PART I
Cautionary Statement Regarding Forward-Looking Statements
Certain statements contained herein constitute forward-looking statements as such term is defined in Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are not guarantees of performance. Our future results, financial condition and business may differ materially from those expressed in these
forward-looking statements. You can find many of these statements by looking for words such as plans, intends, estimates, anticipates, expects, believes or similar expressions
in this Form 10-K. These forward-looking statements are subject to numerous assumptions, risks and uncertainties. Many of the factors that will determine these items are beyond our ability to control or predict. For further discussion of these
factors, see Item 1A. Risk Factors in this Form 10-K.
For these statements, we claim the protection of the safe harbor
for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on our forward-looking statements, which speak only as of the date of this Form 10-K or the date of any
document incorporated by reference. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in
this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances after the date of this Form 10-K.
General
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 Companys principal business activity is the ownership, management and development of income-producing properties. The Companys 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, each of which is controlled by B.
Francis Saul II and his family members (collectively, The Saul Organization). On August 26, 1993, members of 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, and collectively with the Operating Partnership, the Partnerships), shopping center and office properties,
and the management functions related to the transferred properties. Since its formation, the Company has developed and purchased additional properties.
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The following table lists the properties acquired and/or developed by the Company since December 31, 2004. All of
the following properties are operating shopping centers (Shopping Centers).
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Name of Property
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Location
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Square
Footage
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Date of
Acquisition/
Development
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Acquisitions
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Palm Springs Center
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Altamonte Springs, FL
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126,000
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2005
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Jamestown Place
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Altamonte Springs, FL
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96,000
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2005
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Seabreeze Plaza
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Palm Harbor, FL
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147,000
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2005
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Smallwood Village Center
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Waldorf, MD
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198,000
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2006
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Hunt Club Corners
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Apopka, FL
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101,000
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2006
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Orchard Park
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Dunwoody, GA
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88,000
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2007
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Developments
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Kentlands Place
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Gaithersburg, MD
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41,000
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2005
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Broadlands Village Phase III
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Ashburn, VA
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22,000
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2006
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Lansdowne Town Center
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Leesburg, VA
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188,000
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2006/7
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Ashland Square Phase I
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Manassas, VA
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4,000
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2007
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As of December 31, 2007, the Companys properties (the Current Portfolio
Properties) consisted of 43 operating shopping center properties (the Shopping Centers), five predominantly office operating properties (the Office Properties) and five (non-operating) development properties. Shopping
Centers and Office Properties represent reportable business segments for financial reporting purposes. Revenue, net income, total assets and other financial information of each reportable segment are described in Note 16 to the financial statements
contained in Item 8 of this Form 10-K.
The Company established Saul QRS, Inc., a wholly owned subsidiary of Saul Centers, to
facilitate the placement of collateralized mortgage debt. Saul QRS, Inc. was created to succeed to the interest of Saul Centers 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.
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The following diagram depicts the Companys organizational and equity ownership structure, as of
December 31, 2007.
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 60 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 Organization.
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 specified in a written agreement and are reviewed annually by the Audit Committee of the Companys Board of Directors.
The Companys corporate headquarters lease commenced in March 2002 and is a sublease of office space from The Saul Organization at the Companys share of the cost. A discussion of the lease terms are
provided in Note 7, Long Term Lease Obligations, of the Notes to Consolidated Financial Statements.
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Principal Offices
The principal offices of the Company are located at 7501 Wisconsin Avenue, Suite 1500, Bethesda, Maryland 20814-6522, and the Companys telephone number is (301) 986-6200. The Companys internet web
address is
www.saulcenters.com
. Information contained on the Companys internet website is not part of this report. The Company makes available free of charge on its internet website its annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after the reports are electronically filed with, or
furnished to, the Commission. Alternatively, you may access these reports at the Commissions internet website: www.sec.gov.
Policies with Respect
to Certain Activities
The following is a discussion of the Companys operating strategy and certain of its investment, financing
and other policies. These strategies and policies have been determined by the Board of Directors and, in general, may be amended or revised from time to time by the Board of Directors without a vote of the Companys stockholders.
Operating Strategies
The Companys 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 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 where possible 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 with the goal of increasing cash flow. In those circumstances in which leases are
not otherwise expiring, management selectively attempts to increase cash flow through a variety of means, 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.
Certain Shopping Centers contain 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, DC 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.
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It is managements 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 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 2007 and 2006, the Company was involved in redevelopment or expansions of five of its operating properties and developed two new shopping centers, Lansdowne Town Center and Ashland Square Phase I. 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.
Investment in Real Estate or Interests in Real Estate
The Companys redevelopment and renovation 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 Companys 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 acquisition and development 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, as evidenced by; (1) the Companys three year extension of its $150
million Revolving Credit Facility in December 2007, recent years long-term fixed-rate mortgage financing activity and successful $100 million preferred stock offering in November 2003, (2) the Companys ability to acquire properties
or undeveloped land, either for cash or securities (including Operating Partnership interests in tax advantaged transactions), and (3) because of managements 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 managements 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 metropolitan area and the southeastern region of the United States) 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 Companys 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 managements present intention to concentrate future acquisition and development activities on community and neighborhood shopping centers and office properties in the Washington, DC/Baltimore metropolitan area and the southeastern region of
the United States, the Company may, in the future, also acquire other types of real estate in other areas of the country as opportunities present themselves. While the Company may diversify in terms of property locations, size and market, the
Company does not set any limit on the amount or percentage of Company assets that may be invested in any one property or any one geographic area.
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The Company intends to engage in such future investment or development activities in a manner that is
consistent with the maintenance of its status as a REIT for federal income tax purposes and that will not make the Company an investment company under the Investment Company Act of 1940, as amended. Equity investments in acquired properties may be
subject to existing mortgage financings and other indebtedness or to new indebtedness which may be incurred in connection with acquiring or refinancing these investments.
Investments in Real Estate Mortgages
While the Companys current portfolio of, and its business
objectives emphasize, equity investments in commercial and neighborhood shopping centers and office properties, the Company may, at the discretion of the Board of Directors, invest in mortgages, participating or convertible mortgages, deeds of trust
and other types of real estate interests consistent with its qualification as a REIT. However, the Company does not presently have nor intend to invest in real estate mortgages.
Investments in Securities of or Interests in Persons Engaged in Real Estate Activities and Other Issues
Subject to the tests necessary for REIT qualification, the Company may invest in securities of other REITs, other entities engaged in real estate activities or securities of other issuers, including for the purpose of exercising control
over such entities. However, the Company does not presently have any investment in securities of other REITs.
Dispositions
The Company does not currently intend to dispose of any of its properties, although the Company reserves the right to do so if, based upon
managements periodic review of the Companys portfolio, the Board of Directors determines that such action would be in the best interest of the Companys stockholders. Any decision to dispose of a property will be made by the Board
of Directors.
Capital Policies
The
Company has established a debt capitalization policy relative to asset value, which is computed by reference to the aggregate annualized cash flow from the properties in the Companys portfolio rather than relative to book value. The Company
has used a measure tied to cash flow because it believes that the book value of its portfolio properties, which is the depreciated historical cost of the properties, does not accurately reflect the ability to borrow. Asset value, however, is
somewhat more variable than book value, and may not at all times reflect the fair market value of the underlying properties. 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 Companys leverage and debt expense on an ongoing basis in order to maintain prudent coverage of fixed charges. Given the Companys current debt level, it is managements belief that the ratio of the Companys
debt to total asset value is below 50% as of December 31, 2007.
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 Companys 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 Companys debt capitalization policy based on such
a reevaluation without shareholder approval and consequently, may increase or decrease the Companys debt to total asset ratio above or below 50% or may waive the policy for certain periods of time. 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.
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The Company intends to finance future acquisitions and developments 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, proceeds from the Companys Dividend Reinvestment and
Stock Purchase Plan, proceeds from the sale of properties and private and public offerings of debt or equity securities. 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.
Other
Policies
The Company has authority to offer equity or debt securities in exchange for property and to repurchase or otherwise acquire
its common stock or other securities in the open market or otherwise, and may engage in such activities in the future. The Company expects, but is not obligated, to issue common stock to holders of units of the Operating Partnership upon exercise of
their redemption rights. The Company has not engaged in trading, underwriting or agency distribution or sale of securities of other issues other than the Operating Partnership and does not intend to do so. The Company has not made any loans to third
parties, although the Company may in the future make loans to third parties. In addition, the Company has the policies relating to related party transactions discussed in Item 1A. Risk Factors.
Competition
As an owner of, or investor in,
community and neighborhood shopping centers and office properties, the Company is subject to competition from an indeterminate number of companies in connection with the acquisition, development, ownership and leasing of similar properties. These
investors include investors with access to significant capital, such as domestic and foreign corporations and financial institutions, publicly traded and privately held REITs, private institutional investment funds, investment banking firms, life
insurance companies and pension funds.
With respect to acquisitions and developments, this competition may reduce properties available for
acquisition or development or increase prices for raw land or developed properties of the type in which the Company invests. The Company faces competition in providing leases to prospective tenants and in re-letting space to current tenants upon
expiration of their respective leases. If the Companys tenants decide not to renew or extend their leases upon expiration, the Company may not be able to re-let the space. Even if the tenants do renew or the Company can re-let the space, the
terms of renewal or re-letting, including the cost of required renovations, may be less favorable than current lease terms or than expectations for the space. This risk may be magnified if the properties owned by our competitors have lower occupancy
rates than the Companys properties. As a result, these competitors may be willing to make space available at lower prices than the space in the Current Portfolio Properties.
Management believes that success in the competition for ownership and leasing property 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 the Companys 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.
Finally, retailers at our Shopping Centers face increasing competition from
outlet stores, discount shopping clubs and other forms of marketing of goods, such as direct mail, internet marketing and telemarketing. This competition may reduce percentage rents payable to us and may contribute to lease defaults or insolvency of
tenants.
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Environmental Matters
The Current Portfolio Properties are subject to various laws and regulations relating to environmental and pollution controls. The impact 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 Companys 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
As of February 25, 2008, the Company employed approximately 60 persons, including six leasing officers. None
of the Companys employees are covered by collective bargaining agreements. Management believes that its relationship with employees is good.
Recent Developments
A significant contributor to the Companys recent growth in its shopping center portfolio has been
its land acquisitions and subsequent development, redevelopment of existing centers and operating property acquisition activities. Redevelopment activities reposition the Companys centers to be competitive in the current retailing environment.
These redevelopments typically include an update of the facade, site improvements and reconfiguring tenant spaces to accommodate tenant size requirements and merchandising evolution. During the period December 31, 2004 though February 2008, the
Company acquired four land parcels located in the Washington, DC metropolitan area, developed neighborhood shopping centers on four of the parcels and acquired six operating grocery-anchored neighborhood shopping center properties. In summary, since
year end 2004, the Companys leasable area has grown by approximately 11% (0.8 million square feet), from 7.2 million square feet to over 8.0 million square feet.
2007 / 2006 / 2005 Acquisitions, Developments and Redevelopments
Olde Forte Village
The Company redeveloped in 2005, Olde Forte Village, a neighborhood shopping center located in Fort Washington, Maryland. The center, acquired in 2003, is
anchored by the then newly constructed 58,000 square foot Safeway supermarket, which relocated from a smaller store within the center. The center then contained approximately 50,000 square feet of vacant space, consisting primarily of the former
Safeway space. The reconfigured shopping center totals 143,000 square feet of leasable space. The Companys total redevelopment costs, including the initial property acquisition cost, were approximately $22 million. The center was 95% leased at
December 31, 2007.
Broadlands Village
The Company purchased 24 acres of undeveloped land in the Broadlands section of the Dulles Technology Corridor of Loudoun County, Virginia in April 2002. Broadlands is a 1,500 acre planned community consisting of 3,500 residences,
approximately half of which are constructed and currently occupied. In October 2003, the Company completed construction of the first phase of the Broadlands Village shopping center. The 58,000 square foot Safeway supermarket opened in October 2003
with a pad building and many in-line small shops also opening in the fourth quarter of 2003. Construction of a 30,000 square foot second phase was substantially completed in 2004. The Companys total development costs of both phases, including
the land acquisition, were approximately $22 million. During the second quarter of 2006, the Company substantially completed construction of a third phase of this development, totaling approximately 22,000 square feet of shop space and two pad site
locations. Development costs for this phase totaled approximately $7.5 million. The center was 98% leased and fully operational at December 31, 2007.
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The Glen
In February 2005, the Company commenced construction of a 22,000 square foot expansion building to provide additional restaurants and small shop service space at The Glen shopping center in Prince William County, Virginia. Construction of
the expansion building was substantially completed in the fall of 2005, and development costs were approximately $4.1 million. The resulting 134,000 square foot Safeway anchored center was 96% leased at December 31, 2007.
Kentlands Place
In January 2004, the Company
purchased 3.4 acres of undeveloped land adjacent to its 114,000 square foot Kentlands Square shopping center in Gaithersburg, Maryland. The Company substantially completed construction of a 40,600 square foot retail/office property, comprised of
23,800 square feet of in-line retail space and 16,800 square feet of professional office suites, in early 2005. Development costs, including the land acquisition, were approximately $8.5 million. The property was 100% leased at December 31,
2007 and includes significant retail tenants Bonefish Grill and Elizabeth Ardens Red Door Salon.
Briggs Chaney MarketPlace
In April 2004, the Company acquired Briggs Chaney MarketPlace in Silver Spring, Maryland. Briggs Chaney MarketPlace is a 194,000 square foot neighborhood
shopping center on Route 29 in Montgomery County, Maryland. The center, constructed in 1983, was 99% leased at December 31, 2007 and is anchored by a 45,000 square foot Safeway supermarket and a 28,000 square foot Ross Dress For Less. The
property was acquired for $27.3 million. During 2005, the Company completed interior construction to reconfigure a portion of space vacant at acquisition, totaling approximately 11,000 square feet of leasable area, and completed construction of a
façade renovation of the shopping center. Redevelopment costs totaled approximately $1.9 million.
Ashland Square
On December 15, 2004, the Company acquired a 19.3 acre parcel of land in Manassas, Prince William County, Virginia for a purchase price of $6.3
million. The Company has plans to develop the parcel into a grocery-anchored neighborhood shopping center. The Company received site plan approval during the third quarter of 2006 to develop approximately 125,000 square feet of retail space. A site
plan for an additional 35,000 square feet of commercial space is under review by Prince William County. During the third quarter of 2006, the Company commenced site work consisting primarily of clearing, grading and site utility construction. A
lease has been executed with Chevy Chase Bank, F.S.B. which built a branch on a pad site. The bank branch opened for business October 2007. The balance of the center is being marketed to grocers and other retail businesses, with a development
timetable yet to be finalized.
Palm Springs Center
On March 3, 2005, the Company completed the acquisition of the 126,000 square foot Albertsons anchored Palm Springs Center located in Altamonte Springs, Florida (metropolitan Orlando). The center was 97%
leased at December 31, 2007 and was acquired for a purchase price of $17.5 million.
New Market
On March 3, 2005, the Company acquired a 7.1 acre parcel of land located in New Market, Maryland for a purchase price of $500,000. On
September 8, 2005, the Company acquired a 28.4 acre contiguous parcel for a purchase price of $1.5 million. Together, these parcels will accommodate a neighborhood shopping center development in excess of 120,000 square feet of leasable space.
The Company had contracted to purchase one additional parcel with the intent to assemble additional acreage for further retail development near this I-70 interchange, east of Frederick, Maryland. During December 2007, the Company abandoned the
acquisition of this final parcel and wrote-off to general and administrative expense all costs related to this parcel.
Lansdowne Town Center
During the first quarter of 2005, the Company received approval of a zoning submission to Loudoun County which allowed the development
of a neighborhood shopping center named Lansdowne Town Center, within
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the Lansdowne Community in northern Virginia. On March 29, 2005, the Company finalized the acquisition of an additional 4.5 acres of land to bring the
total acreage of the development parcel to 23.4 acres (including the 18.9 acres acquired in 2002). The additional purchase price was approximately $1.0 million. In late 2006, the Company substantially completed construction of an approximately
189,000 square foot retail center. A lease was executed with Harris Teeter for a 55,000 square foot grocery store, which opened in November 2006. Project costs, upon completion of final tenant improvements, are expected to total approximately $41.5
million. As of December 31, 2007, the project was fully operational and 99% leased, however rent is not expected to commence for approximately 16,000 square feet of second floor office space until spring of 2008, when tenant improvements are
expected to be substantially complete.
Jamestown Place
On November 17, 2005, the Company completed the acquisition of the 96,000 square foot Publix-anchored Jamestown Place located in Altamonte Springs, Florida (metropolitan Orlando). The center was 95% leased at
December 31, 2007 and was acquired for a purchase price of $14.8 million.
Seabreeze Plaza
On November 30, 2005, the Company completed the acquisition of the 147,000 square foot Publix-anchored Seabreeze Plaza located in Palm Harbor,
Florida (metropolitan Tampa). The center was 90% leased at December 31, 2007 and was acquired for a purchase price of $25.9 million subject to the assumption of a $13.6 million mortgage loan.
Smallwood Village Center
On January 27, 2006,
the Company acquired the 198,000 square foot Smallwood Village Center, located on 25 acres within the St. Charles planned community of Waldorf, Maryland. The center was acquired for a purchase price of $17.5 million subject to the assumption of an
$11.3 million mortgage loan, and was 73% leased at December 31, 2007. The Company is obtaining final permits for a capital improvement project to improve access to the center, reconfigure portions of the center and upgrade the centers
façade. Construction is expected to commence during the spring of 2008.
Ravenwood
In January 2006, the Company commenced construction of a 7,380 square foot shop space expansion to the Giant anchored Ravenwood shopping center, located
in Towson, Maryland. Construction was substantially completed in June 2006. All of the new space is leased and operational at December 31, 2007. Development costs totaled approximately $2.2 million.
Lexington Center
On September 29, 2005, the
Company announced the resolution of a land use dispute at Lexington Mall, allowing increased flexibility in future development rights for its property. The Company and the land owner of the adjacent 16 acre site, have resolved a dispute arising from
a reciprocal easement agreement governing land use between the two owners. The parties have executed a new land use agreement which grants each other the flexibility to improve its property. The Company also reached an agreement with Dillards
to terminate its lease, without consideration exchanged by either party. The mall is vacant and the Company has prepared conceptual designs for the shopping centers development and marketing to prospective retailers.
Hunt Club Corners
On June 1, 2006, the Company
completed the acquisition of the 101,500 square foot Publix-anchored Hunt Club Corners shopping center located in Apopka, Florida (metropolitan Orlando). The center was 99% leased at December 31, 2007 and was acquired for a purchase price of
$11.1 million.
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Ashburn Village-Phase V
The Company completed construction during the fourth quarter of 2006 of a 10,000 square foot shop space expansion to the Ashburn Village shopping center located in Loudoun County, Virginia. The space was 100% leased
and operational at December 31, 2007. Development costs totaled approximately $2.2 million.
Clarendon Center
The Company owns an assemblage of land parcels (including its Clarendon and Clarendon Station operating properties) totaling approximately 1.5 acres
adjacent to the Clarendon Metro Station in Arlington, Virginia. In June 2006, the Company obtained zoning approvals for a mixed-use development project to include up to approximately 45,000 square feet of retail space, 170,000 square feet of office
space and 244 residential units. The Company has substantially completed construction documents. An existing vacant building located on a portion of the land is being demolished to prepare this portion of the site for development. A development
timetable has not yet been completed.
Westview Village
In November 2007, the Company purchased a 10.4 acre site in the Westview development on Buckeystown Pike (MD Route 85) in Frederick, Maryland. The purchase price was $5.0 million. Construction documents have been
completed and site permits have been received for development of approximately 105,000 square feet of commercial space, including 60,000 square feet of retail shop space, 15,000 square feet of retail pads and 30,000 square feet of professional
office space. The Company is currently marketing the space and has executed leases for 9,606 square feet of the retail space. The Company commenced site work construction in early 2008 and anticipates total construction and development costs,
including land, to be approximately $26.0 million. Substantial completion of the building shell is scheduled for late 2008.
Great Eastern Plaza Land
Parcel
On June 6, 2007, the Company acquired 8.0 acres of undeveloped land adjacent to its Great Eastern Plaza shopping center in
District Heights, Maryland, for a purchase price of $1.3 million. The Company is analyzing options to expand the existing shopping center onto this parcel at some future date.
Orchard Park
On July 19, 2007, the Company completed the acquisition of the 88,000 square foot
Kroger-anchored Orchard Park shopping center located in Dunwoody, GA. The center is 93% leased as of December 31, 2007 and was acquired for a purchase price of $17.0 million.
Northrock
In January 2008, the Company acquired approximately 15.4 acres of undeveloped land in
Warrenton, Virginia. The site is located in the City of Warrenton at the southwest corner of the U.S. Route 29/211 and Fletcher Drive intersection. The Company has commenced site work construction for Northrock Shopping Center, a neighborhood
shopping center totaling approximately 103,000 square feet of leasable area. The Harris Teeter supermarket chain has executed a lease for a 52,700 square foot grocery store to anchor the center. The land purchase price was $12.5 million, and the
Company anticipates total construction and development costs, including land, to be approximately $27.5 million. Construction substantial completion is anticipated for mid 2009.
