including governmental directives in the jurisdictions in which we operate and the recommendations of public health authorities, and will, as needed, take further measures to adapt the Company’s business in the best interests of our stockholders and personnel. The extent to which COVID-19 continues to impact our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the outbreak, the actions taken to contain the outbreak or mitigate its impact, and the direct and indirect economic effects of the outbreak and containment measures, among others.
In accordance with guidance issued by state and local health authorities and with safety protocols in place as recommended by the Centers for Disease Control and Prevention, on June 1, 2021, the Company began transitioning employees from a remote working environment to working in the office. On November 1, 2021, the Company formally reopened, without occupancy restrictions, its corporate office in Bethesda, Maryland. The Company does not anticipate any adverse impact on its ability to continue to operate its business during the transition back to the office.

General
The following discussion is based primarily on the consolidated financial statements of the Company as of and for the three months ended March 31, 2022.
Overview
The Company’s primary strategy is to continue to focus on diversification of its assets through development of transit-oriented, residential mixed-use projects in the Washington, D.C. metropolitan area. The Company’s operating strategy also includes improvement of the operating performance of its assets, internal growth of its Shopping Centers through the addition of pad sites, and supplementing its development pipeline with selective redevelopment and renovations of its core Shopping Centers. The Company has a pipeline of entitled sites in its portfolio, some of which are currently shopping center operating properties, for development of up to 3,700 apartment units and 975,000 square feet of retail and office space. All such sites are located adjacent to red line Metro stations in Montgomery County, Maryland.
The Company intends to selectively add free-standing pad site buildings within its Shopping Center portfolio, and replace underperforming tenants with tenants that generate strong traffic, including anchor stores such as supermarkets and drug stores. The Company has executed leases or leases are under negotiation for ten more pad sites.
In recent years, there has been a limited amount of quality properties for sale and pricing of those properties has escalated. Accordingly, management believes acquisition opportunities for investment in existing and new shopping center and mixed-use
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properties in the near future is uncertain. Nevertheless, because of the Company’s conservative capital structure, including its cash and capacity under its revolving credit facility, management believes that the Company is positioned to take advantage of additional investment opportunities as attractive properties are identified and market conditions improve. (See “Item 1. Business - Capital Policies”.) It is management’s view that several of the sub-markets in which the Company operates have, or are expected to have in the future, attractive supply/demand characteristics. The Company will continue to evaluate acquisition, development and redevelopment as integral parts of its overall business plan.
Prior to the COVID-19 pandemic, economic conditions within the local Washington, DC metropolitan area were relatively stable. Issues facing the Federal government relating to taxation, spending and interest rate policy will likely continue to impact the office, retail and residential real estate markets over the coming years. Because the majority of the Company’s property operating income is produced by our Shopping Centers, we continually monitor the implications of government policy changes, as well as shifts in consumer demand between on-line and in-store shopping, on future shopping center construction and retailer store expansion plans. Based on our observations, we continue to adapt our marketing and merchandising strategies in ways to maximize our future performance.  The Company's commercial leasing percentage, on a same property basis, which excludes the impact of properties not in operation for the entirety of the comparable periods, increased to 92.5% at March 31, 2022, from 92.2% at March 31, 2021.
The Company maintains a ratio of total debt to total asset value of under 50%, which allows the Company to obtain additional secured borrowings if necessary. As of March 31, 2022, amortizing fixed-rate mortgage debt with staggered maturities from 2022 to 2041 represented approximately 79.3% of the Company’s notes payable, thus minimizing refinancing risk. The Company’s variable-rate debt consists of $238.0 million outstanding under the Credit Facility. As of March 31, 2022, the Company has availability of approximately $233.5 million under its Credit Facility.
Although it is management’s present intention to concentrate future acquisition and development activities on transit-centric, primarily residential mixed-use properties 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
Three Months Ended March 31,
20222021
Base rent$20.62 $20.54 
Effective rent$18.97 $18.79 
Recent Developments
The Company has completed plans for the development of Hampden House, a project that will include up to 366 apartment units and 10,100 square feet of retail space located in downtown Bethesda, Maryland. In June 2020, the Montgomery County Planning Commission unanimously approved the Company's amended site plan. Approval from the Washington Metropolitan Area Transit Authority was received in 2020 and approval from Maryland Transit Administration was received in 2021. The total cost of the project is expected to be approximately $246.4 million. On February 23, 2022, the Company closed on a $133.0 million construction-to-permanent loan, the proceeds of which will be used to partially finance the project. The Company has entered into a contract with a general contractor and construction is expected to be completed during 2025. Demolition of the existing structure is ongoing.
Development of the residential and retail portions of Twinbrook Quarter Phase I (“Phase I”), which will include an 80,000 square foot Wegmans, and approximately 25,000 square feet of adjacent small shop space, 450 apartments and a 230,000 square foot office building, located in Rockville, Maryland, is in process. The office portion of Phase I will not be constructed at this time. In connection with the development of the residential and retail portions of Phase I, we must also invest in infrastructure and other items that will support both Phase I and other portions of the development of Twinbrook Quarter. The total cost of the project is expected to be approximately $331.5 million, of which $271.4 million is related to the development of the residential and retail portions of Phase I and $60.1 million is related to infrastructure and other items. A
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portion of the project will be financed by a $145.0 million construction-to-permanent loan. Demolition of the existing improvements within Phase I has been completed and excavation of the site is ongoing. Below grade foundation work has begun and will continue during 2022. 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.
Critical Accounting Policies
The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), which requires management to make certain estimates and assumptions that affect the reporting of financial position and results of operations. If judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied resulting in a different presentation of the financial statements. The Company has identified the following policies that, due to estimates and assumptions inherent in these policies, involve a relatively high degree of judgment and complexity.
Real Estate Investments
Real estate investment properties are stated at historic cost less depreciation. Although the Company intends to own its real estate investment properties over a long term, from time to time it will evaluate its market position, market conditions, and other factors and may elect to sell properties that do not conform to the Company’s investment profile. Management believes that the Company’s real estate assets have generally appreciated in value since their acquisition or development and, accordingly, the aggregate current value exceeds their aggregate net book value and also exceeds the value of the Company’s liabilities as reported in the financial statements. Because the financial statements are prepared in conformity with GAAP, they do not report the current value of the Company’s real estate investment properties.
If there is an event or change in circumstance that indicates a potential impairment in the value of a real estate investment property, the Company prepares an analysis to determine whether the carrying value 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 value 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 value 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.


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Results of Operations
Three months ended March 31, 2022 (the "2022 Quarter") compared to the three months ended March 31, 2021 (the "2021 Quarter")
Net income for the 2022 Quarter increased to $17.5 million from $12.8 million for the 2021 Quarter. Significant changes in revenue and expenses are discussed below.
Revenue&