SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
___ 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.
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(Exact name of registrant as specified in its charter)
Maryland 52-1833074
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7501 Wisconsin Ave, Suite 1500, Bethesda, Maryland 20814
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(Address of principal executive offices) (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 Name of each exchange on which registered
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Common Stock, Par Value $0.01 Per Share New York Stock Exchange ____
Securities registered pursuant to Section 12(g) of the Act:
N/A
Indicate by check mark whether 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 requirements for the past 90 days.
Yes X No ___
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
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The number of shares of Common Stock, $0.01 par value, outstanding as
of February 22, 2002 was 14,705,095.
TABLE OF CONTENTS
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PART I Page Numbers
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Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 12
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
Item 7a. Quantitative and Qualitative Disclosures About Market Risk 24
Item 8. Financial Statements and Supplementary Data 24
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 25
PART III
Item 10. Directors and Executive Officers of the Registrant 25
Item 11. Executive Compensation 25
Item 12. Security Ownership of Certain Beneficial Owners and Management 25
Item 13. Certain Relationships and Related Transactions 25
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 26
FINANCIAL STATEMENT SCHEDULE
Schedule III. Real Estate and Accumulated Depreciation F-19
2
PART I
Item 1. Business
General
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Saul Centers, Inc. ("Saul Centers") was incorporated under the Maryland
General Corporation Law on June 10, 1993. Saul Centers operates as a real estate
investment trust (a "REIT") under the Internal Revenue Code of 1986, as amended
(the "Code"). Saul Centers generally will not be subject to federal income tax,
provided it annually distributes at least 90% of its REIT taxable income to its
stockholders and meets 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's principal business activity is the ownership, management
and development of income-producing properties. The Company's long-term
objectives are to increase cash flow from operations and to maximize capital
appreciation of its real estate.
Saul Centers was formed to continue and expand the shopping center
business previously owned and conducted by the B.F. Saul Real Estate Investment
Trust, the B.F. Saul Company, Chevy Chase Bank, F.S.B. and certain other
affiliated entities (collectively, "The Saul Organization"). On August 26, 1993,
The Saul Organization transferred to Saul Holdings Limited Partnership, a newly
formed Maryland limited partnership (the "Operating Partnership"), and two newly
formed subsidiary limited partnerships (the "Subsidiary Partnerships") shopping
center and office properties, and the management functions related to the
transferred properties. Since its formation, the Company has purchased and
developed additional properties. The Company is currently developing Ashburn
Village IV, an in-line retail and retail pad expansion to the Ashburn Village
shopping center. The Company recently completed development of Ashburn Village
III, Washington Square at Old Town and Crosstown Business Center. As of December
31, 2001, the Company's properties (the "Current Portfolio Properties")
consisted of 27 operating shopping center properties and Ashburn Village IV (the
"Shopping Centers") and 5 predominantly office operating properties (the "Office
Properties"). To facilitate the placement of collateralized mortgage debt, the
Company established Saul QRS, Inc. a wholly owned subsidiary of Saul Centers.
Saul QRS, Inc. was established to succeed to the interest of Saul Centers as the
sole general partner of Saul Subsidiary I Limited Partnership.
Saul Centers serves as the sole general partner of the Operating
Partnership and of Saul Subsidiary II Limited Partnership, while Saul QRS, Inc.
serves as the sole general partner of Saul Subsidiary I Limited Partnership. The
remaining limited partnership interests in Saul Subsidiary I Limited Partnership
and Saul Subsidiary II Limited Partnership are held by the Operating Partnership
as the sole limited partner. Through this structure, the Company owns 100% of
the Current Portfolio Properties.
Management of the Current Portfolio Properties
----------------------------------------------
The Partnerships manage the Current Portfolio Properties and will
manage any subsequently acquired properties. The management of the properties
includes performing property management, leasing, design, renovation,
development and accounting duties for each property. The Partnerships provide
each property with a fully integrated property management capability, with
approximately 50 employees and with an extensive and mature network of
relationships with tenants and potential tenants as well as with members of the
brokerage and property owners' communities. The Company currently does not, and
does not intend to, retain third party managers or provide management services
to third parties.
The Company augments its property management capabilities by sharing
with The Saul Organization certain ancillary functions, at cost, such as
computer and payroll services, benefits administration and in-house legal
services. The Company also shares insurance administration expenses on a pro
rata basis with The Saul
3
Organization. The Saul Organization subleases office space to the Company at its
cost. Management believes that these arrangements result in lower costs than
could be obtained by contracting with third parties. These arrangements permit
the Company to capture greater economies of scale in purchasing from third party
vendors than would otherwise be available to the Company alone and to capture
internal economies of scale by avoiding payments representing profits with
respect to functions provided internally. The terms of all sharing arrangements
with The Saul Organization, including payments related thereto, are reviewed
periodically by the Audit Committee of the Company's Board of Directors.
Principal Offices
-----------------
The principal offices of the Company are located at 7501 Wisconsin
Avenue, Bethesda, Maryland 20814, and the Company's telephone number is (301)
986-6200. The Company's internet web address is www.saulcenters.com.
Operating Strategies
--------------------
The Company's primary operating strategy is to focus on its community
and neighborhood shopping center business and to operate its properties to
achieve both cash flow growth and capital appreciation. Community and
neighborhood shopping centers typically provide reliable cash flow and steady
long-term growth potential. Management intends to actively manage its property
portfolio by engaging in strategic leasing activities, tenant selection, lease
negotiation and shopping center expansion and reconfiguration. The Company seeks
to optimize tenant mix by selecting tenants for its shopping centers that
provide a broad spectrum of goods and services, consistent with the role of
community and neighborhood shopping centers as the source for day-to-day
necessities. Management believes that such a synergistic tenanting approach
results in increased cash flow from existing tenants by providing the Shopping
Centers with consistent traffic and a desirable mix of shoppers, resulting in
increased sales and, therefore, increased cash flows.
Management believes there is significant potential for growth in cash
flow as existing leases for space in the Shopping Centers expire and are
renewed, or newly available or vacant space is leased. The Company intends to
renegotiate leases aggressively and seek new tenants for available space in
order to maximize this potential for increased cash flow. As leases expire,
management expects to revise rental rates, lease terms and conditions, relocate
existing tenants, reconfigure tenant spaces and introduce new tenants to
increase cash flow. In those circumstances in which leases are not otherwise
expiring, management intends to attempt to increase cash flow through a variety
of means, including renegotiating rents in exchange for additional renewal
options or in connection with renovations or relocations, recapturing leases
with below market rents and re-leasing at market rates, as well as replacing
financially troubled tenants. When possible, management also will seek to
include scheduled increases in base rent, as well as percentage rental
provisions in its leases.
The Shopping Centers contain numerous undeveloped parcels within the
centers which are suitable for development as free-standing retail facilities,
such as restaurants, banks or auto centers. Management will continue to seek
desirable tenants for facilities to be developed on these sites and to develop
and lease these sites in a manner that complements the Shopping Centers in which
they are located.
The Company will also seek growth opportunities in its Washington, D.C.
metropolitan area office portfolio, primarily through development and
redevelopment. Management also intends to negotiate lease renewals or to
re-lease available space in the Office Properties, while considering the
strategic balance of optimizing short-term cash flow and long-term asset value.
It is management's intention to hold properties for long-term
investment and to place strong emphasis on regular maintenance, periodic
renovation and capital improvement. Management believes that such
characteristics as cleanliness, lighting and security are particularly important
in community and neighborhood shopping centers, which are frequently visited by
shoppers during hours outside of the normal work-day. Management believes that
the Shopping Centers and Office Properties generally are attractive and well
maintained. The Shopping Centers and Office Properties will undergo expansion,
renovation, reconfiguration and modernization from time to time when
4
management believes that such action is warranted by opportunities or changes in
the competitive environment of a property. Several of the Shopping Centers have
been renovated recently. During 2001 and 2000, the Company was involved in
predevelopment and/or development of 9 of its properties. The Company will
continue its practice of expanding existing properties by undertaking new
construction on outparcels suitable for development as free standing retail or
office facilities.
Redevelopment, Renovations and Acquisitions
-------------------------------------------
The Company's redevelopment, renovation and acquisition objective is to
selectively and opportunistically redevelop and renovate its properties, by
replacing leases with below market rents with strong, traffic-generating anchor
stores such as supermarkets and drug stores, as well as other desirable local,
regional and national tenants. The Company's strategy remains focused on
continuing the operating performance and internal growth of its existing
Shopping Centers, while enhancing this growth with selective retail
redevelopments and renovations.
Management believes that attractive opportunities for investment in
existing and new shopping center properties will continue to be available.
Management believes that the Company will be well situated to take advantage of
these opportunities because of its access to capital markets, ability to acquire
properties either for cash or securities (including Operating Partnership
interests in tax advantaged transactions) and because of management's experience
in seeking out, identifying and evaluating potential acquisitions. In addition,
management believes its shopping center expertise should permit it to optimize
the performance of shopping centers once they have been acquired.
Management also believes that opportunities exist for investment in
new office properties. It is management's view that several of the office
sub-markets in which the Company operates have very attractive supply/demand
characteristics. The Company will continue to evaluate new office development
and redevelopment as an integral part of its overall business plan.
In evaluating a particular redevelopment, renovation, acquisition, or
development, management will consider a variety of factors, including (i) the
location and accessibility of the property; (ii) the geographic area (with an
emphasis on the Washington DC/Baltimore Metropoliton area) and demographic
characteristics of the community, as well as the local real estate market,
including potential for growth and potential regulatory impediments to
development; (iii) the size of the property; (iv) the purchase price; (v) the
non-financial terms of the proposed acquisition; (vi) the availability of funds
or other consideration for the proposed acquisition and the cost thereof; (vii)
the "fit" of the property with the Company's existing portfolio; (viii) the
potential for, and current extent of, any environmental problems; (ix) the
current and historical occupancy rates of the property or any comparable or
competing properties in the same market; (x) the quality of construction and
design and the current physical condition of the property; (xi) the financial
and other characteristics of existing tenants and the terms of existing leases;
and (xii) the potential for capital appreciation.
Although it is management's present intention to concentrate future
acquisition and development activities on community and neighborhood shopping
centers and office properties in the Washington DC/Balitimore Metropolitan
areas, the Company may, in the futuree, also acquire other types of real estate
in other areas of the country.
Capital Strategies
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As a general policy, the Company intends to maintain a ratio of its
total debt to total asset value of 50% or less and to actively manage the
Company's leverage and debt expense on an ongoing basis in order to maintain
prudent coverage of fixed charges. Asset value is the aggregate fair market
value of the Current Portfolio Properties and any subsequently acquired
properties as reasonably determined by management by reference to the
properties' aggregate cash flow. Given the Company's current debt level, it is
management's belief that the ratio of the Company's debt to total asset value as
of December 31, 2001 remains less than 50%.
5
The organizational documents of the Company do not limit the absolute
amount or percentage of indebtedness that it may incur. The Board of Directors
may, from time to time, reevaluate the Company's debt capitalization policy in
light of current economic conditions, relative costs of capital, market values
of the Company property portfolio, opportunities for acquisition, development or
expansion, and such other factors as the Board of Directors then deems relevant.
The Board of Directors may modify the Company's debt capitalization policy based
on such a reevaluation and consequently, may increase or decrease the Company's
debt to total asset ratio above or below 50%. The Company selectively continues
to refinance or renegotiate the terms of its outstanding debt in order to
achieve longer maturities, and obtain generally more favorable loan terms,
whenever management determines the financing environment is favorable. See "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources --Borrowing Capacity."
The Company intends to finance future acquisitions and to make debt
repayments by utilizing the sources of capital then deemed to be most
advantageous. Such sources may include undistributed operating cash flow,
secured or unsecured bank and institutional borrowings, private and public
offerings of debt or equity securities, proceeds from the Company's Dividend
Reinvestment and Stock Purchase Plan, and proceeds from the sale of properties.
Borrowings may be at the Operating Partnership or Subsidiary Partnerships' level
and securities offerings may include (subject to certain limitations) the
issuance of Operating Partnership interests convertible into common stock or
other equity securities.
Competition
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As an owner of, or investor in, commercial real estate properties, the
Company is subject to competition from a variety of other owners of similar
properties in connection with their sale, lease or other disposition and use.
Management believes that success in such competition is dependent in part upon
the geographic location of the property, the tenant mix, the performance of
property managers, the amount of new construction in the area and the
maintenance and appearance of the property. Additional competitive factors
impacting retail and commercial properties include the ease of access to the
properties, the adequacy of related facilities such as parking, and the
demographic characteristics in the markets in which the properties compete.
Overall economic circumstances and trends and new properties in the vicinity of
each of the Current Portfolio Properties are also competitive factors.
Environmental Matters
---------------------
The Current Portfolio Properties are subject to various laws and
regulations relating to environmental and pollution controls. The effect upon
the Company of the application of such laws and regulations either prospectively
or retrospectively is not expected to have a materially adverse effect on the
Company's property operations. As a matter of policy, the Company requires an
environmental study be performed with respect to a property that may be subject
to possible environmental hazards prior to its acquisition to ascertain that
there are no material environmental hazards associated with such property.
Employees
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As of February 22, 2002, the Company employed approximately 50 persons,
including six full-time leasing officers. None of the Company's employees are
covered by collective bargaining agreements. Management believes that its
relationship with employees is good.
Recent Developments
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Property Acquisitions, Developments and Redevelopments.
A significant contributor to the Company's sustained historical
internal growth in shopping centers has been its continuing program of
renovation, redevelopment and expansion activities. These development activities
reposition the Company's centers to be competitive in the current retailing
environment. The redevelopments typically include and update of the facade, site
improvements and reconfiguring tenant spaces to accommodate tenant size
requirements and merchandising evolution.
6
During 2001, the Company continued the development of Washington Square
at Old Town, a new Class A mixed-use office/retail complex along North
Washington Street in historic Old Town Alexandria in Northern Virginia. The
project totals 235,000 square feet of leasable area and is well located on a
two-acre site along Alexandria's main street. The project consists of two
identical buildings separated by a landscaped brick courtyard. Base building
construction has been completed. The build-out of office tenant areas continues.
As of February 22, 2002, the Company has signed leases on 69% of the 235,000
square feet of tenant space: the 46,000 square feet of street level retail space
is 98% leased and the 189,000 square feet of office space is 62% leased.
During late 1999, the Company purchased land located within the 1,580
acre community of Ashburn Village in Loudoun County, Virginia, adjacent to its
108,000 square foot Ashburn Village neighborhood shopping center. The land was
developed into Ashburn Village II, a 40,200 square foot in-line and pad
expansion to the existing shopping center, containing 23,600 square feet of
retail space and 16,600 square feet of professional office suites. Ashburn
Village II commenced operations during the third quarter of 2000. In August
2000, the Company purchased an additional 7.1 acres of land adjacent to Ashburn
Village II for $1,579,000. During 2001, the Company completed the development of
4.0 acres of the land known as Ashburn Village III, consisting of a fully leased
28,000 square foot in-line and pad expansion to the retail area of the existing
shopping center. The Company commenced construction on the remaining 3.1 acres
known as Ashburn Village IV, during the fourth quarter of 2001. This phase will
consist of an additional 25,000 square feet of retail space and will complete
the development of Ashburn Village. Leases have been signed for 25% of this new
shop space. Completion is scheduled for the summer of 2002.
Beginning in 1998, the Company executed a plan to redevelop its
213,000 square foot French Market shopping center, located in the northwest
section of Oklahoma City, Oklahoma. The plan specified the retenanting of a
103,000 square foot anchor tenant space and conversion of an outdated mini-mall
to an anchor tenant use. The former Venture store space was re-demised and
leased to Bed Bath and Beyond, Staples, Famous Footwear, BridesMart and
Lakeshore Learning. The former enclosed mini-mall was leased to Burlington Coat
Factory and during 2000, converted into a two-level 90,000 square foot super
store, increasing the center's size to 247,000 square feet. The facade of the
center was updated to complement the addition of the new tenants. The Company
has recently completed construction of the final phase of the center's
redevelopment after it obtained control of 20,000 square feet of space formerly
operated as a grocery store. The Company re-demised the space to accommodate
nine smaller tenant uses and updated the facade to complement the remainder of
the center. As a result of the Company's efforts, approximately 94% of the
center was leased as of December 31, 2001.