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RISK FACTORS
Carefully consider the following risks and all of the other information set forth in this
Annual Report on Form 10-K, including the consolidated financial statements and the notes thereto. If any of the events or developments described below were actually to occur, the Companys business, financial condition or results of operations
could be adversely affected.
In this section, unless the context indicates otherwise, the terms Company,
we, us and our refer to Saul Centers, Inc., and its subsidiaries, including the Operating Partnership.
Revenue from our properties may be reduced or limited if the retail operations of our tenants are not successful.
Revenue from our properties depends primarily on the ability of our tenants to pay the full amount of rent due under their leases on a timely basis. Some of our leases provide for the payment, in addition to base rent, of additional rent
above the base amount according to a specified percentage of the gross sales generated by the tenants. The amount of rent we receive from our tenants generally will depend in part on the success of our tenants retail operations, making us
vulnerable to general economic downturns and other conditions affecting the retail industry. Any reduction in our tenants ability to pay base rent or percentage rent may adversely affect our financial condition and results of operations.
Our ability to increase our net income depends on the success and continued presence of our shopping center anchor tenants and other
significant tenants.
Our net income could be adversely affected in the event of a downturn in the business, or the bankruptcy or
insolvency, of any anchor store or anchor tenant. Our largest shopping center anchor tenant is Giant Food, which accounted for 4.5% of our total revenue for the year ended December 31, 2007. The closing of one or more anchor stores prior to the
expiration of the lease of that store or the termination of a lease by one or more of a propertys anchor tenants could adversely affect that property and result in lease terminations by, or reductions in rent from, other tenants whose leases
may permit termination or rent reduction in those circumstances or whose own operations may suffer as a result. This could reduce our net income.
We
may experience difficulty or delay in renewing leases or re-leasing space.
We derive most of our revenue directly or indirectly
from rent received from our tenants. We are subject to the risks that, upon expiration, leases for space in our properties may not be renewed, the space may not be re-leased, or the terms of renewal or re-lease, including the cost of required
renovations or concessions to tenants, may be less favorable than current lease terms. As a result, our results of operations and our net income could be reduced.
We have substantial relationships with members of The Saul Organization whose interests could conflict with the interests of other stockholders.
Influence of Officers, Directors and Significant Stockholders.
Three of our executive officers,
Mr. Saul II, his son and our President, B. Francis Saul III, and Thomas H. McCormick, our Senior Vice President and General Counsel, are members of The Saul Organization, and persons associated with The Saul Organization constitute four of the
12 members of our Board of Directors. In addition, as of December 31, 2007, Mr. Saul II beneficially owned, for purposes of SEC reporting, 7,825,000 shares of our common stock representing 44.6% of our issued and outstanding shares of
common stock. Mr. Saul II also beneficially owned, as of December 31, 2007, 5,416,000 units of the Operating Partnership. In general, these units are convertible into shares of our common stock on a one-for-one basis. The ownership
limitation set forth in our articles of incorporation is 39.9% in value of our issued and outstanding equity securities (which includes both common and preferred stock). As of December 31, 2007, Mr. Saul II and members of The Saul Organization owned
common stock representing approximately 33.7% in value of all our issued and outstanding equity securities. Members of the Saul Organization are permitted under our articles of incorporation to convert Operating Partnership units into shares of
common stock or acquire additional shares of common stock until The Saul Organizations actual ownership of common stock reaches 39.9% in value of our equity securities.
As a result of these relationships, members of The Saul Organization will be in a position to exercise significant influence over our affairs, which
influence might not be consistent with the interests of some, or a majority, of our stockholders. Except as discussed below, we do not have any written policies or procedures for the review, approval or ratification of transactions with related
persons.
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Management Time.
Our Chief Executive Officer, President, Vice President-Chief Accounting Officer and Senior Vice President and General Counsel are also officers of various members of The Saul Organization. Although we believe that
these officers spend sufficient management time to meet their responsibilities as our officers, the amount of management time devoted to us will depend on our specific circumstances at any given point in time. As a result, in a given period, these
officers may spend less than a majority of their management time on our matters. Over extended periods of time, we believe that our Chief Executive Officer and Senior Vice President and General Counsel will spend less than a majority of their
management time on Company matters, while our President and Vice President-Chief Accounting Officer may or may not spend less than a majority of their time on our matters.
Exclusivity and Right of First Refusal Agreements.
We will acquire, develop, own and manage shopping
center properties and will own and manage other commercial properties, and, subject to certain exclusivity agreements and rights of first refusal to which we are a party, The Saul Organization will continue to develop, acquire, own and manage
commercial properties and own land suitable for development as, among other things, shopping centers and other commercial properties. Therefore, conflicts could develop in the allocation of acquisition and development opportunities with respect to
commercial properties other than shopping centers and with respect to development sites, as well as potential tenants and other matters, between us and The Saul Organization. The agreement relating to exclusivity and the right of first refusal
between us and The Saul Organization (other than Chevy Chase Bank, F.S.B.) generally requires The Saul Organization to conduct its shopping center business exclusively through us and to grant us a right of first refusal to purchase commercial
properties and development sites in certain market areas that become available to The Saul Organization. The Saul Organization has granted the right of first refusal to us, acting through our independent directors, in order to minimize potential
conflicts with respect to commercial properties and development sites. We and The Saul Organization have entered into this agreement in order to minimize conflicts with respect to shopping centers and certain of our commercial properties.
Shared Services.
We share with The
Saul Organization certain ancillary functions, such as computer and payroll services, benefits administration and in-house legal services. The terms of all sharing arrangements, including payments related thereto, are reviewed periodically by our
Audit Committee, which is comprised solely of independent directors. Included in our general and administrative expenses or capitalized to specific development projects, for the year ended December 31, 2007, are charges totaling $4,890,000,
related to such shared services, which included rental payments for the Companys headquarters lease, which were billed by The Saul Organization. Although we believe that the amounts allocated to us for such shared services represent a fair
allocation between us and The Saul Organization, we have not obtained a third party appraisal of the value of these services.
Related Party Rents.
Chevy Chase Bank leases space in 18 of the properties owned by us. The total rental income from Chevy Chase Bank for the year ended
December 31, 2007 was $2,946,000, representing approximately 2.0% of our total revenue for such period. Although we believe that these leases have comparable terms to leases we have entered into with third-party tenants, the terms of these
leases were not set as a result of arms-length negotiation. In addition, because Chevy Chase Bank is a member of The Saul Organization, we may be less inclined to take an action or the timing of any action could be influenced if there is a
default. The terms of any lease with Chevy Chase Bank are approved in advance by our Audit Committee, which is comprised solely of independent directors.
In addition, the lease for our corporate headquarters, which commenced in March 2002, is with a member of The Saul Organization. The Companys corporate headquarters lease is leased by a member of The Saul
Organization. The 10-year lease provides for base rent escalated at 3% per year, with payment of a pro-rata share of operating expenses over a base year amount. The Company and The Saul Organization entered into a Shared Services Agreement
whereby each party pays an allocation of total rental payments on a percentage proportionate to the number of employees employed by each party. The Companys rent payment for the year ended December 31, 2007 was $796,000. Although the
Company believes that this lease has comparable terms to what would have been obtained from a third party landlord, it did not seek bid proposals from any independent third parties when entering into its new corporate headquarters lease.
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Conflicts Based on Individual Tax Considerations.
The tax basis of members of The Saul Organization in our portfolio properties which were contributed to certain partnerships at the time of our initial
public offering in 1993 was substantially less than the fair market value thereof at the time of their contribution. In the event of our disposition of such properties, a disproportionately large share of the gain for federal income tax purposes
would be allocated to members of The Saul Organization. In addition, future reductions of the level of our debt, or future releases of the guarantees or indemnities with respect thereto by members of The Saul Organization, would cause members of The
Saul Organization to be considered, for federal income tax purposes, to have received constructive distributions. Depending on the overall level of debt and other factors, these distributions could be in excess of The Saul Organizations bases
in their Partnership units, in which case such excess constructive distributions would be taxable.
Consequently, it is in the interests of
The Saul Organization that we continue to hold the contributed portfolio properties, that a portion of our debt remains outstanding or is refinanced and that The Saul Organization guarantees and indemnities remain in place, in order to defer the
taxable gain to members of The Saul Organization. Therefore, The Saul Organization may seek to cause us to retain the contributed portfolio properties, and to refrain from reducing our debt or releasing The Saul Organization guarantees and
indemnities, even when such action may not be in the interests of some, or a majority, of our stockholders. In order to minimize these conflicts, decisions as to sales of the portfolio properties, or any refinancing, repayment or release of
guarantees and indemnities with respect to our debt, will be made by the independent directors.
Ability to Block Certain Actions.
Under applicable law and the limited partnership agreement of the Operating Partnership, consent of the limited partners is required to permit certain
actions, including the sale of all or substantially all of the Operating Partnerships assets. Therefore, members of The Saul Organization, through their status as limited partners in the Operating Partnership, could prevent the taking of any
such actions, even if they were in the interests of some, or a majority, of our stockholders.
The amount of debt we have and the restrictions
imposed by that debt could adversely affect our business and financial condition.
As of December 31, 2007, we had
approximately $532.7 million of debt outstanding, $524.7 million of which was long-term fixed rate debt and was secured by 35 of our properties. The remaining $8.0 million of outstanding debt was borrowed under the revolving credit facility.
We currently have a general policy of limiting our borrowings to 50 percent of asset value, i.e., the value of our portfolio, as
determined by our Board of Directors by reference to the aggregate annualized cash flow from our portfolio. Our organizational documents contain no limitation on the amount or percentage of indebtedness which we may incur. Therefore, the Board of
Directors could alter or eliminate the current limitation on borrowing at any time. If our debt capitalization policy were changed, we could increase our leverage, resulting in an increase in debt service that could adversely affect our operating
cash flow and our ability to make expected distributions to stockholders, and in an increased risk of default on our obligations.
We have
established our debt capitalization policy relative to asset value, which is computed by reference to the aggregate annualized cash flow from the properties in our portfolio rather than relative to book value. We have used a measure tied to cash
flow because we believe that the book value of our portfolio properties, which is the depreciated historical cost of the properties, does not accurately reflect our ability to borrow. Asset value, however, is somewhat more variable than book value,
and may not at all times reflect the fair market value of the underlying properties.
The amount of our debt outstanding from time to time
could have important consequences to our stockholders. For example, it could:
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require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing funds available for operations, property
acquisitions and other appropriate business opportunities that may arise in the future;
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limit our ability to obtain any additional financing we may need in the future for working capital, debt refinancing, capital expenditures, acquisitions,
development or other general corporate purposes;
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make it difficult to satisfy our debt service requirements;
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limit our ability to make distributions on our outstanding common and preferred stock;
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require us to dedicate increased amounts of our cash flow from operations to payments on our variable rate, unhedged debt if interest rates rise;
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limit our flexibility in planning for, or reacting to, changes in our business and the factors that affect the profitability of our business, which may place us at
a disadvantage compared to competitors with less debt or debt with less restrictive terms; and
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limit our ability to obtain any additional financing we may need in the future for working capital, debt refinancing, capital expenditures, acquisitions,
development or other general corporate purposes.
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Our ability to make scheduled payments of the principal of, to pay
interest on, or to refinance, our indebtedness will depend primarily on our future performance, which to a certain extent is subject to economic, financial, competitive and other factors described in this section. If we are unable to generate
sufficient cash flow from our business in the future to service our debt or meet our other cash needs, we may be required to refinance all or a portion of our existing debt, sell assets or obtain additional financing to meet our debt obligations and
other cash needs. Our ability to refinance, sell assets or obtain additional financing may not be possible on terms that we would find acceptable.
We are obligated to comply with financial and other covenants in our debt that could restrict our operating activities, and the failure to comply could result in defaults that accelerate the payment under our debt.
Our secured debt generally contains customary covenants, including, among others, provisions:
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relating to the maintenance of the property securing the debt;
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restricting our ability to assign or further encumber the properties securing the debt; and
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restricting our ability to enter into certain new leases or to amend or modify certain existing leases without obtaining consent of the lenders.
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Our unsecured debt generally contains various restrictive covenants. The covenants in our unsecured debt include, among
others, provisions restricting our ability to:
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incur additional unsecured debt;
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guarantee additional debt;
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make certain distributions, investments and other restricted payments, including distribution payments on our outstanding stock;
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increase our overall secured and unsecured borrowing beyond certain levels; and
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consolidate, merge or sell all or substantially all of our assets.
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Our ability to meet some of the covenants in our debt, including covenants related to the condition of the property or payment of real estate taxes, may be dependent on the performance by our tenants under their
leases. In addition, our line of credit requires us and our subsidiaries to satisfy financial covenants. The material financial covenants require us, on a consolidated basis, to:
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limit the amount of debt so as to maintain a gross asset value, as defined in the loan agreement, in excess of liabilities of at least $600 million plus 90% of our
future net equity proceeds;
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limit the amount of debt as a percentage of gross asset value, as defined in the loan agreement, to less than 60% (leverage ratio);
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limit the amount of debt so that interest coverage will exceed 2.5 to 1 on a trailing 12-full calendar month basis;
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limit the amount of debt so that interest, scheduled principal amortization and preferred dividend coverage exceeds 1.6 to 1; and
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limit the amount of variable rate debt and debt with initial loan terms of less than five years to no more than 40% of total debt.
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As of December 31, 2007, we were in compliance with all such covenants. If we were to breach any of our debt covenants and did not cure the breach
within any applicable cure period, our lenders could require us to repay the debt immediately, and, if the debt is secured, could immediately begin proceedings to take possession of the property securing the loan. Some of our debt arrangements are
cross-defaulted, which means that the lenders under those debt arrangements can put us in default and require immediate repayment of their debt if we breach and fail to cure a covenant under certain of our other debt obligations. As a result, any
default under our debt covenants could have an adverse effect on our financial condition, our results of operations, our ability to meet our obligations and the market value of our shares.
Our development activities are inherently risky.
The ground-up development of improvements on real property, as opposed to the renovation and redevelopment of existing improvements, presents substantial risks. In addition to the risks associated with real estate investment in general as
described elsewhere, the risks associated with our remaining development activities include:
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significant time lag between commencement and completion subjects us to greater risks due to fluctuation in the general economy;
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failure or inability to obtain construction or permanent financing on favorable terms;
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expenditure of money and time on projects that may never be completed;
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inability to achieve projected rental rates or anticipated pace of lease-up;
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higher-than-estimated construction costs, including labor and material costs; and
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possible delay in completion of the project because of a number of factors, including weather, labor disruptions, construction delays or delays in receipt of zoning
or other regulatory approvals, or acts of God (such as fires, earthquakes or floods).
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Redevelopments and acquisitions may fail to
perform as expected.
Our investment strategy includes the redevelopment and acquisition of community and neighborhood shopping
centers that are anchored by supermarkets, drugstores or high volume, value-oriented retailers that provide consumer necessities. The redevelopment and acquisition of properties entails risks that include the following, any of which could adversely
affect our results of operations and our ability to meet our obligations:
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our estimate of the costs to improve, reposition or redevelop a property may prove to be too low, and, as a result, the property may fail to achieve the returns we
have projected, either temporarily or for a longer time;
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we may not be able to identify suitable properties to acquire or may be unable to complete the acquisition of the properties we identify;
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we may not be able to integrate new developments or acquisitions into our existing operations successfully;
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properties we redevelop or acquire may fail to achieve the occupancy or rental rates we project at the time we make the decision to invest, which may result in the
properties failure to achieve the returns we projected;
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our pre-acquisition evaluation of the physical condition of each new investment may not detect certain defects or identify necessary repairs until after the
property is acquired, which could significantly increase our total acquisition costs; and
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our investigation of a property or building prior to our acquisition, and any representations we may receive from the seller, may fail to reveal various
liabilities, which could reduce the cash flow from the property or increase our acquisition cost.
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Our ability to grow will be
limited if we cannot obtain additional capital.
Our growth strategy includes the redevelopment of properties we already own and
the acquisition of additional properties. Because we are required to distribute to our stockholders at least 90% of our taxable income each year to continue to qualify as a real estate investment trust, or REIT, for federal income tax purposes, in
addition to our undistributed operating cash flow, we rely upon the availability of debt or equity capital to fund our growth, which financing may or may not be available on favorable terms or at all. The debt could include mortgage loans from third
parties or the sale of debt securities. Equity capital could include our common stock or preferred stock. Additional financing, refinancing or other capital may not be available in the amounts we desire or on favorable terms. Our access to debt or
equity capital depends on a number of factors, including the general state of the capital markets, the markets perception of our growth potential, our ability to pay dividends, and our current and potential future earnings. Depending on the
outcome of these factors, we could experience delay or difficulty in implementing our growth strategy on satisfactory terms, or be unable to implement this strategy.
Our performance and value are subject to general risks associated with the real estate industry.
Our economic performance and the value of our real estate assets, and, consequently, the value of our investments, are subject to the risk that if our properties do not generate revenue sufficient to meet our operating expenses, including
debt service and capital expenditures, our cash flow and ability to pay distributions to our stockholders will be adversely affected. As a real estate company, we are susceptible to the following real estate industry risks:
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economic downturns in the areas where our properties are located;
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adverse changes in local real estate market conditions, such as oversupply or reduction in demand;
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changes in tenant preferences that reduce the attractiveness of our properties to tenants;
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zoning or regulatory restrictions;
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decreases in market rental rates;
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weather conditions that may increase energy costs and other operating expenses;
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costs associated with the need to periodically repair, renovate and re-lease space; and
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increases in the cost of adequate maintenance, insurance and other operating costs, including real estate taxes, associated with one or more properties, which may
occur even when circumstances such as market factors and competition cause a reduction in revenue from one or more properties, although real estate taxes typically do not increase upon a reduction in such revenue.
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Many real estate costs are fixed, even if income from our properties decreases.
Our financial results depend primarily on leasing space in our properties to tenants on terms favorable to us. Costs associated with real estate
investment, such as real estate taxes and maintenance costs, generally are not reduced even when a property is not fully occupied, rental rates decrease, or other circumstances cause a reduction in income from the investment. As a result, cash flow
from the operations of our properties may be reduced if a tenant does not pay its rent or we are unable to rent our properties on favorable terms. Under those circumstances, we might not be able to enforce our rights as landlord without delays, and
may incur substantial legal costs. Additionally, new properties that we may acquire or develop may not produce any significant revenue immediately, and the cash flow from existing operations may be insufficient to pay the operating expenses and debt
service associated with that property until the property is fully leased.
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Competition may limit our ability to purchase new properties and generate sufficient income from tenants.
Numerous commercial developers and real estate companies compete with us in seeking tenants for properties and properties for acquisition.
This competition may:
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reduce properties available for acquisition;
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increase the cost of properties available for acquisition;
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reduce rents payable to us;
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interfere with our ability to attract and retain tenants;
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lead to increased vacancy rates at our properties; and
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adversely affect our ability to minimize expenses of operation.
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Retailers at our shopping center properties also face increasing competition from outlet stores, discount shopping clubs, and other forms of marketing of goods, such as direct mail, internet marketing and
telemarketing. This competition may reduce percentage rents payable to us and may contribute to lease defaults and insolvency of tenants. If we are unable to continue to attract appropriate retail tenants to our properties, or to purchase new
properties in our geographic markets, it could materially affect our ability to generate net income, service our debt and make distributions to our stockholders.
We may be unable to sell properties when appropriate because real estate investments are illiquid.
Real estate
investments generally cannot be sold quickly. In addition, there are some limitations under federal income tax laws applicable to real estate and to REITs in particular that may limit our ability to sell our assets. We may not be able to alter our
portfolio promptly in response to changes in economic or other conditions. Our inability to respond quickly to adverse changes in the performance of our investments could have an adverse effect on our ability to meet our obligations and make
distributions to our stockholders.
Our insurance coverage on our properties may be inadequate.
We carry comprehensive insurance on all of our properties, including insurance for liability, fire, flood, terrorism and rental loss. These policies
contain coverage limitations. We believe this coverage is of the type and amount customarily obtained for or by an owner of real property assets. We intend to obtain similar insurance coverage on subsequently acquired properties.
As a consequence of the September 11, 2001 terrorist attacks and other significant losses incurred by the insurance industry, the availability of
insurance coverage has decreased and the prices for insurance have increased. As a result, we may be unable to renew or duplicate our current insurance coverage in adequate amounts or at reasonable prices. In addition, insurance companies may no
longer offer coverage against certain types of losses, such as losses due to terrorist acts and toxic mold, or, if offered, the expense of obtaining these types of insurance may not be justified. We therefore may cease to have insurance coverage
against certain types of losses and/or there may be decreases in the limits of insurance available. If an uninsured loss or a loss in excess of our insured limits occurs, we could lose all or a portion of the capital we have invested in a property,
as well as the anticipated future revenue from the property, but still remain obligated for any mortgage debt or other financial obligations related to the property. Material losses in excess of insurance proceeds may occur in the future. Also, due
to inflation, changes in codes and ordinances, environmental considerations and other factors, it may not be feasible to use insurance proceeds to replace a building after it has been damaged or destroyed. Events such as these could adversely affect
our results of operations and our ability to meet our obligations, including distributions to our stockholders.