The conversion and redevelopment of the former Tulsa, Oklahoma
shopping center to an office/warehouse facility named Crosstown Business Center
continued throughout 2001. Twelve tenants lease 91% of the facility as of
February 22, 2002.
The Company has contracted with a third party to purchase 24.0 acres of
land zoned for retail development in Loudoun County, Virginia, for a purchase
price of $5.3 million. Closing is scheduled for March 2002.
Item 2. Properties
Overview
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The Company is the owner and operator of a real estate portfolio of 33
properties totaling approximately 6,200,000 square feet of gross leasable area
("GLA") located primarily in the Washington, D.C./Baltimore metropolitan area.
The portfolio is composed of 28 neighborhood and community Shopping Centers, and
5 predominantly Office Properties totaling approximately 5,000,000 and 1,200,000
square feet of GLA, respectively. Only the United States Government (9.7%), a
tenant of 6 properties and Giant Food (6.2%), a tenant of 8 Shopping Centers,
individually accounted for more than 2.1% of the Company's total revenues for
the year ending December 31, 2001. With the exception of 5 Shopping Center
properties and a portion of one Office Property purchased or
developed during the past five years, the Company's Current Portfolio Properties
consist of seasoned properties that
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have been owned and managed by The Saul Organization for 15 years or more. The
Company expects to hold its properties as long-term investments, and it has no
maximum period for retention of any investment. It plans to selectively acquire
additional income-producing properties and to expand, renovate, and improve its
properties when circumstances warrant. See "Item 1. Business--Operating
Strategies" and "Business--Capital Strategies."
The Shopping Centers
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Community and neighborhood shopping centers typically are anchored by
one or more supermarkets, discount department stores or drug stores. These
anchors offer day-to-day necessities rather than apparel and luxury goods and,
therefore, generate consistent local traffic. By contrast, regional malls
generally are larger and typically are anchored by one or more full-service
department stores.
The Shopping Centers (typically) are seasoned community and
neighborhood shopping centers located in well established, highly developed,
densely populated, middle and upper income areas. Based upon census data, the
average estimated population within a three and five-mile radius of the
Shopping Centers is approximately 114,000 and 276,000, respectively. The average
household income within both the three and five mile radii of the Shopping
Centers is approximately $72,000, compared to a national average of $55,000.
Because the Shopping Centers generally are located in highly developed areas,
management believes that there is little likelihood that any significant numbers
of competing centers will be developed in the future.
The Shopping Centers range in size from 5,000 to 561,000 square feet of
GLA, with seven in excess of 300,000 square feet, and a weighted average of
approximately 182,000 square feet. A majority of the Shopping Centers are
anchored by several major tenants and other tenants offering primarily
day-to-day necessities and services. Seventeen of the 28 Shopping Centers are
anchored by a grocery store. As of February 22, 2002, no single Shopping Center
accounted for more than 11.5% of the total Shopping Center GLA.
The Office Properties
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Four of the five Office Properties are located in the Washington, DC
metropolitan area and contain an aggregate GLA of approximately 975,000 square
feet, comprised of 889,000 and 86,000 square feet of office and retail space,
respectively. The fifth Office Property is located in Tulsa, Oklahoma and
contains GLA of 197,000 square feet. The Office Properties represent three
distinct styles of facilities, are located in differing commercial environments
with distinctive demographic characteristics, and are geographically removed
from one another. As a consequence, management believes that the Washington DC
area Office Properties compete for tenants in different commercial and
geographic sub-markets of the metropolitan Washington, DC market and do not
compete with one another.
601 Pennsylvania Ave. is a nine-story, Class A office building (with a
small amount of street level retail space) built in 1986 and located in a prime
location in downtown Washington DC. Van Ness Square is a six-story office/retail
building rebuilt in 1990. Van Ness Square is located in a highly developed
commercial area of Northwest Washington, DC which offers extensive retail and
restaurant amenities. Management believes that the Washington, DC office market
is one of the strongest and most stable leasing markets in the nation, with
relatively low vacancy rates in comparison to other major metropolitan areas.
Management believes that the long-term stability of this market is attributable
to the status of Washington, DC as the nation's capital and to the presence of
the federal government, international agencies, and an expanding private sector
job market.
Washington Square at Old Town is a new 235,000 square foot Class A
mixed-use office/retail complex located on a two-acre site along Alexandria's
main street, North Washington Street, in historic Old Town Alexandria.
Washington Square features two twin four-story buildings with brick and cast
stone exterior facades and glass curtain walls overlooking a spacious,
attractively landscaped brick courtyard. The property features three-story
atrium lobbies, a fitness center, concierge service, 600 space parking structure
and computerized energy management system.
8
Avenel Business Park (Phases I-III) is a research park located in the
suburban Maryland, I-270 biotech corridor. On April 1, 1998, the Company
purchased Avenel IV, a newly constructed and 100% leased office/flex building
located adjacent to Avenel Phases I-III. Two additional buildings (Avenel V)
were completed in January 1999. Phase VI was purchased October 2000. The
combined business park consists of twelve one-story buildings built in five
phases which were completed in 1981, 1985, 1989, 1998, 1999 and 2000. Management
believes that, due to its desirable location, the high quality of the property,
increased federal funding for medical research and the relative scarcity of
research and development space in its immediate area, Avenel should continue to
attract and retain desirable tenants in the future.
Crosstown Business Center is a 197,135 square foot flex
office/warehouse complex located in Tulsa, Oklahoma. The property is located in
close proximity to Tulsa's international airport and major roadways and has
attracted tenants requiring light industrial and distribution facilities.
The following table sets forth, at the dates indicated, certain
information regarding the Current Portfolio Properties:
9
Saul Centers, Inc.
Schedule of Current Portfolio Properties
December 31, 2001
Leasable Year
Area Developed Land
(Square of Acquired Area
Property Location Feet) (Renovated) (Acres
----------------------------- -------------------- ----------- -------------- ---------
Shopping Centers
----------------
Ashburn Village I, II & III Ashburn, VA 185,537 1994, 2000/01 23.3
(a)
Ashburn Village IV Ashburn, VA 25,000 2002 3.1
Beacon Center Alexandria, VA 352,915 1972 (1993/99) 32.3
Belvedere Baltimore, MD 54,941 1972 4.8
Boulevard Fairfax, VA 56,350 1994 (1999) 5.0
Clarendon Arlington, VA 6,940 1973 0.5
Clarendon Station Arlington, VA 4,868 1996 0.1
Flagship Center Rockville, MD 21,500 1972, 1989 0.5
French Market Oklahoma City, OK 245,629 1974 (1984/98) 13.8
Germantown Germantown, MD 26,241 1992 2.7
Giant Baltimore, MD 70,040 1972 (1990) 5.0
The Glen Lake Ridge, VA 112,639 1994 14.7
Great Eastern District Heights, MD 254,398 1972 (1995) 23.9
Hampshire Langley Langley Park, MD 131,700 1972 (1979) 9.9
Leesburg Pike Baileys Crossroads, VA 97,880 1966 (1982/95) 9.4
Lexington Mall Lexington, KY 315,719 1974 30.0
Lumberton Lumberton, NJ 190,510 1975 (1992/96) 23.3
Olney Olney, MD 53,765 1975 (1990) 3.7
Ravenwood Baltimore, MD 87,750 1972 8.0
Seven Corners Falls Church, VA 560,998 1973 (1994-7) 31.6
Shops at Fairfax Fairfax, VA 68,743 1975 (1993/99) 6.7
Southdale Glen Burnie, MD 484,115 1972 (1986) 39.6
Percentage Leased
Property Dec-2001 Dec-2000 Anchor/Significant Tenants
----------------------------- ------------ ---------- ------------------------------------------------------------
Shopping Centers
----------------
Ashburn Village I, II & III 100% 98% Giant Food, Blockbuster
Ashburn Village IV 17% n/a
Beacon Center 100% 96% Lowe's, Giant Food, Office Depot, Outback Steakhouse,
Marshalls, Hollywood Video, Hancock Fabrics
Belvedere 86% 100% Food King
Boulevard 93% 100% Danker Furniture, Petco, Party City
Clarendon 100% 100%
Clarendon Station 78% 100%
Flagship Center 100% 100%
French Market 93% 87% Burlington Coat Factory, Bed Bath & Beyond, Famous Footwear,
Lakeshore Learning Center, BridesMart, Staples, Dollar Tree
Germantown 100% 97%
Giant 100% 100% Giant Food
The Glen 99% 100% Safeway Marketplace, CVS Pharmacy
Great Eastern 100% 100% Giant Food, Pep Boys, Big Lots, Run N' Shoot
Hampshire Langley 100% 100% Safeway, Blockbuster
Leesburg Pike 100% 100% Zany Brainy, CVS Pharmacy, Kinko's, Hollywood Video
Lexington Mall 69% 78% Dillard's
Lumberton 89% 85% SuperFresh, Rite Aid, Blockbuster, Ace Hardware
Olney 99% 95% Rite Aid
Ravenwood 100% 98% Giant Food, Hollywood Video
Seven Corners 100% 99% Home Depot, Shoppers Club, Best Buy, Michaels, Barnes &
Noble, Ross Dress For Less, G Street Fabrics
Shops at Fairfax 100% 100% SuperFresh, Blockbuster
Southdale 94% 99% Giant Food, Home Depot, Circuit City, Kids R Us, Michaels,
Marshalls, PetSmart, Value City Furniture
-10-
Saul Centers, Inc.
Schedule of Current Portfolio Properties
December 31, 2001
Leasable Year
Area Developed Land
(Square or Acquired Area Percentage Leased
Property Location Feet) (Renovated) (Acres) Dec-2001 Dec-2000
-------------------------- ---------------- ------------- --------------- -------- ----------- ----------
Shopping Centers (continued)
----------------------------
Southside Plaza Richmond, VA 340,691 1972 32.8 91% 81%
South Dekalb Plaza Atlanta, GA 162,793 1976 14.6 100% 100%
Thruway Winston-Salem, NC 344,880 1972 (1997) 30.5 97% 93%
Village Center Centreville, VA 143,109 1990 17.2 100% 100%
West Park Oklahoma City, OK 76,610 1975 11.2 57% 58%
White Oak Silver Spring, MD 480,156 1972 (1993) 28.5 99% 99%
---------- ------- ------- -------
Total Shopping Centers 4,956,417 426.7 94.3% 94.1%
---------- ------- ------- -------
Office Properties
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Avenel Business Park Gaithersburg, MD 388,620 1981-2000 37.1 100% 100%
Crosstown Business Center Tulsa, OK 197,135 1975 (2000) 22.4 82% 41%
601 Pennsylvania Ave Washington, DC 225,414 1973 (1986) 1.0 99% 100%
Van Ness Square Washington, DC 156,493 1973 (1990) 1.2 97% 93%
Washington Square Alexandria, VA 235,239 1975 (2000) 2.0 69% 49%
---------- ------- ------- -------
Total Office Properties 1,202,901 61.7 90.4% 79.4%
---------- ------- ------- -------
Total Portfolio 6,159,318 488.4 93.5% 91.2%
========== ======= ======= =======
Property Anchor/Significant Tenants
-------------------------- --------------------------------------------
Shopping Centers (continued)
----------------------------
Southside Plaza CVS Pharmacy, Community Pride Supermarket, Maxway
South Dekalb Plaza MacFrugals, Pep Boys, The Emory Clinic, Maxway
Thruway Harris Teeter, Fresh Market, Bed Bath & Beyond, Stein Mart, Eckerd Drugs,
Houlihan's, Borders Books, Zany Brainy, Blockbuster
Village Center Giant Food, Tuesday Morning, Blockbuster
West Park Homeland Stores, Family Dollar
White Oak Giant Food, Sears, Rite Aid, Blockbuster
Office Properties
-----------------
Avenel Business Park General Services Administration, VIRxSYS, Boston Biomedica, Broadsoft,
NeuralSTEM, Quanta Systems
Crosstown Business Center Compass Group, Roxtec, Par Electric
601 Pennsylvania Ave General Services Administration, Credit Union National Assn, Southern
Company, HQ Global, Alltel, American Arbitration, Capital Grille
Van Ness Square INTELSAT, Team Video Intl, Office Depot, Pier 1
Washington Square Vanderweil Engineering, World Wide Retail Exch., American Management
Systems, Trader Joe's, Kinko's, Blockbuster
(a) Undeveloped land acquired August 2000. Construction commenced during the
fourth quarter of 2001 and is scheduled to be completed during the summer of
2002.
-11-
Item 3. Legal Proceedings
In the normal course of business, the Company is involved in
litigation, including litigation arising out of the collection of rents, the
enforcement or defense of the priority of its security interests, and the
continued development and marketing of certain of its real estate properties. In
the opinion of management, litigation that is currently pending should not have
a material adverse impact on the financial condition or future operations of the
Company.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Market Information
------------------
Saul Centers shares are listed on the New York Stock Exchange under the
symbol "BFS". The composite high and low closing sale prices for the common
stock shares as reported by the New York Stock Exchange for each quarter of 2001
and 2000 were as follows:
Period Share Price
------ -----------
High Low
------ ------
October 1, 2001 - December 31, 2001 $22.00 $18.98
July 1, 2001 - September 30, 2001 $19.87 $18.25
April 1, 2001 - June 30, 2001 $19.30 $18.05
January 1, 2001 - March 31, 2001 $19.00 $17.60
October 1, 2000 - December 31, 2000 $18.63 $15.31
July 1, 2000 - September 30, 2000 $16.50 $15.63
April 1, 2000 - June 30, 2000 $16.81 $15.38
January 1, 2000 - March 31, 2000 $16.31 $13.94
On February 22, 2002, the closing price was $22.55.
Holders
-------
The approximate number of holders of record of the common stock was 500 as of
February 22, 2002.
12
Dividends
---------
The Company paid four quarterly distributions in the amount of $0.39
per share, during each of the years ended December 31, 2001 and 2000, totaling
$1.56 per share for each of these years, or an annual yield of 6.9% based on the
$22.55 closing price of the common stock on the New York Stock Exchange as of
February 22, 2002. The Company has determined that 98.02% of the total $1.56 per
share paid in calendar year 2001 represents currently taxable dividend income to
the stockholders, while the balance of 1.98% is considered return of capital.
The Company's estimate of cash flow available for distributions is
believed to be based on reasonable assumptions and represents a reasonable basis
for setting distributions. However, the actual results of operations of the
Company will be affected by a variety of factors, including actual rental
revenue, operating expenses of the Company, interest expense, general economic
conditions, federal, state and local taxes (if any), unanticipated capital
expenditures, and the adequacy of reserves. While the Company intends to
continue paying regular quarterly distributions, any future payments will be
determined solely by the Board of Directors and will depend on a number of
factors, including cash flow of the Company, its financial condition and capital
requirements, the annual distribution requirements required to maintain its
status as a REIT under the Code, and such other factors as the Board of
Directors deems relevant.
Under the Code, REIT's are subject to numerous organizational and
operation requirements, including the requirement to distribute at least 90% of
REIT taxable income. The Company distributed amounts greater than the required
amount in 2001 and 2000. Actual distributions by the Company were $30,067,000 in
2001 and $29,186,000 in 2000.
Item 6. Selected Financial Data
The selected financial data of the Company contained herein has been
derived from the consolidated financial statements of the Company. The data
should be read in conjunction with "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Consolidated Financial
Statements included elsewhere in this report. The historical selected financial
data have been derived from audited financial statements for all periods.
13
Saul Centers, Inc.