Environmental laws and regulations
could reduce the value or profitability of our properties.
All real property and the operations conducted on real property are
subject to federal, state and local laws, ordinances and regulations relating to hazardous materials, environmental protection and human health and safety. Under various federal, state and local laws, ordinances and regulations, we and our tenants
may be required to investigate and clean up certain hazardous or toxic substances released on or in properties we own or operate, and also may be required to pay other costs relating to hazardous or toxic substances. This liability may be imposed
without regard to whether we or our tenants knew about the release of these types of substances or were responsible
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for their release. The presence of contamination or the failure to properly remediate contamination at any of our properties may adversely affect our ability
to sell or lease those properties or to borrow using those properties as collateral. The costs or liabilities could exceed the value of the affected real estate. We are not aware of any environmental condition with respect to any of our properties
that management believes would have a material adverse effect on our business, assets or results of operations taken as a whole. The uses of any of our properties prior to our acquisition of the property and the building materials used at the
property are among the property-specific factors that will affect how the environmental laws are applied to our properties. If we are subject to any material environmental liabilities, the liabilities could adversely affect our results of operations
and our ability to meet our obligations.
We cannot predict what other environmental legislation or regulations will be enacted in the
future, how existing or future laws or regulations will be administered or interpreted or what environmental conditions may be found to exist on the properties in the future. Compliance with existing and new laws and regulations may require us or
our tenants to spend funds to remedy environmental problems. Our tenants, like many of their competitors, have incurred, and will continue to incur, capital and operating expenditures and other costs associated with complying with these laws and
regulations, which will adversely affect their potential profitability. Generally, our tenants must comply with environmental laws and meet remediation requirements. Our leases typically impose obligations on our tenants to indemnify us from any
compliance costs we may incur as a result of the environmental conditions on the property caused by the tenant. If a tenant fails to or cannot comply, we could be forced to pay these costs. If not addressed, environmental conditions could impair our
ability to sell or re-lease the affected properties in the future or result in lower sales prices or rent payments.
The Americans with Disabilities
Act of 1990 could require us to take remedial steps with respect to newly acquired properties.
The properties, as commercial
facilities, are required to comply with Title III of the Americans with Disabilities Act of 1990. Investigation of a property may reveal non-compliance with this Act. The requirements of the Act, or of other federal, state or local laws, also may
change in the future and restrict further renovations of our properties with respect to access for disabled persons. Future compliance with the Act may require expensive changes to the properties.
The revenue generated by our tenants could be negatively affected by various federal, state and local laws to which they are subject.
We and our tenants are subject to a wide range of federal, state and local laws and regulations, such as local licensing requirements, consumer
protection laws and state and local fire, life-safety and similar requirements that affect the use of the properties. The leases typically require that each tenant comply with all regulations. Failure to comply could result in fines by governmental
authorities, awards of damages to private litigants, or restrictions on the ability to conduct business on such properties. Non-compliance of this sort could reduce our revenue from a tenant, could require us to pay penalties or fines relating to
any non-compliance, and could adversely affect our ability to sell or lease a property.
Failure to qualify as a REIT for federal income tax purposes
would cause us to be taxed as a corporation, which would substantially reduce funds available for payment of distributions.
We
believe that we are organized and qualified as a REIT, and currently intend to operate in a manner that will allow us to continue to qualify as a REIT for federal income tax purposes under the Code. However, the IRS could successfully assert that we
are not qualified as such. In addition, we may not remain qualified as a REIT in the future. Qualification as a REIT involves the application of highly technical and complex Code provisions. The complexity of these provisions and of the applicable
income tax regulations that have been issued under the Code by the United States Department of Treasury is greater in the case of a REIT that holds its assets in partnership form. Certain facts and circumstances not entirely within our control may
affect our ability to qualify as a REIT. For example, in order to qualify as a REIT, at least 95% of our gross income in any year must be derived from qualifying rents and other income. Satisfying this requirement could be difficult, for example, if
defaults by tenants were to reduce the amount of income from qualifying rents. Also, we must make annual distributions to stockholders of at least 90% of our net taxable income (excluding capital gains). In addition, new legislation, new
regulations, new administrative interpretations or new court decisions may significantly change the tax laws with respect to qualification as a REIT or the federal income tax consequences of such qualification.
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If we fail to qualify as a REIT:
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we would not be allowed a deduction for dividend distributions to stockholders in computing taxable income;
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we would be subject to federal income tax at regular corporate rates;
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we could be subject to the federal alternative minimum tax;
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unless we are entitled to relief under specific statutory provisions, we could not elect to be taxed as a REIT for four taxable years following the year during
which we were disqualified;
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we could be required to pay significant income taxes, which would substantially reduce the funds available for investment and for distribution to our stockholders
for each year in which we failed to qualify; and
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we would no longer be required by law to make any distributions to our stockholders.
|
We believe that the Operating Partnership is treated as a partnership, and not as a corporation, for federal income tax purposes. If the IRS were to
challenge successfully the status of the Operating Partnership as a partnership for federal income tax purposes:
|
|
|
the Operating Partnership would be taxed as a corporation;
|
|
|
|
we would cease to qualify as a REIT for federal income tax purposes; and
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|
|
|
the amount of cash available for distribution to our stockholders would be substantially reduced.
|
We may be required to incur additional debt to qualify as a REIT.
As a REIT, we must make annual distributions to stockholders of at least 90% of our REIT taxable income. We are subject to income tax on amounts of undistributed REIT taxable income and net capital gain. In addition,
we would be subject to a 4% excise tax if we fail to distribute sufficient income to meet a minimum distribution test based on our ordinary income, capital gain and aggregate undistributed income from prior years.
We intend to make distributions to stockholders to comply with the Codes distribution provisions and to avoid federal income and excise tax. We may need to borrow
funds to meet our distribution requirements because:
|
|
|
our income may not be matched by our related expenses at the time the income is considered received for purposes of determining taxable income; and
|
|
|
|
non-deductible capital expenditures or debt service requirements may reduce available cash but not taxable income.
|
In these circumstances, we might have to borrow funds on unfavorable terms and even if our management believes the market conditions make borrowing
financially unattractive.
The structure of our leases may jeopardize our ability to qualify as a REIT.
If the IRS were to challenge successfully the characterization of one or more of our leases of properties as leases for federal income tax purposes, the
Operating Partnership would not be treated as the owner of the related property or properties for federal income tax purposes. As a result, the Operating Partnership would lose tax depreciation and cost recovery deductions with respect to one or
more of our properties, which in turn could cause us to fail to qualify as a REIT. Although we will use our best efforts to structure any leasing transaction for properties acquired in the future so the lease will be characterized as a lease and the
Operating Partnership will be treated as the owner of the property for federal income tax purposes, we will not seek an advance ruling from the IRS and do not intend to seek an opinion of counsel that the Operating Partnership will be treated as the
owner of any leased properties for federal income tax purposes. Thus, the IRS could successfully assert that future leases will not be treated as leases for federal income tax purposes, which could adversely affect our financial condition and
results of operations.
23
To maintain our status as a REIT, we limit the amount of shares any one stockholder can own.
The Code imposes certain limitations on the ownership of the stock of a REIT. For example, not more than 50% in value of our outstanding shares of
capital stock may be owned, actually or constructively, by five or fewer individuals (as defined in the Code). To protect our REIT status, our articles of incorporation restrict beneficial and constructive ownership (defined by reference to various
Code provisions) to no more than 2.5% in value of our issued and outstanding equity securities by any single stockholder with the exception of members of The Saul Organization, who are restricted to beneficial and constructive ownership of no more
than 39.9% in value of our issued and outstanding equity securities.
The constructive ownership rules are complex. Shares of our capital
stock owned, actually or constructively, by a group of related individuals and/or entities may be treated as constructively owned by one of those individuals or entities. As a result, the acquisition of less than 2.5% or 39.9% in value of our issued
and outstanding equity securities, by an individual or entity could cause that individual or entity (or another) to own constructively more than 2.5% or 39.9% in value of the outstanding stock. If that happened, either the transfer or ownership
would be void or the shares would be transferred to a charitable trust and then sold to someone who can own those shares without violating the respective ownership limit.
As of December 31, 2007, Mr. Saul II and members of The Saul Organization owned common stock representing approximately 33.7% in value of all our issued and outstanding equity securities. In addition, members of The
Saul Organization beneficially owned Operating Partnership units that are, in general, convertible into our common stock on a one-for-one basis. Members of the Saul Organization are permitted under our articles of incorporation to convert Operating
Partnership units into shares of common stock or acquire additional shares of common stock until The Saul Organizations actual ownership of common stock reaches 39.9% in value of our equity securities.
The Board of Directors may waive these restrictions on a case-by-case basis. The Board has authorized the Company to grant waivers to look-through
entities, such as mutual funds, in which shares of equity stock owned by the entity are treated as owned proportionally by individuals who are the beneficial owners of the entity. Even though these entities may own stock in excess of the 2.5%
ownership limit, no individual beneficially or constructively would own more than 2.5%. In addition, in September 1999, our Board of Directors agreed to waive the ownership limit with respect to Wells Fargo Bank National Association and U.S. Bank
National Association, the pledgees of certain shares of our common stock and units issued by the Operating Partnership and held by members of The Saul Organization.
The ownership restrictions may delay, defer or prevent a transaction or a change of our control that might involve a premium price for our equity stock or otherwise be in the stockholders best interest.
The lower tax rate on dividends of regular corporations may cause investors to prefer to hold stock of regular corporations instead of-REITs.
On May 28, 2003, the President signed into law the Jobs and Growth Tax Relief Reconciliation Act of 2003 (which we will refer
to as the Act). Under the Act, the maximum tax rate on the long-term capital gains of non-corporate taxpayers is 15% (applicable to sales occurring from May 7, 2003 through December 31, 2008). The Act also reduced the tax rate on
qualified dividend income to the maximum capital gains rate. Because, as a REIT, we are not generally subject to tax on the portion of our REIT taxable income or capital gains distributed to our stockholders, our distributions are not
generally eligible for this new tax rate on dividends. As a result, our ordinary REIT dividends generally continue to be taxed at the higher tax rates applicable to ordinary income. Without further legislation, the maximum tax rate on long-term
capital gains will revert to 20% in 2009, and dividends will again be subject to tax at ordinary rates.
We cannot assure you we will continue to pay
dividends at historical rates.
Our ability to continue to pay dividends on our common stock at historical rates or to increase our
common stock dividend rate will depend on a number of factors, including, among others, the following:
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|
|
our financial condition and results of future operations;
|
|
|
|
the performance of lease terms by tenants;
|
|
|
|
the terms of our loan covenants; and
|
|
|
|
our ability to acquire, finance, develop or redevelop and lease additional properties at attractive rates.
|
24
If we do not maintain or increase the dividend rate on our common stock, it could have an adverse effect
on the market price of our common stock and other securities. Payment of dividends on our common stock may be subject to payment in full of the dividends on any preferred stock or depositary shares and payment of interest on any debt securities we
may offer.
Certain tax and anti-takeover provisions of our articles of incorporation and bylaws may inhibit a change of our control.
Certain provisions contained in our articles of incorporation and bylaws and the Maryland General Corporation Law may discourage a
third party from making a tender offer or acquisition proposal to us. If this were to happen, it could delay, deter or prevent a change in control or the removal of existing management. These provisions also may delay or prevent the stockholders
from receiving a premium for their stock over then-prevailing market prices. These provisions include:
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|
|
the REIT ownership limit described above;
|
|
|
|
authorization of the issuance of our preferred stock with powers, preferences or rights to be determined by the Board of Directors;
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|
a staggered, fixed-size Board of Directors consisting of three classes of directors;
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|
special meetings of our stockholders may be called only by the Chairman of the Board, the president, by a majority of the directors or by stockholders possessing no
less than 25% of all the votes entitled to be cast at the meeting;
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|
the Board of Directors, without a stockholder vote, can classify or reclassify unissued shares of preferred stock;
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|
a member of the Board of Directors may be removed only for cause upon the affirmative vote of 75% of the Board of Directors or 75% of the then-outstanding capital
stock;
|
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|
advance notice requirements for proposals to be presented at stockholder meetings; and
|
|
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|
the terms of our articles of incorporation regarding business combinations and control share acquisitions.
|
We may amend or revise our business policies without your approval.
Our Board of Directors may amend or revise our operating policies without stockholder approval. Our investment, financing and borrowing policies and policies with respect to all other activities, such as growth, debt,
capitalization and operations, are determined by the Board of Directors or those committees or officers to whom the Board of Directors has delegated that authority. The Board of Directors may amend or revise these policies at any time and from time
to time at its discretion. A change in these policies could adversely affect our financial condition and results of operations, and the market price of our securities.
Item 1B.
|
Unresolved Staff Comments
|
We have received no written comments from the Securities and Exchange
Commission staff regarding our periodic or current reports in the 180 days preceding December 31, 2007 that remain unresolved.
Overview
The Company is the owner and operator of a real estate portfolio composed of 48 operating properties totaling approximately 8,009,000 square feet of gross leasable area (GLA) and five development parcels
as of December 31, 2007. The properties are located primarily in the Washington, DC/Baltimore, Maryland metropolitan area. The portfolio is composed of 43 neighborhood and community Shopping Centers, and five predominantly
25
Office Properties totaling approximately 6,803,000 and 1,206,000 square feet of GLA, respectively. A majority of the Shopping Centers are anchored by several
major tenants. Twenty-nine of the Shopping Centers were anchored by a grocery store and offer primarily day-to-day necessities and services. No single property accounted for more than 7.1% of the total gross leasable area. Only two retail tenants,
Giant Food (4.5%), a tenant at nine Shopping Centers and Safeway (3.0%), a tenant at seven Shopping Centers and one office tenant, the United States Government (2.7%), a tenant at six properties, individually accounted for more than 2.5% of the
Companys total revenue for the year ended December 31, 2007.
The Companys Current Portfolio Properties primarily consists
of seasoned properties that have been owned and managed by The Saul Organization for 20 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. BusinessOperating Strategies and BusinessCapital Policies.
The Shopping Centers
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.
In
general, the Shopping Centers are seasoned community and neighborhood shopping centers located in well established, highly developed, densely populated, middle and upper income areas. The 2007 average estimated population within a one and three-mile
radius of the Shopping Centers is approximately 16,000 and 100,000, respectively. The 2007 average household income within the one and three-mile radius of the Shopping Centers is approximately $96,800 and $98,100, respectively, compared to a
national average of $73,100. Because the Shopping Centers generally are located in highly developed areas, management believes that there is little likelihood that significant numbers of competing centers will be developed in the future.
The Shopping Center properties range in size from 4,000 to 569,000 square feet of GLA, with six in excess of 300,000 square feet, and an average of
approximately 158,000 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. Twenty-nine of the 43 Shopping Centers are anchored by a grocery
store.
The Office Properties
Four of
the five Office Properties are located in the Washington, DC metropolitan area and contain an aggregate GLA of approximately 1,009,000 square feet, comprised of 922,000 and 87,000 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.
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 nations capital and to the presence of the Federal government, international agencies, and an expanding private sector job market. 601 Pennsylvania Avenue is a nine-story, 227,000 square foot 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, 156,000 square foot office/retail building which was redeveloped in 1990. Van
26
Ness Square is located in a highly developed commercial area of Northwest Washington, DC which offers extensive retail and restaurant amenities. Washington
Square at Old Town is a 235,000 square foot Class A mixed-use office/retail complex completed in 2000 and located on a two-acre site along Alexandrias main street, North Washington Street, in historic Old Town Alexandria, Virginia. Avenel
Business Park is a 391,000 square foot research park located in the suburban Maryland, I-270 biotech corridor. The business park consists of twelve one-story buildings built in six phases, completed in 1981, 1985, 1989, 1998, 1999 and 2000.
Crosstown Business Center is a 197,000 square foot flex office/warehouse property located in Tulsa, Oklahoma. The property is located in
close proximity to Tulsas 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:
26
Saul Centers, Inc.
Schedule of Current Portfolio Properties
December 31, 2007
|
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|
|
|
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|
|
|
|
|
|
|
|
|
Property
|
|
Location
|
|
Leasable
Area
(Square
Feet)
|
|
Year
Developed
or Acquired
(Renovated)
|
|
Land
Area
(Acres)
|
|
Percentage Leased
|
|
|
Anchor/ Significant Tenants
|
|
|
|
|
|
Dec-07
|
|
|
Dec-06
|
|
|
Shopping Centers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ashland Square Phase I
|
|
Manassas, VA
|
|
3,650
|
|
2007
|
|
2.0
|
|
100
|
%
|
|
N / A
|
|
|
|
Ashburn Village
|
|
Ashburn, VA
|
|
221,687
|
|
1994/00/01/02/06
|
|
26.4
|
|
95
|
%
|
|
99
|
%
|
|
Giant Food, Ruby Tuesday, Hallmark Cards, Starbucks
|
Beacon Center
|
|
Alexandria, VA
|
|
356,115
|
|
1972
(1993/99/07)
|
|
32.3
|
|
100
|
%
|
|
100
|
%
|
|
Lowes, Giant Food, Office Depot, Outback Steakhouse, Marshalls, Hancock Fabrics, Party Depot, Panera Bread, TGI Fridays, Starbucks
|
Belvedere
|
|
Baltimore, MD
|
|
54,941
|
|
1972
|
|
4.8
|
|
36
|
%
|
|
41
|
%
|
|
Family Dollar
|
Boca Valley Plaza
|
|
Boca Raton, FL
|
|
121,269
|
|
2004
|
|
12.7
|
|
96
|
%
|
|
97
|
%
|
|
Publix, Wachovia Bank
|
Boulevard
|
|
Fairfax, VA
|
|
56,350
|
|
1994 (1999)
|
|
5.0
|
|
100
|
%
|
|
100
|
%
|
|
Panera Bread, Party City, Petco
|
Briggs Chaney MarketPlace
|
|
Silver Spring, MD
|
|
194,347
|
|
2004
|
|
18.2
|
|
99
|
%
|
|
100
|
%
|
|
Safeway, Ross Dress For Less, Chuck E Cheese, Family Dollar
|
Broadlands Village I, II & III
|
|
Ashburn, VA
|
|
159,734
|
|
2003/4/6
|
|
24.0
|
|
98
|
%
|
|
100
|
%
|
|
Safeway, The Original Steakhouse and Sports Theatre, Bonefish Grill, Starbucks
|
Clarendon/Clarendon Station
|
|
Arlington, VA
|
|
11,808
|
|
1973/1996
|
|
0.6
|
|
61
|
%
|
|
70
|
%
|
|
|
Countryside
|
|
Sterling, VA
|
|
141,696
|
|
2004
|
|
16.0
|
|
97
|
%
|
|
96
|
%
|
|
Safeway, CVS Pharmacy, Starbucks
|
Cruse MarketPlace
|
|
Cumming, GA
|
|
78,686
|
|
2004
|
|
10.6
|
|
97
|
%
|
|
97
|
%
|
|
Publix
|
Flagship Center
|
|
Rockville, MD
|
|
21,500
|
|
1972, 1989
|
|
0.5
|
|
100
|
%
|
|
100
|
%
|
|
|
French Market
|
|
Oklahoma City, OK
|
|
244,724
|
|
1974 (1984/98)
|
|
13.8
|
|
94
|
%
|
|
93
|
%
|
|
Burlington Coat Factory, Bed Bath & Beyond, Staples, Famous Footwear, Lakeshore Learning Center, Alfred Angelo, Dollar Tree
|
Germantown
|
|
Germantown, MD
|
|
27,241
|
|
1992
|
|
2.7
|
|
84
|
%
|
|
92
|
%
|
|
|
Giant
|
|
Baltimore, MD
|
|
70,040
|
|
1972 (1990)
|
|
5.0
|
|
100
|
%
|
|
100
|
%
|
|
Giant Food
|
The Glen
|
|
Lake Ridge, VA
|
|
134,317
|
|
1994 (2005)
|
|
14.7
|
|
96
|
%
|
|
98
|
%
|
|
Safeway Marketplace, The Original Steakhouse and Sports Theatre, Panera Bread
|
Great Eastern
|
|
District Heights, MD
|
|
254,448
|
|
1972 (1995)
|
|
31.9
|
|
99
|
%
|
|
100
|
%
|
|
Giant Food, Pep Boys, Big Lots, Capital Sports Complex
|
Hampshire Langley
|
|
Takoma Park, MD
|
|
131,700
|
|
1972 (1979)
|
|
9.9
|
|
100
|
%
|
|
100
|
%
|
|
Safeway, Radio Shack, Starbucks
|
Hunt Club Corners
|
|
Apopka, FL
|
|
101,522
|
|
2006
|
|
13.1
|
|
99
|
%
|
|
94
|
%
|
|
Publix, Walgreens, Radio Shack
|
Jamestown Place
|
|
Altamonte Springs, FL
|
|
96,372
|
|
2005
|
|
10.9
|
|
95
|
%
|
|
100
|
%
|
|
Publix, Carrabas Italian Grill
|
Kentlands Square
|
|
Gaithersburg, MD
|
|
114,381
|
|
2002
|
|
11.5
|
|
100
|
%
|
|
100
|
%
|
|
Lowes, Chipotle
|
Kentlands Place
|
|
Gaithersburg, MD
|
|
40,648
|
|
2005
|
|
3.4
|
|
100
|
%
|
|
100
|
%
|
|
Elizabeth Ardens Red Door Salon, Bonefish Grill
|
- 28 -
Saul Centers, Inc.