SELECTED FINANCIAL DATA
(In thousands, except per share data)
Years Ended December 31,
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
Operating Data:
---------------
Total revenue ......................................................... $ 86,308 $ 79,029 $ 73,791 $ 70,583 $ 67,717
Operating expenses .................................................... 60,925 56,915 53,124 53,393 50,722
--------- --------- --------- --------- ---------
Operating income ...................................................... 25,383 22,114 20,667 17,190 16,995
Non-operating income (loss)
Gain on sale of property ........................................... -- -- 553 -- --
Change in accounting method ........................................ -- -- -- (771) --
Sale of interest rate protection agreements ........................ -- -- -- -- (4,392)
--------- --------- --------- --------- ---------
Net income before extraordinary item and minority interests ........... 25,383 22,114 21,220 16,419 12,603
Extraordinary item: Early extinguishment of debt ...................... -- -- -- (50) (3,197)
Net income before minority interests .................................. 25,383 22,114 21,220 16,369 9,406
Minority interests .................................................... (8,069) (8,069) (7,923) (7,240) (6,854)
--------- --------- --------- --------- ---------
Net income ............................................................ $ 17,314 $ 14,045 $ 13,297 $ 9,129 $ 2,552
========= ========= ========= ========= =========
Per Share Data:
--------------
Net income before extraordinary item and minority interests ........... $ 1.31 $ 1.18 $ 1.17 $ 0.95 $ 0.76
========= ========= ========= ========= =========
Net income ............................................................ $ 1.22 $ 1.03 $ 1.01 $ 0.72 $ 0.21
========= ========= ========= ========= =========
Weighted average shares outstanding:
Fully converted .................................................... 19,383 18,796 18,148 17,233 16,690
========= ========= ========= ========= =========
Common stock ....................................................... 14,210 13,623 13,100 12,644 12,297
========= ========= ========= ========= =========
Dividends Paid:
----------------
Cash dividends to common
stockholders (1) ................................... $ 21,998 $ 21,117 $ 20,308 $ 19,731 $ 19,063
========= ========= ========= ========= =========
Cash dividends per share ........................................... $ 1.56 $ 1.56 $ 1.56 $ 1.56 $ 1.56
========= ========= ========= ========= =========
Balance Sheet Data:
-------------------
Income-producing properties
(net of accumulated depreciation) .................................. $ 316,718 $ 267,681 $ 256,110 $ 246,151 $ 242,653
Total assets .......................................................... 346,403 334,450 299,665 271,034 260,942
Total debt, including accrued interest ................................ 353,554 344,686 311,114 291,576 286,072
Total stockholders' equity (deficit) .................................. (24,123) (31,155) (31,859) (37,284) (38,054)
Other Data
----------
Funds from operations (2)
Net income before minority interests ............................... $ 25,383 $ 22,114 $ 21,220 $ 16,369 $ 9,406
Depreciation and amortization of real property ..................... 14,758 13,534 12,163 12,578 10,642
Gain on sale of property ........................................... -- -- (553) -- --
Change in accounting method ....................................... -- -- -- 771 --
Debt restructuring losses:
Sale of interest rate protection agreements. -- -- -- -- 4,392
Extraordinary item: early extinguishment of debt .................. -- -- -- 50 3,197
--------- --------- --------- --------- ---------
Funds from operations ................................................. $ 40,141 $ 35,648 $ 32,830 $ 29,768 $ 27,637
========= ========= ========= ========= =========
Cash flow provided by (used in):
Operating activities .............................................. $ 31,834 $ 32,781 $ 31,645 $ 29,686 $ 28,936
Investing activities .............................................. $ (21,800) $ (43,426) $ (36,920) $ (14,776) $ (16,094)
Financing activities .............................................. $ (10,001) $ 11,460 $ 3,837 $ (13,203) $ (12,192)
(1) Of the amounts presented, $11,976, $7,984 and $7,162, was reinvested by
shareholders in newly issued common stock by operation of the Company's
dividend reinvestment plan, during 2001, 2000 and 1999, respectively.
(2) Funds From Operations (FFO), presented on a fully converted basis is
defined as net income before gains or losses from property sales,
extraordinary items and before real estate depreciation and amortization.
Prior to 1/1/2000, the FFO definition required the elimination of debt
restructuring gains and losses. FFO may not be comparable to similarly
titled measures employed by other REITs.
FFO does not represent cash generated from operating activities in
accordance with generally accepted accounting principles and is not
necessarily indicative of cash available to fund cash needs, which is
disclosed in the Consolidated Statements of Cash Flows for the applicable
periods. There are no material legal or functional restrictions on the use
of FFO.
FFO should not be considered as an alternative to net income as an
indicator of the Company's operating performance or as an alternative to
cash flows as a measure of liquidity. Management considers FFO a
supplemental measure of operating performance and along with cash flow from
operating activities, financing activities and investing activities, it
provides investors with an indication of the ability of the Company to
incur and service debt, to make capital expenditures and to fund cash
needs.
14
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This section should be read in conjunction with the selected financial
data and the Consolidated Financial Statements of the Company and The Saul
Organization and the accompanying notes in "Item 6. Selected Financial Data" and
"Item 8. Financial Statements and Supplementary Data," respectively, of this
report. Historical results and percentage relationships set forth in these Items
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 Items 1 - 6 of this Form 10-K. This Form 10-K
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. These statements are generally characterized by terms
such as "believe", "expect" and "may".
Although the Company believes that the expectations reflected in such
forward-looking statements are based upon reasonable assumptions, the Company's
actual results could differ materially from those given in the forward-looking
statements as a result of changes in factors which include among others, the
following: general economic and business conditions, which will, among other
things, affect demand for retail and office space; demand for retail goods;
availability and credit worthiness of the prospective tenants; lease rents and
the terms and availability of financing; adverse changes in the real estate
markets including, among other things, competition with other companies and
technology, risks of real estate development and acquisition, governmental
actions and initiatives, debt refinancing risk, conflicts of interests,
maintenance of REIT status and environmental/safety requirements.
General
-------
The following discussion is based on the consolidated financial
statements of the Company as of December 31, 2001 and for the year ended
December 31, 2001. Prior year data is based on the Company's consolidated
financial statements as of December 31, 2000 and 1999 and for the years ended
December 31, 2000 and 1999.
Critical Accounting Policies
----------------------------
The Company's accounting policies are in conformity with generally
accepted accounting principles in the United States ("GAAP"). The preparation of
financial statements in conformity with GAAP requires management to use
judgement in the application of accounting policies, including making estimates
and assumptions. These judgements affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the Company's financial statements and the reported amounts of revenue and
expenses during the reporting periods. If judgement 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. Below is a discussion
of accounting policies which the Company considers critical in that they may
require judgment in their application or require estimates about matters which
are inherently uncertain. Additional discussion of accounting policies which the
Company considers significant, including further discussion of the critical
accounting policies described below, can be found in the notes to the
Consolidated Financial Statements.
Valuation of Real Estate Investments
Real estate investment properties are stated at historic cost basis
less depreciation. Management believes that these assets have generally
appreciated in value 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 these financial statements. Because these financial statements
are prepared in conformity with accounting principles generally accepted in the
United States, they do not report the current value of the Company's real estate
assets.
If there is an event or change in circumstance that indicates an
impairment in the value of a real estate investment property, the Company
assesses an impairment in value by making a comparison of the current and
projected operating cash flows of the property over its remaining useful life,
on an undiscounted basis, to the carrying amount of that property. If such
carrying amount is greater than the estimated projected cash flows, the
15
Company would recognize an impairment loss equivalent to an amount required to
adjust the carrying amount to its estimated fair market value.
Interest, real estate taxes and other carrying costs are capitalized on
projects under construction. Once construction is substantially complete and the
assets are placed in service, rental income, direct operating expenses, and
depreciation associated with such properties are included in current operations.
In the initial rental operations of development projects, a project is
considered substantially complete and available for occupancy upon completion of
tenant improvements, but no later than one year from the cessation of major
construction activity. Substantially completed portions of a project are
accounted for as separate projects. Depreciation is calculated using the
straight-line method and estimated useful lives of 33 to 50 years for buildings
and up to 20 years for certain other improvements. Leasehold improvements are
amortized over the lives of the related leases using the straight-line method.
Lease Acquisition Costs
Certain initial direct costs incurred by the Company in negotiating and
consummating a successful lease are capitalized and amortized over the initial
base term of the lease. Capitalized leasing costs consists of commissions paid
to third party leasing agents as well as internal direct costs such as employee
compensation and payroll related fringe benefits directly related to time spent
performing leasing related activities. Such activities include evaluating the
prospective tenant's financial condition, evaluating and recording guarantees,
collateral and other security arrangements, negotiating lease terms, preparing
lease documents and closing the transaction.
Revenue Recognition
Rental and interest income is accrued as earned except when doubt exists as
to collectibility, in which case the accrual is discontinued. When rental
payments due under leases vary from a straight-line basis because of free rent
periods or scheduled rent increases, income is recognized on a straight-line
basis throughout the initial term of the lease. Expense recoveries represent a
portion of property operating expenses billed to the tenants, including common
area maintenance, real estate taxes and other recoverable costs. Expense
recoveries are recognized in the period when the expenses are incurred. Rental
income based on a tenant's revenues, known as percentage rent, is accrued when a
tenant reports sales that exceed a specified breakpoint.
Legal Contingencies
The Company is subject to various legal proceedings and claims that arise
in the ordinary course of business. These matters are generally covered by
insurance. While the resolution of these matters cannot be predicted with
certainty, the Company believes the final outcome of such matters will not have
a material adverse effect on the financial position or the results of
operations. Once it has been determined 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.
Liquidity and Capital Resources
-------------------------------
Cash and cash equivalents were $1.8 million at December 31, 2001 and 2000.
The Company's cash flow is affected by its operating, investing and financing
activities, as described below.
Operating Activities
Cash provided by operating activities for the years ended December 31, 2001
and 2000 was $31.8 million and $32.8 million, respectively, and represents, in
each year, cash received primarily from rental income, plus other income, less
normal recurring general and administrative expenses and interest payments on
debt outstanding.
16
Investing Activities
Cash used in investing activities for the years ended December 31, 2001 and
2000 was $21.8 million and $43.4 million, respectively, and primarily reflects
the acquisition of properties and constructions in progress, net of sales of
properties, during those years.
Financing Activities
Cash used in financing activities for the year ended December 31, 2001 was
$10.0 million and cash provided by financing activities for the year ended
December 31, 2000 was $11.5 million. Cash used in financing activities for the
year ended December 31, 2001 primarily reflects:
. $51.2 million of proceeds received from notes payable incurred during the
year; and
. $12.0 million of proceeds received from the issuance of common stock and
convertible limited partnership interests in the Operating Partnership
issued under dividend reinvestment programs;
which was partially offset by:
. the repayment of borrowings on our notes payable totaling $42.9 million;
and
. distributions made to common stockholders and holders of convertible
limited partnership units in the Operating Partnership during the year
totaling $30.3 million.
Cash provided by financing activities for the year ended December 31, 2000
primarily reflects:
. $69.7 million of proceeds received from notes payable incurred during the
year; and
. $8.0 million of proceeds received from the issuance of common stock and
convertible limited partnership interests in the Operating Partnership
issued under dividend reinvestment programs.
The cash provided by financing activities was partially offset by:
. the repayment of borrowings on our notes payable totaling $36.5 million;
. distributions made to common stockholders and holders of convertible
limited partnership units in the Operating Partnership during the year
totaling $29.4 million; and
. additions to deferred debt expense of $315,000.
The Company's principal demands for liquidity are expected to be
distributions to its stockholders, debt service and loan repayments, expansion
and renovation of the Current Portfolio Properties and selective acquisition and
development of additional properties. In order to qualify as a REIT for federal
income tax purposes, the Company must distribute to its stockholders at least
90% (95% for the tax years prior to January 1, 2001) of its "real estate
investment trust taxable income," as defined in the Code. The Company
anticipates that operating revenues will provide the funds necessary for
operations, debt service, distributions, and required recurring capital
expenditures. Balloon principal repayments are expected to be funded by
refinancings.
Management anticipates that during the coming year the Company may: i)
redevelop certain of the Shopping Centers, ii) develop additional freestanding
outparcels or expansions within certain of the Shopping Centers, iii) acquire
existing neighborhood and community shopping centers and/or office properties,
and iv) develop new shopping center or office sites. Acquisition and development
of properties are undertaken only after careful analysis and review, and
management's determination that such properties are expected to provide
long-term earnings and cash flow growth. During the coming year, any
developments, expansions or acquisitions are expected
17
to be funded with bank borrowings from the Company's credit line, construction
financing, proceeds from the operation of the Company's dividend reinvestment
plan or other external capital resources available to the Company.
The Company expects to fulfill its long range requirements for capital
resources in a variety of ways, including undistributed cash flow from
operations, secured or unsecured bank and institutional borrowings, private or
public offerings of debt or equity securities and proceeds from the sales of
properties. Borrowings may be at the Saul Centers, Operating Partnership or
Subsidiary Partnership level, and securities offerings may include (subject to
certain limitations) the issuance of additional limited partnership interests in
the Operating Partnership which can be converted into shares of Saul Centers
common stock.
As of December 31, 2001, the scheduled maturities of all debt for years
ended December 31, are as follows:
Debt Maturity Schedule
----------------------
(In thousands)
2002 .............. $ 6,293
2003 .............. 65,159
2004 .............. 16,631
2005 .............. 7,713
2006 .............. 8,359
Thereafter ........ 247,665
----------
$ 351,820
==========
Management believes that the Company's current capital resources, including
approximately $50,000,000 of the Company's revolving line of credit, which was
available for borrowing as of December 31, 2001, will be sufficient to meet its
liquidity needs for the foreseeable future.
Dividend Reinvestment and Stock Purchase Plan
In December 1995, the Company established a Dividend Reinvestment and Stock
Purchase Plan (the "Plan"), to allow its stockholders and holders of limited
partnership interests an opportunity to buy additional shares of common stock by
reinvesting all or a portion of their dividends or distributions. The Plan
provides for investing in newly issued shares of common stock at a 3% discount
form market price without payment of any brokerage commissions, service charges
or other expenses. All expenses of the Plan are paid by the Company. The Company
issued 645,420 and 514,487 shares under the Plan at a weighted average
discounted price of $17.99 and $14.89 per share during the years ended December
31, 2001 and 2000, respectively.
Capital Strategy and Financing Activity
---------------------------------------
The Company's capital strategy is to maintain a ratio of total debt to
total asset value of 50% or less, and to actively manage the Company's leverage
and debt expense on an ongoing basis in order to maintain prudent coverage of
fixed charges. Management believes that current total debt remains less than 50%
of total asset value.
18
The following is a summary of notes payable as of December 31, 2001 and
2000:
($s in thousands) Principal Outstanding December 31, Interest Scheduled
2001 2000 Rate * Maturity *
------------------------------------------------------------------------
Fixed Rate Mortgages: $138,215 (a) $140,597 7.67 % Oct 2012
95,716 (b) 74,342 8.23 % Dec 2011
35,583 (c) 36,279 7.88 % Jan 2013
13,936 (d) 14,184 8.33 % May 2015
10,028 (e) 10,227 6.88 % May 2004
------------------------------------------------------------------------
Total Fixed Rate 293,478 275,629 7.88 % 10.4 Years
------------------------------------------------------------------------
Variable Rate Loans:
Construction Loan 38,342 (f) 33,324 3.64 % Jan 2003
Line of Credit 20,000 (g) 34,500 3.69 % Jul 2003
------------------------------------------------------------------------
Total Variable Rate 58,342 67,824 3.66 % 1.2 Years
------------------------------------------------------------------------
Total Notes Payable $351,820 $343,453 7.18 % 8.9 Years
========================================================================
*Interest rate and scheduled maturity data presented for December 31, 2001.
Totals computed using weighted averages.
(a) The loan is collateralized by nine shopping centers and requires monthly
principal and interest payments based upon a 25 year amortization schedule.
Principal of $2,382,000 was amortized during 2001.
(b) The loan is collateralized by Avenel Business Park, Van Ness Square,
Ashburn Village, Leesburg Pike, Lumberton Plaza and Village Center. The
loan was amended during 2001 to include new borrowings of $24,000,000 at an
average rate of 7.38%. The 8.23% blended interest rate is the weighted
average of the initial loan rate and additional borrowings rates. Monthly
principal and interest payments are based upon a weighted average 23 year
amortization schedule. Principal of $2,626,000 was amortized during 2001.
(c) The loan is collateralized by 601 Pennsylvania Avenue and requires monthly
principal and interest payments based upon a 25 year amortization schedule.
Principal of $696,000 was amortized during 2001.