Schedule of Current Portfolio Properties
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
Location
|
|
Leasable
Area
(Square
Feet)
|
|
Year
Developed
or Acquired
(Renovated)
|
|
Land
Area
(Acres)
|
|
Percentage Leased
|
|
|
Anchor / Significant Tenants
|
|
|
|
|
|
Dec-07
|
|
|
Dec-06
|
|
|
Shopping Centers (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lansdowne Town Center
|
|
Leesburg, VA
|
|
189,414
|
|
2006
|
|
23.4
|
|
99
|
%(A)
|
|
N/A
|
|
|
Harris Teeter, CVS Pharmacy, Panera Bread, Not Your Average Joes, Starbucks
|
Leesburg Pike
|
|
Baileys Crossroads, VA
|
|
97,752
|
|
1966
(1982/95)
|
|
9.4
|
|
100
|
%
|
|
100
|
%
|
|
CVS Pharmacy, Party Depot, FedEx Kinkos, Radio Shack, Verizon Wireless
|
Lexington Pads
|
|
Lexington, KY
|
|
13,646
|
|
1974
|
|
4.1
|
|
100
|
%
|
|
100
|
%
|
|
Applebees
|
Lumberton Plaza
|
|
Lumberton, NJ
|
|
193,044
|
|
1975
(1992/96)
|
|
23.3
|
|
98
|
%
|
|
98
|
%
|
|
SuperFresh, Rite Aid, Virtua Health Center, Radio Shack, Family Dollar
|
Shops at Monocacy
|
|
Frederick, MD
|
|
109,144
|
|
2004
|
|
13.0
|
|
100
|
%
|
|
100
|
%
|
|
Giant Food, Panera Bread, Starbucks
|
Olde Forte Village
|
|
Ft. Washington, MD
|
|
143,062
|
|
2003
|
|
16.0
|
|
95
|
%
|
|
93
|
%
|
|
Safeway, Radio Shack
|
Olney
|
|
Olney, MD
|
|
53,765
|
|
1975
(1990)
|
|
3.7
|
|
100
|
%
|
|
97
|
%
|
|
Rite Aid
|
Orchard Park
|
|
Dunwoody, GA
|
|
87,782
|
|
2007
|
|
10.5
|
|
93
|
%
|
|
N/A
|
|
|
Kroger, Starbucks
|
Palm Springs Center
|
|
Altamonte Springs, FL
|
|
126,446
|
|
2005
|
|
12.0
|
|
97
|
%
|
|
100
|
%
|
|
Albertsons, Office Depot, Mimis Cafe, Toojays Deli
|
Ravenwood
|
|
Baltimore, MD
|
|
93,328
|
|
1972
(2006)
|
|
8.0
|
|
100
|
%
|
|
100
|
%
|
|
Giant Food, Hollywood Video, Starbucks
|
Seabreeze Plaza
|
|
Palm Harbor, FL
|
|
146,673
|
|
2005
|
|
18.4
|
|
90
|
%
|
|
100
|
%
|
|
Publix, Palm Harbor Health Food, World Gym
|
Seven Corners
|
|
Falls Church, VA
|
|
568,831
|
|
1973
(1994-7/07)
|
|
31.6
|
|
100
|
%
|
|
100
|
%
|
|
The Home Depot, Shoppers Food & Pharmacy, Michaels Arts & Crafts, Barnes & Noble, Ross Dress For Less, G Street Fabrics, Off-Broadway Shoes, The Room Store, Dress Barn, Starbucks,
Dogfishhead Ale House
|
Shops at Fairfax
|
|
Fairfax, VA
|
|
68,743
|
|
1975
(1993/99)
|
|
6.7
|
|
100
|
%
|
|
100
|
%
|
|
Super H Mart
|
Smallwood Village Center
|
|
Waldorf, MD
|
|
197,861
|
|
2006
|
|
25.1
|
|
73
|
%
|
|
84
|
%
|
|
Safeway, CVS
|
Southdale
|
|
Glen Burnie, MD
|
|
484,115
|
|
1972
(1986)
|
|
39.6
|
|
100
|
%
|
|
100
|
%
|
|
Giant Food, The Home Depot, Circuit City, Michaels Arts & Crafts, Marshalls, PetSmart, Value City Furniture, Athletic Warehouse, Starbucks
|
Southside Plaza
|
|
Richmond, VA
|
|
373,651
|
|
1972
|
|
32.8
|
|
93
|
%
|
|
96
|
%
|
|
Farmers Foods, Maxway, Citi Trends, City of Richmond
|
South Dekalb Plaza
|
|
Atlanta, GA
|
|
163,418
|
|
1976
|
|
14.6
|
|
83
|
%
|
|
95
|
%
|
|
Maxway, Consolidated Stores
|
Thruway
|
|
Winston-Salem, NC
|
|
355,116
|
|
1972
(1997)
|
|
30.5
|
|
97
|
%
|
|
93
|
%
|
|
Harris Teeter, Borders Books, Bed Bath & Beyond, Stein Mart, Rite Aid, JoS. A Banks, Bonefish Grill, Chicos, Ann Taylor Loft, Coldwater Creek, Kinkos/FedEx, New Balance, Aveda Salon,
Christies Hallmark, Rite Aid
|
Village Center
|
|
Centreville, VA
|
|
143,109
|
|
1990
|
|
17.2
|
|
99
|
%
|
|
97
|
%
|
|
Giant Food, Tuesday Morning
|
West Park
|
|
Oklahoma City, OK
|
|
76,610
|
|
1975
|
|
11.2
|
|
19
|
%
|
|
19
|
%
|
|
Family Dollar
|
White Oak
|
|
Silver Spring, MD
|
|
480,156
|
|
1972
(1993)
|
|
28.5
|
|
100
|
%
|
|
100
|
%
|
|
Giant Food, Sears, Rite Aid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shopping Centers
|
|
6,802,842
|
|
|
|
649.6
|
|
95.3
|
%
|
|
96.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 29 -
Saul Centers, Inc.
Schedule of Current Portfolio Properties
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
Location
|
|
Leasable
Area
(Square
Feet)
|
|
Year
Developed
or Acquired
(Renovated)
|
|
Land
Area
(Acres)
|
|
Percentage Leased
|
|
|
Anchor / Significant Tenants
|
|
|
|
|
|
Dec-07
|
|
|
Dec-06
|
|
|
Office Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avenel Business Park
|
|
Gaithersburg, MD
|
|
390,579
|
|
1981-2000
|
|
37.1
|
|
93
|
%
|
|
99
|
%
|
|
General Services Administration, VIRxSYS, Broadsoft, Quanta Systems, SeraCare Life Sciences, Panacos Pharmaceutical
|
Crosstown Business Center
|
|
Tulsa, OK
|
|
197,135
|
|
1975
(2000)
|
|
22.4
|
|
88
|
%
|
|
88
|
%
|
|
Compass Group, Roxtec, Keystone Automotive, Gofit, Freedom Express
|
601 Pennsylvania Ave.
|
|
Washington, DC
|
|
226,604
|
|
1973
(1986)
|
|
1.0
|
|
100
|
%
|
|
100
|
%
|
|
National Gallery of Art, American Assn. of Health Plans, Credit Union National Assn., Southern Company, HQ Global, Freedom Forum, Pharmaceutical Care Management Assn., Capital
Grille
|
Van Ness Square
|
|
Washington, DC
|
|
156,493
|
|
1973
(1990)
|
|
1.2
|
|
97
|
%
|
|
97
|
%
|
|
Team Video Intl, Office Depot, Pier 1
|
Washington Square
|
|
Alexandria, VA
|
|
235,042
|
|
1975
(2000)
|
|
2.0
|
|
99
|
%
|
|
100
|
%
|
|
Vanderweil Engineering, Agentrics, EarthTech, Thales, Cooper Carry, Bank of America, Trader Joes, Fed Ex/Kinkos, Talbots
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Office Properties
|
|
1,205,853
|
|
|
|
63.7
|
|
95.2
|
%
|
|
97.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Portfolio
|
|
8,008,695
|
|
|
|
713.3
|
|
95.3
|
%
|
|
96.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development Parcels
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clarendon Center
|
|
Arlington, VA
|
|
2002
|
|
1.3
|
|
Obtained zoning approvals from Arlington County, June 2006. South block building demolition expected to be completed February 2008. A development timetable
has not been determined.
|
Westview Village
|
|
Frederick, MD
|
|
2007
|
|
10.4
|
|
Land purchased November 2007. Site work construction commenced in early 2008.
|
Ashland Square Phase II
|
|
Manassas, VA
|
|
2004
|
|
17.3
|
|
Marketing to grocers and other retail businesses, with a development timetable yet to be finalized.
|
Lexington Center
|
|
Lexington, KY
|
|
1974
|
|
26.0
|
|
The former mall is now vacant and the Company has prepared conceptual designs for a shopping center development and is marketing the site to prospective
retailers.
|
New Market
|
|
New Market, MD
|
|
2005
|
|
35.5
|
|
Parcel will accommodate retail development in excess of 120,000 SF near I-70, east of Frederick, Maryland. A development timetable has not been determined.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Development Properties
|
|
|
|
90.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 30 -
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.
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. 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.
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, each of which is controlled by B. Francis Saul II and his family members (collectively, The Saul Organization). On August 26, 1993, members of
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, and collectively with the Operating Partnership, the Partnerships), shopping center and office properties, and the management functions related to the transferred properties. Since its formation, the Company has
developed and purchased additional properties.
The following table lists the properties acquired and/or developed by the Company since
December 31, 2004. All of the following properties are operating shopping centers (Shopping Centers).
|
|
|
|
|
Name of Property
|
|
Location
|
|
Date of Acquisition/ Development
|
Acquisitions
|
|
|
|
|
Palm Springs Center
|
|
Altamonte Springs, FL
|
|
2005
|
Jamestown Place
|
|
Altamonte Springs, FL
|
|
2005
|
Seabreeze Plaza
|
|
Palm Harbor, FL
|
|
2005
|
Smallwood Village Center
|
|
Waldorf, MD
|
|
2006
|
Hunt Club Corners
|
|
Apopka, FL
|
|
2006
|
Orchard Park
|
|
Dunwoody, GA
|
|
2007
|
|
|
|
Developments
|
|
|
|
|
Kentlands Place
|
|
Gaithersburg, MD
|
|
2005
|
Broadlands Village Phase III
|
|
Ashburn, VA
|
|
2006
|
Lansdowne Town Center
|
|
Leesburg, VA
|
|
2006/7
|
Ashland Square Phase I
|
|
Manassas, VA
|
|
2007
|
As of December 31, 2007, the Companys properties (the Current Portfolio
Properties) consisted of 43 operating shopping center properties (the Shopping Centers), five predominantly office operating properties (the Office Properties) and five (non-operating) development properties.
The Company established Saul QRS, Inc., a wholly owned subsidiary of Saul Centers, to facilitate the placement of collateralized mortgage
debt. Saul QRS, Inc. was created to succeed to the interest of Saul Centers 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.
F-7
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
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. As of
December 31, 2007, twenty-nine of the Shopping Centers were anchored by a grocery store and offer primarily day-to-day necessities and services. Only two retail tenants, Giant Food (4.5%), a tenant at nine Shopping Centers, and Safeway (3.0%),
a tenant at seven Shopping Centers, and one office tenant, the United States Government (2.7%), a tenant at six properties, individually accounted for more than 2.5% of the Companys total revenue for the year ended December 31, 2007.
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 U.S. generally accepted accounting principles 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 revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Real Estate Investment Properties
The Company purchases real estate investment properties from time to time and allocates the purchase price to various components, such as land, buildings,
and intangibles related to in-place leases and customer relationships in accordance with Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) 141, Business Combinations.
The purchase price is allocated based on the relative fair value of each component. The fair value of buildings is determined as if the buildings were vacant upon acquisition and subsequently leased at market rental rates. As such, the determination
of fair value considers the present value of all cash flows expected to be generated from the property including an initial lease up period. The Company determines the fair value of above and below market intangibles associated with in-place leases
by assessing the net effective rent and remaining term of the lease relative to market terms for similar leases at acquisition. In the case of above and below market leases, the Company considers the remaining contractual lease period and renewal
periods, taking into consideration the likelihood of the tenant exercising its renewal options. The fair value of a below market lease component is recorded as deferred income and amortized as additional lease revenue over the remaining contractual
lease period and any renewal option periods included in the valuation analysis. The fair value of above market lease intangibles is recorded as a deferred asset and is amortized as a reduction of lease revenue over the remaining contractual lease
term. The Company determines the fair value of
F-8
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
at-market in-place leases considering the cost of acquiring similar leases, the foregone rents associated with the lease-up period and carrying costs
associated with the lease-up period. Intangible assets associated with at-market in-place leases are amortized as additional expense over the remaining contractual lease term. To the extent customer relationship intangibles are present in an
acquisition, the fair value of the intangibles are amortized over the life of the customer relationship.
Real estate investment properties
are reviewed for potential impairment losses quarterly or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If there is an event or change in circumstance indicating the potential for
an impairment in the value of a real estate investment property, the Companys policy is to assess potential 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 or projected 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 2007, 2006 or 2005 on any of its real estate.
Interest, real estate taxes and other carrying costs are capitalized on projects under development and construction. Once construction is substantially
completed and the assets are placed in service, their rental income, real estate tax expense, property operating expenses (consisting of payroll, repairs and maintenance, utilities, insurance and other property related expenses) and depreciation are
included in current operations. Property operating expenses are charged to operations as incurred. Interest expense capitalized totaled $2,889,000, $3,673,000 and $3,258,000, for 2007, 2006 and 2005, 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 35 to 50 years for base buildings and up to 20 years for certain other improvements that extend the useful lives. In addition, we capitalize leasehold improvements when certain criteria are met, including when we supervise construction and will
own the improvement. Leasehold improvements are amortized, over the shorter of the lives of the related leases or the useful life of the improvement, using the straight-line method. Depreciation expense and amortization of leasehold improvements for
the years ended December 31, 2007, 2006 and 2005 was $21,638,000, $20,236,000 and $19,824,000, respectively. Repairs and maintenance expense totaled $8,926,000, $7,364,000 and $6,329,000, for 2007, 2006 and 2005, respectively, and is included
in operating expenses in the accompanying consolidated financial statements.
Deferred Leasing 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 total $16,190,000 and $18,137,000, net of accumulated amortization of $14,457,000 and $13,308,000 as of December 31, 2007 and 2006, respectively. Amortization expense, included in depreciation and
amortization in the consolidated statements of operations, totaled $4,826,000, $5,412,000 and $4,373,000, for the years ended December 31, 2007, 2006 and 2005, respectively. Capitalized leasing costs consist of commissions paid to third party
leasing agents as well as internal direct costs for successful leases such as employee compensation and payroll related fringe benefits directly related to time spent performing leasing related activities. Such activities include evaluating the
prospective tenants financial condition, evaluating and recording guarantees, collateral and other security arrangements, negotiating lease terms, preparing lease documents and closing the transaction. The carrying amount of costs are
written-off to expense if the applicable lease is terminated prior to expiration of the initial lease term.
Construction in Progress
Construction in progress includes preconstruction costs and development costs of active projects. Preconstruction costs associated with these active
projects include legal, zoning and permitting costs and other project carrying costs incurred prior to the commencement of construction. Development costs include direct construction costs and indirect costs incurred subsequent to the start of
construction such as architectural, engineering, construction management and carrying costs consisting of interest, real estate taxes and insurance. Construction in progress balances as of December 31, 2007 and 2006 are as follows:
F-9
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
Construction in Progress
(In thousands)
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2007
|
|
2006
|
Clarendon Center
|
|
$
|
27,323
|
|
$
|
20,431
|
Ashland Square Phase II
|
|
|
10,851
|
|
|
8,878
|
Westview Village
|
|
|
6,382
|
|
|
|
Lansdowne Town Center
|
|
|
|
|
|
19,972
|
Ashburn Village Phase V
|
|
|
|
|
|
1,846
|
Lexington Center
|
|
|
2,813
|
|
|
2,480
|
Other
|
|
|
2,223
|
|
|
2,410
|
|
|
|
|
|
|
|
Total
|
|
$
|
49,592
|
|
$
|
56,017
|
|
|
|
|
|
|
|
As of December 31, 2007 and 2006, 100% and 45% of the Lansdowne Town Center project had been
placed in operation. The costs reported in Construction in Progress above reflect the costs incurred for the non-operating portion of the project, as of December 31, 2006. The development costs related to the operating portions of the project
were reclassified to land and buildings during the years ended December 31, 2007 and 2006.
Accounts Receivable and Accrued Income
Accounts receivable primarily represent amounts currently due from tenants in accordance with the terms 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 $387,000 and $479,000, at December 31, 2007 and 2006, respectively.
Allowance
for Doubtful Accounts
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
Beginning Balance
|
|
$
|
479
|
|
|
$
|
430
|
|
Provision for Credit Losses
|
|
|
376
|
|
|
|
400
|
|
Charge-offs
|
|
|
(468
|
)
|
|
|
(351
|
)
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
387
|
|
|
$
|
479
|
|
|
|
|
|
|
|
|
|
|
In addition to rents due currently, accounts receivable include $25,013,000 and $23,341,000, at
December 31, 2007 and 2006, respectively, representing minimum rental income accrued on a straight-line basis to be paid by tenants over the remaining term of their respective leases. These amounts are presented after netting allowances of
$52,000 and $213,000, respectively, for tenants whose rent payment history or financial condition cast doubt upon the tenants ability to perform under its lease obligations.
On September 13, 2006, the SEC staff published Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements in
Current Year Financial Statements (SAB 108). SAB 108 addresses how the effects of a prior year uncorrected misstatement must be considered in quantifying misstatements in the current year financial statements and provides guidance on the
correction of misstatements. SAB 108 offers a transition provision for correcting immaterial prior period misstatements that were uncorrected as of the beginning of the fiscal year of adoption. SAB 108 was effective for fiscal years ending after
November 15, 2006. It was the Companys policy, for leases entered into prior to 1998, to recognize rental revenue on a straight-line basis when rental payments due under leases varied, because of free rent periods or fixed rent increases
(excluding those increases which approximate
F-10
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
inflationary increases). It was the Companys policy that annual scheduled base rent increases of 3% or less were determined to approximate inflationary
increases and were not recognized ratably over the life of the lease. Subsequent to 1998, the Company has annually analyzed these uncorrected misstatements and determined that the uncorrected misstatement was immaterial for all reporting periods.
The Company has determined that less than 5% of its leases were not recognizing base rent on a straight-line basis and that the cumulative under-reporting of straight-line rental income related to these long term leases totaled approximately
$6,551,000. According to the provisions of SAB 108, the Company recorded an accumulated accounts receivable balance of $6,551,000 for these leases and recorded a corresponding increase to Stockholders Equity as of January 1, 2006.
Commencing in 2006 and pursuant to the accounting for recognizing rental income on a straight-line basis, a portion of the $6,551,000 receivable was amortized as a non-cash reduction of rental income, $203,000 in 2007 and $136,000 in 2006. The
remaining balance unamortized balance of $6,212,000 as of December 31, 2007 will be amortized as a non-cash reduction of base rent over the remaining life of the affected leases.
Cash and Cash Equivalents
Cash and cash equivalents include short-term investments. Short-term
investments are highly liquid investments that are both readily convertible to cash and so near their maturity that they present insignificant risk of changes in value arising from interest rate fluctuations. Short-term investments include money
market accounts and other investments which generally mature within three months, measured from the acquisition date.
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, which approximates the effective interest method. Deferred debt costs totaled $6,264,000 and $5,328,000, net of accumulated amortization of
$5,393,000 and $4,244,000, at December 31, 2007 and 2006, 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 months rent, prepayment of real estate taxes when the taxing jurisdiction has a fiscal year differing from the calendar year reimbursements specified in the lease agreement and advance payments by tenants
for tenant construction work provided by the Company. In addition, deferred income includes the fair value of a below market lease component associated with acquisition properties as determined pursuant to the application of SFAS 141 Business
Combinations.
Revenue Recognition
Rental and interest income is accrued as earned except when doubt exists as to collectibility, in which case the accrual is discontinued. Recognition of rental income commences when control of the space has been given to the tenant. 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 U.S. generally accepted accounting principles. 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 tenants revenue (percentage rent) is accrued when a tenant reports sales that exceed a specified breakpoint, pursuant to the terms of their respective leases.
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
F-11
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
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.
In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48). FIN 48 is an interpretation of FASB Statement No. 109, Accounting for Income Taxes, and it seeks to reduce the diversity in practice associated with certain aspects of measurement and recognition in
accounting for income taxes. In addition, FIN 48 requires expanded disclosure with respect to the uncertainty in income taxes and was effective as of the beginning of the 2007 reporting year. The adoption of FIN 48 did not impact the Companys
financial condition or results of operations. Further, as of December 31, 2007, the Company had no material unrecognized tax benefits. The Company recognizes penalties and interest accrued related to unrecognized tax benefits, if any, as
general and administrative expense. With few exceptions, the Company is no longer subject to U.S. federal, state, and local tax examinations by tax authorities for years before 2003.