(d) The loan is collateralized by Shops at Fairfax and Boulevard shopping
centers and requires monthly principal and interest payments based upon a
22 year amortization schedule. Principal of $248,000 was amortized during
2001.
(e) The loan is collateralized by The Glen shopping center and requires monthly
principal and interest payments based upon a 23 year amortization schedule.
Principal of $199,000 was amortized during 2001.
(f) The loan is a construction loan totaling $42,000,000 and is collateralized
by Washington Square. Interest expense is calculated based upon the 1, 2, 3
or 6 month LIBOR rate plus a spread of 1.45% to 1.9% (determined by certain
leasing and/or construction benchmarks) or upon the bank's prime rate at
the Company's option. The loan was extended until January 2003 upon payment
in 2001 of a fee of 1/4% or $105,000. The loan may be further extended for
an additional one-year term with payment of a fee of 1/4% and the
achievement of certain debt service and valuation tests, at the Company's
option. The interest rate in effect on December 31, 2001 was based on a
weighted average LIBOR of 1.94% and spread of 1.7%. The effective annual
average interest rate, which considers debt cost amortization, was 6.15%
for 2001.
(g) The loan is an unsecured revolving credit facility totaling $70,000,000.
Interest expense is calculated based upon the 1,2,3 or 6 month LIBOR rate
plus a spread of 1.625% to 1.875% (determined by certain debt service
coverage and leverage tests) or upon the bank's reference rate at the
Company's option. The line may be extended one year with payment of a fee
of 1/4% at the Company's option. The interest rate in effect on December
31, 2001 was based on a weighted average LIBOR of 1.94% and spread of
1.75%. The effective annual average interest rate, which considers debt
cost amortization and unused line fees, was 7.14% for 2001.
The December 31, 2001 and 2000, depreciation adjusted cost of properties
collateralizing the mortgage notes payable totaled $264,831,000 and
$218,415,000, respectively. Certain loans are subject to financial
19
covenant tests, the most significant of which are debt service coverage and loan
to asset value requirements. The Company believes it is in compliance with all
such covenants. Notes payable at December 31, 2001 and 2000, totaling
$242,168,000 and $225,616,000, respectively, are guaranteed by members of The
Saul Organization. The Company's interest expense coverage ratio increased to
2.63 during the past year, from 2.51 in 2000.
During 2001 the Company obtained three new mortgage loans totaling
$24,000,000 from an existing lender, secured by Van Ness Square and recent
developments at Ashburn Village and Avenel Business Park. The loans require
monthly payments of principal and interest based upon a weighted average 21.5
year amortization period and a fixed weighted average 7.38% interest rate.
Funds From Operations
---------------------
In 2001, the Company reported Funds From Operations (FFO) of $40,141,000 on
a fully converted basis, representing a 12.6% increase over 2000 FFO of
$35,648,000. The following table presents a reconciliation from net income
before minority interests to FFO:
For the Years Ended December 31,
(In thousands) 2001 2000 1999
------------- ---- ---- ----
Net income before minority interests $ 25,383 $ 22,114 $ 21,220
Subtract:
Gain on sale of property - - (553)
Add:
Depreciation and amortization of real property 14,758 13,534 12,163
-------- -------- --------
Funds From Operations /1/ $ 40,141 $ 35,648 $ 32,830
======== ======== ========
Average Shares and Units Used to Compute FFO per Share 19,383 18,796 18,148
======== ======== ========
Redevelopments, Renovations and Acquisitions
--------------------------------------------
The Company has been selectively involved in redevelopment, renovation and
acquisition activities. It continues to evaluate land parcels for retail and
office development and potential acquisitions of operating properties for
opportunities to enhance operating income and cash flow growth. The Company also
continues to take advantage of redevelopment, renovation and expansion
opportunities within the portfolio, as demonstrated by its activities in 2001 at
Washington Square, Ashburn Village, French Market and Crosstown Business Center.
During 2001, the Company continued the development of Washington Square at
Old Town, a new Class A mixed-use office/retail complex along North Washington
Street in historic Old Town Alexandria in Northern
--------
/1/ FFO, as defined by the National Association of Real Estate Investment
Trusts, presented on a fully converted basis and a widely accepted measure of
operating performance for real estate investment trusts, is defined as net
income before gains or losses from property sales, extraordinary items, and
before real estate depreciation and amortization. FFO does not represent cash
generated from operating activities in accordance with generally accepted
accounting principles and is not necessarily indicative of cash available to
fund cash needs, which is disclosed in the Consolidated Statements of Cash Flows
for the applicable periods. There are no material legal or functional
restrictions on the use of FFO. FFO should not be considered as an alternative
to net income, as an indicator of the Company's operating performance, or as an
alternative to cash flows as a measure of liquidity. Management considers FFO a
supplemental measure of operating performance and along with cash flow from
operating activities, financing activities and investing activities, it provides
investors with an indication of the ability of the Company to incur and service
debt, to make capital expenditures and to fund other cash needs. FFO may not be
comparable to similarly titled measures employed by other REITs.
20
Virginia. The project totals 235,000 square feet of leasable area and is well
located on a two-acre site along Alexandria's main street. The project consists
of two identical buildings separated by a landscaped brick courtyard. Base
building construction has been completed. The build-out of office tenant areas
continues. As of February 22, 2002, the Company has signed leases on 69% of the
235,000 square feet of tenant space: the 46,000 square feet of street level
retail space is 98% leased and the 189,000 square feet of office space is 62%
leased.
During late 1999, the Company purchased land located within the 1,580 acre
community of Ashburn Village in Loudoun County, Virginia, adjacent to its
108,000 square foot Ashburn Village neighborhood shopping center. The land was
developed into Ashburn Village II, a 40,200 square foot in-line and pad
expansion to the existing shopping center, containing 23,600 square feet of
retail space and 16,600 square feet of professional office suites. Ashburn
Village II commenced operations during the third quarter of 2000. In August
2000, the Company purchased an additional 7.1 acres of land adjacent to Ashburn
Village II for $1,579,000. During 2001, the Company completed the development of
4.0 acres of the land known as Ashburn Village III, consisting of a fully leased
28,000 square foot in-line and pad expansion to the retail area of the existing
shopping center. The Company commenced construction on the remaining 3.1 acres
known as Ashburn Village IV, during the fourth quarter of 2001. This phase will
consist of an additional 25,000 square feet of retail space and will complete
the development of Ashburn Village. Leases have been signed for 25% of this new
shop space. Completion is scheduled for the summer of 2002.
Beginning in 1998, the Company executed a plan to redevelop its 213,000
square foot French Market shopping center, located in the northwest section of
Oklahoma City, Oklahoma. The plan specified the retenanting of a 103,000 square
foot anchor tenant space and conversion of an outdated mini-mall to an anchor
tenant use. The former Venture store space was re-demised and leased to Bed Bath
and Beyond, Staples, Famous Footwear, BridesMart and Lakeshore Learning. The
former enclosed mini-mall was leased to Burlington Coat Factory and during 2000,
converted into a two-level 90,000 square foot super store, increasing the
center's size to 247,000 square feet. The facade of the center was updated to
complement the addition of the new tenants. The Company has recently completed
construction of the final phase of the center's redevelopment after it obtained
control of 20,000 square feet of space formerly operated as a grocery store. The
Company re-demised the space to accommodate nine smaller tenant uses and updated
the facade to complement the remainder of the center. As a result of the
Company's efforts, approximately 94% of the center was leased as of December 31,
2001.
The conversion and redevelopment of the former Tulsa, Oklahoma shopping
center to an office/warehouse facility named Crosstown Business Center continued
throughout 2001. Twelve tenants lease 91% of the facility as of February 22,
2002.
The Company has contracted with a third party to purchase 24.0 acres of
land zoned for retail development in Loudoun County, Virginia, for a purchase
price of $5.3 million. Closing is scheduled for March 2002.
Portfolio Leasing Status
------------------------
At December 31, 2001, the portfolio consisted of 28 Shopping Centers and
five predominantly Office Properties, all of which are located in seven states
and the District of Columbia.
As of December 31, 2001, 93.5% of the Company's approximately 6,200,000
square feet of space was leased. On a same center basis (excluding Washington
Square which was under development during 2001 and the prior year) 94.5% of the
Company's approximately 5,900,000 square feet of operating leasable space was
leased to tenants, as compared to 92.9% at December 31, 2000. The shopping
center portfolio was 94.3% leased at December 31, 2001 compared to 94.1% at
December 31, 2000. The Office Properties (excluding Washington Square) were
95.5% leased at December 31, 2001 compared to 86.8% as of December 31, 2000. The
overall improvement in year-end 2001 same center leasing percentage resulted
primarily from the Company's successful leasing at Crosstown Business Center,
which improved from 41% at year end 2000 to 82% at year end 2001.
21
Results of Operations
---------------------
The following discussion compares the results of the Company for the year
ended December 31, 2001 with the year ended December 31, 2000, and compares the
year ended December 31, 2000 with the year ended December 31, 1999. This
information should be read in conjunction with the accompanying consolidated
financial statements and the notes related thereto.
Years Ended December 31, 2001 and 2000
--------------------------------------
Revenues for the year ended December 31, 2001 ("2001"), totaled $86,308,000
compared to $79,029,000 for the comparable period in 2000 ("2000"), an increase
of $7,279,000 (9.2%).
Base rent increased to $69,662,000 in 2001 from $63,837,000 in 2000,
representing a $5,825,000 (9.1%) increase. The increase in base rent resulted
primarily from new leases in effect at recently developed and acquired
properties: Ashburn Village II and III and a portion of Washington Square
(approximately 100,000 square feet) during the 2001 Year.
Expense recoveries increased to $11,456,000 in 2001 from $10,129,000 in
2000, representing an increase of $327,000 (2.9%).
Percentage rent was $2,113,000 in 2001, compared to $2,097,000 in 2000,
representing an increase of $16,000 (0.8%).
Other income, which consists primarily of parking income at three of the
Office Properties, kiosk leasing, temporary leases and payments associated with
early termination of leases, was $3,077,000 in 2001, compared to $1,966,000 in
2000, representing an increase of $1,111,000 (56.5%). The increase in other
income resulted from a $442,000 increase in lease termination payments compared
to the prior year, collection of $363,000 from the estate of a former tenant in
bankruptcy and a $304,000 increase in parking rents primarily due to the
commencement of operations at Washington Square.
Operating expenses, which consist mainly of repairs and maintenance,
utilities, payroll and insurance expense, increased $232,000 (2.8%) to
$8,503,000 in 2001 from $8,271,000 in 2000.
The provision for credit losses was $617,000 in 2001 compared to $467,000
in 2000, representing an increase of $150,000 (32.1%). The comparative credit
loss increase resulted primarily from additions to credit loss reserves for
three retail tenants and an office tenant in bankruptcy and unpaid rents in
dispute with two shopping center tenants and an office tenant.
Real estate taxes were $7,226,000 in 2001 compared to $6,451,000 in 2000,
representing an increase of $775,000 (12.0%). Approximately half of the increase
was attributable to development properties placed in service during the latter
half of 2000 and during 2001. Approximately a quarter of the increase resulted
from an assessment increase for the Company's Thruway shopping center.
Interest expense was $24,920,000 in 2001 compared to $23,843,000 in 2000,
representing an increase of $1,077,000 (4.5%). The increase in interest expense
resulted from increased borrowings related to the development and acquisition of
properties placed in service during 2001 and 2000.
Amortization of deferred debt expense was $566,000 in 2001 compared to
$458,000 in 2000, an increase of $108,000 (23.6%). The increase resulted from a
full year of amortizing the costs of renewing and amending the Company's
revolving line of credit in July 2000 and $38 million of new long term debt put
in place during 2000 and 2001.
Depreciation and amortization expense was $14,758,000 in 2001 compared to
$13,534,000 in 2000, representing an increase of $1,224,000 (9.0%). The increase
resulted from increased amortization of leasing costs
22
and depreciation of construction costs related to newly developed and acquired
properties placed in service during 2001 and 2000.
General and administrative expense, which consists primarily of
administrative payroll and other overhead expenses, was $4,335,000 in 2001
compared to $3,891,000 in 2000, representing an increase of $444,000 (11.4%).
Approximately half of the year over year increase resulted from additional
payroll expenses and a quarter of the increase resulted from the write-off of
abandoned acquisition costs.
Years Ended December 31, 2000 and 1999
--------------------------------------
Revenues for the year ended December 31, 2000 ("2000"), totaled
$79,029,000 compared to $73,791,000 for the comparable period in 1999 ("1999"),
an increase of $5,238,000 (7.1%).
Base rent increased to $63,837,000 in 2000 from $59,200,000 in 1999,
representing a $4,637,000 (7.8%) increase. The increase in base rent resulted
primarily from new leases in effect at recently redeveloped shopping centers
(Shops at Fairfax/Boulevard, Thruway, French Market and Ashburn Village), a 4%
average annual occupancy increase at Avenel Business Park, and a 60,000 square
foot tenant paying higher rent while holding over beyond its scheduled lease
expiration at 601 Pennsylvania Avenue. The increase in base rent was diminished
in part by decreasing occupancy at Lexington Mall and the absence of rent from
Park Road, sold in December 1999.
Expense recoveries increased to $11,129,000 in 2000 from $10,176,000 in
1999, representing an increase of $953,000 (9.4%). Expense recovery income
increased primarily as a result of substantial snow removal expenses during 2000
which were recovered from many of the Company's shopping center tenants and to a
lesser extent, improved occupancy rates which allowed a greater percentage of
operating expenses to be recovered from tenants.
Percentage rent was $2,097,000 in 2000, compared to $2,222,000 in 1999,
representing a decrease of $125,000 (5.6%). The decrease in percentage rent
resulted primarily from the rollover of an anchor tenant lease into higher
paying base rent in lieu of percentage rent at Giant shopping center.
Other income, which consists primarily of parking income at two of the
Office Properties, kiosk leasing, temporary leases and payments associated with
early termination of leases, was $1,966,000 in 2000, compared to $2,193,000 in
1999, representing a decrease of $227,000 (10.4%). The decrease in other income
resulted from a $252,000 reduction in lease termination payments compared to the
prior year.
Operating expenses, which consist mainly of repairs and maintenance,
utilities, payroll and insurance expense, increased $551,000 (7.1%) to
$8,271,000 in 2000 from $7,720,000 in 1999. The increase was primarily caused by
higher snow removal expenses resulting from two severe snowstorms impacting the
Mid-Atlantic region during January and February 2000, offset in part by cost
savings achieved by reducing maintenance and utility expenses attributable to
the elimination of the interior mall area, replaced by Burlington Coat Factory's
new super store, as a result of the Company's redevelopment of French Market.
The provision for credit losses was $467,000 in 2000 compared to
$295,000 in 1999, representing an increase of $172,000 (58.3%). The comparative
credit loss increase resulted from unusually low credit loss activity in 1999,
additions to credit loss reserves for two retail tenants in bankruptcy and rent
in dispute with an office tenant.
Real estate taxes were $6,451,000 in 2000 compared to $6,207,000 in
1999, representing an increase of $244,000 (3.9%).
Interest expense was $23,843,000 in 2000 compared to $22,568,000 in
1999, representing an increase of $1,275,000 (5.6%). The increase in interest
expense resulted from increased borrowings related to newly developed and
acquired properties placed in service during 2000 and 1999, and to a lesser
extent, the higher costs of borrowing in 2000 resulting from higher interest
rates compared to 1999.
23
Amortization of deferred debt expense was $458,000 in 2000 compared to
$416,000 in 1999, an increase of $42,000 (10.1%). The increase resulted from the
Company's new $14,300,000 long term financing secured by the Shops at Fairfax
and Boulevard shopping centers and the costs of renewing and amending the
Company's revolving credit facility.
Depreciation and amortization expense was $13,534,000 in 2000 compared
to $12,163,000 in 1999, representing an increase of $1,371,000 (11.3%). The
increase resulted from increased depreciation related to newly developed and
acquired properties placed in service during 2000 and 1999.
General and administrative expense, which consists primarily of
administrative payroll and other overhead expenses, was $3,891,000 in 2000
compared to $3,755,000 in 1999, representing an increase of $136,000 (3.6%).