Stock Based Employee Compensation, Deferred Compensation and Stock Plan for Directors
Effective
January 2003, the Company adopted the fair value method to value and account for employee stock options using the prospective transition method specified under SFAS No. 148, Accounting for Stock-Based Compensation-Transition and
Disclosure and accounts for stock based compensation according to SFAS No. 123R, Accounting for Stock-Based Compensation. The Company had no options eligible for valuation prior to the grant of options in 2003. The fair value
of options granted is determined at the time of each award using the Black-Scholes model, a widely used method for valuing stock based employee compensation, and the following assumptions: (1) Expected Volatility. Expected volatility is
determined using the most recent trading history of the Companys common stock (month-end closing prices) corresponding to the average expected term of the options, (2) Average Expected Term. The options are assumed to be outstanding for a
term calculated considering prior exercise history, scheduled vesting and the expiration date, (3) Expected Dividend Yield. This rate is a value management determines after considering the Companys current and historic dividend yield
rates, the Companys yield in relation to other retail REITs and the Companys market yield at the grant date, and (4) Risk-free Interest Rate. This rate is based upon the market yields of US Treasury obligations with maturities
corresponding to the average expected term of the options at the grant date. The Company amortizes the value of options granted, ratably over the vesting period, and includes the amounts as compensation in general and administrative expenses.
The Company established a stock option plan in 1993 (the 1993 Plan) for the purpose of attracting and retaining executive
officers and other key personnel. The 1993 Plan provides for grants of options to purchase a specified number of shares of common stock. A total of 400,000 shares were made available under the 1993 Plan. The 1993 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. On May 23, 2003, the Compensation Committee granted options to purchase
a total of 220,000 shares (80,000 shares from incentive stock options and 140,000 shares from nonqualified stock options) to six Company officers (the 2003 Options). Following the grant of the 2003 Options, no additional shares remained
for issuance under the 1993 Plan. The 2003 Options vest 25% per year over four years and have a term of ten years, subject to earlier expiration upon termination of employment. The exercise price of $24.91 per share was the closing market price
of the Companys common stock on the date of the award.
At the annual meeting of the Companys stockholders in 2004, the
stockholders approved the adoption of the 2004 stock plan (the 2004 Plan) for the purpose of attracting and retaining executive officers, directors and other key personnel. The 2004 Plan provides for grants of options to purchase up to
500,000 shares of common stock as well as grants of up to 100,000 shares of common stock to directors. The 2004 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.
Effective April 26, 2004, the Compensation Committee granted
options to purchase a total of 152,500 shares (27,500 shares from incentive stock options and 125,000 shares from nonqualified stock options) to eleven Company officers and to the twelve Company directors (the 2004 Options). The
officers 2004 Options vest 25% per year over four years and have a term of ten years, subject to earlier expiration upon termination of employment. The directors options were immediately exercisable. The exercise price of $25.78 per
share was the closing market
F-12
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
price of the Companys common stock on the date of the award. Using the Black-Scholes model, the Company determined the total fair value of the 2004
Options to be $360,000, of which $293,000 and $67,000 were the values assigned to the officer options and director options respectively. Because the directors options vest immediately, the entire $67,000 was expensed as of the date of grant.
The expense of the officers options is being recognized as compensation expense monthly during the four years the options vest. The 2004 Options are due to expire April 25, 2014.
Effective May 6, 2005, the Compensation Committee granted options to purchase a total of 162,500 shares (35,500 shares from incentive stock options
and 127,000 shares from nonqualified stock options) to twelve Company officers and to the twelve Company directors (the 2005 Options). The officers 2005 Options vest 25% per year over four years and have a term of ten years,
subject to earlier expiration upon termination of employment. The directors options were immediately exercisable. The exercise price of $33.22 per share was the closing market price of the Companys common stock on the date of the award.
Using the Black-Scholes model, the Company determined the total fair value of the 2005 Options to be $484,500, of which $413,400 and $71,100 were the values assigned to the officer options and director options respectively. Because the
directors options vest immediately, the entire $71,100 was expensed as of the date of grant. The expense of the officers options is being recognized as compensation expense monthly during the four years the options vest. The 2005 Options
are due to expire May 5, 2015.
Effective May 1, 2006, the Compensation Committee granted options to purchase a total of 30,000
shares (all nonqualified stock options) to the twelve Company directors (the 2006 Options). The options were immediately exercisable. The exercise price of $40.35 per share was the closing market price of the Companys common stock
on the date of the award. Using the Black-Scholes model, the Company determined the total fair value of the 2006 Options to be $143,400. Because the directors options vest immediately, the entire $143,400 was expensed as of the date of grant.
The 2006 Options are due to expire April 30, 2016.
Effective April 27, 2007, the Compensation Committee granted options to
purchase a total of 165,000 shares (27,560 shares from incentive stock options and 137,440 shares from nonqualified stock options) to thirteen Company officers and twelve Company Directors (the 2007 options). The officers 2007
Options vest 25% per year over four years and have a term of ten years, subject to earlier expiration upon termination of employment. The directors options were immediately exercisable. The exercise price of $54.17 per share was the
closing market price of the Companys common stock on the date of award. Using the Black-Scholes model, the Company determined the total fair value of the 2007 Options to be $1,544,148, of which $1,258,848 and $285,300 were the values assigned
to the officer options and director options respectively. Because the directors options vest immediately, the entire $285,300 was expensed as of the date of grant. The expense for the officers options is being recognized as compensation
expense monthly during the four years the options vest. The 2007 Options are due to expire April 26, 2017.
Pursuant to the 2004 Plan,
the Compensation Committee established a Deferred Compensation Plan for Directors for the benefit of its directors and their beneficiaries. This replaces the Companys previous Deferred Compensation and Stock Plan for Directors. A director may
elect to defer all or part of his or her directors 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. If the director elects
to have fees paid in stock, fees earned during a calendar quarter are aggregated and divided by the common stocks closing market price on the first trading day of the following quarter to determine the number of shares to be allocated to the
director. As of December 31, 2007, 216,000 shares had been credited to the directors deferred fee accounts.
The Compensation
Committee has also approved an annual award of shares of the Companys common stock 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
awarded as of each Annual Meeting of Shareholders, and their issuance may not be deferred. Each director was issued 200 shares, for each of the years ended December 31, 2007, 2006 and 2005. The shares were valued at the closing stock price on
the dates the shares were awarded and included in general and administrative expenses in the total amounts of $130,000, $97,000, and $80,000, for the years ended December 31, 2007, 2006 and 2005, respectively.
F-13
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
Minority Interests
Saul Centers is the sole general partner of the Operating Partnership, owning a 76.6% common interest as of December 31, 2007. Minority Interests in the Operating Partnership are comprised of limited partnership
units owned by The Saul Organization. Minority Interests as reflected on the Balance Sheets are increased for earnings allocated to limited partnership interests, distributions reinvested in additional units and in certain situations for
distributions to minority interests in excess of earnings allocated, and are decreased for limited partner distributions. Minority Interests as reflected on the Statements of Operations represent earnings allocated to limited partnership interests.
Amounts distributed in excess of the limited partners share of earnings, net of limited partner reinvestments of distributions, also increase minority interests expense in the respective period and are classified on the Statements of
Operations as Distributions in excess of earnings to the extent such distributions in excess of earnings exceed the carrying amount of minority interests.
Per Share Data
Per share data is calculated in accordance with SFAS 128, Earnings Per Share. Per share data for
net income (basic and diluted) is computed using weighted average shares of common stock. Convertible limited partnership units and employee stock options are the Companys potentially dilutive securities. For all periods presented, the
convertible limited partnership units are anti-dilutive. For the years ended December 31, 2007, 2006 and 2005 the options are dilutive because the average share price of the Companys common stock exceeded the exercise prices. The treasury
stock method was used to measure the effect of the dilution.
Basic and Diluted Shares Outstanding
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
December 31
|
|
|
2007
|
|
2006
|
|
2005
|
Weighted average common shares outstanding Basic
|
|
|
17,589
|
|
|
17,075
|
|
|
16,663
|
Effect of dilutive options
|
|
|
180
|
|
|
158
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding Diluted
|
|
|
17,769
|
|
|
17,233
|
|
|
16,770
|
|
|
|
|
|
|
|
|
|
|
Average Share Price
|
|
$
|
52.22
|
|
$
|
43.04
|
|
$
|
35.20
|
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.
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157 Fair
Value Measurement (SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS
No. 157 applies to accounting pronouncements that require or permit fair value measurements, except for share-based payments under SFAS No. 123(R). The adoption of SFAS No. 157 is required for the year beginning January 1, 2008.
The Company does not expect SFAS No. 157 to have a material impact on its consolidated financial statements.
In February 2007, the
FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115 (SFAS No. 159). This standard permits entities to choose to
measure many financial instruments and certain other items at fair value and is effective for the first fiscal year beginning after November 15, 2007. The Company does not expect SFAS No. 159 to have a material impact on its consolidated
financial statements.
F-14
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
3. REAL ESTATE ACQUIRED
Ashland Square
On December 15, 2004, the Company acquired a parcel of land in Manassas, Prince William County,
Virginia for a purchase price of $6.3 million.
Palm Springs Center
On March 3, 2005, the Company completed the acquisition of the Albertsons-anchored Palm Springs Center located in Altamonte Springs, Florida (metropolitan Orlando). The center was acquired for a purchase
price of $17.5 million.
New Market
On
March 3, 2005 and September 8, 2005, the Company acquired two parcels of land located in New Market, Maryland, for a purchase price of $500,000 and $1,500,000, respectively. The Company had contracted to purchase an adjacent third parcel
with the intent to assemble additional acreage for further retail development near this I-70 interchange, east of Frederick, Maryland. During December 2007 the Company abandoned the acquisition of the third parcel and wrote-off to general and
administrative expense all costs related to that parcel.
Lansdowne Town Center
During the first quarter of 2005, the Company received approval of a zoning submission to Loudoun County which allowed the development of a neighborhood
shopping center named Lansdowne Town Center, within the Lansdowne Community in northern Virginia. On March 29, 2005, the Company finalized the acquisition of an additional parcel of land for approximately $1.0 million. In late 2006, the Company
substantially completed construction of the retail center. A lease was executed with Harris Teeter for a grocery store, which opened in November 2006. As of December 31, 2007, the project was fully operational.
Jamestown Place
On November 17, 2005, the
Company completed the acquisition of the Publix-anchored Jamestown Place located in Altamonte Springs, Florida (metropolitan Orlando). The center was acquired for a purchase price of $14.8 million.
Seabreeze Plaza
On November 30, 2005, the
Company completed the acquisition of the Publix-anchored Seabreeze Plaza located in Palm Harbor, Florida (metropolitan Tampa). The center was acquired for a purchase price of $25.9 million subject to the assumption of a $13.6 million mortgage loan.
The mortgage assumption was treated as a non-cash acquisition in the Statement of Cash Flows.
Smallwood Village Center
On January 27, 2006, the Company acquired the Smallwood Village Center, located within the St. Charles planned community of Waldorf, Maryland, a
suburb of metropolitan Washington, DC, through a wholly-owned subsidiary of its operating partnership. The center was acquired for a purchase price of $17.5 million subject to the assumption of an $11.3 million mortgage loan.
Hunt Club Corners
On June 1, 2006, the Company
completed the acquisition of the Publix-anchored Hunt Club Corners shopping center located in Apopka, FL. The center was acquired for a purchase price of $11.1 million.
Great Eastern Plaza Land Parcel
On June 6, 2007, the Company acquired an additional parcel of
undeveloped land adjacent to its Great Eastern Plaza shopping center in District Heights, Maryland, for a purchase price of $1.3 million.
Orchard Park
On July 19, 2007, the Company completed the acquisition of the Kroger-anchored Orchard Park shopping center located in Dunwoody,
GA. The center was acquired for a purchase price of $17.0 million.
F-15
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
Westview Village
In November 2007, the Company purchased a land parcel in the Westview development on Buckeystown Pike (MD Route 85) in Frederick, Maryland. The purchase price was $5.0 million. Construction documents have been
completed and site permits have been received for development of a neighborhood shopping center.
Application of SFAS 141, Business
Combinations, for Real Estate Acquired
The Company accounts for the acquisition of operating properties using the purchase method
of accounting in accordance with SFAS 141, Business Combinations. The Company allocates the purchase price to various components, such as land, buildings and intangibles related to in-place leases and customer relationships, if
applicable, as described in Note 2. Significant Accounting Policies-Real Estate Investment Properties. Of the combined $17,077,000 total cost of the operating property acquisitions, which exclude undeveloped land acquisitions, in 2007 and
$28,538,000 in 2006, of which both amounts include the properties purchase price and closing costs, a total of $805,000 and $1,459,000, was allocated as lease intangible assets and included in lease acquisition costs at December 31, 2007
and December 31, 2006, respectively. Each years lease intangible assets are being amortized over the remaining periods of the leases acquired, a weighted average term of 26 and 22 years, for 2007 and 2006, respectively. The value of below
market leases totaling $3,105,000 and $3,211,000, are being amortized over a weighted average term of 30 years for both 2007 and 2006, and are included in deferred income. The value of above market leases totaling $37,000, are being amortized over a
weighted average term of one year for 2006 and are included as a deferred asset in accounts receivable. There were no above market rents for any 2007 acquisitions.
As of December 31, 2007 and 2006, the gross carrying amount of lease intangible assets included in lease acquisition costs was $11,385,000 and $10,580,000, respectively, and accumulated amortization was
$7,598,000 and $5,680,000, respectively. Total amortization of these assets was $1,918,000, $2,592,000 and $1,504,000, for the years ended December 31, 2007, 2006 and 2005, respectively. As of December 31, 2007 and 2006, the gross carrying
amount of below market lease intangible liabilities included in deferred income was $9,678,000 and $6,573,000, respectively, and accumulated amortization was $1,599,000 and $1,019,000, respectively. Total amortization of these liabilities was
$580,000, $604,000 and $267,000, for the years ended December 31, 2007, 2006 and 2005, respectively. As of December 31, 2007 and 2006, the gross carrying amount of above market lease intangible assets included in accounts receivable was
$726,000 for both years, and accumulated amortization was $564,000 and $457,000 respectively. Total amortization of these assets was $107,000, $158,000 and $157,000, for the years ended December 31, 2007, 2006 and 2005, respectively.
As of December 31, 2007, the scheduled amortization of intangible assets and deferred income related to in place leases are as
follows:
Amortization of Intangible Assets and Deferred Income Related to In-place Leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Lease
acquisition
costs
|
|
|
Above
market
leases
|
|
|
Below
market
leases
|
|
Total
|
|
2008
|
|
$
|
(1,028
|
)
|
|
$
|
(82
|
)
|
|
$
|
568
|
|
$
|
(542
|
)
|
2009
|
|
|
(674
|
)
|
|
|
(45
|
)
|
|
|
522
|
|
|
(197
|
)
|
2010
|
|
|
(463
|
)
|
|
|
(33
|
)
|
|
|
439
|
|
|
(57
|
)
|
2011
|
|
|
(279
|
)
|
|
|
(2
|
)
|
|
|
391
|
|
|
110
|
|
2012
|
|
|
(156
|
)
|
|
|
|
|
|
|
373
|
|
|
217
|
|
Thereafter
|
|
|
(1,187
|
)
|
|
|
|
|
|
|
5,786
|
|
|
4,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(3,787
|
)
|
|
$
|
(162
|
)
|
|
$
|
8,079
|
|
$
|
4,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The results of operations of the acquired properties are included in the consolidated statements
of operations as of the acquisition date.
F-16
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
4. MINORITY INTERESTS HOLDERS OF CONVERTIBLE LIMITED PARTNERSHIP UNITS IN THE OPERATING PARTNERSHIP
The Saul Organization has a 23.4% limited partnership interest, represented by 5,416,000 convertible limited partnership units in the
Operating Partnership, as of December 31, 2007. These convertible limited partnership units are convertible into shares of Saul Centers common stock, at the option of the unit holder, on a one-for-one basis provided that, in accordance
with the Saul Centers, Inc. Articles of Incorporation, the rights may not be exercised at any time that The Saul Organization beneficially owns, directly or indirectly, in the aggregate more than 39.9% of the value of the outstanding common stock
and preferred stock of Saul Centers (the Equity Securities).
The Operating Partnership issued 106,157 limited partnership
units pursuant to the Dividend Reinvestment and Stock Purchase Plan at a weighted average discounted price of $37.69 per share during the year ended December 31, 2006. No units were issued during the year ended December 31, 2007.
The impact of The Saul Organizations 23.4% limited partnership interest in the Operating Partnership is reflected as minority
interests in the accompanying consolidated financial statements. Fully converted partnership units and diluted weighted average shares outstanding for the years ended December 31, 2007, 2006 and 2005, were 23,185,000, 22,628,000, and
22,003,000, respectively.
5. MORTGAGE NOTES PAYABLE, REVOLVING CREDIT FACILITY, INTEREST EXPENSE AND AMORTIZATION OF DEFERRED DEBT COSTS
The Companys outstanding debt, including amounts owed under the Companys revolving credit facility, totaled $532,726,000 at
December 31, 2007, of which $524,726,000 was fixed rate debt and $8,000,000 was variable rate debt. At the prior years end, December 31, 2006, notes payable totaled $522,443,000, of which $487,443,000 was fixed rate debt and
$35,000,000 was variable rate debt. At December 31, 2007, the Company had a $150 million unsecured revolving credit facility with $8,000,000 outstanding borrowings. Prior to the facilitys extension December 19, 2007, the credit
facility provided working capital and funds for acquisitions, certain developments and redevelopments. The facility had a three-year term due to expire on January 27, 2008. The facility provided for letters of credit to be issued under the
revolving credit facility. The facility required monthly interest payments, if applicable, at a rate of LIBOR plus a spread of 1.40% to 1.625% (determined by certain leverage tests) or upon the banks reference rate at the Companys
option. Loan availability under the facility was determined by operating income from the Companys existing unencumbered properties.
On and effective December 19, 2007, the Company entered into a new $150,000,000 unsecured revolving credit facility (the 2007 Facility), with a syndication of lenders. The 2007 Facility replaced the Companys existing
unsecured credit facility. Saul Centers, Inc. and certain consolidated subsidiaries of the Operating Partnership have guaranteed the payment obligations of the Operating Partnership under the 2007 Facility. The 2007 Facility provides for a
$150,000,000 revolving credit facility maturing on December 19, 2010, which term may be extended by the Company for one additional year subject to the Companys satisfaction of certain conditions. Until December 19, 2009, certain or
all of the lenders may, upon request by the Company, increase the 2007 Facility by $50,000,000. Letters of credit may be issued under the 2007 Facility. On December 31, 2007, of the $150,000,000 available for borrowing, $8,000,000 was
outstanding, $177,000 was committed for letters of credit, and the resulting balance of $141,823,000 was available to borrow for working capital, operating property acquisitions or development projects. In general, loan availability under the 2007
Facility is primarily determined by operating income from the Companys existing unencumbered properties. As of December 31, 2007, the unencumbered properties supported availability of $99,000,000. Interest expense is calculated based upon
the 1, 2, 3 or 6 month LIBOR plus a spread of 1.40% to 1.60%, determined by certain leverage tests, or upon the banks reference rate, at the Companys option. An additional $51,000,000 is available based upon the Companys
consolidated operating income after debt service. On this portion of the 2007 Facility, interest accrues at a rate of LIBOR plus a spread of 1.70% to 2.25%, determined by certain leverage tests, or upon the banks reference rate plus a spread
of 0.575%, at the Companys option.
F-17
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
During 2007, Saul Centers was released as a guarantor for a portion of two of the Partnerships
mortgage notes payable totaling $4,500,000. The guarantees were released upon the achievement of specified leasing thresholds at the two properties. Saul Centers is a guarantor of the revolving credit facility, of which the Operating Partnership is
the borrower. The mortgage notes payable are all non-recourse debt, and Saul Centers has no remaining guarantees on any of these notes.
On
August 15, 2007, the Company closed on a new 15-year, fixed-rate mortgage financing in the amount of $12,000,000, secured by Orchard Park. The loan matures September 5, 2022, requires equal monthly principal and interest payments of
$72,565, based upon a 6.08% interest rate and 30-year principal amortization, and requires a final payment of $8,628,000 at maturity.
On
May 30, 2007, the Company closed on a new 15-year, fixed-rate mortgage financing in the amount of $40,000,000, secured by Lansdowne Town Center. The loan matures June 10, 2022, requires equal monthly principal and interest payments of
$230,137, based upon a 5.62% interest rate and 30-year principal amortization, and requires a final payment of $28,177,000 at maturity.