In 1999 the Company reported a gain on sale of property of $553,000
resulting from the District of Columbia's purchase of the Company's Park Road
property as part of an assemblage of parcels for a neighborhood revitalization
project. There were no property sales in 2000.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to certain financial market risks, the most
predominant being fluctuations in interest rates. Interest rate fluctuations are
monitored by management as an integral part of the Company's overall risk
management program, which recognizes the unpredictability of financial markets
and seeks to reduce the potentially adverse effect on the Company's results of
operations. The Company does not enter into financial instruments for trading
purposes.
The Company is exposed to interest rate fluctuations primarily as a
result of its variable rate debt used to finance the Company's development and
acquisition activities and for general corporate purposes. As of December 31,
2001, the Company had variable rate indebtedness totaling $58,342,000. Interest
rate fluctuations will affect the Company's interest expense on its variable
rate debt. If the interest rate on the Company's variable rate debt instruments
outstanding at December 31, 2001 had been one percent higher, annual interest
expense relating to these debt instruments would have increased by $583,000,
based on those balances. Interest rate fluctuations will also affect the fair
value of the Company's fixed rate debt instruments. As of December 31, 2001, the
Company had fixed rate indebtedness totaling $293,478,000. If interest rates on
the Company's fixed rate debt instruments at December 30, 2001 had been one
percent higher, the fair value of those debt instruments on that date would have
decreased by approximately $18,949,000.
Item 8. Financial Statements and Supplementary Data
The financial statements of the Company and its consolidated
subsidiaries are included in this report on the pages indicated, and are
incorporated herein by reference:
Page
----
F-1 (a) Report of Independent Public Accountants
F-2 (b) Consolidated Balance Sheets - December 31, 2001 and 2000
F-3 (c) Consolidated Statements of Operations - Years ended December 31,
2001, 2000 and 1999.
F-4 (d) Consolidated Statements of Stockholders' Equity - Years ended
December 31, 2001, 2000 and 1999.
F-5 (e) Consolidated Statements of Cash Flows - Years ended December 31,
2001, 2000 and 1999.
F-6 (f) Notes to Consolidated Financial Statements
The selected quarterly financial data included in Note 14 of the Notes
to Consolidated Financial Statements referred to above are incorporated herein
by reference.
24
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
PART III
Certain information Part III requires will be filed in a definitive
proxy statement with the SEC pursuant to Regulation 14A (the "Proxy Statement")
not later than 120 days after the end of the fiscal year covered by this Report,
and certain information to be included therein is incorporated herein by
reference. Only those sections or pages of the Proxy Statement which
specifically address the items set forth herein are incorporated by reference.
Item 10. Directors and Executive Officers of the Registrant
The information this Item requires is incorporated by reference to the
information under the captions "Election of Directors" and "Compensation of
Directors" on pages 3 through 7 of the Company's Proxy Statement to be filed
with the SEC for its annual shareholders' meeting to be held on April 26, 2002.
Item 11. Executive Compensation
The information this Item requires is incorporated by reference to the
information under the captions "Compensation Committee Report," "Executive
Compensation" and "Performance Graph" on pages 6, 7 and 10, respectively, of the
Company's Proxy Statement to be filed with the SEC for its annual shareholders'
meeting to be held on April 26, 2002.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information this Item requires is incorporated by reference to the
information under the caption "Security Ownership of Certain Beneficial Owners
and Management" on page 11 of the Company's Proxy Statement to be filed with the
SEC for its annual shareholders' meeting to be held on April 26, 2002.
Item 13. Certain Relationships and Related Transactions
The information this Item requires is incorporated by reference to the
information under the caption "Certain Relationships and Transactions" on page
13 of the Company's Proxy Statement to be filed with the SEC for its annual
shareholders' meeting to be held on April 26, 2002.
25
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
--------------------
The following financial statements of the Company and
their consolidated subsidiaries are incorporated by
reference in Part II, Item 8.
(a) Report of Independent Public Accountants
(b) Consolidated Balance Sheets - December 31, 2001 and 2000
(c) Consolidated Statements of Operations - Years ended
December 31, 2001, 2000 and 1999
(d) Consolidated Statements of Stockholders' Equity - Years
ended December 31, 2001, 2000 and 1999
(e) Consolidated Statements of Cash Flows - Years ended
December 31, 2001, 2000 and 1999
(f) Notes to Consolidated Financial Statements
2. Financial Statement Schedule and Supplementary Data
---------------------------------------------------
(a) Selected Quarterly Financial Data for the Company are
incorporated by reference in Part II, Item 8
(b) Report of Independent Public Accountants on the Schedule
(included in Report of Independent Public Accountants on
the Financial Statements)
(c) Schedule of the Company:
Schedule III - Real Estate and Accumulated Depreciation
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted.
3. Exhibits
--------
(a) First Amended and Restated Articles of Incorporation of
Saul Centers, Inc. filed with the Maryland Department of
Assessments and Taxation on August 23, 1993 and filed as
Exhibit 3.(a) of the 1993 Annual Report of the Company on
Form 10-K is hereby incorporated by reference.
(b) Amended and Restated Bylaws of Saul Centers, Inc. as in
effect at and after August 24, 1993 and as of August 26,
1993 and filed as Exhibit 3(b) of the 1993 Annual Report
of the Company on Form 10-K is hereby incorporated by
reference. The First Amendment to the First Amended and
Restated Agreement of Limited Partnership of Saul
Subsidiary I Limited Partnership, the Second Amendment to
the First Amended and Restated Agreement of Limited
Partnership of Saul Subsidiary I Limited Partnership, the
Third Amendment to the First Amended and Restated
Agreement of Limited Partnership of Saul Subsidiary I
Limited Partnership and the Fourth Amendment to the First
Amended
26
and Restated Agreement of Limited Partnership of Saul
Subsidiary I Limited Partnership as filed as Exhibit
3.(b) of the 1997 Annual Report of the Company on Form
10-K is hereby incorporated by reference.
10. (a) First Amended and Restated Agreement of Limited
Partnership of Saul Holdings Limited Partnership filed as
Exhibit No. 10.1 to Registration Statement No. 33-64562
is hereby incorporated by reference. The First Amendment
to the First Amended and Restated Agreement of Limited
Partnership of Saul Holdings Limited Partnership, the
Second Amendment to the First Amended and Restated
Agreement of Limited Partnership of Saul Holdings Limited
Partnership, and the Third Amendment to the First Amended
and Restated Agreement of Limited Partnership of Saul
Holdings Limited Partnership filed as Exhibit 10.(a) of
the 1995 Annual Report of the Company on Form 10-K is
hereby incorporated by reference. The Fourth Amendment to
the First Amended and Restated Agreement of Limited
Partnership of Saul Holdings Limited Partnership filed as
Exhibit 10.(a) of the March 31, 1997 Quarterly Report of
the Company is hereby incorporated by reference. The
Fifth Amendment to the First Amended and Restated
Agreement of Limited Partnership of Saul Holdings Limited
Partnership filed as Exhibit 4.(c) to Registration
Statement No. 333-41436, is hereby incorporated by
reference.
(b) First Amended and Restated Agreement of Limited
Partnership of Saul Subsidiary I Limited Partnership and
Amendment No. 1 thereto filed as Exhibit 10.2 to
Registration Statement No. 33-64562 are hereby
incorporated by reference. The Second Amendment to the
First Amended and Restated Agreement of Limited
Partnership of Saul Subsidiary I Limited Partnership, the
Third Amendment to the First Amended and Restated
Agreement of Limited Partnership of Saul Subsidiary I
Limited Partnership and the Fourth Amendment to the First
Amended and Restated Agreement of Limited Partnership of
Saul Subsidiary I Limited Partnership as filed as Exhibit
10.(b) of the 1997 Annual Report of the Company on Form
10-K is hereby incorporated by reference.
(c) First Amended and Restated Agreement of Limited
Partnership of Saul II Subsidiary Partnership and
Amendment No. 1 thereto filed as Exhibit 10.3 to
Registration Statement No. 33-64562 are hereby
incorporated by reference.
(d) Property Conveyance Agreement filed as Exhibit 10.4 to
Registration Statement No. 33-64562 is hereby
incorporated by reference.
(e) Management Functions Conveyance Agreement filed as
Exhibit 10.5 to Registration Statement No. 33-64562 is
hereby incorporated by reference.
(f) Registration Rights and Lock-Up Agreement filed as
Exhibit 10.6 to Registration Statement No. 33-64562 is
hereby incorporated by reference.
(g) Exclusivity and Right of First Refusal Agreement filed as
Exhibit 10.7 to Registration Statement No. 33-64562 is
hereby incorporated by reference.
(h) Saul Centers, Inc. 1993 Stock Option Plan filed as
Exhibit 10.8 to Registration Statement No. 33-64562 is
hereby incorporated by reference.
(i) Agreement of Assumption dated as of August 26, 1993
executed by Saul Holdings Limited Partnership and filed
as Exhibit 10. (I) of the 1993 Annual Report of the
Company on Form 10-K is hereby incorporated by reference.
27
(j) Saul Centers, Inc. Dividend Reinvestment and Stock Purchase
Plan as filed with the Securities and Exchange Commission as
File No. 333-54232 is hereby incorporated by reference.
(k) Deferred Compensation Plan for Directors dated as of
December 13, 1993 as filed as Exhibit 10.(r) of the 1995
Annual Report of the Company on Form 10-K, as amended and
restated by the Deferred Compensation and Stock Plan for
Directors, dated as of March 18, 1999, filed as Exhibit
10.(k) of the March 31, 1999 Quarterly Report of the
Company, is hereby incorporated by reference.
(l) Deed of Trust, Assignment of Rents, and Security Agreement
dated as of June 9, 1994 by and between Saul Holdings
Limited Partnership and Ameribanc Savings Bank, FSB as filed
as Exhibit 10.(t) of the 1995 Annual Report of the Company
on Form 10-K is hereby incorporated by reference.
(m) Deed of Trust Note dated as of January 22, 1996 by and
between Saul Holdings Limited Partnership and Clarendon
Station Limited Partnership, filed as Exhibit 10.(s) of the
March 31, 1997 Quarterly Report of the Company, is hereby
incorporated by reference.
(n) Loan Agreement dated as of November 7, 1996 by and among
Saul Holdings Limited Partnership, Saul Subsidiary II
Limited Partnership and PFL Life Insurance Company, c/o
AEGON USA Realty Advisors, Inc., filed as Exhibit 10.(t) of
the March 31, 1997 Quarterly Report of the Company, is
hereby incorporated by reference.
(o) Promissory Note dated as of January 10, 1997 by and between
Saul Subsidiary II Limited Partnership and The Northwestern
Mutual Life Insurance Company, filed as Exhibit 10.(z) of
the March 31, 1997 Quarterly Report of the Company, is
hereby incorporated by reference.
(p) Loan Agreement dated as of October 1, 1997 between Saul
Subsidiary I Limited Partnership, as Borrower and Nomura
Asset Capital Corporation, as Lender, is as filed as Exhibit
10.(p) of the 1997 Annual Report of the Company on Form 10-K
is hereby incorporated by reference.
(q) Revolving Credit Agreement dated as of October 1, 1997 by
and between Saul Holdings Limited Partnership and Saul
Subsidiary II Limited Partnership, as Borrower and U.S. Bank
National Association, as agent, is as filed as Exhibit
10.(q) of the 1997 Annual Report of the Company on Form
10-K, as amended by the First Amendment to Revolving Credit
Agreement dated as of July 18, 2000, as filed as Exhibit
10.(q) of the September 30, 2000 Quarterly Report of the
Company, is hereby incorporated by reference.
(r) Promissory Note, dated as of November 30, 1999 by and
between Saul Holdings Limited Partnership as Borrower and
Wells Fargo Bank National Association as Lender, filed as
Exhibit 10.(r) of the 1999 Annual Report of the Company on
Form 10-K is hereby incorporated by reference.
23. Consent of Independent Public Accountants is filed herewith.
99. Letter from the Company to the SEC regarding Anthur
Andersen LLP.
Reports on Form 8-K.
-------------------
None.
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SAUL CENTERS, INC.
(Registrant)
Date: March 22, 2002 /s/ B. Francis Saul II
-- ------------------------------------------
B. Francis Saul II
Chairman of the Board of Directors
& Chief Executive Officer
(Principal Executive Officer)
Date: March 22, 2002 /s/ B. Francis Saul III
-- ------------------------------------------
B. Francis Saul III, Vice Chairman
and Director
Date: March 22, 2002 /s/ Philip D. Caraci
-- ------------------------------------------
Philip D. Caraci, President and Director
Date: March 22, 2002 /s/ Scott V. Schneider
-- ------------------------------------------
Scott V. Schneider, Senior Vice President,
Treasurer and Secretary (Principal
Financial and Accounting Officer)
Date: March 22, 2002 /s/ Gilbert M. Grosvenor
-- ------------------------------------------
Gilbert M. Grosvenor, Director
Date: March 22, 2002 /s/ Philip C. Jackson Jr.
-- ------------------------------------------
Philip C. Jackson Jr., Director
Date: March 22, 2002 /s/ General Paul X. Kelley
-- ------------------------------------------
General Paul X. Kelley, Director
Date: March 22, 2002 /s/ Charles R. Longsworth
-- ------------------------------------------
Charles R. Longsworth, Director
Date: March 22, 2002 /s/ Patrick F. Noonan
-- ------------------------------------------
Patrick F. Noonan, Director
Date: March 22, 2002 /s/ Mr. Mark Sullivan III
-- ------------------------------------------
Mark Sullivan III, Director
Date: March 22, 2002 /s/ James W. Symington
-- ------------------------------------------
James W. Symington, Director
Date: March 22, 2002 /s/ John R. Whitmore
-- ------------------------------------------
John R. Whitmore, Director
29
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Saul Centers, Inc.:
We have audited the accompanying consolidated balance sheets of Saul Centers,
Inc. (a Maryland corporation) and subsidiaries as of December 31, 2001 and 2000,
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Saul Centers, Inc. and
subsidiaries as of December 31, 2001 and 2000, and the results of its operations
and its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States.
Vienna, Virginia
February 13, 2002
F-1
Saul Centers, Inc.
CONSOLIDATED BALANCE SHEETS
December 31,
(Dollars in thousands, except per share amounts) 2001 2000
----------------------------------------------------------------------------------------------------------------------
Assets
Real estate investments
Land $ 67,710 $ 66,252
Buildings and equipment 385,936 325,609
------------------ ------------------
453,646 391,861
Accumulated depreciation (136,928) (124,180)
------------------ ------------------
316,718 267,681
Construction in progress 1,163 41,148
Cash and cash equivalents 1,805 1,772
Accounts receivable and accrued income, net 9,217 9,011
Prepaid expenses 12,514 9,485
Deferred debt costs, net 3,563 3,583
Other assets 1,423 1,770
------------------ ------------------
Total assets $ 346,403 $ 334,450
================== ==================
Liabilities
Notes payable $ 351,820 $ 343,453
Accounts payable, accrued expenses and other liabilities 14,697 19,592
Deferred income 4,009 2,560
------------------ ------------------
Total liabilities 370,526 365,605
------------------ ------------------
Minority interests -- --
------------------ ------------------
Stockholders' equity (deficit)
Common stock, $0.01 par value, 30,000,000 shares
authorized, 14,535,803 and 13,869,535 shares issued and
outstanding, respectively 145 139
Additional paid-in capital 64,564 52,594
Accumulated deficit (88,832) (83,888)
------------------ ------------------
Total stockholders' equity (deficit) (24,123) (31,155)
------------------ ------------------
Total liabilities and stockholders' equity (deficit) $ 346,403 $ 334,450
================== ==================
The accompanying notes are an integral part of these statements.