The Company obtained three new fixed-rate, non-recourse financings during 2006. On January 10, 2006, the Company closed on a new fixed-rate mortgage financing in the amount of $10,500,000, secured by Jamestown Place, acquired in
November 2005. The loan matures February 2021, requires equal monthly principal and interest payments of $66,000, based upon a 5.81% interest rate and 25-year principal amortization, and requires a final payment of $6,102,000 at maturity. On
January 27, 2006, the Company assumed the obligation of a secured mortgage obligation in conjunction with the acquisition of Smallwood Village Center. The outstanding balance on the loan was $11,334,000 at settlement. The loan matures January
2013, requires equal monthly principal and interest payments of $71,000, based upon a 6.12% interest rate and 30-year principal amortization, and requires a final payment of $10,071,000 at maturity. The Company also obtained a new fixed-rate,
non-recourse financing on July 12, 2006 when it closed on a new fixed-rate mortgage financing in the amount of $7,000,000, secured by Hunt Club Corners, acquired June 1, 2006. The loan matures August 11, 2021, requires equal monthly
principal and interest payments of $42,000, based upon a 6.01% interest rate and 30-year principal amortization, and requires a final payment of $5,018,000 at maturity.
F-18
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
The following is a summary of notes payable as of December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes Payable
(Dollars in thousands)
|
|
December 31,
|
|
Interest
Rate *
|
|
|
Scheduled
Maturity *
|
|
2007
|
|
|
2006
|
|
|
Fixed rate mortgages:
|
|
$
|
83,078
|
(a)
|
|
$
|
87,307
|
|
8.00
|
%
|
|
Dec-2011
|
|
|
|
119,340
|
(b)
|
|
|
123,130
|
|
7.67
|
%
|
|
Oct-2012
|
|
|
|
11,022
|
(c)
|
|
|
11,188
|
|
6.12
|
%
|
|
Jan-2013
|
|
|
|
30,041
|
(d)
|
|
|
31,155
|
|
7.88
|
%
|
|
Jan-2013
|
|
|
|
8,131
|
(e)
|
|
|
8,331
|
|
5.77
|
%
|
|
Jul-2013
|
|
|
|
12,935
|
(f)
|
|
|
13,253
|
|
5.28
|
%
|
|
May-2014
|
|
|
|
11,930
|
(g)
|
|
|
12,337
|
|
8.33
|
%
|
|
Jun-2015
|
|
|
|
39,099
|
(h)
|
|
|
39,886
|
|
6.01
|
%
|
|
Feb-2018
|
|
|
|
44,495
|
(i)
|
|
|
45,516
|
|
5.88
|
%
|
|
Jan-2019
|
|
|
|
14,395
|
(j)
|
|
|
14,726
|
|
5.76
|
%
|
|
May-2019
|
|
|
|
19,878
|
(k)
|
|
|
20,338
|
|
5.62
|
%
|
|
Jul-2019
|
|
|
|
19,661
|
(l)
|
|
|
20,100
|
|
5.79
|
%
|
|
Sep-2019
|
|
|
|
17,601
|
(m)
|
|
|
18,015
|
|
5.22
|
%
|
|
Jan-2020
|
|
|
|
12,535
|
(n)
|
|
|
12,723
|
|
5.60
|
%
|
|
May-2020
|
|
|
|
11,858
|
(o)
|
|
|
12,125
|
|
5.30
|
%
|
|
Jun-2020
|
|
|
|
10,139
|
(p)
|
|
|
10,341
|
|
5.81
|
%
|
|
Feb-2021
|
|
|
|
6,884
|
(q)
|
|
|
6,972
|
|
6.01
|
%
|
|
Aug-2021
|
|
|
|
39,740
|
(r)
|
|
|
|
|
5.62
|
%
|
|
Jun-2022
|
|
|
|
11,964
|
(s)
|
|
|
|
|
6.08
|
%
|
|
Sep-2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed rate
|
|
|
524,726
|
|
|
|
487,443
|
|
6.72
|
%
|
|
8.2 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable rate loan:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit facility
|
|
|
8,000
|
(t)
|
|
|
35,000
|
|
LIBOR + 1.475
|
%
|
|
Dec-2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total variable rate
|
|
|
8,000
|
|
|
|
35,000
|
|
6.33
|
%
|
|
3.0 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notes payable
|
|
$
|
532,726
|
|
|
$
|
522,443
|
|
6.71
|
%
|
|
8.1 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Interest rate and scheduled maturity data presented as of December 31, 2007. Totals computed using weighted averages.
|
(a)
|
The loan is collateralized by Avenel Business Park, Van Ness Square, Ashburn Village, Leesburg Pike, Lumberton Plaza and Village Center. The loan has been increased on four
occasions since its inception in 1997. The 8.00% blended interest rate is the weighted average of the initial loan rate and additional borrowing rates. The loan requires equal monthly principal and interest payments of $920,000 based upon a weighted
average 23-year amortization schedule and a final payment of $63,153,000 at loan maturity. Principal of $4,229,000 was amortized during 2007.
|
(b)
|
The loan is collateralized by nine shopping centers (Seven Corners, Thruway, White Oak, Hampshire Langley, Great Eastern, Southside Plaza, Belvedere, Giant and Ravenwood) and
requires equal monthly principal and interest payments of $1,103,000 based upon a 25-year amortization schedule and a final payment of $97,403,000 at loan maturity. Principal of $3,790,000 was amortized during 2007.
|
(c)
|
The loan is collateralized by Smallwood Village Center and requires equal monthly principal and interest payments of $71,000 based upon a 30 year amortization schedule and a
final payment of $10,071,000 at loan maturity. Principal of $166,000 was amortized during 2007.
|
F-19
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
(d)
|
The loan is collateralized by 601 Pennsylvania Avenue and requires equal monthly principal and interest payments of $294,000 based upon a 25-year amortization schedule and a
final payment of $22,961,000 at loan maturity. Principal of $1,114,000 was amortized during 2007.
|
(e)
|
The loan is collateralized by Cruse MarketPlace and requires equal monthly principal and interest payments of $56,000 based upon an amortization schedule of approximately 24
years and a final payment of $6,830,000 at loan maturity. Principal of $200,000 was amortized during 2007.
|
(f)
|
The loan is collateralized by Seabreeze Plaza and requires equal monthly principal and interest payments of $84,000 based upon a 25-year amortization schedule and a final payment
of $10,531,000 at loan maturity. Principal of $318,000 was amortized during 2007.
|
(g)
|
The loan is collateralized by Shops at Fairfax and Boulevard shopping centers and requires monthly principal and interest payments of $118,000 based upon a 22-year amortization
schedule and a final payment of $7,630,000 at loan maturity. Principal of $407,000 was amortized during 2007.
|
(h)
|
The loan is collateralized by Washington Square and requires equal monthly principal and interest payments of $264,000 based upon a 27.5-year amortization schedule and a final
payment of $28,012,000 at loan maturity. Principal of $787,000 was amortized during 2007.
|
(i)
|
The loan, consisting of two notes dated December 2003 and two notes dated February and December 2004, is currently collateralized by three shopping centers, Broadlands Village
(Phases I, II & III), The Glen and Kentlands Square, and requires equal monthly principal and interest payments of $306,000 based upon a 25-year amortization schedule and a final payment of $28,393,000 at loan maturity. Principal of
$1,021,000 was amortized during 2007.
|
(j)
|
The loan is collateralized by Olde Forte Village and requires equal monthly principal and interest payments of $98,000 based upon a 25-year amortization schedule and a final
payment of $8,985,000 at loan maturity. Principal of $331,000 was amortized during 2007.
|
(k)
|
The loan is collateralized by Countryside and requires equal monthly principal and interest payments of $133,000 based upon a 25-year amortization schedule and a final payment of
$12,288,000 at loan maturity. Principal of $460,000 was amortized during 2007.
|
(l)
|
The loan is collateralized by Briggs Chaney MarketPlace and requires equal monthly principal and interest payments of $133,000 based upon a 25-year amortization schedule and a
final payment of $12,192,000 at loan maturity. Principal of $439,000 was amortized during 2007.
|
(m)
|
The loan is collateralized by Shops at Monocacy and requires equal monthly principal and interest payments of $112,000 based upon a 25-year amortization schedule and a final
payment of $10,568,000 at loan maturity. Principal of $414,000 was amortized during 2007.
|
(n)
|
The loan is collateralized by Boca Valley Plaza and requires equal monthly principal and interest payments of $75,000 based upon a 30-year amortization schedule and a final
payment of $9,149,000 at loan maturity. Principal of $188,000 was amortized during 2007.
|
(o)
|
The loan is collateralized by Palm Springs Center and requires equal monthly principal and interest payments of $75,000 based upon a 25-year amortization schedule and a final
payment of $7,075,000 at loan maturity. Principal of $267,000 was amortized during 2007.
|
(p)
|
The loan is collateralized by Jamestown Place and requires equal monthly principal and interest payments of $66,000 based upon a 25-year amortization schedule and a final payment
of $6,102,000 at loan maturity. Principal of $202,000 was amortized during 2007.
|
(q)
|
The loan is collateralized by Hunt Club Corners and requires equal monthly principal and interest payments of $42,000 based upon a 30-year amortization schedule and a final
payment of $5,018,000 at loan maturity. Principal of $88,000 was amortized during 2007.
|
(r)
|
The loan is collateralized by Lansdowne Town Center and requires monthly principal and interest payments of $230,000 based on a 30-year amortization schedule and a final payment
of $28,177,000 at loan maturity. Principal of $260,000 was amortized during 2007.
|
F-20
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
(s)
|
The loan is collateralized by Orchard Park and requires equal monthly principal and interest payments of $73,000 based upon a 30-year amortization schedule and a final payment of
$8,628,000 at loan maturity. Principal of $36,000 was amortized during 2007.
|
(t)
|
The loan is an unsecured revolving credit facility totaling $150,000,000. Interest expense during 2007 was calculated based upon the 1 month LIBOR rate plus a spread of 1.50%
(reduced to 1.475% effective December 19, 2007) or upon the banks reference rate at the Companys option. The line may be extended one year with payment of a fee of 1/4% at the Companys option. Monthly payments, if applicable,
are interest only and vary depending upon the amount outstanding and the applicable interest rate for any given month.
|
The December 31, 2007 and 2006 depreciation adjusted cost of properties collateralizing the mortgage notes payable totaled $557,820,000 and $508,236,000, respectively. The Companys credit facility requires the Company and its
subsidiaries to maintain certain financial covenants. As of December 31, 2007, the material covenants required the Company, on a consolidated basis, to:
|
|
|
limit the amount of debt so as to maintain a gross asset value, as defined in the loan agreement, in excess of liabilities of at least $600 million plus 90% of our
future net equity proceeds;
|
|
|
|
limit the amount of debt as a percentage of gross asset value, as defined in the loan agreement, to less than 60% (leverage ratio);
|
|
|
|
limit the amount of debt so that interest coverage will exceed 2.5 to 1 on a trailing 12-full calendar month basis;
|
|
|
|
limit the amount of debt so that interest, scheduled principal amortization and preferred dividend coverage exceeds 1.6 to 1; and
|
|
|
|
limit the amount of variable rate debt and debt with initial loan terms of less than 5 years to no more than 40% of total debt.
|
As of December 31, 2007, the Company was in compliance with all such covenants.
Notes payable at December 31, 2007 and 2006, totaling $157,381,000 and $189,285,000, respectively, are guaranteed by members of The Saul
Organization. As of December 31, 2007, the scheduled maturities of all debt including scheduled principal amortization for years ended December 31, are as follows:
Debt Maturity Schedule
(In
thousands)
|
|
|
|
2008
|
|
$
|
16,162
|
2009
|
|
|
17,393
|
2010
|
|
|
26,688
|
2011
|
|
|
82,315
|
2012
|
|
|
110,531
|
Thereafter
|
|
|
279,637
|
|
|
|
|
Total
|
|
$
|
532,726
|
|
|
|
|
F-21
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
Interest Expense and Amortization of Deferred Debt Costs
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Interest incurred
|
|
$
|
35,595
|
|
|
$
|
35,118
|
|
|
$
|
32,304
|
|
Amortization of deferred debt costs
|
|
|
1,149
|
|
|
|
1,089
|
|
|
|
1,161
|
|
Capitalized interest
|
|
|
(2,889
|
)
|
|
|
(3,673
|
)
|
|
|
(3,258
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
33,855
|
|
|
$
|
32,534
|
|
|
$
|
30,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6. LEASE AGREEMENTS
Lease income includes primarily base rent arising from noncancelable commercial leases. Base rent (including straight-line rent) for the years ended December 31, 2007, 2006 and 2005, amounted to $118,806,000,
$110,121,000 and $99,448,000, respectively. Future contractual payments under noncancelable leases for years ended December 31, (which exclude the effect of straight-line rents), are as follows:
Future Contractual Payments
(In
thousands)
|
|
|
|
2008
|
|
$
|
116,560
|
2009
|
|
|
106,043
|
2010
|
|
|
94,766
|
2011
|
|
|
78,034
|
2012
|
|
|
61,609
|
Thereafter
|
|
|
289,057
|
|
|
|
|
Total
|
|
$
|
746,069
|
|
|
|
|
The majority of the leases also provide for rental increases and expense recoveries based on fixed
annual increases or increases in the Consumer Price Index and increases in operating expenses. The expense recoveries 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, 2007, 2006 and 2005 amounted to $26,090,000, $22,636,000 and $20,027,000, respectively. In addition, certain retail leases provide for percentage rent based on sales in excess of the minimum
specified in the tenants lease. Percentage rent amounted to $1,497,000, $1,767,000 and $2,057,000, for the years ended December 31, 2007, 2006 and 2005, respectively.
7. 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 $164,000 for each of the years ended December 31, 2007, 2006 and 2005, respectively.
The future minimum rental commitments under these ground leases are as follows:
Ground Lease Rental Commitments
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annually
|
|
Total
Thereafter
|
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
Beacon Center
|
|
$
|
53
|
|
$
|
53
|
|
$
|
53
|
|
$
|
57
|
|
$
|
60
|
|
$
|
2,960
|
Olney
|
|
|
51
|
|
|
52
|
|
|
56
|
|
|
56
|
|
|
56
|
|
|
4,153
|
Southdale
|
|
|
60
|
|
|
60
|
|
|
60
|
|
|
60
|
|
|
60
|
|
|
3,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
164
|
|
$
|
165
|
|
$
|
169
|
|
$
|
173
|
|
$
|
176
|
|
$
|
10,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
In addition to the above, Flagship Center consists of two developed out parcels 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. Countryside shopping center was acquired in February, 2004. Because of certain land use considerations, approximately 3.4% of the underlying land is held under a 99-year ground lease. The lease requires the Company to pay minimum rent of
one dollar per year as well as its pro-rata share of the real estate taxes.
The Companys corporate headquarters lease, which
commenced in March 2002, is leased by a member of The Saul Organization. The 10-year lease provides for base rent escalated at 3% per year, with payment of a pro-rata share of operating expenses over a base year amount. The Company and The Saul
Organization entered into a Shared Services Agreement whereby each party pays an allocation of total rental payments on a percentage proportionate to the number of employees employed by each party. The Companys rent payments for the years
ended December 31, 2007, 2006 and 2005 were $796,000, $726,000 and $661,000, respectively. Expenses arising from the lease are included in general and administrative expense (see Note 9 Related Party Transactions).
8. STOCKHOLDERS EQUITY AND MINORITY INTERESTS
The consolidated statement of operations for the years ended December 31, 2007 and 2006 includes a charge for minority interests of $8,818,000 and $7,793,000, respectively, representing The Saul Organizations share of the net
income for the year. The charge for the year ended December 31, 2005 was $7,798,000, consisting of $6,937,000 related to The Saul Organizations share of the net income for the year and $861,000 related to distributions to minority
interests in excess of allocated net income for the year.
On July 16, 2003, the Company filed a shelf registration statement (the
Shelf Registration Statement) with the SEC relating to the future offering of up to an aggregate of $100 million of preferred stock and depositary shares. On November 5, 2003, the Company sold 3,500,000 depositary shares, each
representing 1/100th of a share of 8% Series A Cumulative Redeemable Preferred Stock. The underwriters exercised an over-allotment option, purchasing an additional 500,000 depositary shares on November 26, 2003.
The depositary shares may be redeemed, in whole or in part, at the $25.00 per share liquidation preference at the Companys option on or after
November 5, 2008. The depositary shares will pay an annual dividend of $2.00 per share, equivalent to 8% of the $25.00 per share liquidation preference. The first dividend, paid on January 15, 2004 was for less than a full quarter and
covered the period from November 5 through December 31, 2003. The Series A preferred stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and is not convertible into any other securities of the Company.
Investors in the depositary shares generally have no voting rights, but will have limited voting rights if the Company fails to pay dividends for six or more quarters (whether or not declared or consecutive) and in certain other events.
9. RELATED PARTY TRANSACTIONS
Chevy Chase Bank,
an affiliate of The Saul Organization, leases space in 18 of the Companys properties. Total rental income from Chevy Chase Bank amounted to $2,946,000, $2,220,000 and $1,768,000, for the years
F-23
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
ended December 31, 2007, 2006 and 2005, respectively. As of December 31, 2007, accounts receivable and accrued income included $12,200 and as of
December 31, 2006, deferred income included $16,000 of prepaid rent from various Chevy Chase Bank leases.
The Company utilizes Chevy
Chase Bank for its various checking accounts and as of December 31, 2007 had $5,559,000 deposited in cash and short-term investment accounts.
The Chairman and Chief Executive Officer, the President, the Senior Vice President- General Counsel and the Vice President-Chief Accounting Officer of the Company are also officers of various members of The Saul Organization and their
management time is shared with The Saul Organization. Their annual compensation is fixed by the Compensation Committee of the Board of Directors, with the exception of the Vice President-Chief Accounting Officer whose share of annual compensation
allocated to the Company is determined by the shared services agreement (described below).
The Company participates in a multiemployer
profit sharing retirement plan with other entities within The Saul Organization which covers those full-time employees who meet the requirements as specified in the plan. Beginning January 1, 2002, only employer contributions are made to the
plan. Each participant who is entitled to be credited with at least one hour of service on or after January 1, 2002, shall be 100% vested in his or her employer contribution account and no portion of such account shall be forfeitable. Employer
contributions, included in general and administrative expense or property operating expenses in the consolidated statements of operations, at the discretionary amount of up to six percent of the employees cash compensation, subject to certain
limits, were $331,000, $289,000 and $266,000 for 2007, 2006 and 2005, respectively. There are no past service costs associated with the plan since it is of the defined-contribution type.
The Company also participates in a multiemployer nonqualified deferred plan with entities in The Saul Organization which covers those full-time employees
who meet the requirements as specified in the plan. The plan, which can be modified or discontinued at any time, requires participating employees to defer 2% of their compensation over a specified amount. For the years ended December 31, 2007,
2006 and 2005, the Company was required to contribute three times the amount deferred by employees. The Companys expense, included in general and administrative expense, totaled $106,000, $106,000 and $118,000, for the years ended
December 31, 2007, 2006 and 2005, respectively. All amounts deferred by employees and the Company are fully vested. The cumulative unfunded liability under this plan was $857,000 and $709,000 at December 31, 2007 and 2006, respectively,
and is included in accounts payable, accrued expenses and other liabilities in the consolidated balance sheets.
The Company has entered
into a shared services agreement (the Agreement) with The Saul Organization that provides for the sharing of certain personnel and ancillary functions such as computer hardware, software, and support services and certain direct and
indirect administrative personnel. The method for determining the cost of the shared services is provided for in the Agreement and is based upon head count estimates of usage or estimates of time incurred, as applicable. Senior management has
determined that the final allocations of shared costs are reasonable. The terms of the Agreement and the payments made thereunder are reviewed annually by the Audit Committee of the Board of Directors, which consists entirely of independent
directors. Billings by The Saul Organization for the Companys share of these ancillary costs and expenses for the years ended December 31, 2007, 2006 and 2005, which included rental payments for the Companys headquarters lease (see
Note 7. Long Term Lease Obligations), totaled $4,890,000, $3,963,000 and $3,462,000, respectively. The amounts are expensed when incurred and are primarily reported as general and administrative expenses or capitalized to specific development
projects in these consolidated financial statements. As of December 31, 2007 and 2006, accounts payable, accrued expenses and other liabilities included $298,000 and $255,000, respectively, represent billings due to The Saul Organization for
the Companys share of these ancillary costs and expenses.
On November 14, 2007, the Company purchased a land parcel in
Frederick, Maryland, from a subsidiary of Chevy Chase Bank, a related party, for $5,000,000. The purchase price of the property was determined by the average of two independent third party appraisals which were contracted, one on behalf of the
Company and one on behalf of Chevy Chase Bank.
F-24
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
10. STOCK OPTION PLAN
The Company established a stock option plan in 1993 (the 1993 Plan) for the purpose of attracting and retaining executive officers and other key personnel. The 1993 Plan provided for grants of options to
purchase a specified number of shares of common stock. A total of 400,000 shares were made available under the 1993 Plan. The 1993 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.
During 1993 and 1994, the Compensation Committee
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, had an exercise
price of $20.00 per share and a term of ten years, subject to earlier expiration upon termination of employment. No compensation expense was recognized as a result of these grants. As of December 31, 2004, no 1993 and 1994 options remained
unexercised.
On May 23, 2003, the Compensation Committee granted options to purchase a total of 220,000 shares (80,000 shares from
incentive stock options and 140,000 shares from nonqualified stock options) to six Company officers (the 2003 Options). The 2003 Options vest 25% per year over four years and have a term of ten years, subject to earlier expiration
upon termination of employment. The exercise price of $24.91 per share was the market trading price of the Companys common stock at the time of the award. As a result of the 2003 Options grant, no further shares were available under the 1993
Plan.
At the annual meeting of the Companys stockholders in 2004, the stockholders approved the adoption of the 2004 stock plan (the
2004 Plan) for the purpose of attracting and retaining executive officers, directors and other key personnel. The 2004 Plan provides for grants of options to purchase up to 500,000 shares of common stock as well as grants of up to
100,000 shares of common stock to directors. The 2004 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.
Effective April 26, 2004, the Compensation Committee granted options to purchase a total of 152,500 shares (27,500 shares
of incentive stock options and 125,000 shares of nonqualified stock options) to eleven Company officers and to the twelve Company directors (the 2004 Options). The officers 2004 Options vest 25% per year over four years and
have a term of ten years, subject to earlier expiration upon termination of employment. The directors options are exercisable immediately. The exercise price of $25.78 per share was the market trading price of the Companys common stock
on the date the option was granted.
Effective May 6, 2005, the Compensation Committee granted options to purchase a total of 162,500
shares (35,500 shares of incentive stock options and 127,000 shares of nonqualified stock options) to twelve Company officers and to the twelve Company directors (the 2005 Options). The officers 2005 Options vest 25% per year
over four years and have a term of ten years, subject to earlier expiration upon termination of employment. The directors options are exercisable immediately. The exercise price of $33.22 per share was the market trading price of the
Companys common stock on the date the option was granted.
Effective May 1, 2006, the Compensation Committee granted options to
purchase a total of 30,000 shares of nonqualified stock options to the twelve Company directors (the 2006 Options). The options are exercisable immediately. The exercise price of $40.35 per share was the market trading price of the
Companys common stock on the date the option was granted.
Effective April 27, 2007, the Compensation Committee granted options
to purchase a total of 165,000 shares (27,560 shares from incentive stock options and 137,440 shares from nonqualified stock options) to thirteen Company officers and twelve Company Directors (the 2007 options). The officers 2007
Options vest 25% per year over four years and have a term of ten years, subject to earlier expiration upon termination of employment. The directors options were immediately exercisable. The exercise price of $54.17 per share was the
closing market price of the Companys common stock on the date the option was granted.
The following table summarizes the amount and
activity of each grant, the total value and variables used in the computation and the amount expensed and included in general and administrative expense in the Consolidated Statements of Operations for the years ended December 31, 2007, 2006
and 2005:
F-25
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
Stock options issued to officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officers
|
|
|
Subtotal
|
|
|
Grant date
|
|
|
05/23/2003
|
|
|
|
04/26/2004
|
|
|
|
05/06/2005
|
|
|
|
04/27/2007
|
|
|
|
|
|
Total grant
|
|
|
220,000
|
|
|
|
122,500
|
|
|
|
132,500
|
|
|
|
135,000
|
|
|
|
610,000
|
|
Vested
|
|
|
220,000
|
|
|
|
91,875
|
|
|
|
66,250
|
|
|
|
|
|
|
|
378,125
|
|
Exercised
|
|
|
81,422
|
|
|
|
25,625
|
|
|
|
6,250
|
|
|
|
|
|
|
|
113,297
|
|
Forfeited
|
|
|
7,500
|
|
|
|
7,500
|
|
|
|
11,250
|
|
|
|
|
|
|
|
26,250
|
|
Exercisable at Dec. 31, 2007
|
|
|
131,078
|
|
|
|
58,750
|
|
|
|
48,750
|
|
|
|
|
|
|
|
238,578
|
|
Remaining unexercised
|
|
|
131,078
|
|
|
|
89,375
|
|
|
|
115,000
|
|
|
|
135,000
|
|
|
|
470,453
|
|
Exercise price
|
|
$
|
24.91
|
|
|
$
|
25.78
|
|
|
$
|
33.22
|
|
|
$
|
54.17
|
|
|
|
|
|
Volatility
|
|
|
0.175
|
|
|
|
0.183
|
|
|
|
0.207
|
|
|
|
0.233
|
|
|
|
|
|
Expected life (years)
|
|
|
7.0
|
|
|
|
7.0
|
|
|
|
8.0
|
|
|
|
6.5
|
|
|
|
|
|
Assumed yield
|
|
|
7.00
|
%
|
|
|
5.75
|
%
|
|
|
6.37
|
%
|
|
|
4.13
|
%
|
|
|
|
|
Risk-free rate
|
|
|
4.00
|
%
|
|
|
4.05
|
%
|
|
|
4.15
|
%
|
|
|
4.61
|
%
|
|
|
|
|
Total value at grant
date
|
|
$
|
332,200
|
|
|
$
|
292,775
|
|
|
$
|
413,400
|
|
|
$
|
1,258,848
|
|
|
$
|
2,297,223
|
|
Forfeited options
|
|
|
11,325
|
|
|
|
17,925
|
|
|
|
35,100
|
|
|
|
|
|
|
|
64,350
|
|
Expensed in prior years
|
|
|
133,399
|
|
|
|
49,988
|
|
|
|
|
|
|
|
|
|
|
|
183,387
|
|
Expensed in 2005
|
|
|
83,000
|
|
|
|
73,000
|
|
|
|
69,000
|
|
|
|
|
|
|
|
225,000
|
|
Expensed in 2006
|
|
|
76,444
|
|
|
|
67,220
|
|
|
|
95,460
|
|
|
|
|
|
|
|
239,124
|
|
Expensed in 2007
|
|
|
28,032
|
|
|
|
64,242
|
|
|
|
91,648
|
|
|
|
209,808
|
|
|
|
393,730
|
|
Future expense
|
|
|
|
|
|
$
|
20,400
|
|
|
$
|
122,192
|
|
|
$
|
1,049,040
|
|
|
$
|
1,191,632
|
|
|
Stock options issued to directors and grand totals
|
|
|
Directors
|
|
|
Subtotal
|
|
Grand Totals
|
Grant date
|
|
|
04/26/2004
|
|
|
|
05/06/2005
|
|
|
|
05/01/2006
|
|
|
|
04/27/2007
|
|
|
|
|
|
|
|
Total grant
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
120,000
|
|
|
730,000
|
Vested
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
120,000
|
|
|
498,125
|
Exercised
|
|
|
3,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,700
|
|
|
116,997
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,250
|
Exercisable at Dec. 31, 2007
|
|
|
26,300
|
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
116,300
|
|
|
354,878
|
Remaining unexercised
|
|
|
26,300
|
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
116,300
|
|
|
586,753
|
|
|
|
|
|
|
|
Exercise price
|
|
$
|
25.78
|
|
|
$
|
33.22
|
|
|
$
|
40.35
|
|
|
$
|
54.17
|
|
|
|
|
|
|
|
Volatility
|
|
|
0.183
|
|
|
|
0.198
|
|
|
|
0.206
|
|
|
|
0.225
|
|
|
|
|
|
|
|
Expected life (years)
|
|
|
5.0
|
|
|
|
10.0
|
|
|
|
9.0
|
|
|
|
8.0
|
|
|
|
|
|
|
|
Assumed yield
|
|
|
5.75
|
%
|
|
|
6.91
|
%
|
|
|
5.93
|
%
|
|
|
4.39
|
%
|
|
|
|
|
|
|
Risk-free rate
|
|
|
3.57
|
%
|
|
|
4.28
|
%
|
|
|
5.11
|
%
|
|
|
4.65
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total value at grant date
|
|
$
|
66,600
|
|
|
$
|
71,100
|
|
|
$
|
143,400
|
|
|
$
|
285,300
|
|
|
$
|
566,400
|
|
$
|
2,863,623
|
Forfeited options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,350
|
Expensed in prior years
|
|
|
66,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,600
|
|
|
249,987
|
Expensed in 2005
|
|
|
|
|
|
|
71,100
|
|
|
|
|
|
|
|
|
|
|
|
71,100
|
|
|
296,100
|
Expensed in 2006
|
|
|
|
|
|
|
|
|
|
|
143,400
|
|
|
|
|
|
|
|
143,400
|
|
|
382,524
|
Expensed in 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
285,300
|
|
|
|
285,300
|
|
|
679,030
|
Future expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,191,632
|
Weighted average term of future expense (Officer and Director options)
|
|
|
3.1 yrs
|
F-26
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
The table below summarizes the option activity for the years 2007, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
Shares
|
|
|
Wtd Avg
Exercise
Price
|
|
Shares
|
|
|
Wtd Avg
Exercise
Price
|
|
Shares
|
|
|
Wtd Avg
Exercise
Price
|
Outstanding at January 1
|
|
430,453
|
|
|
$
|
29.06
|
|
513,125
|
|
|
$
|
27.80
|
|
352,500
|
|
|
$
|
25.29
|
Granted
|
|
165,000
|
|
|
|
54.17
|
|
30,000
|
|
|
|
40.35
|
|
162,500
|
|
|
|
33.22
|
Exercised
|
|
(8,700
|
)
|
|
|
26.85
|
|
(86,422
|
)
|
|
|
25.59
|
|
(1,875
|
)
|
|
|
25.78
|
Expired/Forfeited
|
|
|
|
|
|
|
|
(26,250
|
)
|
|
|
28.72
|
|
|
|
|
|
|
Outstanding December 31
|
|
586,753
|
|
|
|
36.15
|
|
430,453
|
|
|
|
29.06
|
|
513,125
|
|
|
|
27.80
|
Exercisable at December 31
|
|
354,878
|
|
|
|
30.74
|
|
241,078
|
|
|
|
29.09
|
|
178,750
|
|
|
|
26.59
|
The intrinsic value of options exercised in 2007, 2006 and 2005 was $208,775, $1,871,000 and
$23,000, respectively. The intrinsic value of options outstanding and exercisable at year end 2007 was $10,260,000 and $8,074,000, respectively. The intrinsic value measures the price difference between the options exercise price and the
closing share price quoted by the New York Stock Exchange as of the date of measurement. The date of exercise was the measurement date for shares exercised during the period. At December 31, 2007, the final trading day of calendar 2007, the
closing price was $53.43 per share and was used for the calculation of aggregate intrinsic value of options outstanding and exercisable at that date. Options having an exercise price in excess of the December 31, 2007 closing price have no
intrinsic value. The weighted average remaining contractual life of the Companys exercisable and outstanding options are 6.6 and 7.3 years, respectively.
11. NON-OPERATING ITEMS
Gain on Property Disposition
The gain on property disposition of $139,000 in 2007 represents additional condemnation proceeds recognized from the State of Marylands condemnation and taking of a small strip of unimproved land for a road
widening project at White Oak shopping center. Original proceeds from the condemnation were received in 2004. There were no property dispositions in 2006 or 2005.
12. 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 and cash equivalents, accounts receivable, accounts payable and accrued expenses are reasonable estimates of
their fair value. Based upon managements estimate of borrowing rates and loan terms currently available to the Company for fixed rate financing, the fair value of the fixed rate notes payable is in excess of the $524,726,000 and $487,443,000
carrying value at December 31, 2007 and 2006, respectively. Management estimates that the fair value of these fixed rate notes payable, assuming long term interest rates of approximately 6.27% and 5.96%, would be approximately $528,894,000 and
$504,562,000, as of December 31, 2007 and 2006, respectively.
13. COMMITMENTS AND CONTINGENCIES
Neither the Company nor the Current Portfolio Properties are subject to any material litigation, nor, to managements 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.
F-27
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
14. 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. The Operating Partnership also maintains a similar dividend reinvestment plan that mirrors the Plan, which allows limited partnership interests the opportunity to
buy additional limited partnership units.
The Company paid common stock distributions of $1.77 per share, $1.68 per share and $1.60 per
share, during 2007, 2006 and 2005, respectively, and paid preferred stock dividends of $2.00 per depositary share during each of the years. For the common stock dividends paid, $1.770, $1.445 and $1.520 per share, represented ordinary dividend
income for the years 2007, 2006 and 2005. For the common stock dividends paid, $0.235 and $0.080 per share, represented return of capital to the shareholders for the years 2006 and 2005, respectively. The 2007 common dividend was 100% taxable. All
of the preferred stock dividends paid were considered ordinary dividend income.
The following summarizes distributions paid during the
years ended December 31, 2007, 2006 and 2005, and includes activity in the Plan as well as limited partnership units issued from the reinvestment of unit distributions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Distributions to
|
|
Dividend Reinvestments
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
Preferred
Stockholders
|
|
Common
Stockholders
|
|
Limited
Partnership
Unitholders
|
|
Common
Stock Shs
Issued
|
|
Units
Issued
|
|
Discounted
Share
Price
|
Distributions during 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31
|
|
$
|
2,000
|
|
$
|
8,323
|
|
$
|
2,546
|
|
19,828
|
|
|
|
$
|
52.52
|
July 31
|
|
|
2,000
|
|
|
7,740
|
|
|
2,383
|
|
148,651
|
|
|
|
|
41.92
|
April 30
|
|
|
2,000
|
|
|
7,679
|
|
|
2,383
|
|
113,165
|
|
|
|
|
51.60
|
January 31
|
|
|
2,000
|
|
|
7,284
|
|
|
2,275
|
|
107,553
|
|
|
|
|
52.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2007
|
|
$
|
8,000
|
|
$
|
31,026
|
|
$
|
9,587
|
|
389,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions during 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31
|
|
$
|
2,000
|
|
$
|
7,219
|
|
$
|
2,274
|
|
126,054
|
|
|
|
$
|
47.14
|
July 28
|
|
|
2,000
|
|
|
7,145
|
|
|
2,274
|
|
153,298
|
|
|
|
|
38.70
|
April 28
|
|
|
2,000
|
|
|
7,126
|
|
|
2,254
|
|
35,807
|
|
50,736
|
|
|
39.66
|
January 31
|
|
|
2,000
|
|
|
7,089
|
|
|
2,230
|
|
43,404
|
|
55,421
|
|
|
35.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2006
|
|
$
|
8,000
|
|
$
|
28,579
|
|
$
|
9,032
|
|
358,563
|
|
106,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions during 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31
|
|
$
|
2,000
|
|
$
|
7,042
|
|
$
|
2,207
|
|
108,133
|
|
57,875
|
|
$
|
33.95
|
July 29
|
|
|
2,000
|
|
|
6,668
|
|
|
2,081
|
|
91,353
|
|
50,483
|
|
|
36.67
|
April 29
|
|
|
2,000
|
|
|
6,436
|
|
|
2,029
|
|
158,607
|
|
|
|
|
32.50
|
January 31
|
|
|
2,000
|
|
|
6,396
|
|
|
2,028
|
|
97,401
|
|
2,552
|
|
|
32.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2005
|
|
$
|
8,000
|
|
$
|
26,542
|
|
$
|
8,345
|
|
455,494
|
|
110,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-28
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
In December 2007, 2006 and 2005, the Board of Directors of the Company authorized a distribution of
$0.47, $0.42 and $0.42 per common share payable in January 2008, 2007 and 2006, to holders of record on January 17, 2008, January 17, 2007 and January 17, 2006, respectively. As a result, $8,342,000, $7,284,000 and $7,089,000,
were paid to common shareholders on January 31, 2008, January 31, 2007 and January 31, 2006, respectively. Also, $2,546,000, $2,275,000 and $2,230,000, were paid to limited partnership unitholders on January 31,
2008, January 31, 2007 and January 31, 2006 ($0.47, $0.42 and $0.42 per Operating Partnership unit), respectively. The Board of Directors authorized preferred stock dividends of $0.50 per depositary share, to holders of record on
January 2, 2008, January 2, 2007 and January 3, 2006, respectively. As a result, $2,000,000 was paid to preferred shareholders on January 15, 2008, January 12, 2007 and January 13, 2006, respectively. These
amounts are reflected as a reduction of stockholders equity in the case of common stock and preferred stock dividends and minority interests deductions in the case of limited partner distributions and are included in dividends and
distributions payable in the accompanying consolidated financial statements.
15. INTERIM RESULTS (Unaudited)
The following summary presents the results of operations of the Company for the quarterly periods of calendar years 2007 and 2006.
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
1st Quarter
|
|
2nd Quarter
|
|
3rd Quarter
|
|
4th Quarter
|
Revenue
|
|
$
|
36,684
|
|
$
|
37,077
|
|
$
|
38,014
|
|
$
|
38,810
|
Operating income before minority interests and gain on property disposition
|
|
|
11,009
|
|
|
11,077
|
|
|
11,956
|
|
|
11,340
|
Net income
|
|
|
8,874
|
|
|
8,926
|
|
|
9,624
|
|
|
9,279
|
Net income available to common shareholders
|
|
|
6,874
|
|
|
6,926
|
|
|
7,624
|
|
|
7,279
|
Net income available to common shareholders per share (diluted)
|
|
|
0.39
|
|
|
0.39
|
|
|
0.43
|
|
|
0.41
|
|
|
|
|
2006
|
|
|
1st Quarter
|
|
2nd Quarter
|
|
3rd Quarter
|
|
4th Quarter
|
Revenue
|
|
$
|
33,467
|
|
$
|
33,748
|
|
$
|
34,860
|
|
$
|
35,903
|
Operating income before minority interests and gain on property disposition
|
|
|
9,509
|
|
|
9,648
|
|
|
10,328
|
|
|
10,988
|
Net income
|
|
|
7,707
|
|
|
7,797
|
|
|
8,321
|
|
|
8,855
|
Net income available to common shareholders
|
|
|
5,707
|
|
|
5,797
|
|
|
6,321
|
|
|
6,855
|
Net income available to common shareholders per share (diluted)
|
|
|
0.33
|
|
|
0.34
|
|
|
0.37
|
|
|
0.39
|
F-29
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
16. BUSINESS SEGMENTS
The Company has two reportable business segments: Shopping Centers and Office Properties. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see
Note 2). The Company evaluates performance based upon income from real estate for the combined properties in each segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Shopping
Centers
|
|
|
Office
Properties
|
|
|
Corporate
and Other
|
|
|
Consolidated
Totals
|
|
2007
|
|
|
|
|
Real estate rental operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
112,444
|
|
|
$
|
37,687
|
|
|
$
|
454
|
|
|
$
|
150,585
|
|
Expenses
|
|
|
(23,325
|
)
|
|
|
(9,893
|
)
|
|
|
|
|
|
|
(33,218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from real estate
|
|
|
89,119
|
|
|
|
27,794
|
|
|
|
454
|
|
|
|
117,367
|
|
Interest expense & amortization of deferred debt
|
|
|
|
|
|
|
|
|
|
|
(33,855
|
)
|
|
|
(33,855
|
)
|
General and administrative
|
|
|
|
|
|
|
|
|
|
|
(11,666
|
)
|
|
|
(11,666
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
89,119
|
|
|
|
27,794
|
|
|
|
(45,067
|
)
|
|
|
71,846
|
|
Depreciation and amortization
|
|
|
(18,320
|
)
|
|
|
(8,144
|
)
|
|
|
|
|
|
|
(26,464
|
)
|
Gain on property disposition
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
139
|
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
(8,818
|
)
|
|
|
(8,818
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
70,938
|
|
|
$
|
19,650
|
|
|
$
|
(53,885
|
)
|
|
$
|
36,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital investment
|
|
$
|
43,325
|
|
|
$
|
1,387
|
|
|
$
|
7,324
|
|
|
$
|
52,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
569,249
|
|
|
$
|
122,908
|
|
|
$
|
35,286
|
|
|
$
|
727,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate rental operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
101,460
|
|
|
$
|
36,184
|
|
|
$
|
334
|
|
|
$
|
137,978
|
|
Expenses
|
|
|
(20,172
|
)
|
|
|
(9,009
|
)
|
|
|
|
|
|
|
(29,181
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from real estate
|
|
|
81,288
|
|
|
|
27,175
|
|
|
|
334
|
|
|
|
108,797
|
|
Interest expense & amortization of deferred debt
|
|
|
|
|
|
|
|
|
|
|
(32,534
|
)
|
|
|
(32,534
|
)
|
General and administrative
|
|
|
|
|
|
|
|
|
|
|
(10,142
|
)
|
|
|
(10,142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
81,288
|
|
|
|
27,175
|
|
|
|
(42,342
|
)
|
|
|
66,121
|
|
Depreciation and amortization
|
|
|
(17,646
|
)
|
|
|
(8,002
|
)
|
|
|
|
|
|
|
(25,648
|
)
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
(7,793
|
)
|
|
|
(7,793
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
63,642
|
|
|
$
|
19,173
|
|
|
$
|
(50,135
|
)
|
|
$
|
32,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital investment
|
|
$
|
59,679
|
|
|
$
|
3,109
|
|
|
$
|
2,911
|
|
|
$
|
65,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
539,283
|
|
|
$
|
131,317
|
|
|
$
|
29,937
|
|
|
$
|
700,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate rental operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
90,592
|
|
|
$
|
35,762
|
|
|
$
|
661
|
|
|
$
|
127,015
|
|
Expenses
|
|
|
(17,221
|
)
|
|
|
(8,780
|
)
|
|
|
|
|
|
|
(26,001
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from real estate
|
|
|
73,371
|
|
|
|
26,982
|
|
|
|
661
|
|
|
|
101,014
|
|
Interest expense & amortization of deferred debt
|
|
|
|
|
|
|
|
|
|
|
(30,207
|
)
|
|
|
(30,207
|
)
|
General and administrative
|
|
|
|
|
|
|
|
|
|
|
(9,585
|
)
|
|
|
(9,585
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
73,371
|
|
|
|
26,982
|
|
|
|
(39,131
|
)
|
|
|
61,222
|
|
Depreciation and amortization
|
|
|
(16,283
|
)
|
|
|
(7,914
|
)
|
|
|
|
|
|
|
(24,197
|
)
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
(7,798
|
)
|
|
|
(7,798
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
57,088
|
|
|
$
|
19,068
|
|
|
$
|
(46,929
|
)
|
|
$
|
29,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital investment
|
|
$
|
70,652
|
|
|
$
|
1,509
|
|
|
$
|
1,644
|
|
|
$
|
73,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
467,687
|
|
|
$
|
135,211
|
|
|
$
|
28,571
|
|
|
$
|
631,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-30
SAUL CENTERS, INC.