F-2
Saul Centers, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended December 31,
(Dollars in thousands, except per share amounts) 2001 2000 1999
--------------------------------------------------------------------------------------------------------------------------------
Revenues
Base rent $ 69,662 $ 63,837 $ 59,200
Expense recoveries 11,456 11,129 10,176
Percentage rent 2,113 2,097 2,222
Other 3,077 1,966 2,193
-------------------- -------------------- --------------------
Total revenues 86,308 79,029 73,791
-------------------- -------------------- --------------------
Operating expenses
Property operating expenses 8,503 8,271 7,720
Provision for credit losses 617 467 295
Real estate taxes 7,226 6,451 6,207
Interest expense 24,920 23,843 22,568
Amortization of deferred debt costs 566 458 416
Depreciation and amortization 14,758 13,534 12,163
General and administrative 4,335 3,891 3,755
-------------------- -------------------- --------------------
Total operating expenses 60,925 56,915 53,124
-------------------- -------------------- --------------------
Operating income 25,383 22,114 20,667
Non-operating item
Gain on sale of property -- -- 553
-------------------- -------------------- --------------------
Net income before minority interests 25,383 22,114 21,220
-------------------- -------------------- --------------------
Minority interests
Minority share of income (6,777) (6,081) (5,899)
Distributions in excess of earnings (1,292) (1,988) (2,024)
-------------------- -------------------- --------------------
Total minority interests (8,069) (8,069) (7,923)
-------------------- -------------------- --------------------
Net income $ 17,314 $ 14,045 $ 13,297
==================== ==================== ====================
Per share (basic and dilutive)
Net income before minority interests $ 1.31 $ 1.18 $ 1.17
==================== ==================== ====================
Net income $ 1.22 $ 1.03 $ 1.01
==================== ==================== ====================
The accompanying notes are an integral part of these statements.
F-3
Saul Centers, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Additional
Common Paid-in Accumulated
(Dollars in thousands, except per share amounts) Stock Capital Deficit Total
--------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity (deficit):
Balance, December 31, 1998 $ 129 $ 31,967 $ (69,380) $ (37,284)
Issuance of 497,767 shares of
common stock 4 7,158 -- 7,162
Issuance of 373,546 convertible
limited partnership units in the
Operating Partnership -- 5,491 -- 5,491
Net income -- -- 13,297 13,297
Distributions ($1.17 per share) -- -- (15,323) (15,323)
Distributions payable ($.39 per share) -- -- (5,202) (5,202)
----------------- ----------------- ---------------- ----------------
Balance, December 31, 1999 133 44,616 (76,608) (31,859)
Issuance of 535,390 shares of
common stock 6 7,978 -- 7,984
Net income -- -- 14,045 14,045
Distributions ($1.17 per share) -- -- (15,915) (15,915)
Distributions payable ($.39 per share) -- -- (5,410) (5,410)
----------------- ----------------- ---------------- ----------------
Balance, December 31, 2000 139 52,594 (83,888) (31,155)
Issuance of 666,268 shares of
common stock 6 11,970 -- 11,976
Net income -- -- 17,314 17,314
Distributions ($1.17 per share) -- -- (16,588) (16,588)
Distributions payable ($.39 per share) -- -- (5,670) (5,670)
----------------- ----------------- ---------------- ----------------
Balance, December 31, 2001 $ 145 $ 64,564 $ (88,832) $ (24,123)
================= ================= ================ ================
The accompanying notes are an integral part of these statements.
F-4
Saul Centers, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended December 31,
(Dollars in thousands) 2001 2000 1999
----------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 17,314 $ 14,045 $ 13,297
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interests 8,069 8,069 7,923
Gain on sale of property -- -- (553)
Depreciation and amortization 15,324 13,992 12,579
Provision for credit losses 617 467 295
Increase in accounts receivable (823) (1,284) (2,671)
Increase in prepaid expenses (5,568) (3,152) (2,434)
Decrease (increase) in other assets 347 (252) (360)
(Decrease) increase in accounts payable,
accrued expenses and other liabilities (4,895) 1,201 3,535
Increase (decrease) in deferred income 1,449 (305) 26
Other, net -- -- 8
------------------- ------------------ ------------------
Net cash provided by operating activities 31,834 32,781 31,645
------------------- ------------------ ------------------
Cash flows from investing activities:
Net proceeds from sale of property -- -- 1,718
Additions to real estate investments (13,055) (18,233) (11,587)
Additions to construction in progress (8,745) (25,193) (27,051)
------------------- ------------------ ------------------
Net cash used in investing activities (21,800) (43,426) (36,920)
------------------- ------------------ ------------------
Cash flows from financing activities:
Proceeds from notes payable 51,218 69,700 33,979
Repayments on notes payable (42,851) (36,515) (14,334)
Additions to deferred debt costs (17) (315) (13)
Proceeds from the issuance of common stock and
convertible limited partnership units in
the Operating Partnership 11,976 7,984 12,653
Distributions to common stockholders and holders
of convertible limited partnership units in
the Operating Partnership (30,327) (29,394) (28,448)
------------------- ------------------ ------------------
Net cash (used in) provided by financing activities (10,001) 11,460 3,837
------------------- ------------------ ------------------
Net increase (decrease) in cash and cash equivalents 33 815 (1,438)
Cash and cash equivalents, beginning of year 1,772 957 2,395
------------------- ------------------ ------------------
Cash and cash equivalents, end of year $ 1,805 $ 1,772 $ 957
=================== ================== ==================
Supplemental disclosures of cash flow information:
Cash paid for interest, net of amount capitalized $ 24,419 $ 23,456 $ 22,698
The accompanying notes are an integral part of these statements.
F-5
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
1. ORGANIZATION, FORMATION, AND BASIS OF PRESENTATION
Organization
Saul Centers, Inc. ("Saul Centers") was incorporated under the Maryland
General Corporation Law on June 10, 1993. The authorized capital stock of Saul
Centers consists of 30,000,000 shares of common stock, having a par value of
$0.01 per share, and 1,000,000 shares of preferred stock. Each holder of common
stock is entitled to one vote for each share held. 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". Saul Centers operates as a real estate investment
trust under the Internal Revenue Code of 1986, as amended (a "REIT").
Formation and Structure of Company
Saul Centers was formed to continue and expand the shopping center
business previously owned and conducted by the B.F. Saul Real Estate Investment
Trust, the B.F. Saul Company, Chevy Chase Bank, F.S.B. and certain other
affiliated entities (collectively, "The Saul Organization"). On August 26, 1993,
The Saul Organization transferred to Saul Holdings Limited Partnership, a newly
formed Maryland limited partnership (the "Operating Partnership"), and two newly
formed subsidiary limited partnerships (the "Subsidiary Partnerships") shopping
center and office properties, and the management functions related to the
transferred properties. Since its formation, the Company has purchased and
developed additional properties. The Company is currently developing Ashburn
Village IV, an in-line retail and retail pad expansion to the Ashburn Village
shopping center. The Company recently completed development of Ashburn Village
III, Washington Square at Old Town and Crosstown Business Center. As of December
31, 2001, the Company's properties (the "Current Portfolio Properties")
consisted of 27 operating shopping center properties and Ashburn Village IV (the
"Shopping Centers") and 5 predominantly office operating properties (the "Office
Properties"). To facilitate the placement of collateralized mortgage debt, the
Company established Saul QRS, Inc. a wholly owned subsidiary of Saul Centers.
Saul QRS, Inc. was established to succeed to the interest of Saul Centers as the
sole general partner of Saul Subsidiary I Limited Partnership.
As a consequence of the transactions constituting the formation of the
Company, Saul Centers serves as the sole general partner of the Operating
Partnership and of Saul Subsidiary II Limited Partnership, while Saul QRS, Inc.
serves as the sole general partner of Saul Subsidiary I Limited Partnership. The
remaining limited partnership interests in Saul Subsidiary I Limited Partnership
and Saul Subsidiary II Limited Partnership are held by the Operating Partnership
as the sole limited partner. Through this structure, the Company owns 100% of
the Current Portfolio Properties.
Basis of Presentation
The accompanying financial statements of the Company have been
presented on the historical cost basis of The Saul Organization because of
affiliated ownership and common management and because the assets and
liabilities were the subject of a business combination with the Operating
Partnership, the Subsidiary Partnerships and Saul Centers, all newly formed
entities with no prior operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Company, which conducts all of its activities through its
subsidiaries, the Operating Partnership and Subsidiary Partnerships, engages in
the ownership, operation, management, leasing, acquisition, renovation,
expansion, development and financing of community and neighborhood shopping
centers and office properties, primarily in the Washington DC/Baltimore
metropolitan area. 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 several major tenants. Seventeen of the
Shopping Centers are anchored by a grocery store and offer primarily day-to-day
necessities and services. As of
F-6
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
December 31, 2001, no single Shopping Center accounted for more than 11.5% of
the total Shopping Center gross leasable area. Only one retail tenant, Giant
Food, at 6.2%, accounted for more than 2.1% of the Company's 2001 total
revenues. No office tenant other than the United States Government, at 9.7%,
accounted for more than 1.1% of 2001 total revenues.
Principles of Consolidation
The accompanying consolidated financial statements of the Company
include the accounts of Saul Centers, its subsidiaries, and the Operating
Partnership and Subsidiary Partnerships which are majority owned by Saul
Centers. All significant intercompany balances and transactions have been
eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
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 revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Real Estate Investment Properties
Real estate investment properties are stated at historic cost basis
less depreciation. Management believes that these assets have generally
appreciated in value 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 these financial statements. These financial statements are
prepared in conformity with accounting principles generally accepted in the
United States, and accordingly, do not report the current value of the Company's
real estate assets.
If there is an event or change in circumstance that indicates an
impairment in the value of a real estate investment property, the Company's
policy is to assess any impairment in value by making a comparison of the
current and projected operating cash flows of the property over its remaining
useful life, on an undiscounted basis, to the carrying amount of that property.
If such carrying amount is in excess of the estimated projected operating cash
flows of the property, the Company would recognize an impairment loss equivalent
to an amount required to adjust the carrying amount to its estimated fair market
value. The Company has not recognized an impairment loss in 2001, 2000 or 1999
on any of its real estate.
Interest, real estate taxes and other carrying costs are capitalized on
projects under construction. Once construction is substantially complete and the
assets are placed in service, rental income, direct operating expenses, and
depreciation associated with such properties are included in current operations.
Expenditures for repairs and maintenance, which includes contract services such
as grounds maintenance, lot sweeping and snow removal, are charged to operations
as incurred. Repairs and maintenance expense totaled $2,913,000, $3,144,000 and
$2,815,000, for 2001, 2000 and 1999, respectively, and is included in operating
expenses in the accompanying consolidated financial statements. Interest expense
capitalized totaled $1,640,000, $2,681,000 and $934,000, for 2001, 2000 and
1999, respectively.
In the initial rental operations of development projects, a project is
considered substantially complete and available for occupancy upon completion of
tenant improvements, but no later than one year from the cessation of major
construction activity. Substantially completed portions of a project are
accounted for as separate projects. Depreciation is calculated using the
straight-line method and estimated useful lives of 33 to 50 years for buildings
and up to 20 years for certain other improvements. Leasehold improvements are
amortized over the lives of the related leases using the straight-line method.
Lease Acquisition Costs
Certain initial direct costs incurred by the Company in negotiating and
consummating a successful lease are capitalized and amortized over the initial
base term of the lease. These costs, net of accumulated amortization, are
included in prepaid expenses and total $10,419,000 and $7,708,000 as of December
31, 2001 and 2000, respectively.
F-7
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
Capitalized leasing costs consist of commissions paid to third party leasing
agents as well as internal direct costs such as employee compensation and
payroll related fringe benefits directly related to time spent performing
leasing related activities. Such activities include evaluating the prospective
tenant's financial condition, evaluating and recording guarantees, collateral
and other security arrangements, negotiating lease terms, preparing lease
documents and closing the transaction.
Construction in Progress
Construction in progress includes the costs of active development
projects and other predevelopment project costs. Development costs include
direct construction costs and indirect costs such as architectural, engineering,
construction management and carrying costs consisting of interest, real estate
taxes and insurance. Construction in progress balances as of December 31, 2001
and 2000 are as follows:
Construction in Progress
------------------------
(In thousands)
December 31,
2001 2000
------- -------
Ashburn Village IV ....................... $ 1,163 $ 692
Ashburn Village III ...................... -- 1,413
Washington Square ........................ -- 38,588
Crosstown Business Center ................ -- 455
------- -------
Balance .................................. $ 1,163 $41,148
======= =======
Accounts Receivable and Accrued Income
Accounts receivable primarily represent amounts currently due from
tenants in accordance with the terms of the respective leases. In addition,
accounts receivable include $4,675,000 and $3,053,000 at December 31, 2001 and
2000, respectively, representing minimum rental income accrued on a
straight-line basis to be paid by tenants over the term of the respective
leases. Receivables are reviewed monthly and reserves are established with a
charge to current period operations when, in the opinion of management,
collection of the receivable is doubtful. Accounts receivable in the
accompanying consolidated financial statements are shown net of an allowance for
doubtful accounts of $559,000 and $563,000, at December 31, 2001 and 2000,
respectively.
Allowance for Doubtful Accounts
-------------------------------
(In thousands)
For the Years Ended December 31,
2001 2000
---- ----
Beginning Balance ................... $563 $594
Provision for Credit Losses ......... 617 467
Charge-offs ......................... -621 -498
---- ----
Ending Balance ...................... $559 $563
==== ====
Deferred Debt Costs
Deferred debt costs consist of fees and costs incurred to obtain
long-term financing, construction financing and the revolving line of credit.
These fees and costs are being amortized over the terms of the respective loans
or agreements. Deferred debt costs in the accompanying consolidated financial
statements are shown net of accumulated amortization of $1,968,000 and
$1,402,000, at December 31, 2001 and 2000, respectively.
Deferred Income
Deferred income consists of payments received from tenants prior to the
time they are earned and recognized by the Company as revenue. These payments
include prepayment of the following month's rent, prepayment of real estate
taxes when the taxing jurisdiction has a fiscal year differing from the calendar
year
F-8
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
reimbursements specified in the lease agreement and payments by tenants for
tenant construction work provided by the Company.
Revenue Recognition
Rental and interest income is accrued as earned except when doubt
exists as to collectibility, in which case the accrual is discontinued. When
rental payments due under leases vary from a straight-line basis because of free
rent periods or stepped increases, income is recognized on a straight-line basis
in accordance with accounting principles generally accepted in the United
States. Expense recoveries represent a portion of property operating expenses
billed to the tenants, including common area maintenance, real estate taxes and
other recoverable costs. Expense recoveries are recognized in the period when
the expenses are incurred. Rental income based on a tenant's revenues
("percentage rent") is accrued when a tenant reports sales that exceed a
specified breakpoint.
Income Taxes
The Company made an election to be treated, and intends to continue
operating so as to qualify as a REIT under sections 856 through 860 of the
Internal Revenue Code of 1986, as amended, commencing with its taxable year
ending December 31, 1993. A REIT generally will not be subject to federal income
taxation on that portion of its income that qualifies as REIT taxable income to
the extent that it distributes at least 90% of its REIT taxable income to
stockholders and complies with certain other requirements. Therefore, no
provision has been made for federal income taxes in the accompanying
consolidated financial statements. As of December 31, 2001 and 2000, the total
tax basis of the Company's assets was $375,210,000 and $362,586,000, and the tax
basis of the liabilities was $362,464,000 and $353,908,000, respectively.
Deferred Compensation and Stock Plan for Directors
Saul Centers has established a Deferred Compensation and Stock Plan for
Directors (the "Plan") for the benefit of its directors and their beneficiaries.
A director may elect to defer all or part of his or her director's fees and has
the option to have the fees paid in cash, in shares of common stock or in a
combination of cash and shares of common stock upon termination from the Board
of Directors. If the director elects to have fees paid in stock, the number of
shares allocated to the director is determined by the market price of the common
stock on the day the fee is earned. As of December 31, 2001, 120,000 shares were
authorized and registered for use under the Plan, and 112,000 shares had been
credited to the directors' deferred fee accounts.
Beginning in 1999, pursuant to the Plan, 100 shares of the Company's
common stock are awarded annually as additional compensation to each director
serving on the Board of Directors as of the record date for the Annual Meeting
of Stockholders. The shares are issued on the date of the Annual Meeting, their
issuance may not be deferred and transfer of the shares is restricted for a
period of twelve months following the date of issue.
Recent Accounting Pronouncements
Saul Centers, Inc. will adopt Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards ("SFAS") 144, "Accounting
for Impairment or Disposal of Long-Lived Assets," effective January 1, 2002.