Notes to Consolidated Financial Statements
17. SUBSEQUENT EVENTS
In January 2008, the Company acquired an undeveloped land parcel in Warrenton, Virginia. The site is located in the City of Warrenton at the southwest corner of the U. S. Route 29/211 and Fletcher Drive intersection.
The Company has commenced site work construction for Northrock Shopping Center, a neighborhood shopping center. The Harris Teeter supermarket chain has executed a lease for a grocery store to anchor the center. The land purchase price was $12.5
million.
F-31
Schedule III
SAUL CENTERS, INC.
Real Estate and Accumulated Depreciation
December 31, 2007
(Dollars in
Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial
Basis
|
|
Costs
Capitalized
Subsequent
to
Acquisition
|
|
Basis at Close of Period
|
|
Accumulated
Depreciation
|
|
Book
Value
|
|
Related
Debt
|
|
Date of
Construction
|
|
Date
Acquired
|
|
Buildings and
Improvements
Depreciable
Lives in Years
|
|
|
|
|
Land
|
|
Buildings
and
Improvements
|
|
Leasehold
Interests
|
|
Total
|
|
|
|
|
|
|
Shopping Centers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ashburn Village, Ashburn, VA
|
|
$
|
11,431
|
|
$
|
18,546
|
|
$
|
6,764
|
|
$
|
23,213
|
|
$
|
|
|
$
|
29,977
|
|
$
|
5,985
|
|
$
|
23,992
|
|
$
|
23,965
|
|
1994 & 2000-2
|
|
3/94
|
|
40
|
Ashland Square Phase I, Manassas, VA
|
|
|
73
|
|
|
354
|
|
|
73
|
|
|
354
|
|
|
|
|
|
427
|
|
|
4
|
|
|
423
|
|
|
|
|
|
|
12/04
|
|
20
|
Beacon Center, Alexandria, VA
|
|
|
1,493
|
|
|
17,155
|
|
|
|
|
|
17,554
|
|
|
1,094
|
|
|
18,648
|
|
|
8,862
|
|
|
9,786
|
|
|
|
|
1960 & 1974
|
|
1/72
|
|
40 & 50
|
Belvedere, Baltimore, MD
|
|
|
932
|
|
|
896
|
|
|
263
|
|
|
1,565
|
|
|
|
|
|
1,828
|
|
|
1,336
|
|
|
492
|
|
|
2,244
|
|
1958
|
|
1/72
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boca Valley Plaza, Boca Raton, FL
|
|
|
16,720
|
|
|
477
|
|
|
5,735
|
|
|
11,462
|
|
|
|
|
|
17,197
|
|
|
1,087
|
|
|
16,110
|
|
|
12,535
|
|
|
|
2/04
|
|
40
|
Boulevard, Fairfax, VA
|
|
|
4,883
|
|
|
1,914
|
|
|
3,687
|
|
|
3,110
|
|
|
|
|
|
6,797
|
|
|
928
|
|
|
5,869
|
|
|
4,772
|
|
1969
|
|
4/94
|
|
40
|
Briggs Chaney MarketPlace, Silver Spring, MD
|
|
|
27,037
|
|
|
2,363
|
|
|
9,789
|
|
|
19,611
|
|
|
|
|
|
29,400
|
|
|
1,910
|
|
|
27,490
|
|
|
19,661
|
|
|
|
4/04
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadlands Village I, II & III, Loudoun County, VA
|
|
|
5,316
|
|
|
24,458
|
|
|
5,300
|
|
|
24,474
|
|
|
|
|
|
29,774
|
|
|
2,641
|
|
|
27,133
|
|
|
23,641
|
|
2002-3 & 2004
|
|
3/02
|
|
40 & 50
|
Clarendon/Clarendon Station, Arlington, VA
|
|
|
1,219
|
|
|
2,943
|
|
|
1,061
|
|
|
3,101
|
|
|
|
|
|
4,162
|
|
|
208
|
|
|
3,954
|
|
|
|
|
1949
|
|
7/73
&
1/96
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Countryside, Sterling, VA
|
|
|
28,912
|
|
|
1,221
|
|
|
7,532
|
|
|
22,601
|
|
|
|
|
|
30,133
|
|
|
2,081
|
|
|
28,052
|
|
|
19,878
|
|
|
|
2/04
|
|
40
|
Cruse MarketPlace, Cumming, GA
|
|
|
12,226
|
|
|
66
|
|
|
3,920
|
|
|
8,372
|
|
|
|
|
|
12,292
|
|
|
797
|
|
|
11,495
|
|
|
8,131
|
|
|
|
3/04
|
|
40
|
Flagship Center, Rockville, MD
|
|
|
160
|
|
|
9
|
|
|
169
|
|
|
|
|
|
|
|
|
169
|
|
|
|
|
|
169
|
|
|
|
|
1972
|
|
1/72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
French Market, Oklahoma City, OK
|
|
|
5,781
|
|
|
9,992
|
|
|
1,118
|
|
|
14,655
|
|
|
|
|
|
15,773
|
|
|
7,742
|
|
|
8,031
|
|
|
|
|
1972 & 2001
|
|
3/74
|
|
50
|
Germantown, Germantown, MD
|
|
|
3,576
|
|
|
557
|
|
|
2,034
|
|
|
2,099
|
|
|
|
|
|
4,133
|
|
|
895
|
|
|
3,238
|
|
|
|
|
1990
|
|
8/93
|
|
40
|
Giant, Baltimore, MD
|
|
|
998
|
|
|
528
|
|
|
422
|
|
|
1,104
|
|
|
|
|
|
1,526
|
|
|
858
|
|
|
668
|
|
|
2,268
|
|
1959
|
|
1/72
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Glen, Lake Ridge, VA
|
|
|
12,918
|
|
|
6,058
|
|
|
5,300
|
|
|
13,676
|
|
|
|
|
|
18,976
|
|
|
3,684
|
|
|
15,292
|
|
|
11,401
|
|
1993
|
|
6/94
|
|
40
|
Great Eastern, District Heights, MD
|
|
|
4,993
|
|
|
9,805
|
|
|
3,785
|
|
|
11,013
|
|
|
|
|
|
14,798
|
|
|
5,560
|
|
|
9,238
|
|
|
9,739
|
|
1958 & 1960
|
|
1/72
|
|
40
|
Hampshire Langley, Langley Park, MD
|
|
|
3,159
|
|
|
2,657
|
|
|
1,856
|
|
|
3,960
|
|
|
|
|
|
5,816
|
|
|
2,927
|
|
|
2,889
|
|
|
8,927
|
|
1960
|
|
1/72
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hunt Club Corners, Apopka, FL
|
|
|
12,584
|
|
|
235
|
|
|
3,948
|
|
|
8,871
|
|
|
|
|
|
12,819
|
|
|
344
|
|
|
12,475
|
|
|
6,884
|
|
|
|
6/06
|
|
40
|
Jamestown Place, Altamonte Springs, FL
|
|
|
14,055
|
|
|
165
|
|
|
4,455
|
|
|
9,765
|
|
|
|
|
|
14,220
|
|
|
518
|
|
|
13,702
|
|
|
10,139
|
|
|
|
11/05
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kentlands Square, Gaithersburg, MD
|
|
|
14,379
|
|
|
104
|
|
|
5,006
|
|
|
9,477
|
|
|
|
|
|
14,483
|
|
|
1,264
|
|
|
13,219
|
|
|
9,453
|
|
2002
|
|
9/02
|
|
40
|
Kentlands Place, Gaithersburg, MD
|
|
|
1,425
|
|
|
6,977
|
|
|
1,425
|
|
|
6,977
|
|
|
|
|
|
8,402
|
|
|
717
|
|
|
7,685
|
|
|
|
|
|
|
1/04
|
|
50
|
Lansdowne Town Center, Loudoun County, VA
|
|
|
6,545
|
|
|
34,851
|
|
|
6,546
|
|
|
34,850
|
|
|
|
|
|
41,396
|
|
|
1,222
|
|
|
40,174
|
|
|
39,740
|
|
2002
|
|
11/02
|
|
50
|
Leesburg Pike, Baileys Crossroads, VA
|
|
|
2,418
|
|
|
5,645
|
|
|
1,132
|
|
|
6,931
|
|
|
|
|
|
8,063
|
|
|
4,784
|
|
|
3,279
|
|
|
8,470
|
|
1965
|
|
2/66
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lexington Pads, Lexington, KY *
|
|
|
4,868
|
|
|
1,348
|
|
|
2,111
|
|
|
4,105
|
|
|
|
|
|
6,216
|
|
|
2,605
|
|
|
3,611
|
|
|
|
|
1971 & 1974
|
|
3/74
|
|
40
|
Lumberton Plaza, Lumberton, NJ
|
|
|
4,400
|
|
|
9,415
|
|
|
950
|
|
|
12,865
|
|
|
|
|
|
13,815
|
|
|
9,324
|
|
|
4,491
|
|
|
5,975
|
|
1975
|
|
12/75
|
|
40
|
Shops at Monocacy, Frederick, MD
|
|
|
9,541
|
|
|
13,284
|
|
|
9,260
|
|
|
13,565
|
|
|
|
|
|
22,825
|
|
|
1,377
|
|
|
21,448
|
|
|
17,601
|
|
2003-4
|
|
11/03
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Olde Forte Village, Ft. Washington, MD
|
|
|
15,933
|
|
|
6,114
|
|
|
5,409
|
|
|
16,638
|
|
|
|
|
|
22,047
|
|
|
1,879
|
|
|
20,168
|
|
|
14,395
|
|
2003-4
|
|
07/03
|
|
40
|
Olney, Olney, MD
|
|
|
1,884
|
|
|
1,546
|
|
|
|
|
|
3,430
|
|
|
|
|
|
3,430
|
|
|
2,570
|
|
|
860
|
|
|
|
|
1972
|
|
11/75
|
|
40
|
Orchard Park, Sandy Spring, GA
|
|
|
19,377
|
|
|
20
|
|
|
7,751
|
|
|
11,646
|
|
|
|
|
|
19,397
|
|
|
121
|
|
|
19,276
|
|
|
11,964
|
|
1972
|
|
11/75
|
|
40
|
Palm Springs Center, Altamonte Springs, FL
|
|
|
18,365
|
|
|
44
|
|
|
5,739
|
|
|
12,670
|
|
|
|
|
|
18,409
|
|
|
900
|
|
|
17,509
|
|
|
11,858
|
|
|
|
3/05
|
|
40
|
F-32
Schedule III
SAUL CENTERS, INC.
Real Estate and Accumulated Depreciation
December 31, 2007
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial
Basis
|
|
Costs
Capitalized
Subsequent
to
Acquisition
|
|
Basis at Close of Period
|
|
Accumulated
Depreciation
|
|
Book
Value
|
|
Related
Debt
|
|
Date of
Construction
|
|
Date
Acquired
|
|
Buildings and
Improvements
Depreciable
Lives in Years
|
|
|
|
|
Land
|
|
Buildings
and
Improvements
|
|
Leasehold
Interests
|
|
Total
|
|
|
|
|
|
|
Ravenwood, Baltimore, MD
|
|
|
1,245
|
|
|
4,093
|
|
|
703
|
|
|
4,635
|
|
|
|
|
|
5,338
|
|
|
1,563
|
|
|
3,775
|
|
|
5,753
|
|
1959
|
|
1/72
|
|
40
|
Seabreeze Plaza, Palm Harbor, FL
|
|
|
24,526
|
|
|
97
|
|
|
8,665
|
|
|
15,958
|
|
|
|
|
|
24,623
|
|
|
830
|
|
|
23,793
|
|
|
12,935
|
|
|
|
11/05
|
|
40
|
Seven Corners, Falls Church, VA
|
|
|
4,848
|
|
|
40,633
|
|
|
4,913
|
|
|
40,568
|
|
|
|
|
|
45,481
|
|
|
18,169
|
|
|
27,312
|
|
|
38,944
|
|
1956
|
|
7/73
|
|
40
|
Shops at Fairfax, Fairfax, VA
|
|
|
2,708
|
|
|
9,292
|
|
|
992
|
|
|
11,008
|
|
|
|
|
|
12,000
|
|
|
4,566
|
|
|
7,434
|
|
|
7,158
|
|
1975 & 2001
|
|
6/75
|
|
50
|
Smallwood Village Center, Waldorf, MD
|
|
|
17,819
|
|
|
656
|
|
|
6,402
|
|
|
12,073
|
|
|
|
|
|
18,475
|
|
|
554
|
|
|
17,921
|
|
|
11,022
|
|
|
|
1/06
|
|
40
|
Southdale, Glen Burnie, MD
|
|
|
3,650
|
|
|
17,475
|
|
|
|
|
|
20,503
|
|
|
622
|
|
|
21,125
|
|
|
16,065
|
|
|
5,060
|
|
|
|
|
1962 & 1987
|
|
1/72
|
|
40
|
Southside Plaza, Richmond, VA
|
|
|
6,728
|
|
|
8,473
|
|
|
1,878
|
|
|
13,323
|
|
|
|
|
|
15,201
|
|
|
8,485
|
|
|
6,716
|
|
|
8,617
|
|
1958
|
|
1/72
|
|
40
|
South Dekalb Plaza, Atlanta, GA
|
|
|
2,474
|
|
|
3,118
|
|
|
703
|
|
|
4,889
|
|
|
|
|
|
5,592
|
|
|
3,490
|
|
|
2,102
|
|
|
|
|
1970
|
|
2/76
|
|
40
|
Thruway, Winston-Salem, NC
|
|
|
4,778
|
|
|
17,668
|
|
|
5,496
|
|
|
16,845
|
|
|
105
|
|
|
22,446
|
|
|
9,029
|
|
|
13,417
|
|
|
22,271
|
|
1955 & 1965
|
|
5/72
|
|
40
|
Village Center, Centreville, VA
|
|
|
16,502
|
|
|
1,196
|
|
|
7,851
|
|
|
9,847
|
|
|
|
|
|
17,698
|
|
|
3,930
|
|
|
13,768
|
|
|
6,664
|
|
1990
|
|
8/93
|
|
40
|
West Park, Oklahoma City, OK
|
|
|
1,883
|
|
|
701
|
|
|
485
|
|
|
2,099
|
|
|
|
|
|
2,584
|
|
|
1,369
|
|
|
1,215
|
|
|
|
|
1974
|
|
9/75
|
|
50
|
White Oak, Silver Spring, MD
|
|
|
6,277
|
|
|
4,339
|
|
|
4,665
|
|
|
5,951
|
|
|
|
|
|
10,616
|
|
|
4,439
|
|
|
6,177
|
|
|
20,577
|
|
1958 & 1967
|
|
1/72
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shopping Centers
|
|
|
361,039
|
|
|
287,488
|
|
|
155,293
|
|
|
491,413
|
|
|
1,821
|
|
|
648,527
|
|
|
147,619
|
|
|
500,908
|
|
|
417,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avenel Business Park, Gaithersburg, MD
|
|
|
21,459
|
|
|
22,520
|
|
|
3,755
|
|
|
40,224
|
|
|
|
|
|
43,979
|
|
|
23,328
|
|
|
20,651
|
|
|
25,764
|
|
1984, 1986,
1990, 1998
& 2000
|
|
12/84, 8/85,
2/86, 4/98
& 10/2000
|
|
35 & 40
|
Crosstown Business Center, Tulsa, OK
|
|
|
3,454
|
|
|
5,717
|
|
|
604
|
|
|
8,567
|
|
|
|
|
|
9,171
|
|
|
5,009
|
|
|
4,162
|
|
|
|
|
1974
|
|
10/75
|
|
40
|
601 Pennsylvania Ave., Washington, DC
|
|
|
5,479
|
|
|
56,204
|
|
|
5,667
|
|
|
56,016
|
|
|
|
|
|
61,683
|
|
|
31,615
|
|
|
30,068
|
|
|
30,041
|
|
1986
|
|
7/73
|
|
35
|
Van Ness Square, Washington, DC
|
|
|
812
|
|
|
28,497
|
|
|
831
|
|
|
28,478
|
|
|
|
|
|
29,309
|
|
|
16,202
|
|
|
13,107
|
|
|
12,240
|
|
1990
|
|
7/73
|
|
35
|
Washington Square, Alexandria, VA
|
|
|
2,034
|
|
|
48,037
|
|
|
544
|
|
|
49,527
|
|
|
|
|
|
50,071
|
|
|
8,896
|
|
|
41,175
|
|
|
39,099
|
|
1952 & 2001
|
|
7/73
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Office Properties
|
|
|
33,238
|
|
|
160,975
|
|
|
11,401
|
|
|
182,812
|
|
|
|
|
|
194,213
|
|
|
85,050
|
|
|
109,163
|
|
|
107,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development Land
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clarendon Center, Arlington, VA
|
|
|
11,534
|
|
|
13,244
|
|
|
11,534
|
|
|
13,244
|
|
|
|
|
|
24,778
|
|
|
|
|
|
24,778
|
|
|
|
|
|
|
4/02
|
|
|
Ashland Square Phase II, Manassas, VA
|
|
|
6,338
|
|
|
4,512
|
|
|
6,397
|
|
|
4,453
|
|
|
|
|
|
10,850
|
|
|
|
|
|
10,850
|
|
|
|
|
|
|
12/04
|
|
|
New Market, New Market, VA
|
|
|
2,088
|
|
|
215
|
|
|
2,140
|
|
|
163
|
|
|
|
|
|
2,303
|
|
|
|
|
|
2,303
|
|
|
|
|
|
|
9/05
|
|
|
Lexington Center, Lexington, KY *
|
|
|
|
|
|
988
|
|
|
|
|
|
988
|
|
|
|
|
|
988
|
|
|
|
|
|
988
|
|
|
|
|
|
|
3/74
|
|
|
Westview Village, Frederick, MD
|
|
|
5,146
|
|
|
1,236
|
|
|
5,146
|
|
|
1,236
|
|
|
|
|
|
6,382
|
|
|
|
|
|
6,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Development Land
|
|
|
25,106
|
|
|
20,195
|
|
|
25,217
|
|
|
20,084
|
|
|
|
|
|
45,301
|
|
|
|
|
|
45,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preacquistion Costs
|
|
|
|
|
|
1,886
|
|
|
|
|
|
1,886
|
|
|
|
|
|
1,886
|
|
|
|
|
|
1,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
419,383
|
|
$
|
470,544
|
|
$
|
191,911
|
|
$
|
696,195
|
|
$
|
1,821
|
|
$
|
889,927
|
|
$
|
232,669
|
|
$
|
657,258
|
|
$
|
524,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Lexington Pads include the land and building basis of the property formerly identified as Lexington Mall. The Company carries costs related to the redevelopment of the property
within the line item Lexington Center.
|
F-33
Schedule III
SAUL CENTERS, INC.
Real Estate and Accumulated Depreciation
December 31, 2007
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
|
|
35 - 50 years
|
Building components
|
|
Up to 20 years
|
Tenant improvements
|
|
The shorter 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
$677,400,000
at December 31, 2007. 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, 2007 are
summarized as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Total real estate investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
841,861
|
|
|
$
|
762,793
|
|
|
$
|
682,808
|
|
Acquisitions
|
|
|
27,169
|
|
|
|
30,434
|
|
|
|
60,053
|
|
Improvements
|
|
|
24,742
|
|
|
|
50,036
|
|
|
|
26,042
|
|
Retirements
|
|
|
(3,845
|
)
|
|
|
(1,402
|
)
|
|
|
(6,110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
889,927
|
|
|
$
|
841,861
|
|
|
$
|
762,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
214,210
|
|
|
$
|
195,376
|
|
|
$
|
181,420
|
|
Depreciation expense
|
|
|
21,638
|
|
|
|
20,236
|
|
|
|
19,824
|
|
Adjustment
|
|
|
482
|
|
|
|
|
|
|
|
|
|
Retirements
|
|
|
(3,661
|
)
|
|
|
(1,402
|
)
|
|
|
(5,868
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
232,669
|
|
|
$
|
214,210
|
|
|
$
|
195,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-34