This Statement addresses financial accounting and reporting for the impairment
or disposal of long-lived assets. The Statement retains the requirements of SFAS
121, "Accounting for the Impairment of Long Lived Assets and for Long-Lived
Assets to be Disposed Of" for long-lived assets to be held and used. SFAS 144
also supercedes the accounting and reporting provisions of APB Opinion No. 30
for segments of a business to be disposed of, but retains APB Opinion No. 30's
requirement to report discontinued operations separately from continuing
operations and extends that reporting to a component of an entity that either
has been disposed of or is classified as held for sale. The adoption of SFAS 144
will not have a material impact on the Company's financial statements.
F-9
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
Cash and Cash Equivalents
Cash and cash equivalents includes cash and short-term investments with
maturities of three months or less measured from the acquisition date.
Per Share Data
Per share data is calculated in accordance with SFAS No. 128, "Earnings
Per Share". The Company has no dilutive securities, therefore, basic and diluted
earnings per share are identical. Net income before minority interests is
presented on a fully converted basis, that is, assuming the limited partners
exercise their right to convert their partnership ownership into shares of Saul
Centers and is computed using weighted average shares outstanding of 19,382,715,
18,795,571 and 18,147,954, for the years ended December 31, 2001, 2000 and 1999,
respectively. Per share data relating to net income after minority interests is
computed on the basis of 14,210,474, 13,623,330 and 13,100,295, weighted average
common shares for the years ended December 31, 2001, 2000 and 1999,
respectively.
3. MINORITY INTERESTS - HOLDERS OF CONVERTIBLE LIMITED PARTNERSHIP UNITS
IN THE OPERATING PARTNERSHIP
The Saul Organization has a 26.2% limited partnership interest,
represented by 5,172,241 convertible limited partnership units, in the Operating
Partnership, as of December 31, 2001. These convertible limited partnership
units are convertible into shares of Saul Centers' common stock on a one-for-one
basis, provided the rights may not be exercised at any time that The Saul
Organization owns, directly or indirectly, in the aggregate more than 29.9% of
the outstanding equity securities of Saul Centers. The impact of the Saul
Organization's 26.2% limited partnership interest in the Operating Partnership
is reflected as minority interests in the accompanying consolidated financial
statements.
4. NOTES PAYABLE
During 2001 the Company obtained three new mortgage loans totaling
$24,000,000 from an existing lender, secured by Van Ness Square and recent
developments at Ashburn Village and Avenel Business Park. The loans require
monthly payments of principal and interest based upon a weighted average 21.5
year amortization period and a fixed weighted average 7.38% interest rate. The
Company also extended until January 2003, its $42,000,000 construction loan used
to finance the building of Washington Square at Old Town. Borrowings on the
Company's $70,000,000 unsecured line of credit totaled $20,000,000 at December
31, 2001, leaving $50,000,000 available for future use. The following is a
summary of notes payable as of December 31, 2001 and 2000:
F-10
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
($s in thousands) Principal Outstanding December 31, Interest Scheduled
2001 2000 Rate * Maturity *
------------------------------------------------------------------------
Fixed Rate Mortgages: $ 138,215 (a) $ 140,597 7.67 % Oct 2012
95,716 (b) 74,342 8.23 % Dec 2011
35,583 (c) 36,279 7.88 % Jan 2013
13,936 (d) 14,184 8.33 % May 2015
10,028 (e) 10,227 6.88 % May 2004
------------------------------------------------------------------------
Total Fixed Rate 293,478 275,629 7.88 % 10.4 Years
------------------------------------------------------------------------
Variable Rate Loans:
Construction Loan 38,342 (f) 33,324 3.64 % Jan 2003
Line of Credit 20,000 (g) 34,500 3.69 % Jul 2003
------------------------------------------------------------------------
Total Variable Rate 58,342 67,824 3.66 % 1.2 Years
------------------------------------------------------------------------
Total Notes Payable $ 351,820 $ 343,453 7.18 % 8.9 Years
========================================================================
*Interest rate and scheduled maturity data presented for December 31, 2001.
Totals computed using weighted averages.
(a) The loan is collateralized by nine shopping centers and requires
monthly principal and interest payments based upon a 25 year
amortization schedule. Principal of $2,382,000 was amortized during
2001.
(b) The loan is collateralized by Avenel Business Park, Van Ness Square,
Ashburn Village, Leesburg Pike, Lumberton Plaza and Village Center. The
loan was amended during 2001 to include new borrowings of $24,000,000
at an average rate of 7.38%. The 8.23% blended interest rate is the
weighted average of the initial loan rate and additional borrowings
rates. Monthly principal and interest payments are based upon a
weighted average 23 year amortization schedule. Principal of $2,626,000
was amortized during 2001.
(c) The loan is collateralized by 601 Pennsylvania Avenue and requires
monthly principal and interest payments based upon a 25 year
amortization schedule. Principal of $696,000 was amortized during 2001.
(d) The loan is collateralized by Shops at Fairfax and Boulevard shopping
centers and requires monthly principal and interest payments based upon
a 22 year amortization schedule. Principal of $248,000 was amortized
during 2001.
(e) The loan is collateralized by The Glen shopping center and requires
monthly principal and interest payments based upon a 23 year
amortization schedule. Principal of $199,000 was amortized during 2001.
(f) The loan is a construction loan totaling $42,000,000 and is
collateralized by Washington Square. Interest expense is calculated
based upon the 1, 2, 3 or 6 month LIBOR rate plus a spread of 1.45% to
1.9% (determined by certain leasing and/or construction benchmarks) or
upon the bank's prime rate at the Company's option. The loan was
extended until January 2003 upon payment in 2001 of a fee of 1/4% or
$105,000. The loan may be further extended for an additional one-year
term with payment of a fee of 1/4% and the achievement of certain debt
service and valuation tests, at the Company's option. The interest rate
in effect on December 31, 2001 was based on a weighted average LIBOR of
1.94% and spread of 1.7%. The effective annual average interest rate,
which considers debt cost amortization, was 6.15% for 2001.
(g) The loan is an unsecured revolving credit facility totaling
$70,000,000. Interest expense is calculated based upon the 1,2,3 or 6
month LIBOR rate plus a spread of 1.625% to 1.875% (determined by
certain debt service coverage and leverage tests) or upon the bank's
reference rate at the Company's option. The line may be extended one
year with payment of a fee of 1/4% at the Company's option. The
interest rate in effect on December 31, 2001 was based on a weighted
average LIBOR of 1.94% and spread of 1.75%. The effective annual
average interest rate, which considers debt cost amortization and
unused line fees, was 7.14% for 2001.
The December 31, 2001 and 2000, depreciation adjusted cost of
properties collateralizing the mortgage notes payable totaled $264,831,000 and
$218,415,000, respectively. Certain loans are subject to financial covenant
tests, the most significant of which are debt service coverage and loan to asset
value requirements. The Company
F-11
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
believes it is in compliance with all such covenants. Notes payable at December
31, 2001 and 2000, totaling $242,168,000 and $225,616,000, respectively, are
guaranteed by members of The Saul Organization.
As of December 31, 2001, the scheduled maturities of all debt for years
ended December 31, are as follows:
Debt Maturity Schedule
----------------------
(In thousands)
2002..................... $ 6,293
2003..................... 65,159
2004..................... 16,631
2005..................... 7,713
2006..................... 8,359
Thereafter............... 247,665
-----------
$ 351,820
===========
5. LEASE AGREEMENTS
Lease income includes primarily base rent arising from noncancelable commercial
leases. Base rent for the years ended December 31, 2001, 2000 and 1999, amounted
to $69,662,000, $63,837,000 and $59,200,000, respectively. Future base rent
under noncancelable leases for years ended December 31, is as follows:
Future Base Rental Income
-------------------------
(In thousands)
2002..................... $ 65,331
2003..................... 60,114
2004..................... 54,675
2005..................... 48,569
2006..................... 41,640
Thereafter............... 253,310
-----------
$ 523,639
===========
The majority of the leases also provide for rental increases and expense
recoveries based on increases in the Consumer Price Index or increases in
operating expenses, or both. These increases generally are payable in equal
installments throughout the year based on estimates, with adjustments made in
the succeeding year. Expense recoveries for the years ended December 31, 2001,
2000 and 1999 amounted to $11,456,000, $11,129,000 and $10,176,000,
respectively. In addition, certain retail leases provide for percentage rent
based on sales in excess of the minimum specified in the tenant's lease.
Percentage rent amounted to $2,113,000, $2,097,000 and $2,222,000, for the years
ended December 31, 2001, 2000 and 1999, respectively.
6. LONG-TERM LEASE OBLIGATIONS
Certain properties are subject to noncancelable long-term leases which
apply to land underlying the Shopping Centers. Certain of the leases provide for
periodic adjustments of the base annual rent and require the payment of real
estate taxes on the underlying land. The leases will expire between 2058 and
2068. Reflected in the accompanying consolidated financial statements is minimum
ground rent expense of $167,000, $157,000 and $154,000, for each of the years
ended December 31, 2001, 2000 and 1999, respectively. The minimum future rental
commitments under these ground leases are as follows:
F-12
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
Ground Lease Rental Commitments
-------------------------------
(In thousands)
Annually Total
2002-2006 Thereafter
--------- ----------
Beacon Center $ 53 $ 3,289
Olney 51 4,474
Southdale 60 3,665
--------- ----------
Total $ 164 $ 11,428
========= ==========
In addition to the above, Flagship Center consists of two developed
outparcels that are part of a larger adjacent community shopping center formerly
owned by The Saul Organization and sold to an affiliate of a tenant in 1991. The
Company has a 90-year ground leasehold interest which commenced in September
1991 with a minimum rent of one dollar per year.
7. STOCKHOLDERS' EQUITY AND MINORITY INTERESTS
The consolidated statement of operations for the year ended December 31,
2001 includes a charge for minority interests of $8,069,000, consisting of
$6,777,000 related to The Saul Organization's share of the net income for the
year and $1,292,000 related to distributions to minority interests in excess of
allocated net income for the year. The charge for the year ended December 31,
2000 of $8,069,000 consists of $6,081,000 related to The Saul Organization's
share of the net income for the year and $1,988,000 related to distributions to
minority interests in excess of allocated net income for the year. The charge
for the year ended December 31, 1999 of $7,923,000 consists of $5,899,000
related to The Saul Organization's share of net income for the year and
$2,024,000 related to distributions to minority interests in excess of allocated
net income for the year.
8. RELATED PARTY TRANSACTIONS
In October 2000, the Company purchased, through its Operating Partnership,
Avenel VI, a 30,000 square foot office/flex property for $4,200,000 based on an
independent third party appraisal. The seller was a member of The Saul
Organization.
In August 2000 and October 1999, the Company purchased land parcels of 7.11
and 6.47 acres, located within the 1,580 acre community of Ashburn Village in
Loudoun County, Virginia, adjacent to its Ashburn Village neighborhood shopping
center at a price of $1,580,000 and $1,438,000, respectively, based on an
independent third party appraisal. The land is being developed to expand the
existing shopping center. The seller was a member of The Saul Organization.
Chevy Chase Bank, an affiliate of The Saul Organization, leases space in 13
of the Company's properties. Total rental income from Chevy Chase Bank amounted
to $1,330,000, $1,223,000 and $1,169,000, for the years ended December 31, 2001,
2000 and 1999, respectively.
The Chairman and Chief Executive Officer, the Vice Chairman and the
President of the Company are officers of The Saul Organization but devote a
substantial amount of time to the management of the Company. The annual
compensation for these officers is fixed by the Compensation Committee of the
Board of Directors.
The Company shares with The Saul Organization on a prorata basis certain
ancillary functions such as computer and payroll services and insurance expense
based on management's estimate of usage or time incurred, as applicable. Also,
The Saul Organization subleases office space to the Company. The terms of all
such arrangements with The Saul Organization, including payments related
thereto, are periodically reviewed by the Audit Committee of the Board of
Directors. Included in general and administrative expense for the years ended
December 31, 2001, 2000 and 1999, are charges totaling $1,971,000, $2,091,000
and $1,798,000, related to shared
F-13
SAUL CENTERS, INC.
Notes to Consolidated Fianacial Statements
services, of which $2,010,000, $2,056,000 and $1,773,000, were paid during the
years ended December 31, 2001, 2000 and 1999, respectively.
9. STOCK OPTION PLAN
The Company has established a stock option plan for the purpose of
attracting and retaining executive officers and other key personnel. The plan
provides for grants of options to purchase a specified number of shares of
common stock. A total of 400,000 shares are available under the plan. The plan
authorizes the Compensation Committee of the Board of Directors to grant options
at an exercise price which may not be less than the market value of the common
stock on the date the option is granted.
The Compensation Committee has granted options to purchase a total of
180,000 shares (90,000 shares from incentive stock options and 90,000 shares
from nonqualified stock options) to five Company officers. The options vested
25% per year over four years, have an exercise price of $20 per share and a term
of ten years, subject to earlier expiration upon termination of employment. A
total of 170,000 of the options expire September 23, 2003 and 10,000 expire
September 24, 2004. As of December 31, 2001, all 180,000 of the options were
fully vested. No compensation expense has been recognized as a result of these
grants.
10. NON-OPERATING ITEMS
Gain on Sale of Property
Gain on sale of property of $553,000 in 1999 resulted from the District of
Columbia's purchase of the Company's Park Road property as part of an assemblage
of parcels for a neighborhood revitalization project. There were no property
sales in 2001 or 2000.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments," requires disclosure about the fair value of
financial instruments. The carrying values of cash, accounts receivable,
accounts payable and accrued expenses are reasonable estimates of their fair
value. Based on interest rates currently available to the Company, the carrying
value of the variable rate credit line payable is a reasonable estimation of
fair value, because the debt bears interest based on short-term interest rates.
Based upon management's estimate of borrowing rates and loan terms currently
available to the Company for fixed rate financing in the amount of the total
notes payable, the fair value is not materially different from its carrying
value.
12. 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.
The Company has contracted with a third party to purchase 24.0 acres of
land zoned for retail development in Loudoun County, Virginia, for a purchase
price of $5.3 million. Closing is scheduled for March 2002.
F-14
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
13. DISTRIBUTIONS
In December 1995, the Company established a Dividend Reinvestment and Stock
Purchase Plan (the "Plan"), to allow its stockholders and holders of limited
partnership interests an opportunity to buy additional shares of common stock by
reinvesting all or a portion of their dividends or distributions. The Plan
provides for investing in newly issued shares of common stock at a 3% discount
from market price without payment of any brokerage commissions, service charges
or other expenses. All expenses of the Plan are paid by the Company.
Of the distributions paid during 2001, $1.53 per share represented ordinary
dividend income and $0.03 per share represented return of capital to the
shareholders. The following summarizes distributions paid during the years ended
December 31, 2001, 2000 and 1999, including activity in the Plan:
Total Distributions to Dividend Reinvestment Plan
---------------------- --------------------------
Limited Common
Common Partnership Stock Units Discounted
Stockholders Unitholders Issued Issued Share Price
------------ ----------- ------ ------ -----------
(in thousands) (in thousands)
Distributions during 2001
-------------------------
October 31 $ 5,599 $ 2,018 176,319 -- $ 18.62
July 31 5,529 2,017 175,790 -- 18.04
April 30 5,460 2,017 169,753 -- 17.95
January 31 5,410 2,017 123,561 -- 17.07
-------- ------- ------- -------
$ 21,998 $ 8,069 645,423 --
======== ======= ======= =======
Distributions during 2000
-------------------------
October 31 $ 5,356 $ 2,018 133,435 -- $ 14.85
July 31 5,305 2,017 125,705 -- 15.34
April 28 5,254 2,017 125,558 -- 14.97
January 31 5,202 2,017 129,789 -- 14.43
-------- ------- ------- -------
$ 21,117 $ 8,069 514,487 --
======== ======= ======= =======
Distributions during 1999
-------------------------
October 29 $ 5,148 $ 2,017 130,753 -- $ 13.76
July 30 5,100 2,018 119,142 126,967 14.79
April 30 5,075 1,967 111,990 119,877 15.28
January 29 4,985 1,921 116,727 126,702 14.07
-------- ------- ------- -------
$ 20,308 $ 7,923 478,612 373,546
======== ======= ======= =======
In December 2001, 2000 and 1999, the Board of Directors of the Company
authorized a distribution of $0.39 per share payable in January 2002, 2001 and
2000, to holders of record on January 17, 2002, January 17, 2001 and January 15,
2000, respectively. As a result, $5,670,000, $5,410,000 and $5,202,000, were
paid to common shareholders on January 31, 2002, January 31, 2001 and January
31, 2000, respectively. Also, $2,017,000, $2,017,000 and $2,017,000, were paid
to limited partnership unitholders on January 31, 2002, January 31, 2001 and
January 31, 2000 ($0.39 per Operating Partnership unit), respectively. These
amounts are reflected as a reduction of stockholders' equity and are included in
accounts payable in the accompanying consolidated financial statements.
F-15
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
14. INTERIM RESULTS (UNAUDITED)
The following summary presents the results of operations of the Company for
the quarterly periods of years 2001, 2000 and 1999.
(In thousands, except
---------------------------------------------------------
per share amounts) Three Months Ended
---------------------------------------------------------
12/31/2001 09/30/2001 06/30/2001 03/31/2001
---------- ---------- ---------- ----------
Revenues $ 22,620 $ 21,533 $ 20,919 $ 21,236
---------- ---------- ---------- ----------
Net income before minority interests 7,119 6,289 5,924 6,051
Minority interests (2,018) (2,017) (2,017) (2,017)
---------- ---------- ---------- ----------
Net income $ 5,101 $ 4,272 $ 3,907 $ 4,034
========== ========== ========== ==========
Per Share Data:
Net income before minority interests $ 0.36 $ 0.32 $ 0.31 $ 0.32
========== ========== ========== ==========
Net income $ 0.35 $ 0.30 $ 0.28 $ 0.29
========== ========== ========== ==========
---------------------------------------------------------
Three Months Ended
---------------------------------------------------------
12/31/2000 09/30/2000 06/30/2000 03/31/2000
---------- ---------- ---------- ----------
Revenues $ 20,910 $ 19,724 $ 18,988 $ 19,407
---------- ---------- ---------- ----------
Net income before minority interests 5,539 5,859 5,183 5,533
Minority interests (2,018) (2,017) (2,017) (2,017)
---------- ---------- ---------- ----------
Net income $ 3,521 $ 3,842 $ 3,166 $ 3,516
========== ========== ========== ==========
Per Share Data:
Net income before minority interests $ 0.29 $ 0.31 $ 0.28 $ 0.30
========== ========== ========== ==========
Net income $ 0.25 $ 0.28 $ 0.24 $ 0.26
========== ========== ========== ==========
---------------------------------------------------------
Three Months Ended
---------------------------------------------------------
12/31/1999 09/30/1999 06/30/1999 03/31/1999
---------- ---------- ---------- ----------
Revenues $ 19,398 $ 18,409 $ 18,020 $ 17,964
---------- ---------- ---------- ----------
Net income before minority interests 6,103 5,145 4,931 5,041
Minority interests (2,017) (2,018) (1,967) (1,921)
---------- ---------- ---------- ----------
Net income $ 4,086 $ 3,127 $ 2,964 $ 3,120
========== ========== ========== ==========
Per Share Data:
Net income before minority interests $ 0.33 $ 0.28 $ 0.27 $ 0.28
========== ========== ========== ==========
Net income $ 0.31 $ 0.24 $ 0.23 $ 0.24
========== ========== ========== ==========
F-16
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
15 BUSINESS SEGMENTS
The company has two reportable business segments: Shopping Centers and
Office Properties. The accounting policies of the segments presented below
are the same as those described in the summary of significant accounting
policies (see Note 1). The Company evaluates performance based upon income
from real estate for the combined properties in each segment.
(in thousands) Shopping Office Corporate Consolidated
Centers Properties and Other Totals
----------- ----------- ----------- ------------
------------------------------------------------------------
2001
------------------------------------------------------------
Real estate rental operations:
Revenues ........................................... $ 58,714 $ 27,427 $ 167 $ 86,308
Expenses ........................................... (10,324) (6,022) -- (16,346)
----------- ----------- ----------- -----------
Income from real estate ............................... 48,390 21,405 167 69,962
Interest expense & amortization of debt costs ...... -- -- (25,486) (25,486)
General and administrative ......................... -- -- (4,335) (4,335)
----------- ----------- ----------- -----------
Subtotal .............................................. 48,390 21,405 (29,654) 40,141
Depreciation and amortization ...................... (9,751) (5,007) -- (14,758)
Minority interests ................................. -- -- (8,069) (8,069)
----------- ----------- ----------- -----------
Net income ............................................ $ 38,639 $ 16,398 $ (37,723) $ 17,314
=========== =========== =========== ===========
Capital investment .................................... $ 8,220 $ 13,580 $ -- $ 21,800
=========== =========== =========== ===========
Total assets .......................................... $ 192,762 $ 124,529 $ 29,112 $ 346,403
=========== =========== =========== ===========
------------------------------------------------------------
2000
------------------------------------------------------------
Real estate rental operations:
Revenues ........................................... $ 56,969 $ 21,837 $ 223 $ 79,029
Expenses ........................................... (10,252) (4,937) -- (15,189)
----------- ----------- ----------- -----------
Income from real estate ............................... 46,717 16,900 223 63,840
Interest expense & amortization of debt costs ...... -- -- (24,301) (24,301)
General and administrative ......................... -- -- (3,891) (3,891)
----------- ----------- ----------- -----------
Subtotal .............................................. 46,717 16,900 (27,969) 35,648
Depreciation and amortization ...................... (6,453) (4,079) (2) (13,534)
Minority interests ................................. -- -- (8,069) (8,069)
----------- ----------- ----------- -----------
Net income ............................................ $ 37,264 $ 12,821 $ (36,040) $ 14,045
=========== =========== =========== ===========
Capital investment .................................... $ 14,886 $ 28,540 $ -- $ 43,426
=========== =========== =========== ===========
Total assets .......................................... $ 185,518 $ 117,497 $ 31,435 $ 334,450
=========== =========== =========== ===========
------------------------------------------------------------
1999
------------------------------------------------------------
Real estate rental operations:
Revenues ........................................... $ 54,510 $ 19,183 $ 98 $ 73,791
Expenses ........................................... (9,604) (4,618) -- (14,222)
----------- ----------- ----------- -----------
Income from real estate ............................... 44,906 14,565 98 59,569
Interest expense & amortization of debt costs ...... -- -- (22,984) (22,984)
General and administrative ......................... -- -- (3,755) (3,755)
----------- ----------- ----------- -----------
Subtotal .............................................. 46,906 14,565 (26,641) 32,830
Depreciation and amortization ...................... (8,414) (3,749) -- (12,163)
Gain on property sale .............................. 553 -- -- 553
Minority interests ................................. -- -- 7,923) (7,923)
----------- ----------- ----------- -----------
Net income ............................................ $ 37,045 $ 10,816 $ (34,564) $ 13,297
=========== =========== =========== ===========
Capital investment .................................... $ 16,939 $ 21,699 $ -- $ 38,638
=========== =========== =========== ===========
Total assets .......................................... $ 186,769 $ 90,185 $ 22,711 $ 299,665
=========== =========== =========== ===========
F-17
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Saul Centers, Inc.:
We have audited in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements of Saul Centers, Inc. (the
"Company") included in this Form 10-K and have issued our report thereon dated
February 13, 2002. Our audit was made for the purpose of forming an opinion on
the basic financial statements taken as a whole. Schedule III, "Real Estate and
Accumulated Depreciation" is the responsibility of the Company's management and
is presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. The
schedule has been subjected to the auditing procedures applied in our audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Vienna, Virginia
February 13, 2002
F-18
Schedule III
SAUL CENTERS, INC.
Real Estate and Accumulated Depreciation
December 31, 2000
(Dollars in Thousands)
Costs
Capitalized Basis at Close of Period
----------------------------------------------------------
Subsequent Buildings
Initial to and Leasehold
Basis Acquisition Land Improvements Interests Total
----------------------------------------------------------------------------------------
Shopping Centers
Ashburn Village, Ashburn, VA $ 11,431 $ 6,113 $ 5,158 $ 12,386 $ -- $ 17,544
Beacon Center, Alexandria, VA 1,493 14,527 -- 14,926 1,094 16,020
Belvedere, Baltimore, MD 932 834 263 1,503 -- 1,766
Boulevard, Fairfax, VA 4,883 1,410 3,687 2,606 -- 6,293
Clarendon, Arlington, VA 385 396 635 146 -- 781
Clarendon Station, Arlington, VA 834 37 425 446 -- 871
Flagship Center, Rockville, MD 160 9 169 -- -- 169
French Market, Oklahoma City, OK 5,781 8,546 1,118 13,209 -- 14,327
Germantown, Germantown, MD 3,576 298 2,034 1,840 -- 3,874
Giant, Baltimore, MD 998 303 422 879 -- 1,301
The Glen, Lake Ridge, VA 12,918 414 5,300 8,032 -- 13,332
Great Eastern, District Heights., MD 3,472 9,323 2,263 10,532 -- 12,795
Hampshire Langley, Langley Park, MD 3,159 2,416 1,856 3,719 -- 5,575
Leesburg Pike, Baileys Crossroads, VA 2,418 5,099 1,132 6,385 -- 7,517
Lexington Mall, Lexington, KY 4,868 5,904 2,111 8,661 -- 10,772
Lumberton Plaza, Lumberton, NJ 4,400 8,269 950 11,719 -- 12,669
Olney, Olney, MD 1,884 1,281 -- 3,165 -- 3,165
Ravenwood, Baltimore, MD 1,245 1,645 703 2,187 -- 2,890
Seven Corners, Falls Church, VA 4,848 39,215 4,913 39,150 -- 44,063
Shops at Fairfax, Fairfax, VA 2,708 10,240 992 11,956 -- 12,948
Southdale, Glen Burnie, MD 3,650 15,202 -- 18,230 622 18,852
Southside Plaza, Richmond, VA 6,728 3,637 1,878 8,487 -- 10,365
South Dekalb Plaza, Atlanta, GA 2,474 2,714 703 4,485 -- 5,188
Thruway, Winston-Salem, NC 4,778 12,785 5,464 11,994 105 17,563
Village Center, Centreville, VA 16,502 1,081 7,851 9,732 -- 17,583
West Park, Oklahoma City, OK 1,883 602 485 2,000 -- 2,485
White Oak, Silver Spring, MD 6,277 3,659 4,787 5,149 -- 9,936
----------------------------------------------------------------------------------------
Total Shopping Centers 114,685 155,959 55,299 213,524 1,821 270,644
----------------------------------------------------------------------------------------
Office Properties
Avenel Business Park, Gaithersburg, MD 21,459 17,525 3,851 35,133 -- 38,984
Crosstown Business Center, Tulsa, OK 3,454 1,822 604 4,672 -- 5,276
601 Pennsylvania Ave., Washington DC 5,479 44,737 5,667 44,549 -- 50,216
Van Ness Square, Washington, DC 812 25,929 831 25,910 -- 26,741
----------------------------------------------------------------------------------------
Total Office Properties 31,204 90,013 10,953 110,264 -- 121,217
----------------------------------------------------------------------------------------
Total $ 145,889 $ 245,972 $ 66,252 $ 323,788 $ 1,821 $ 391,861
========================================================================================
Buildings
and
Improvements
Accumulated Book Related Date of Date Depreciable
Depreciation Value Debt Construction Acquired Lives in Years
--------------------------------------------- -----------------------------------------------
Shopping Centers
Ashburn Village, Ashburn, VA $ 1,432 $ 16,112 $ 11,902 1994 & 2000 3/94 40
Beacon Center, Alexandria, VA 5,769 10,251 7,414 1960 & 1974 1/72 40 & 50
Belvedere, Baltimore, MD 784 982 2,640 1958 1/72 40
Boulevard, Fairfax, VA 274 6,019 6,687 1969 4/94 40
Clarendon, Arlington, VA 37 744 328 1949 7/73 33
Clarendon Station, Arlington, VA 60 811 96 1949 1/96 40
Flagship Center, Rockville, MD -- 169 548 1972 1/72 --
French Market, Oklahoma City, OK 3,573 10,754 3,176 1972 3/74 50
Germantown, Germantown, MD 484 3,390 1,168 1990 8/93 40
Giant, Baltimore, MD 602 699 2,678 1959 1/72 40
The Glen, Lake Ridge, VA 1,410 11,922 10,277 1993 6/94 40
Great Eastern, District Heights., MD 2,814 9,981 11,477 1958 & 1960 1/72 40
Hampshire Langley, Langley Park, MD 1,977 3,598 10,511 1960 1/72 40
Leesburg Pike, Baileys Crossroads, VA 3,298 4,219 11,717 1965 2/66 40
Lexington Mall, Lexington, KY 4,573 6,199 6,311 1971 & 1974 3/74 50
Lumberton Plaza, Lumberton, NJ 6,191 6,478 8,266 1975 12/75 40
Olney, Olney, MD 1,709 1,456 2,448 1972 11/75 40
Ravenwood, Baltimore, MD 689 2,201 6,776 1959 1/72 40
Seven Corners, Falls Church, VA 11,441 32,622 45,875 1956 7/73 33
Shops at Fairfax, Fairfax, VA 2,445 10,503 9,637 1975 6/75 50
Southdale, Glen Burnie, MD 10,885 7,967 8,217 1962 & 1987 1/72 40
Southside Plaza, Richmond, VA 5,479 4,886 10,158 1958 1/72 40
South Dekalb Plaza, Atlanta, GA 2,376 2,812 2,545 1970 2/76 40
Thruway, Winston-Salem, NC 4,679 12,884 26,241 1955 & 1965 5/72 40
Village Center, Centreville, VA 2,054 15,529 9,219 1990 8/93 40
West Park, Oklahoma City, OK 981 1,504 110 1974 9/75 50
White Oak, Silver Spring, MD 3,002 6,934 24,240 1958 & 1967 1/72 40
---------------------------------------------
Total Shopping Centers 79,018 191,626 240,612
---------------------------------------------
Office Properties
Avenel Business Park, Gaithersburg, MD 12,218 26,766 25,978 1984, 1986, 12/84, 8/85, 35 & 40
-- 1990, 1998 2/86, 4/98
& 2000 & 10/2000
Crosstown Business Center, Tulsa, OK 2,067 3,209 -- 1974 10/75 40
601 Pennsylvania Ave., Washington DC 19,197 31,019 36,279 1986 7/73 35
Van Ness Square, Washington, DC 11,680 15,061 7,260 1990 7/73 35
---------------------------------------------
Total Office Properties 45,162 76,055 69,517
---------------------------------------------
Total $ 124,180 $ 267,681 $ 310,129
=============================================
F-19
Schedule III
SAUL CENTERS, INC.
Real Estate and Accumulated Depreciation
December 31, 2000
Depreciation and amortization related to the real estate investments reflected
in the statements of operations is calculated over the estimated useful lives of
the assets as follows:
Base building 33 - 50 years
Building components 20 years
Tenant improvements The lesser of the term of the lease or the useful
life of the improvements
The aggregate remaining net basis of the real estate investments for federal
income tax purposes was approximately $294,989,000 at December 31, 2000.
Depreciation and amortization are provided on the declining balance and
straight-line methods over the estimated useful lives of the assets.
The changes in total real estate investments and related accumulated
depreciation for each of the years in the three year period ended December 31,
2000 are summarized as follows.
(In thousands) 2000 1999 1998
---------------------------------------------------- ----------------- ---------------- -----------------
Total real estate investments:
Balance, beginning of year $ 368,382 $ 348,061 $ 335,268
Improvements 23,479 21,943 14,784
Sales -- 1,192 --
Retirements -- 430 1,991
----------------- ---------------- -----------------
Balance, end of year $ 391,861 $ 368,382 $ 348,061
================= ================ =================
Total accumulated depreciation:
Balance, beginning of year $ 112,272 $ 101,910 $ 92,615
Depreciation expense 11,908 10,714 10,409
Sales -- 42 --
Retirements -- 310 1,114
----------------- ---------------- -----------------
Balance, end of year $ 124,180 $ 112,272 $ 101,910
================= ================ =================
-------------------------------------------------------------------------------------------------------------------
F-20